Return to nuclear fuel will boost uranium prices

As more and more countries turn back to nuclear energy, demand for uranium has soared - and so has the price. But despite restrictions on its trade, there are still ways for investors to cash in.

Cris Sholto Heaton
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in Features

Uranium has had a blistering run in recent years, but the metal still looks worth a punt.

Five years ago its concentrated form, uranium oxide, changed hands at $6.70 a pound. Now it's up to $45.

That's a steep increase, but there are plenty of reasons to expect it to rise higher.

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Uranium's chief use is as a fuel for nuclear power stations, and China alone may build 30 plants by 2020, says Nils Pratley in The Guardian. Other countries are also turning back to nuclear, including the UK, while France and South Korea have never lost their enthusiasm.

This means that the supply outlook is tight, which has pushed up prices. Uranium producers are aggressively trying to increase production in response, and the industry could raise output from two to three million pounds to 20 million within five years, says Jon Indall of the Uranium Producers of America on Stockinterview.com.

But this is unlikely to be enough to avert the looming supply shortage. Commodities berbull Jim Rogers expects that it will take more than a decade to bring a big new uranium mine onstream. Meanwhile the supply-demand situation will get tighter. One major source of supply, uranium from decommissioned Cold War weapons, is nearly exhausted.

For investors, the problem with uranium is that it's hard to invest directly in the metal it's not traded freely like most metals and, for obvious reasons, you need a licence to take delivery.

One forthcoming entrant to Aim, Nufcor Uranium (NU), aims to get around this by raising £67m to buy its own uranium stash. MoneyWeek is unconvinced about the idea as a rule, we don't like cash shells. It's a similar story with new listing Geiger Counter (GCL), which plans to invest in uranium explorers and producers good idea, but let's see what it buys first.

So where can uranium bulls put their money? As Asia will be "the core of the global renaissance" in nuclear power, Credit Agricole suggests Australian explorers and producers, such as Paladin Resources (PDN). That looks sensible, but MoneyWeek's favourite play remains Cameco (TSX:CCO), which supplies a fifth of the world's uranium.

by Graham Buck

Cris Sholto Heaton
Cris Sholto Heaton

Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.

 

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