Uranium’s unique demand dynamics make it a standout investment amid 2024’s market uncertainties and trends.

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by Chris Black

Here, I will address the uranium bull thesis and how to buy uranium .

Amid a fairly disappointing backdrop for most commodities, uranium stands out for soaring in 2023.

First some background:

Price discovery in commodities is simply a function of supply and demand asymmetries.

The uranium market consists of a primary and secondary (spot) market.

Power companies can contract miners directly (via the primary market) and/or purchase uranium from investment firms (https://markets.financialcontent.com/bpas/article/newsdirect-2023-12-20-how-sprotts-physical-uranium-trust-the-largest-in-the-world-works-to-give-investors-access-to-physical-uranium), other power companies (https://www.reuters.com/article/idUSKCN1VD0JX/), sovereigns (https://english.kyodonews.net/news/2023/02/913e509a7958-cabinet-formally-adopts-policy-of-using-nuclear-reactors-beyond-60-yrs.html), and others via the secondary market.

Sovereign producers and consumers will stockpile uranium in reserves that vastly outnumber the size of the secondary market (https://www.world-nuclear.org/information-library/nuclear-fuel-cycle/uranium-resources/supply-of-uranium.aspx).

Japan “swore (https://www.npr.org/2022/12/22/1144990722/japan-nuclear-power-change-fukushima)” to phase out nuclear activity in the wake of the 2011 Fukushima disaster (https://www.nytimes.com/2024/01/01/world/asia/japan-fukushima-quake-tsunami.html), prompting them to flood the uranium spot market with its own stockpiles and depress its price over the 2010s.

For years it was no longer economical to be in the uranium industry — only a higher market price would resuscitate it.

The COP26 in late 2021 (https://www.iaea.org/newscenter/news/countries-detail-nuclear-power-climate-change-plans-in-cop26-event-with-iaea-director-general), where Western nations who had once turned their back on nuclear in favor of solar and wind now recognized it as “indispensable (https://unece.org/sustainable-energy/publications/nuclear-entry-pathways)”, prompted massive speculative buying of uranium, frontrunning the idea that the element would soon be in great demand to fulfill nuclear objectives.

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Raising the spot price enticed more uranium miners & dealers to come online, as it was now economical.

As the uranium rush cooled, it found its fair market value at $50/lb for 2022 and most of 2023.

Last year’s surge corresponds to a nuclear demand shift at the COP28 meeting, where participants committed to tripling the use of nuclear energy by 2030 (https://sprott.com/insights/sprott-uranium-report-uranium-nuclear-get-boost-from-cop28/), and more importantly the first year where net supply deficits were incurred (demand exceeded supply, forcing sovereigns to buy from hedge funds (https://research.gavekal.com/article/the-shift-in-the-alternative-energy-zeitgeist/) on the secondary market), according to the Nuclear Energy Agency of the OECD (https://www.oecd-nea.org/upload/docs/application/pdf/2023-04/7634_uranium_-_resources_production_and_demand_2022.pdf). The supply deficits are set to continue, as production is expected to peak in 2025 or 2026 (https://www.yellowcakeplc.com/wp-content/uploads/2023/09/Yellow-Cake-IR-2023_Interactive.pdf) and supply is constrained to the BRICS-sphere (https://www.world-nuclear.org/information-library/nuclear-fuel-cycle/uranium-resources/supply-of-uranium.aspx).

The Sprott Physical Uranium Trust (https://sprott.com/investment-strategies/physical-commodity-funds/uranium) (SPUT) invests and holds substantially all of its assets in uranium in the form of U3O8, better known as yellowcake (https://wikipedia.org/wiki/Uranium_oxide). SPUT units can be purchased or sold like any regular equity security through financial advisors, full-service brokers and discount brokers via the $U.U (https://www.google.com/finance/quote/U.U:TSE?sa=X&ved=2ahUKEwiRkL3p9aqDAxVArokEHdJqAMgQ3ecFegQIFxAc) or $SRUUF ticker. Note that it is traded on the Toronto Stock Exchange, as Sprott is a Canadian company, but this should be no issue.

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There has been very little genuine investment in the uranium sector for over a decade. So we have reached the phase of the cycle when price discovery “goes up with the elevator”, as marginal demand outpaces any hypothetical increase in supply.

Unlike most commodities, uranium demand is not that price sensitive as its price is a small share of the overall cost of running a nuclear power plant. It is also not subject to substitution effects. Uranium in 2024 be the most mispriced commodity of the decade.

Note there are also uranium miners ($CCJ, $KAP) that are trading worse than spot. $URNM and $URNJ, which are ETFs for uranium miners and junior uranium miners respectively, appear to be running a negative cash balance (https://twitter.com/PauloMacro/status/1736899389690396954). Just buy the physical to avoid the headache associated with choosing.

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.