Uranium: An indispensable natural resource

Going unnoticed by the mass of investors, the price of uranium has risen severalfold in recent years. The nuclear renaissance is underpinned by a solid foundation and looks set to continue. Atomic energy is an indispensable part of the green transition and is being viewed with a little more levelheadedness by now through the lens of sustainability, even by nuclear power skeptics. Every investor must make his or her own judgment about whether atomic energy really is even the ultimate ESG investment. In the meantime, there is no longer any shortage of ways to invest in nuclear energy.


A little-noted bull market

The global financial market is deep, wide, and overwhelming in its complexity. This leaves room for developments that long go undetected by the mass of investors. In one overlooked niche, the price of uranium has roughly quintupled since 2017. At the start of 2024, the silvery heavy metal climbed to its highest level in 16 years at prices just above the USD 100-per-pound mark. Calling this a (heretofore undiscovered) bull market isn’t an exaggeration for once in this instance. And it’s all the more astounding when one considers that the uranium industry’s ability to survive in the aftermath of the Fukushima catastrophe in early 2011 was more than in doubt. At that time, around a third of all nuclear reactors worldwide were temporarily shut down. A sustained excess supply of uranium caused its price to plummet in the years thereafter by 70%. Adjusted for inflation, the price of uranium today is still well below its all-time high hit in 2007. Nevertheless, one can speak of a “nuclear renaissance” both from a price standpoint and regarding the reputation of atomic energy.


Nuclear trend… | …with upside potential

Price of uranium

Source: Bloomberg, Kaiser Partner Privatbank


Atomic energy is back in vogue

The demand prospects for uranium have indeed brightened considerably in recent years. The radical change that has taken place here goes hand in hand with a swing in sentiment. Atomic energy is no longer being stigmatized and instead is increasingly being viewed as a vital solution for the transition to a cleaner energy future and for safeguarding national security interests. The latter has topped the list of concerns and priorities in many countries ever since, if not before, Russia’s invasion of Ukraine. And since 2022, even the European Union Taxonomy now classifies some atomic energy activities as sustainable. Many countries have done an about-face on atomic energy in recent years (USA, South Korea, Belgium, Finland), have doubled down on their pro-nuclear stance (France, UK, Netherlands), or are contemplating utilizing this technology in the future for the first time (Poland, South Africa, Indonesia, Vietnam). Even Japan has brought its operational nuclear reactors back on line. Germany remains the odd man out – the exception that confirms the rule – in this list of countries.


Firm commitment | The nuclear renaissance has begun

Global nuclear power generation in terawatt-hours (TWh)

Sources: IEA, Kaiser Partner Privatbank


Atomic energy got an additional boost in December of last year from the United Nations COP28 climate summit in Dubai, where more than 20 countries (including the USA, France, Japan, Canada, and the UK) declared their intention to triple global atomic energy production capacity by 2050. The implication of that declaration, which is even more ambitious than the net-zero scenarios put forth by the International Energy Agency (IEA), is unmistakable: enormous investment in atomic energy is needed in the years ahead. The IEA calculates that it will take USD 125 billion of investment per year from 2026 through 2030 to reach the net-zero target. Against this backdrop, the rally in the price of uranium loses its purported speculative nature and gains a solid foundation. The big question in the meantime is no longer whether atomic energy is to be expanded, but whether that can happen fast enough.


Can we do it? | Colossal investment need

Annual investment in atomic energy (in net-zero scenario) in USD billion

Sources: IEA, Kaiser Partner Privatbank


A series of misunderstandings?

The wind thus has clearly shifted in favor of atomic energy. However, public opinion on this established mainstream source of energy is still divided. Large swaths of the public consider atomic energy just as hazardous as coal, for example. Misinformation and/or a complete lack of communication – but not substantiated facts – about the various aspects of nuclear power technology are the main cause of this poor public perception. Fears about nuclear accidents are indeed understandable, but are exaggerated for the most part. For one thing, nuclear power plant accidents are rare tail-risk events. Moreover, their consequences in terms of injuries and fatalities are overrated. With the exception of Chernobyl, the accidents at Three Mile Island (in 1979) and Fukushima Daiichi (in 2011) caused no casualties and had only minimal radiological effects. A lesser-known fact about Chernobyl is that the nuclear power plant stayed in operation for another 14 years after the accident until political pressure from the European Union forced it to shut down for good in the year 2000. Last but not least, since lessons have been learned from previous mistakes, the risk of a catastrophe is smaller than ever these days. The image of Homer Simpson bumbling as a careless safety inspector at the Springfield nuclear power plant couldn’t be farther from reality. In fact, atomic energy has an excellent safety track record, especially when one factors in air pollution caused by greenhouse gas emissions. Coal poses the greatest hazard in this sense. Atomic energy is the lowest-CO2-emitting form of power generation right behind wind power.


Contrary to popular belief? | Atomic energy is hardly hazardous and causes minimal CO2 emissions

Safety and emissions

Sources: BCA Research, Kaiser Partner Privatbank


Despite the safety and “cleanliness” of nuclear energy, it has been overshadowed over the last two decades by its green competitors, which have registered extraordinary growth rates, largely on the back of steadfast political support that atomic energy has lacked. But the narrative of hero (wind and solar) and villain (nuclear power) was never really credible or objective because atomic energy actually is superior in multiple respects. It not only is safe and emits minimal CO2, but is also scalable and capable of continuously providing baseload electricity. Moreover, it is highly efficient and boasts by far the highest capacity factor – 93% – among all power-generating technologies. This means that nuclear power plants produce electricity almost continuously close to their maximum output potential.


Atomic energy outshines other energy sources | Triple the benefit compared to wind and solar

Capacity factor

Sources: US Energy Information Administration (EIA), Kaiser Partner Privatbank


Another advantage of atomic energy is its comparatively smaller resource requirements. Across its entire life cycle, it requires much less concrete, steel, and other metals per unit of electricity produced than other power-generating technologies do. Whichever way one looks at it, atomic energy is superior overall to all other existing technologies.


Atomic energy is less resource-intensive | Wind and solar actually aren’t that “green”

Material requirements in tons per TWh

Sources: BP Statistical Energy Outlook, Kaiser Partner Privatbank


Megatrends favoring atomic energy

That’s why more and more pragmatism is creeping into the debate over the ideal energy mix for the future. Geopolitical considerations aren’t the only concerns in play here. China, for example, needs to invest massively in atomic energy also because it has no other way to make a successful transition from coal to wind and solar. And finally, the sheer continued enormous surge in energy needs is also what’s turning atomic energy into a trending topic. The IEA, for instance, estimates that global electricity production will increase by 25% by the end of this decade and will even double by 2050.


Hungry for energy | Continual rise in worldwide demand for electricity

Annual global electricity production in thousands of TWh

Sources: IEA, Kaiser Partner Privatbank


Three megatrends are playing a part in stoking the world’s growing hunger for energy: artificial intelligence (AI), electric mobility, and reshoring and nearshoring. In the case of AI, data centers are the main electricity guzzlers. Their demand for energy and the carbon dioxide emissions that data center operations cause will soar in the years ahead. In the year 2030, data centers will likely already account for 13% of the world’s total demand for electricity and 6% of global CO2 emissions. Atomic energy will be urgently needed to cope with this dual problem, in large part also because the big technology companies want to reach pretty ambitious net-zero targets.

Decarbonization goals are likewise a driving factor in the electric mobility space – most industrialized countries have enacted bans on internal combustion engine vehicles that are set to phase in during the 2030–2040 period. The IEA estimates that the global electric fleet will swell to 480 million vehicles and make up 30% of the total global vehicle fleet by 2035. Electric light utility vehicles, buses, and heavy trucks will also play a growing role here alongside electric cars. The total energy needs of electric mobility look set to increase by a factor of 17 by then. However, each electric vehicle is only as clean as the energy source used to charge it is. Finally, the buildup of enormous semiconductor chip manufacturing capacity as part of American and European reshoring and nearshoring efforts also requires a permanent stable supply of electricity that is as clean as possible. This makes yet another case for atomic energy, which – unlike wind and solar power – is available day and night.


Structural supply deficit

The increased acceptance of atomic energy is reflected not just by lip service being paid to nuclear power, but also by hard facts. Almost 500 nuclear power plants are currently in different stages of development. The net number of reactors in operation will steadily increase in the years ahead, in part because many nuclear power plants are likely to be kept running for longer than originally envisaged. This means that demand for uranium will likewise increase. The World Nuclear Association projects a 30% rise in demand for uranium by 2030 and a more than doubling of demand by 2040. There is a risk with many natural-resource commodities that high or rising prices quickly lead to a contraction in demand and practically constrain themselves on their own, but this risk is less acute in the case of uranium because demand for it is very inelastic. Although it costs a lot of money to build nuclear reactors, it costs relatively little to operate them. In fact, the cost of ready-to-use fuel rods accounts for just 5% to 10% of a nuclear power plant’s operating expenses.


The growing fleet of nuclear power plants… | …is bound to boost demand for uranium

Existing and planned nuclear reactors

Sources: WNA, Kaiser Partner Privatbank


The constantly increasing demand for uranium faces a supply that is hardly growing and is unstable to boot (due in part to geopolitical reasons). The market is in a permanent supply deficit that looks set to continually widen in the years ahead. Uranium stockpiles, which expanded significantly until 2016 in the aftermath of the Fukushima accident, have been gradually drawn down in recent years. However, even today’s return to a significantly elevated uranium price level does not provide enough of an incentive yet to substantially enlarge production. As a result of high cost inflation, the breakeven point for a new greenfield mining project to turn a profit stands at a uranium price of around USD 100 per pound. Sustained high prices above that level would be necessary to mobilize substantial capital for new projects. But even then, it would take 10 to 15 years until new uranium mines and enrichment facilities could go into operation. The upshot of a simple supply-and-demand analysis is straightforward: the uranium bull market is unlikely to come to an end until far in the future at much higher price levels than today.


Widening supply deficit | Fuel for a rising price of uranium

Supply/demand forecast in millions of pounds

Sources: Alpine Macro, Kaiser Partner Privatbank


Play the bull market or stay on the sidelines?

Whoever would like to take part in the uranium story has more and more ways to do that these days. Although uranium cannot be stored in a safe deposit box like gold or silver can, one can nonetheless build direct exposure to the heavy metal via futures contracts, though that entails a lot of administrative work and expenses. One alternative that’s easier to put into action is to invest in closed-end funds (e.g. Sprott Physical Uranium Trust) or in companies (Yellow Cake Plc) that buy up uranium on the spot market, warehouse it, and bet on prices rising in the future. Those vehicles have already accumulated almost 90 million pounds of uranium in recent years, which equates to around 50% of annual worldwide demand.

Since one should sell shovels when people go digging for gold, another option is to invest in ETFs (including the Global X Uranium ETF and the VanEck Uranium and Nuclear Technologies UCITS ETF) that cover the entire atomic energy production chain and include shareholdings in mining companies and manufacturers of nuclear power plant components. Thematic ETFs of this kind could get a further boost in the quarters ahead, due in large part to amendments to the EU Taxonomy. Every investor must make his or her own judgment about whether atomic energy is actually even the ultimate ESG investment in light of the challenges posed by the green transition. Regardless of the verdict, though, it can hardly be denied any longer that atomic energy has a key role to play in the decarbonization of our planet. Even nuclear power skeptics therefore are increasingly viewing atomic energy with a little more levelheadedness today through the lens of sustainability.


On a fundamental upswing | A sustainable bet?

Uranium investment vehicles

Sources: Bloomberg, Kaiser Partner Privatbank


Oliver Hackel, CFA Senior Investment Strategist

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