Uranium Miners Monthly Report | August

Uranium ETF Monthly Report: Key Takeaways

Similar to June, July was characterized by rising interest rates, persistently high inflation, and very low market depth and trading liquidity. However, equity, bond, and the broad commodity markets had positive performance over the month.[1] Equities, measured by the S&P 500, not only had positive performance, but had their third best month return in the past ten years – likely due to short-coverings after earning beats. The U3O8 uranium spot price fell from $50.40 to $48.59 lb., decreasing 3.61% in July. Although uranium underperformed the broad commodity market, uranium equities rose sharply. The North Shore Sprott Uranium Miners Index rose 22.19% for the month of July. The positive returns experienced by uranium mining equities reflected both governments confirmation of nuclear’s dual role in helping to achieve energy transition and energy security. [3]

Uranium equities benefited from news that the EU Parliament voted in favour of nuclear’s inclusion in the sustainable finance taxonomy.[4] The taxonomy is designed to direct investment toward “green” economic activities that will help mitigate climate change in the EU. Nuclear’s inclusion in the taxonomy shows a clear endorsement of its importance in both energy security and decarbonization to meet climate goals. The European energy crisis has led Germany to rethink its plans for nuclear power.[5] Germany had planned to exit nuclear power by the end of the year, but now may delay their exit due to their current energy crisis. Germany receives a large portion of their energy from Russia, and as a result has a large amount of uncertainty in relation to their future energy supply.[6] Coupling this with very high European energy prices, has forced the government to reassess the role of nuclear power. Uranium miners benefited from both of these developments in nuclear energy within Europe. In Japan, the Prime Minister asked for nine reactors to be online (previously four were planned to be online) for the winter to help anticipate a power crunch.[7] Japan’s commitment to “maximum use” of nuclear power continues to be a strong endorsement.

Cameco and Kazatomprom, the fund’s two largest holdings as of month end are the largest uranium producers and performed in line with this broader uranium miner’s portfolio. Cameco beat earnings expectations and both companies continue to deal with transportation logistics related to historical routes through Russia. That said, a vessel carrying enriched uranium product (EUP) discussed in last month’s commentary that was delayed in St. Petersburg has been granted clearance by Canada to transport the EUP to the U.S. Although this issue may be resolved, Kazatomprom and Cameco, who have a joint venture together, are exploring alternative transportation routes.

Number three position in the ETF, the Sprott Physical Uranium Trust (SPUT), holds approximately 57.1 million pounds of physical U3O8 uranium as of month end. Since August 2021, SPUT has been an active participant in the uranium spot market helping to enhance liquidity and price discovery. SPUT purchased approximately 300,000 lbs. of U3O8 uranium in July.[8] Physical uranium depreciated over the month with low trading volatility[9] and as a result SPUT’s NAV performance was negative. However, SPUT’s market price performance was positive and accretive to the Sprott Global Uranium Miners UCITS ETF. This was due to the discount of market price to NAV at the beginning of the month being significantly diminished.

Paladin Energy Limited announced in July that it has decided to restart Langer Heinrich uranium mine with production targeted in early 2024.[10] The mine suspended production in 2018 and the decision to resume highlights the long-term fundamentals for the uranium market. We believe as the price of uranium appreciates further it may likely provide an incentive for more idle uranium production to come back online.

Please remember that all performance figures are showing net data. Past performance is not indicative of future performance.

Macro Outlook

Despite strong fundamentals, uranium miners have not been immune to the negative macro environment. YTD, U3O8, conversion, and enriched uranium prices have all appreciated for both short- and long-term purchase contracts whereas the uranium miners’ performance is still negative.[11] Current demand for conversion and enrichment coupled with a shift away from Russian suppliers support an increase in the U3O8 uranium spot price which may bolster the uranium miners. [12]

We believe the EU’s inclusion of nuclear energy in the sustainable finance taxonomy, will help support new and existing power plants and encourage greater investment by non-utility investors. Some institutional investors in Europe had been waiting on the sidelines for the EU taxonomy decision to be approved and this may increase interest to the space. We expect this ruling may help pave the way to greater investment in nuclear energy, uranium and uranium mining companies.

Although there has been significant positive short-term performance, we believe the uranium bull market still has a long way to run. Over the long term, increased demand coupled with an uncertain uranium supply situation are both supportive of a sustained bull market. Historically, uranium miners have exhibited a low/moderate correlation to many major asset classes, providing portfolio diversification potential.

We believe that uranium miners are well positioned to take share within the energy sector as energy security and decarbonization take center stage globally. With the number of nuclear reactors planned to increase by 35%, governments are signaling the need to embrace the reliable, efficient, clean, and safe energy produced by nuclear to meet ambitious decarbonization goals.[13] At the same time, a uranium supply deficit is looming on the horizon, and uranium miners may be the beneficiaries of increased investment. Uranium and nuclear energy may be critical to the clean energy transition and help countries achieve energy security — reliable and affordable electricity.

Please remember that when you invest in ETFs, your capital is at risk.

Sprott Global Uranium Miners UCITS ETF (URNM) Performance Table (As of 31.07.22)

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