The uranium industry - a renaissance?

Discussions and actions to transition from fossil fuels to sustainable energy sources are in full swing around the world. Countries are increasingly turning to renewable energy sources such as wind, hydro and solar power to increase sustainable energy production in the coming years. As Germany has phased out nuclear power by 2023, the country still faces the challenge of storing radioactive waste. Originally, a final repository was supposed to be found by 2031, but experts are sceptical about this. It was recently reported that the best case scenario is 2046, or even 2068. Taking into account additional obstacles, such as public acceptance, Germany faces a decades-long task to dispose of nuclear waste. However, the Nordic countries are somewhat more advanced; one country at the forefront of disposal is Finland, which has built a repository for intended long-term storage in the bedrock. 

In Germany, transmutation is being discussed as a possible waste management option. Although the technology is still in its infancy, time, research and capital could make it feasible. The process could convert certain unstable elements from spent fuel and thus significantly reduce the amount of radioactive waste.

With a few exceptions, there is currently a global trend to promote nuclear power as a primary energy source. Given the new discussions on energy independence in the context of geopolitical upheavals, this is not surprising. One example of a country massively expanding nuclear power is China: over a five-year period, the Middle Kingdom commissioned 21 reactors. Our neighbours in France are also moving in this direction, as the Grande Nation is already planning a generation of reactors. Poland is also increasing its investment in nuclear energy and plans to build up to 80 small modular reactors (SMRs) by 2038. The fact that the European Commission recognises such reactors as a decarbonisation technology is also encouraging.

The World Nuclear Association (WNA) has noted that the number of reactor projects in the world is increasing. With 440 reactors in operation and about 100 more planned, the nuclear industry is facing a veritable renaissance. In this context, even older reactors are being operated for longer than originally planned.

In recent years, the price of uranium, the primary fuel for nuclear power, has risen sharply. Analyst Richard Hatch of Berenberg notes that it is currently at its highest level since the Fukushima incident in 2011. While nuclear power lost its appeal after the Fukushima disaster and uranium prices collapsed as a result, nuclear power is now back in focus. In 2011, for example, the price of uranium fell to USD 18 per pound, while today it is quoted at around USD 66. A key factor behind this price movement is the imbalance between supply and demand, as many mining companies have historically had little incentive to expand uranium mining.

One of the key players in this industry is Cameco, Canada's leading uranium producer. Despite some challenges in the second quarter of 2023, the company believes it is well positioned to benefit from rising prices and increased demand for uranium. Challenges include union negotiations and weaker production forecasts. Another player in the market is NexGen Energy, a Canadian company focused on acquiring and developing uranium mines. Its flagship project, Rook I, is Canada's largest uranium mining project. However, this project is still in the development phase, making NexGen a riskier investment for investors.

According to WNA, Kazakhstan is the leading country in uranium mining, with almost 43 per cent of global production. A key player in this context is the national atomic company Kazatomprom. Kazatomprom's core business is the exploration of new uranium deposits, the operation of uranium mines and the production of fuel elements. In the last financial year, the company generated a turnover of around €2 billion. In the previous financial year, it was only around €1.4 billion. The profit in 2022 was 935 million euros.

To participate in the development of the uranium industry, investors can consider investing in the Vontobel Nuclear Energy Index. With a strategy certificate on this index, private investors can easily invest in a selection of nuclear companies. Especially given the single stock risk in this industry, it may make sense to bet on several horses. The index contains 25 companies with the highest market capitalisation that specialise in uranium mining or nuclear energy, based on the FactSet Revere Business Industry Classification System (RBICS). Thus, the above-mentioned companies, among others, are included in the index. If less than 25 such companies are available, companies offering nuclear technology or services are added, such as the French construction group Vinci. The index charges a fee of 1.25 per cent and is calculated in USD, which implies a currency risk for investors. In addition, investors bear, among other things, the credit risk of the issuer and, when buying the product, pay the spread that is quoted.