Is it Time to Sell Soaring Uranium Stocks?
Uranium stocks are having a bit of a moment.
The COVID-19 pandemic kicked off a rally in uranium prices that continues yesterday. As reported by major uranium producer Cameco (NYSE: CCJ), prices for the nuclear fuel have more than doubled since February 2020.
As a result, shares of uranium miners like Cameco have ticked up over the past several months.
The Global X Uranium ETF (NYSE: URA) is up 136% since February 2020. The smaller Sprott Uranium Miners ETF (NYSE: URNM) is up 249% over the same time period.
Meanwhile, CCJ itself has gained 240%.
Cameco (NYSE: CCJ)
Smaller uranium mining stocks have done even better.
In February 2020 Energy Fuels Inc. (NYSE: UUUU) was $1.18 at the beginning of the pandemic. Today the stock is at $7.45, a 531% increase.
Meanwhile, Uranium Energy Corp. (NYSE: UEC) was a $0.60 stock. Today it sits at $4.45, a 641% gain.
Uranium Energy Corp. (NYSE: UEC)
Most of the momentum behind rising uranium prices at the beginning of the COVID pandemic was supply chain-related. Over the last few months, however, the driving force behind uranium has been rising energy prices and government commitments to restart idle nuclear power plants.
Back in May, Japan’s Prime Minister Fumio Kishida said the country would begin to restart idled nuclear plants in an effort to combat soaring energy prices.
Japan dialed back its dependency on nuclear power following the 2011 Fukushima disaster but is now committed to restarting nuclear production. Ten of Japan’s 33 operable nuclear reactors have already been restarted and the country plans to restart another nine by this winter.
Now France is doing the same thing.
France relies on atomic energy more than any other country in the world, with about two-thirds of the nation being powered by nuclear reactors. However, 32 of the country’s 56 nuclear reactors — all operated by the country’s electricity giant, EDF — have been shut down for various reasons.
Nevertheless, the French minister for energy transition said last week that EDF will restart all its nuclear reactors by this winter in an effort to help ease the burden of rising energy costs.
It’s all very exciting for uranium… until you consider the economics of operating a nuclear power plant. So join Outsider Club today for FREE. You'll learn how to take control of your finances, manage your own investments, and beat "the system" on your own terms. Become a member today, and get our latest free report: " The 6 Lithium Stocks Every Investor Should Know"
So join Outsider Club today for FREE. You'll learn how to take control of your finances, manage your own investments, and beat "the system" on your own terms. Become a member today, and get our latest free report: " The 6 Lithium Stocks Every Investor Should Know"
Now, I’ll be honest with you, I have never financed, constructed, and operated a nuclear power plant. So I’ll be relying on information from the World Nuclear Association — which, incredibly, has a lot of information about the economics of operating a nuclear power plant.
According to the World Nuclear Association, most of the cost of operating a nuclear power plant comes from capital costs. That includes site preparation, construction, manufacture, commissioning, and financing. They note capital cost accounts for at least 60% of the levelized cost of electricity (LCOE) for a nuclear reactor.
The next-biggest cost is going to be plant operating costs. However, the actual fuel cost (the uranium) is only a fraction of the plant operating costs.
In total, the WNA says fuel costs for nuclear plants in the U.S. account for about 23% of LCOE.
But that’s kind of the point.
One of the big upsides to nuclear power plants is the cheap fuel. Even though the price of U3O8 has doubled in the past two years, it’s still only $50 per pound.
“Doubling the uranium price (say, from $25 to $50 per pound U3O8),” according to the World Nuclear Association, “takes the fuel cost up from 0.50 to 0.62 cents/kWh, an increase of one-quarter, and the expected cost of generation of the best U.S. plants from 1.3 cents/kWh to 1.42 cents/kWh (an increase of almost 10%).”
What I’m getting at here is nuclear facilities don’t spend a lot of their budget on uranium. Of course, it’s a critical component in operating a nuclear power plant. But if you want to profit from a resurange in nuclear power, it seems better to get into financing or constructions of the power plants rather than the fuel itself.
Cameco (NYSE: CCJ)
Global X Uranium ETF (NYSE: URA)
Sprott Uranium Miners ETF (NYSE: URNM)
You can’t argue with results.
Jesse Livermore, one of the first great stock traders of the early 20th century, once said, “Markets are never wrong; only opinions are.”
Well, I don’t mind being wrong. And it’s my opinion the uranium rally probably won’t last long. We’ve seen the interest in uranium investing ebb and flow going all the way back to the 1950s. Right now the tide is high. If I owned uranium stocks right now, I’d probably be looking to sell.
Until next time, Luke’s analysis and market research reach hundreds of thousands of investors every day. Through his work with the Outsider Club and Junior Mining Trader, Luke helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.
Until next time,
Luke’s analysis and market research reach hundreds of thousands of investors every day. Through his work with the Outsider Club and Junior Mining Trader, Luke helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.
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