RIO - How to Invest While the Price of Uranium is Down
Many have been waiting for the price of uranium to increase and strengthen the market. And as the trend towards green energy continues, some believe that day is soon to come.
The price of uranium has faced difficulties since the 2011 Fukushima disaster, when key Japanese nuclear reactors were damaged and went offline. Fear over the radioactive risks posed by nuclear power reactors post-Fukushima, paired with excess supply and caution, have plagued the market in the last few years and investors and companies have struggled to stay optimistic.
Recently rays of hope have returned to the market. High-profile supply cuts from major producers like Kazatomprom and Cameco (TSX:CCO,NYSE:CCJ) have raised expectations of higher prices, and optimistic market watchers are beginning to position themselves for a potential global uranium boom.
But how do traders invest in uranium? Unlike gold, owning physical uranium is not possible. Indeed, considering the metal’s radioactive characteristics, it’s impossible to own physical uranium. So where does that leave investors?
Uranium investing: Stocks
One of the three ways to invest in uranium is to purchase stocks. With the current price of uranium so low, it’s possible to get good deals while companies are “on sale.”
When looking at stocks, beginners may want to start by considering the some of the world’s largest uranium-mining companies. These include producers like Cameco, as well as Rio Tinto (NYSE:RIO,ASX:RIO,LSE:RIO) and BHP (NYSE:BHP,ASX:BHP,LSE:BLT), among others.
Of course, these large uranium companies are not the last word in uranium — in fact, there are quite a few mid-tier and junior uranium exploration companies that investors may want to look at. As a starting point, check out our list of the top-performing TSXV- and TSX-listed uranium stocks.
Another interesting option for uranium investors is Uranium Participation (TSX:U). The company holds physical stockpiles of uranium and its share price tracks the underlying price of uranium. In this way, it provides investors with exposure to physical uranium.
Finally, those interested in investing in uranium stocks may want to look to companies focused on the countries that produce the most of the metal. Last year, the three top uranium-producing countries were Kazakhstan, Canada and Australia.
Uranium investing: ETFs
For investors who want exposure to the market while the price of uranium is low, but crave the diversity of a basket of equities instead of single stocks, exchange-traded funds (ETFs) are generally the way to go. Unfortunately for uranium investors, the selection of uranium-focused ETFs isn’t very wide — in fact, there are only three options to choose from.
For starters, investors can look at Global X Funds (ARCA:URA), which tracks a basket of uranium miners. The fund is comprised of both American and international uranium miners and producers. An alternative to that ETF is the Van Eck Market Vectors Uranium + Nuclear Energy ETF (ARCA:NLR), which tracks a market cap-weighted index of companies in the uranium industry.
The latest uranium ETF features Canadian uranium miners and was launched by Horizons ETFs Management in mid-2019. Called the Horizons Global Uranium Index ETF (TSX:HURA), it is designed to give investors exposure to the C$15 billion and growing uranium industry.
Uranium investing: Futures
As a third option, investors can look to the futures market while the price of uranium is down. Futures are financial contracts that obligate the buyer to purchase (or seller to sell) an asset like a physical commodity or financial instrument at a predetermined future date and price.
In terms of uranium futures, investors once again have few options. CME Group (NASDAQ:CME) offers UxC uranium U3O8 futures. These contracts track U3O8, and each one represents 250 pounds of uranium. The NYMEX also provides investors with a U3O8 futures trading option.
Futures are an important part of the market as there is currently no exchange-listed, transparent price instrument that consumers and suppliers can use to manage prices and risks. Furthermore, uranium futures provide investors with a marketplace for direct exposure to the price of uranium.
Uranium investing: Why pick uranium?
When it comes to uranium investing, especially while the price of uranium is depressed, the thesis is simple: many investors believe that the market could be on the cusp of a renaissance.
Believers include Rick Rule of Sprott (TSX:SII,OTC Pink:SPOXF), who said in early 2018 that he sees uranium as a “when” question, not an “if” question. He has reiterated his optimistic viewpoint since then.
Others have expressed a little more caution. For example, Mercenary Geologist Mickey Fulp has emphasized that uranium is a “boom and bust commodity” — meaning every decade or so we see the market price cycle higher, then subsequently fall. He believes the tide will eventually turn for uranium, but has said that it’s impossible to say when that will happen. “Not even insiders have an idea of when this is going to turn because the market is so opaque,” he has said.
Those who believe in the potential of the uranium energy story and feel comfortable getting into the market while the price of uranium is low may want to consider the three options laid out above. As the need for clean energy grows and oversupply diminishes, investing while the price of uranium is down could be an opportunity.
To learn more about uranium investing, see these related articles:
- What is Uranium?
- Uranium Production in the World by Country
- Top Uranium-producing Companies in the World
This is an updated version of an article originally published by the Investing News Network in 2016.
Don’t forget to follow us @INN_Resource for real-time news updates!
Securities Disclosure: I, Georgia Williams, hold no investment interest in any of the companies mentioned in this article.