URNM - URNJ Vs. URNM: Uranium Above $80/Lb While The Miners Have Lagged The Metal In 2023

2023-11-22 17:43:40 ET

Summary

• Uranium has been one of the best-performing commodities this year, up 66%.
• Uranium mining ETFs have underperformed the spot price, possibly due to lagging long-term contract prices.
• Recent developments, such as Sweden's change in stance on nuclear power, indicate positive growth in the nuclear industry.

Overview

I have earlier this year covered the Sprott Uranium Miners ETF ( URNM ) and the Sprott Junior Uranium Miners ETF ( URNJ ) a couple of times. Those articles can be found here . However, we have continued to see positive development in the nuclear industry and the uranium market, so I wanted to provide a new update on the industry and the ETFs.

Uranium Prices

We can in the chart above see that uranium has been one of the better-performing commodities this year, up 66%. In the chart below, I have also included the Uranium Miners ETF and the Junior Uranium Miners ETF. Please note that the Junior Uranium Miners ETF did start trading in February first, so the performance isn't fully comparable in 2023. With that said, both uranium mining ETFs have underperformed the spot price so far this year.

Long-term contract prices have not kept up with the spot market, which is a possible reason for the lagging mining performance. It is important to remember that we have seen a substantial intra-month uranium spot price move though, so it will be interesting to see the next monthly update on long-term contract prices in a few weeks. Also, the way long-term contract prices are reported is not completely transparent, where there are contracts signed at higher prices than what the chart below indicates. So, I wouldn't take the contract prices in the chart below at face value.

ETF Holdings

There are a number of uranium miners, which are in both of these ETFs. The biggest difference is that Cameco Corporation ( CCJ ), Kazatomprom, the Sprott Physical Uranium Trust - Unit ( SRUUF ), and Yellow Cake plc ( YLLXF ) are only in the larger of the two ETFs. Given that these securities have a combined 47% weight in the Uranium Miners ETF, we can expect the two ETFs to deviate quite a bit over time.

The larger holdings in the Junior Uranium Miners ETF also have a significantly smaller weight in the larger ETF. The top 10 holdings in each ETF can be seen in the charts below.

Recent Nuclear Developments

If you follow the nuclear industry closely, you will have noticed a long list of positive developments, where I wanted to highlight just a few of the recent ones.

Sweden was as recently as 2019 & 2020 shutting down nuclear power plants, but the country has, following a change in government, announced a complete U-turn with regards to nuclear power. The new government is aiming for two more reactors by 2035 and wants to have the equivalent of 10 new reactors by 2045. While we are far from a construction decision, this is still a very positive development, where Sweden is now following countries like France, UK, Japan, and South Korea that have re-evaluated their stance on nuclear energy.

We very recently had an announcement that the nuclear investments in Canada have been made eligible for green bonds , which should lower the cost of capital at the very least. That will be welcomed in the current environment with higher interest rates.

The European Union Parliament also recently overwhelmingly voted in favor of recognizing nuclear power as a net-zero technology within the Net-Zero Industry Act. Things are not moving quickly in the European Union and there are still ongoing discussions but given the overwhelming support in this and in prior votes, the European Union as a whole looks set to put nuclear power on an equal footing with other non-carbon energy generating sources, regardless of what Germany might think in this regard.

Conclusion

Since the inception of the Sprott Junior Uranium Miners ETF, we can in the chart below see how the physical investment vehicles and some of the larger uranium miners have outperformed the two ETFs in question.

Part of the reason why the junior uranium miners as a group have underperformed, could be due to financings. Many smaller and mid-cap uranium miners have used the recent industry strength to issue more shares, either via at-the-market programs or bought deals. That will have diminished the returns some.

At this point, few uranium miners will need additional equity capital in the near term, so my base case is that the Junior Uranium Miners ETF will outperform the Uranium Miners ETF going forward, even if I expect both to do well. The spot market is tight and there are few signs of any substantial sources of near-term supply appearing in the uranium market.

I don't own the ETFs directly, but my uranium segment is today more like the Junior Uranium Miners ETF than the Uranium Miners ETF. I also think holding some physical uranium exposure can be a good diversifier in an uranium portfolio, which has served me well over the years. Presently, I have a relatively large exposure to the miners compared to the uranium investment vehicles.

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