URNM - URNM: A Solid Fund In A Growing Sector

2023-08-23 00:59:03 ET

Summary

• Public sentiment towards nuclear energy continues to improve in the United States.
• Nuclear facilities continue to be built in Asia, and construction is about to begin in Canada.
• URNM provides exposure to all the major names in the uranium space.

I previously covered the Sprott Uranium Miners ETF ( URNM ) in September of last year, back when it was known as the North Shore Global Uranium Mining ETF, and much has changed since then. When I wrote the article last year, natural gas, diesel, and wheat prices were all trading at multi-year highs and, as is usual when there’s a pop in prices, many in the media were predicting the start of a new commodity super-cycle. That never came to be, but the price of one commodity, however, has continued to climb.

Improving public perception is leading to continued growth in momentum within the uranium and nuclear sectors. This process is gradually resulting in many governments taking a renewed approach towards nuclear power. In this article, we'll review factors positively impacting the uranium sector and discuss how investors wishing to gain exposure to the space can do so through URNM.

Growing Demand

Last fall, much of the talk in the US nuclear industry was about either rescinding or reversing the shutdowns of existing reactors; California wound up extending the life of Diablo Canyon, a reactor that had previously been ordered to close, and Michigan was considering reopening the recently closed Palisades Nuclear Plant.

This year, the talk is centered around Units 3 and 4 of the Vogtle Electric Generating Plant in Georgia; these are brand new reactors that are being brought online, both are Westinghouse AP1000 designs. The Vogtle units will provide some incremental increase in uranium demand but nuclear power plant construction in the US continues to be far and few in between.

Of greater consequence in the US market, however, is the change in public discourse. Readers who are also long-time investors in the uranium sector will have probably noticed the change. For most of the last decade, public opinion was decidedly anti-nuclear. Many politicians and voices in the media often called for the closure of existing plants. However, much of that talk has gone away as support for nuclear power has grown across party lines. As can be seen in the exhibit below, a majority of US adults now favor adding more nuclear power plants to the grid.

The broad changes in public sentiment are not limited to the United States. The Canadian province of Ontario has commenced pre-development work to double the power generating capacity at one of its plants. It plans to add an impressive 4.8GW of capacity and the project will be the country’s first large-scale nuclear construction project in 30 years. The province of Quebec is also considering the possible reopening of its only nuclear power plant in order to satisfy its need for reliable and environmentally friendly carbon-free baseload electricity; although, it has met with stiff opposition from Greenpeace.

Asia continues to be the center of the nuclear world when it comes to reactor capacity additions. As can be seen in the exhibit below, China still leads all other nations in nuclear power plant construction, but India’s renewed commitment is also evident by the number of facilities it is in the process of planning and building. That's not to mention planned construction initiatives in South Korea and the Japanese government’s restarting of facilities that were shuttered after the Fukushima disaster. The gradual reopening of all these facilities will continue to add incremental demand to the uranium market in the years to come.

URNM

The Sprott Uranium Miners ETF is a good way for investors to gain exposure to the uranium market. It currently has 37 holdings and a 0.85% expense ratio. Geographically, the fund is heavily concentrated in the top uranium producing nations as its holding in Canada, Australia, and Kazakhstan account for 85% of the portfolio.

The Kazakhstan piece may be especially interesting for some investors. Kazatomprom (KAP.LI) is the world's largest uranium miner and both its head office as well as most of its operations are located in the Central Asian country of Kazakhstan. Its shares primarily trade in Europe and are not available on any of the North American exchanges. This can sometimes be an obstacle for some investors who may not be comfortable trading in unfamiliar markets. URNM provides those investors with exposure to Kazatomprom as the stock is its second largest holding, comprising about 13% of the portfolio. Its other major holdings, including Cameco (CCJ), Denison Mines (DNN), and NexGen Energy (NXE), cover most of the other major publicly traded names in the space.

Risk

The main risk to this thesis is another nuclear disaster. If that were to occur, the growing positive public perception of nuclear energy could go into reverse and opposition to nuclear energy could once again become the dominant public opinion. This would obviously have a very negative impact on the sector and should be kept in mind by any potential investors.

Takeaway

URNM provides investors with solid exposure to the uranium sector which is an industry whose prospects look very promising in the long term. My previous article covering the fund rated it a Buy , and that is an opinion that I still hold.

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