The Uranium price and the stock of the miners have been in a deep depression for 11 years. Despite biases against the element, political pressure, and unprofitable mining operations, there seems to be light at the end of the tunnel.
Uranium Misinformation
There is a mass amount of ignorance surrounding Uranium. There is still this propaganda instilled in everyone’s mind of Uranium being associated with atomic bombs. Don’t pretend it’s not the first thing you thought of!
Don’t forget those Simpsons episodes of Homer surrounding himself with toxic radioactive waste from his Uranium factory job!
The Simpson's doesn't really get it right.
Uranium has proven to be the most clean and efficient energy source, contrary to what environmentalists claim. As far as the waste from uranium goes, it actually takes the form of the metal. Not to mention, the waste alone has many use cases to create future energy.
The Impact of the Fukushima Nuclear Disaster
In 2012, Japan experienced a severe earthquake causing the death of 16,000 people an radioactive dust to be spewed over near-by areas.
This happened because of the inability to maintain the Tokyo Electric Power Company Facility during the earthquake. The active uranium inside couldn’t be cooled down quick enough with the resources they had, and it led to a domino effect of more disaster from the facility.
Needless to say, these types of scenarios are rare in occurrence. However, this event led to the kick off of a massive depression in the uranium market. Japan was and still is a key driver of demand in the market.
What happened in Fukushima led to a bad taste for the public towards uranium and nuclear energy and a slowing of demand and oversupply of uranium.
8 years later, uranium is dirt cheap with demand just starting to pick up.
The Need for a Clean Energy
As you have noticed, energy use has become a political issue rather than a personal one. People are concerned about climate change, pollution, and energy costs as well.
Globally the more developed countries are hunting for a clean resource that will provide enough electricity for us to run our fancy new electric cars on, and our homes and office buildings as well.
Renewables like solar and wind are falling short by killing endangered species and through general inefficiencies.Simultaneously, there is a demand from the public for electric cars.
I believe as electric car demand goes up, we will have to find our demands met through Uranium.
The Importance of Price
What I have noticed in my investment activity is that price almost always reflects all readily available information surrounding the underlying asset.Uranium’s price is no different. It’s been in a deep depression for 11 years and is down over 80% since 2011.
“But, Micah, isn’t a cheap uranium price good? This means we can have cheap, efficient and clean energy.”
My reply would be, “Well, not exactly.”
You see, the miners who work hard to extract uranium ore from the ground need to make a profit, or else all incentive to mine the material is virtually non existent.
Right now, uranium mining is almost completely unprofitable across the board for miners. They are actually losing money when they go after this material.So why mine it at all? Well, that’s the thing. A lot of miners have actually halted operations.
But there are still producers who have obligations to fill. If there is demand, they must crate a supply for it.
Things seem like they couldn’t get worse, but there is still hope for the uranium market.
The Uranium Price
I did an analysis on the Uranium price. What I’ve noticed is there is a slight surge in demand for the commodity, showing potential big money interest entering the space, and an increase in uranium use for energy. If prices stabilize at their current levels, this momentum could then be backed by traders and investors. This would then lead to higher prices, and more miners continuing operations, interest taken by politicians and energy providers, and so on.
Investment Options for Uranium
As an investor, I’m looking for ways to get involved with this space early. There is really not enough volume in the actual commodity to buy futures, so I am looking towards the miners.
There are companies out there that are interesting to consider, but I don’t want to have to rely on the stability of one company this early on. I think it’s better to consider an ETF to diversify across multiple mining companies.
The ETF I’ve found is the Global X Uranium ETF URA. This ETF has some volume, diversifies between some uranium miners, and even has a 1.38% dividend (I know, big deal right?).URA is targeted to play on uranium mining and production of nuclear components, the fund seeking to provide efficient diversification from a basket of companies (the largest holdings being in companies like Cameco and Uranium Participation Cor).
What I like about the fundamentals of this fund is that the companies within it are at or near fair value. The average PE ratio of the fund is 18 and Price/Book just over 1 at 1.17.But where the real draw for me is in the technical analysis of URA. It looks like price is bottoming out in general for these companies and are starting to come out of this 11 year depression.
You can view my technical analysis on URA here.
I’ve personally put a small portion of my portfolio into URA, knowing that I might be a little early to the party.
I wouldn’t recommend getting involved unless you are serious about taking on the long and short term risks.
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