Performance as of June 30, 2023
|Asset||1 MO*||3 MO*||YTD*||1 YR||3 YR||5 YR|
U3O8 Uranium Spot Price1
Uranium Mining Equities (Northshore Global Uranium Mining Index)2
|Uranium Junior Mining Equities (Nasdaq Sprott Junior Uranium Miners Index TR)3||18.93%||10.61%||-0.47%||12.99%||46.94%||N/A|
Broad Commodities (BCOM Index)4
U.S. Equities (S&P 500 TR Index)5
Sources: Bloomberg and Sprott Asset Management LP. Data as of June 30, 2023.
*Performance for periods under one year not annualized.
The U3O8 uranium spot price gained 2.61% in June, increasing from US$54.59 to $56.02 per pound as of June 30, 2023. Uranium has posted a healthy 15.95% year-to-date return as of June 30, 2023, and continued to show strength and diversification relative to other commodities, which declined 10.04% in the first half (as measured by the BCOM Index). Over the longer term, uranium has demonstrated even greater resilience within the commodity space. For the five years ended June 30, 2023, U3O8 spot appreciated a cumulative 146.15%1 compared to 16.10% for the BCOM.
The U3O8 uranium spot price began rallying on May 31 after the U.S. Senate Environment and Public Works Committee (EPW) passed the bipartisan Accelerating Deployment of Versatile, Advanced Nuclear for Clean Energy (ADVANCE) Act. This Act along with the Prohibiting Russian Uranium Imports Act passed on May 24 indicate that it may be only a matter of time before the Russian nuclear fuel supply chain is cut off.
A highlight in June was the World Nuclear Fuel Market 49th Annual Meeting held in Slovenia on June 4-6. "Mind the Gap" was the meeting's theme, which refers to the pressing need for increased uranium production as countries ramp up nuclear power capacity. Attendees addressed the positive momentum within the uranium industry, given the growing demand for uranium, amid supply constraints and the steadily improving sentiment toward nuclear power.
Looming sanctions on Russian uranium are likely to have serious consequences for utilities regarding the security of supplies. Both conversion and enrichment providers need significant term contracts to increase capacity. Market participants, especially in the West, have focused on this conversion bottleneck. In July, ConverDyn, a uranium conversion facility in the U.S., finally restarted after being shuttered since 2017, which represents an important step to reshoring the U.S. nuclear supply chain from Russia. Another key development in the reshoring process was made by Urenco, which announced in early July that it will expand the capacity of its New Mexico enrichment facility by 15%.6 We believe both of these developments will finally enable an industry shift to overfeeding, ultimately creating greater near-term demand for uranium.
Figure 1. Physical Uranium & Uranium Stocks Have Outperformed Other Asset Classes Over the Past Five Years (06/30/2018-06/30/2023)
Source: Bloomberg and Sprott Asset Management. Data as of 06/30/2023. Gold is measured by GOLDS Comdty Spot Price; S&P 500 TR is measured by the SPX; Uranium miners are measured by the Northshore Global Uranium Mining Index (URNMX index); BCOM is the Bloomberg Commodity Index; US Agg Bond Index is measured by the Bloomberg Barclays US Agg Total Return Value Unhedged USD (LBUSTRUU Index); the U.S. Dollar is measured by DXY Curncy and the U3O8 uranium spot price is measured by a proprietary composite of U3O8 spot prices from TradeTech LLC. Included for illustrative purposes only. Past performance is no guarantee of future results.
Uranium mining equities posted strong results in June, climbing 11.66%. The outperformance of mining equities over physical uranium was a reversal of prior months of underperformance, which we believed indicated market dislocation.
Uranium mining equities have been hurt by higher interest rates and macroeconomic headwinds that have impacted many capital-intensive sectors. However, in June uranium stocks were boosted by heightened supply chain concerns, given that the contracting cycle has started and the uranium spot price has been moving higher. While 2022 was the highest uranium contracting year in a decade, utilities are still not yet at the annual replacement rate. As a result, we expect the contracting cycle to accelerate as utilities become more concerned about the long-term security of supply. We believe this may likely lead to higher uranium prices, back to the levels last seen in April 2022 when uranium reached an 11-year high of ~$64.
It is worth noting that this year's uranium term contracting cycle has been dominated by Central and Eastern European utilities that are clearly focused on shifting away from Russia. Surprisingly, U.S. utilities have been less active in 2023 and are contracted to buy less uranium in 2022 versus 2021 (40.5 million pounds U3O8 equivalent versus 46.7 million).7 While U.S. utilities have historically held lower uranium inventories than the rest of the world, its uncovered uranium requirements for the 2023-2032 decade stand at 179.2 million pounds. This is relatively unchanged from the prior year’s figure of 182.1 million pounds. To meet this need, we are seeing considerable supply being earmarked for future contract deliveries and a growing interest in the capacity of junior uranium miners.
Junior uranium miners appreciated 18.93% in June, outperforming large-cap miners considerably. As we have explored in past commentaries, difficult market conditions tend to impact junior uranium miners more significantly, given their lower levels of liquidity and higher volatility. However, as we witnessed in June, junior miners have the potential for greater upside when uranium prices move higher.
We believe the strong performance of uranium miners in June reflects the sector’s increasingly bullish fundamentals and the growing reality that future uranium supplies will have to come from mines restarting operations and new mines in development.
Looking beyond June's performance, we believe the uranium bull market still has a long way to run and remains intact despite the uncertain macroeconomic environment. We believe conversion and enrichment services price increases have started to boost the uranium spot price. The long-awaited restart of the ConverDyn conversion facility in Illinois will play a key role in the West’s transition away from Russian suppliers. Conversion has been the key bottleneck in the U.S. supply chain. This new capacity will enable the shift from underfeeding to overfeeding, likely increasing additional demand for U3O8.
The essential role of uranium and nuclear energy in fostering global energy security continues to grow in significance. Russia’s invasion of Ukraine sparked a global energy crisis that forced many countries to reimagine their energy supply chains. There has been an unprecedented number of announcements for nuclear power plant restarts, life extensions and new builds that will likely create incremental demand for uranium. The current uranium price, however, continues to remain below incentive levels to restart tier 2 production, let alone greenfield development.
In past years, Western countries' energy policies have predominantly favored renewable energy to reduce reliance on fossil fuels. However, renewables often suffer from intermittency and low capacity and require offsets with baseload energy sources, such as coal, natural gas or nuclear power plants. As the world continues to add renewable capacity to grids, nuclear energy will have an important role to play, given that it can provide the highest capacity factor.
Figure 2. Uranium Bull Market Continues (1968-2023)
Note: A “bull market” refers to a condition of financial markets where prices are generally rising. A “bear market” refers to a condition in financial markets where prices are generally falling.
Source: TradeTech. Data as of 6/30/2023.
|1||The U3O8 uranium spot price is measured by a proprietary composite of U3O8 spot prices from UxC, S&P Platts and Numerco.|
|2||The North Shore Global Uranium Mining Index (URNMX) was created by North Shore Indices, Inc. (the “Index Provider”). The Index Provider developed the methodology for determining the securities to be included in the Index and is responsible for the ongoing maintenance of the Index. The Index is calculated by Indxx, LLC, which is not affiliated with the North Shore Global Uranium Miners Fund (“Existing Fund”), ALPS Advisors, Inc. (the “Sub-Adviser”) or Sprott Asset Management LP (the “Adviser”).|
|3||The Nasdaq Sprott Junior Uranium Miners™ Index (NSURNJ™) was co-developed by Nasdaq® (the “Index Provider”) and Sprott Asset Management LP (the “Adviser”). The Index Provider and Adviser co-developed the methodology for determining the securities to be included in the Index and the Index Provider is responsible for the ongoing maintenance of the Index.|
|4||The Bloomberg Commodity Index (BCOM) is a broadly diversified commodity price index that tracks prices of futures contracts on physical commodities, and is designed to minimize concentration in any one commodity or sector. It currently has 23 commodity futures in six sectors.|
|5||The S&P 500 or Standard & Poor's 500 Index is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies.|
|6||Source: World nuclear News - Urenco to Expand U.S. Enrichment Plant.|
|7||Source: U.S. Energy Information Administration - Uranium Purchases and Prices with Data for 2022.|
Past performance is no guarantee of future results. You cannot invest directly in an index. Investments, commentary and statements are that of the author and may not be reflective of investments and commentary in other strategies managed by Sprott Asset Management USA, Inc., Sprott Asset Management LP, Sprott Inc., or any other Sprott entity or affiliate. Opinions expressed in this commentary are those of the author and may vary widely from opinions of other Sprott affiliated Portfolio Managers or investment professionals.
This content may not be reproduced in any form, or referred to in any other publication, without acknowledgment that it was produced by Sprott Asset Management LP and a reference to sprott.com. The opinions, estimates and projections (“information”) contained within this content are solely those of Sprott Asset Management LP (“SAM LP”) and are subject to change without notice. SAM LP makes every effort to ensure that the information has been derived from sources believed to be reliable and accurate. However, SAM LP assumes no responsibility for any losses or damages, whether direct or indirect, which arise out of the use of this information. SAM LP is not under any obligation to update or keep current the information contained herein. The information should not be regarded by recipients as a substitute for the exercise of their own judgment. Please contact your own personal advisor on your particular circumstances. Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any investment funds managed by Sprott Asset Management LP. These views are not to be considered as investment advice nor should they be considered a recommendation to buy or sell. SAM LP and/or its affiliates may collectively beneficially own/control 1% or more of any class of the equity securities of the issuers mentioned in this report. SAM LP and/or its affiliates may hold a short position in any class of the equity securities of the issuers mentioned in this report. During the preceding 12 months, SAM LP and/or its affiliates may have received remuneration other than normal course investment advisory or trade execution services from the issuers mentioned in this report.
The information contained herein does not constitute an offer or solicitation to anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not residents of Canada or the United States should contact their financial advisor to determine whether securities of the Funds may be lawfully sold in their jurisdiction.
The information provided is general in nature and is provided with the understanding that it may not be relied upon as, or considered to be, the rendering of tax, legal, accounting or professional advice. Readers should consult with their own accountants and/or lawyers for advice on their specific circumstances before taking any action.
© 2023 Sprott Inc. All rights reserved.
You are now leaving sprottus.com and entering a linked website.Continue
You are now leaving Sprott.com and entering a linked website. Sprott has partnered with ALPS in offering Sprott ETFs. For fact sheets, marketing materials, prospectuses, performance, expense information and other details about the ETFs, you will be directed to the ALPS/Sprott website at SprottETFs.com.Continue to Sprott Exchange Traded Funds
You are now leaving Sprott.com and entering a linked website. Sprott Asset Management is a sub-advisor for several mutual funds on behalf of Ninepoint Partners. For details on these funds, you will be directed to the Ninepoint Partners website at ninepoint.com.Continue to Ninepoint Partners