What happened
Shares of junior uranium miners shot through the roof today. As of the market's close on Wednesday, Uranium Energy (UEC +3.63%), Energy Fuels (UUUU +0.42%), and Ur-Energy (URG +0.69%) were up 6.1%, 9.5%, and 8.2%, respectively.
As if the emergence of the world's first exchange-traded fund (ETF) that invests in physical uranium wasn't enough to stir up frenzied buying in uranium stocks, big nuclear energy news from Japan this morning added fuel to the enthusiasm.
So what
Miners' profitability depends a great deal on uranium prices. After a lull that lasted years, uranium spot prices crossed $30 per pound in 2020, only to give up some gains as 2021 kicked off. Prices have bounced back by double digits since, though, triggering hopes of better days ahead for uranium miners.
The enthusiasm hit a whole new level when the Sprott Physical Uranium Trust Fund started trading on the Toronto exchange on July 19. The prospects of an actively traded fund that invests in physical uranium with more than $600 million in assets under management cannot be underestimated, especially given that it's the first such uranium ETF in the world and comes with a large capital pool and expertise in dealing in metals.
The ETF saw a lot of investor interest on its first day and bought 100,000 pounds of the metal. Uranium bulls believe this could just be the beginning, with mining giant Cameco (CCJ +1.01%) even mentioning during its last earnings call how the entry of such a large active uranium fund could not only boost uranium prices but also create transparency in the spot market. Cameco's views matter, as it's one of the world's largest producers and is striving to boost uranium prices.
Not surprisingly, uranium stocks are soaring. Importantly, even junior miners stand to benefit from any uptick in uranium prices thanks to recent moves by the miners. The best example is Uranium Energy.
Image source: Getty Images.
Uranium Energy hasn't generated any revenue from uranium since 2015, but it started buying physical uranium aggressively this year to take advantage of low uranium prices. By May 20, it had accumulated nearly 2.3 million pounds of warehoused uranium at an average price of around $30 per pound. Management hopes to be able to secure supply contracts now that it has uranium inventory, and also to sell uranium as prices appreciate, using the proceeds to ramp up production and strengthen its balance sheet.
Ur-Energy already has a producing mine, Lost Creek, and recently received a permit to begin construction at Shirley Basin (both are in Wyoming). Importantly, the company held roughly 285,000 pounds of uranium ready for sale as of June.
Energy Fuels' shares have outperformed peers so far this year, partly because the company has also entered the rare earth market. Even so, Energy Fuels' only uranium-producing mine, White Mesa, has a licensed capacity to produce nearly 8 million pounds annually, which means it can expand production rapidly when uranium markets recover.
Now what
There are four broad triggers for uranium prices: buying activity from the Sprott Physical Uranium Trust, potential investments in clean energy under the Biden administration, production curtailment from the world's largest uranium producers like Cameco and Kazatomprom, and higher global investment in nuclear energy. While the first three are self-explanatory, the last point warrants attention.
Japan has been bringing dormant nuclear reactors back to life in anticipation of the Summer Olympics, and now has nine operating reactors -- it's highest number since the Fukushima Daiichi disaster in 2011.
And the country is reportedly considering doubling the share of renewables in its power grid over the next decade. That includes aggressive investments to restart its dormant capacity, according to a Wall Street Journal report today.
Since Japan is a nuclear powerhouse, and nuclear energy is the key to uranium's survivability and growth, you can understand why this is such big news for the industry. Couple that with the Sprott fund's potential to boost the uranium market, and it's clear why uranium stocks were heading skyward today.
