Playing the new uranium boom
INVESTMENT COMMENT
OVER the past six months, the price of uranium has risen more than 60 per cent to $68 an ounce and thanks to increasing demand and tight supply, prices could be headed even higher.
There are 442 operating nuclear reactors worldwide but with 60 new ones under construction (a further 156 are in the planning stages) and fuel supplies from stockpiles dwindling, it’s hardly surprising that uranium prices have been pushing higher. The supply of this vital metal looks set to get tighter still as Russia closes the doors on its “megatons to megawatts” programme in 2013. Under the scheme, which has been running since 1995, more than 15,000 ex-Soviet warheads have been down-blended to reactor grade fuel.
By 2014, global demand is projected to be 95.7m kilograms, up from 76.6m kg today. This will leave an estimated annual shortfall of around 36m kg, which is likely to result in higher prices both for the metal and for those companies capable of bringing uranium to market.
There is currently no ETF (Exchange Traded Fund) that tracks the spot price of uranium. However, there are two new funds that are designed to reflect the performance of companies engaged in various aspects of the uranium industry.
The annual management fee for both funds is 0.69 per cent and both hold Cameco, Paladin and Uranium One, which together produce around 20 per cent of the world’s uranium. Over the past six months the shares of Cameco and Paladin are up over 50 per cent while Uranium One is up nearly 90 per cent.
Where these funds differ is their asset allocation: the three miners make up over 40 per cent of the Global X ETF; however, they are less than 9 per cent of the ETF Securities fund. The fund counts Areva and Toshiba among its top holdings, giving it greater exposure to the construction of nuclear reactors. Over the past six months however, their shares have only appreciated by 7 per cent and 15 per cent respectively.
Although the ETF Securities fund provides greater diversification, it is unlikely to provide the exposure to a rising uranium price that comes from holding the Global X ETF, which also includes Denison Mines, Kalahari Minerals and Extract Resources among its top 10 holdings.
The fund also provides investors with more potential upside due to the inclusion of exploration companies such as Laramide Resources, which has significant land packages in Australia and the US. The fund is up 17 per cent since its launch in November last year. By contrast the ETF Securities fund is up 7 per cent.
These ETFs provide investors with an easy way to gain exposure to the uranium sector without having to pick individual stocks. The Global X ETF however, would be my choice since it’s more heavily weighted towards the miners and correlates more closely to moves in the uranium price.
Ben Mountifield is the author of the monthly newsletter ‘The Mountain Investor Report‘ See: www.mountaininvestor.com
FUND PROVIDED BY
Global X Funds www.globalxfunds.com
FUND NAME
Global X Uranium ETF
DESCRIPTION (FROM THEIR WEBSITE)
“The Solactive Global Uranium Index is designed to reflect the performance of the uranium mining industry. It is comprised of selected companies globally that are primarily engaged in some aspect of the uranium mining industry such as mining, refining, exploration, and manufacturing of equipment for the uranium industry.”
EXCHANGE / TICKER
NYSE Arca / URA
FUND PROVIDED BY
ETF Securities www.etfsecurities.com
FUND NAME
ETFX WNA Global Nuclear Energy Fund
DESCRIPTION (FROM THEIR WEBSITE)
“ETFX WNA Global Nuclear Fund is designed to track the performance of the WNA Nuclear Energy Index. The WNA Nuclear Energy Index is designed to track the performance of approximately 65 companies engaged in the nuclear energy industry with representation across reactors, utilities, construction, technology, equipment, service providers and fuels.”
EXCHANGE / TICKER
London Stock Exchange / NUKE