Macro Perspective 38 | Investing in uranium

There are several positive themes driving investment in the uranium industry, the most important being the green energy transition followed by multipolarity. Peter Brooke delves into the compelling case for uranium investment. He talks about the outlook and supply issues concerning this commodity.  

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Chapters

• 0:10 The positive themes driving investment in uranium: the green energy transition
• 1:00 The positive themes driving investment in uranium: multipolarity
• 2:07 The supply of uranium and the long-term outlook

Transcript

Peter Brooke  00:00

Good day. I'm Peter Brooke, a Portfolio Manager at the Old Mutual Investment Group. This is Macro Perspective 38 of 2023, and I'm going to talk about uranium. 

Peter Brooke  00:10

We own exposure to higher uranium prices through the offshore exposure in some of our more dynamic multi-asset class funds. This investment is driven by a number of positive themes for the industry, the most important being the green energy transition. We absolutely believe that the world has to reduce carbon emissions, and nuclear has to be a big part of this change. There are two reasons for this. Firstly, to power a household for a year requires 10 pellets of uranium compared to 10 tons of coal, a dramatic difference in carbon emissions. The second reason is the world needs baseload. The average uptime for nuclear power is 93% compared to 35% for wind and 25% for solar. 

Peter Brooke  01:00

A second big positive theme for uranium is multipolarity. A more politically diverse, selfish, and potentially unstable world where security of supply becomes incredibly important, especially for power. In addition, there's a lot of politics around the supply of uranium. Firstly, it doesn't look like the supply of uranium from decommissioned nuclear bombs will be coming through much more. And this has been a big source of supply over time, because actually, demand has been greater than supply for a number of years. Secondly, Russia has a big impact on the uranium market, not so much from the supply side, where there are net importers from Kazakhstan, which is the largest producer in the world. But they account for 30% plus of the conversion and enrichment of uranium. So, changes in sanctions there could be important. More recently, we've also had a number of coups in Africa, including Niger, which accounts for 4% of world's supply. 

Peter Brooke  02:07

While we don't see a structural problem on supply with lots of uranium in the ground, a little bit of risk reduction through stockpiling would put pressure on an already tight market. On the supply side, I recently met with BHP Billiton, and their big new copper development in South Australia will deliver more uranium into the market in the longer term. But it takes time for mines to be developed and built and then for the ore to be processed. In the meantime, China adds five or six nuclear reactors per annum, building a steady base of increased demand. We have benefited from the short-term spike in uranium prices, which might be a little bit frothy right now. However, the long-term outlook is promising. 

I hope you enjoyed this perspective. Until next week.