SMALL CAP IDEA: Uranium companies receiving greater interest

Cautiously, uranium bulls begin to come out of hiding.

The uranium mining sector took a huge blow after the Fukushima nuclear accident in Japan in 2011 and has yet to fully recover.

But the world has other pressing issues facing it: namely climate change and lifting billions of the world’s poor out of poverty.

Nuclear can help with both and as such it is coming back into fashion.

Among the leading candidates for the upcoming 2024 US presidential election, Robert Kennedy Junior is opposed to nuclear power, while the other leading candidates are locked in.

Ron De Santis told reporters in February that nuclear power is the cleanest source of energy “of all.”

Donald Trump is pro, and the incumbent president cannot afford to undermine his green credentials by switching from nuclear power to higher-emission energy sources.

In China they are building nuclear power plants by the dozen, the French, as is well known, have been spared many of the vagaries of the European energy crisis by their considerable investments in nuclear energy, and other plants are in the planning stage elsewhere in the world.

So the demand for uranium is back, and so are the uranium miners.

It is estimated that 79,400 tons of uranium will be needed to fuel the world’s nuclear reactors by 2030, up from 62,500 tons in 2021. Moving forward, this figure is likely to grow to 112,300 tons of uranium in 2040.

And against this backdrop, spot uranium prices have almost doubled in the past two years, from $31 a pound to the current price of about $57 a pound. That’s not as high as the $64 hit in August 2022, but it certainly points to long-term strengthening in the price.

However, there is an additional layer of complexity.

In a way somewhat similar to how the oil industry works, when prices fall, the big producers in Kazakhstan and Canada tend to limit production to create a sort of price floor.

When the price rises, they turn production back on. This means that while the long-term trend may be up, anticipating events can be a sign that something spectacular is on the way.

What we’re probably looking at here is steady, incremental growth.

With that in mind, it’s not surprising that many mining companies with exposure to uranium also have other assets in their portfolios.

This applies to the larger segment of the UK market – as is the case with Rio Tinto and BHP, both major uranium businesses – as well as to the smaller segment.

Thus, one of the most promising of the London-listed uranium juniors, Power Metal Resources (0.83p), has a huge holding of uranium potential land in Canada, but also has several assets elsewhere in the world, including gold, nickel and other base metals.

Likewise, Thor energy (0.23p) has uranium assets in the US, as well as base metals and gold elsewhere.

Such companies offer an interesting combination of a huge advantage with a corresponding hedge if certain assets turn out to be inflated.

The thinking is that only one asset needs to be good for the company as a whole – and its shareholders – to become great.

Indeed, in the case of Power Metals, recently under new management, the focus has largely shifted to uranium in Canada’s prolific Athabasca Basin.

Major uranium investors from Canada like Rick Rule have stepped in and the story seems to be gaining traction.

But if uranium exposure is pure and simple what is needed, then two other options present themselves to British investors.

There is Geiger Counter Ltdthe long-standing uranium-focused fund managed by New City Investment Managers.

And there is Yellow cake (416p), which directly purchases and holds uranium supplies, as well as other investments in uranium mining.

For pure-play uranium miners, however, investors will have to look further afield.

Canada’s Cameco is the largest and most respectable, followed by Denison, then a host of up-and-coming juniors scattered across the Athabasca and elsewhere in the world.

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