Miners and equipment makers to watch

  • A combination of geopolitics and climate change is fueling a resurgence in the nuclear sector.
  • The urgency to move away from fossil fuels has seen a notable surge since the start of the Ukraine war.
  • Uranium powers nuclear power plants and is expected to surge in demand as the energy transition accelerates.

Nuclear power is certainly past its dark days, but a combination of geopolitics and climate change is poised to revitalize the sector.

Two disasters have affected nuclear power plants for many people; Chernobyl in Ukraine in 1986 and the more recent earthquake-triggered leak at Japan’s Fukushima plant in 2011.

The reality, however, is that the number of disasters is tiny relative to the number of nuclear power plants in operation, and safety technology and procedures have made quantum leaps since the Chernobyl explosion.

The urgency to move away from fossil fuels has increased sharply in recent years as climate change warnings have increased and major concerns have come to the fore over the behavior of some of the world’s major oil producers, such as in the case of the Russian attack on Ukraine.

Western democracies are finding it increasingly untenable to finance some of the oil-exporting regimes on humanitarian grounds, adding to already mounting concerns about climate change.

Nuclear technology can arguably offer the best of both worlds. It can be scaled to produce reliable amounts of energy comparable to fossil fuels while producing negligible CO2 emissions, like wind or solar power. And there are opportunities for investors in the industry.

“Climate change and a shift to other sources of energy sources with no greenhouse gas emissions were the main reasons that have brought nuclear power more to the fore,” said Rohan Reddy, director of research at Global X ETFs, which has $40 billion in assets under management.

“The other reason I would say was the recent troubles in Europe and awareness of dependence on Russian natural gas. We could probably argue that geopolitical tensions have been relatively heightened over the past 20 years compared to other past periods. Russia is probably the best example of this,” he said.

He added that generating nuclear power that produces no greenhouse gas emissions during operation, countries that want to reduce their fossil fuel footprint will inevitably do so through nuclear power to some extent, even if it is costly upfront, since this is very difficult with just renewables like wind.

“You might think renewable energy would be a viable solution, but it’s quite expensive and often relies on subsidies. As such, it is currently difficult to implement change using only renewable energy, both because of cost and reliability,” Reddy said.

“One good thing about nuclear power is that once the power plant itself is on, it can basically be reliable for an extended period of time without operational problems. This is not the case with solar and wind power. For obvious reasons, like solar, you need the sun to be out there all the time, and for wind you need that wind flow there.”

When we talk about nuclear power, of course we are talking about uranium. This is the material used to create the reactions needed to create nuclear energy, and it’s something investors could very well do deliberately, Reddy explained.

He said the current price per pound of uranium is hovering around $60 and this could rise by as much as 30% to 40% over the next year as demand increases. Over the past three years, U.S. uranium futures are up about 110%, more than double the 49% gain for benchmark Brent crude futures.

There are several exchange traded funds on the market that can provide exposure to the price of uranium and the companies that produce it, including that operated by Reddy’s company; the Global X Uranium ETF.

“As an asset, uranium itself can be very illiquid and difficult to invest in,” Reddy explained. “So when most people get into that space, they try to buy individual stocks or ETFs. Based on ETF flows and stock prices, you can get an idea of ​​where investor sentiment is headed.”

Additionally, Reddy suggested that investors target a basket of stocks closely linked to uranium production and nuclear power plant infrastructure.

On the uranium mining side, Reddy chose the Kazakh producer Kasatompromwhose shares are also traded in London, heavyweight in the nuclear industry camecothe Sprott Physical Uranium Trust and listed in London Yellow cakes plc.

Turning to other elements of the nuclear industry, Reddy tapped South Korean equipment suppliers Daewoo engineering and construction, Hyundai engineering and constructionand Doosan heavy industry and construction. Another name he chose is CGN performancea Chinese nuclear power plant group.

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