Power Up - the Uranium investment surge ☢️⚗️⚡

Author

Owen
September 05, 2024

In partnership with

Welcome to Alternate Universe!

In today’s edition:

  • The Uranium investment surge ☢️⚗️⚡

  • Job opportunities at recently funded European startups 👇

  • Drop in sales pushes Swiss watchmakers to ask for govt funding 🤯

Get value stock insights free.

PayPal, Disney, and Nike recently dropped 50-80%. Are they undervalued? Can they recover? Read Value Investor Daily to find out. We read hundreds of value stock ideas daily and send you the best.

The Crux 🔴

Hey there!

Lately, I’ve noticed that most ideas for this newsletter come to me as charts. Shaan Puri from My First Million calls them "one-chart business ideas."

I like to think of mine as “one-chart investment ideas.”

Very original, I know! 🙃

One chart that recently grabbed my attention is the uranium spot price. Over the past five years, uranium prices have surged, recently crossing $100/lb for the first time since 2007—doubling in just one year.

Naturally, I got curious.

You already know what time it is.

🐰🕳️⌚

What? 🧐

Uranium is a chemical element that was discovered in the late 1700s. It forms part of a group of metals called actinides, known for their radioactivity. Uranium’s unstable nucleus results in decay, making it an ideal energy source.

Cool.

But what is so attractive about uranium as an energy source?

Efficiency.

Nuclear power is an ideal energy source for meeting global net-zero goals. A single kilogram of uranium generates 10,000 times more energy than the same amount of crude oil or natural gas. Unlike wind and solar, which face intermittent production, nuclear reactors provide a reliable and consistent electricity supply. Nuclear also has the smallest land footprint among all energy sources.

So how do we get from uranium to clean electricity?

How? 🛠️

Uranium extraction methods include open-pit mining for surface deposits, underground mining for deeper ores, and in-situ leach (ISL) mining, which uses a leaching solution to dissolve uranium underground and pump it to the surface.

Post-mining, uranium is milled into a fine slurry to form yellowcake. This is a highly concentrated solution with over 80% uranium compared to as little as 0.1% in the original ore. Uranium then needs to be converted to a gas to be enriched.

Uranium exists in 2 forms (aka isotopes); U-235 and U-238. Nuclear reactors require the former to generate electricity, which is also the ‘rarer’ version. Only around 0.7% of uranium is U-235. Once enrichment in centrifuges is complete, uranium is re-converted into powder form.

Nuclear fission - the electricity generation process - depends on splitting U-235 atoms, producing heat, and steam, which propels a turbine connected to an electric motor. The process is similar to traditional electricity generation, yet the fossil fuel is replaced with uranium.

The fuel used for fission is used for around 5 years in a reactor before it is replaced. The reprocessing and recycling of spent fuel enables the recovery of valuable fissile materials, while significantly reducing the volume and radioactivity of the final waste that requires disposal. The remaining radioactive waste is solidified, typically in borosilicate glass, and stored for disposal in a deep geological repository.

Despite safety measures, there have been nuclear accidents throughout history. The most notable one, Chernobyl, took place in 1986. It is estimated that 4,000 people were affected by tumours, and that cleanup is expected to last until 2065. The 2011 Fukushima explosion triggered multiple plant closures and pushed the prices of uranium down. Nonetheless, nuclear remains one of the safest modes of electricity production.

Market 💹

Like any commodity, uranium prices are strongly influenced by shifts in supply and demand. On the supply side, half of the world’s uranium deposits are concentrated in three countries: Australia, Kazakhstan, and Canada. However, not all of these deposits are economically viable, with Kazakhstan holding the largest share of economically-viable uranium.

Source - World Nuclear Association

The current uranium production is not meeting demands, and this imbalance will likely persist longer. New mine development was stagnant for a decade due to public perception of nuclear power. This will delay new mine openings due to long lead times and the capital investment required.

At the same time, global electricity demand is projected to rise by 50-100% by 2050. Geopolitical risks, such as the Russia-Ukraine war, have underscored the reliance on LNG, spurring renewed interest in nuclear energy. AI and data centre construction is a further demand driver, with Amazon already making an acquisition.

Innovative solutions like small modular reactors (SMRs) will be essential to meet these needs. French nuclear company Orano recently launched a €50 million corporate venture arm to fund such initiatives. Repurposing retired coal plants can help save up to 35% in construction costs, which would further accelerate meeting this goal.

Despite all this, uranium trades like any other commodity, driven by supply and demand. Its price has experienced extreme volatility, peaking at $140/lb in 2007 before plunging to a low of $15/lb in 2016.

Investment Implications 🤑

What are the investment options?

The most direct option is to invest in a physical uranium trust like this one by Sprott, which is a liquid alternative to holding the commodity. The other alternative is to invest in uranium miners. This can be achieved through stock picking from companies like Cameco and Paladin or more easily, by purchasing a uranium miner ETF. Investors can pick ETFs from Sprott, Global X, and VanEck.

Interestingly, uranium miners have broadly outperformed the spot uranium price over the last 20 years. This trend contrasts with the one observed in gold, where miners have underperformed the underlying commodity.

Indirect beneficiaries of the growth of nuclear power include public and private players. Companies like Oklo and Nano Nuclear Energy, are both working on SMR. Spinouts from the French Alternative Energies and Atomic Energy Commission (CEA), Hexana, and Stellaria are working on innovative reactor technologies.

Dig Deeper ⛏️

P.S. Liking this issue? Forward to a friend 🧑‍🤝‍🧑

Headhunted 🦅

Recently funded private companies need talent! Scout jobs at recently funded European startups, ahead of your competition. 💪

  1. Cowboy 🇧🇪 - The e-bike manufacturer has a €5m round. Now hiring in sales across various cities in Europe (link)

  2. Swiss Mile 🇨🇭 - The ETH spinoff has closed a €19.8m seed round to develop autonomous four-legged robots on wheels Hiring a senior product manager and engineers among other roles (link)

  3. Palm 🇸🇪/🇳🇱- The fintech has successfully closed a €5.5m seed round to streamline cash management for enterprise treasury teams. Hiring ML and backend engineers in SE and NL (link)

  4. Doccla 🇬🇧 - The healthcare company has raised a £35m Series B to grow its virtual hospital ward solution. Hiring in sales, engineering and marketing (link)

  5. Signol 🇬🇧 - Sustainability startup closed £2.5m in funding to reduce aviation and shipping industry emissions. Hiring a behavioral science lead (link)

Interestingness📔 

  • Is the boom in software development jobs over? Fed data shows there has been a steep decline in software development jobs over the last couple of years.

  • Nobel Prize winner Eugene Fama admits his Efficient Market Hypothesis is just that, a hypothesis, and does not reflect reality 🤔 (link)

  • Drop in China sales has Swiss watchmakers requesting state aid (link)

  • UK universities are backing a new spinouts fund (link)

  • The Black Hole of Private Credit That's Swallowing the Economy (link)

📚 New to investing? Grab a PDF copy of my ebook here.

As always, the financial disclaimer!

This is not investment advice. I am not a financial advisor. Make sure to conduct your thorough research before purchasing or selling financial products.