Welcome to the Alts Sunday Edition.
Hope you enjoyed last week’s issue on Opportunity Zones.
Few investment opportunities are as controversial as the element uranium.
In the wrong hands, uranium is capable of powering the most devastating weapons humanity has ever devised.
But in the right hands, uranium could power a future with unlimited, reliable, low-carbon energy.
While nuclear power has flaws, policymakers have become increasingly interested in nuclear to make up for shortfalls in renewable energy without turning to fossil fuels.
That trend has translated into increased demand for uranium, resulting in soaring prices for the element and healthy profits for some uranium investors.
Today, we’re breaking down the uranium trade, exploring the opportunities and challenges that investors may face.
The first half of this issue is free:
- Understand the uranium lifecycle
- Find out why supply cannot meet the demand
You’ll need the All-Access Pass to unlock the second half 🔒
- 🔒 The bear case for investing in uranium
- 🔒 The bull case for investing, and
- 🔒 All the ways to invest in uranium
Along the way, you’ll also learn a ton about nuclear power, including some of the biggest misconceptions about this energy source (and why its future might actually be uranium-free.)
Let’s go 👇
Note: The first half of this issue is free. But you’ll need the All-Access Pass to read the full thing.
Table of Contents
A short primer on the Uranium lifecycle
To understand the uranium market, you need a basic understanding of the element itself – including how it’s produced, refined, and enriched.
Despite a reputation for elusiveness and rarity, uranium is a surprisingly abundant element.
In its raw form, uranium is about as common in the earth’s crust as tin or zinc (you can literally buy uranium ore on Amazon!)
But as you might expect, environmental concerns make mining uranium slightly more complicated than mining other elements.
How uranium is mined
Classic open-pit or underground shaft mining are common ways of extracting uranium from the earth.
But here’s the thing – while a lone piece of uranium ore isn’t very dangerous (you can even handle it with your bare hands) the buildup of large amounts of uranium ore can pose a radiological problem.
Therefore, modern approaches usually involve in-situ leaching, where miners pump a liquid solution into the ground to dissolve uranium and then pump the now-uranium-filled solution back out.
Whatever approach you use, there’s no avoiding the massive investment of both time and money it takes to start a uranium mine.
Equipment for new mines can cost more than $100 million. Meanwhile, the lag time before the mine can start producing ore stretches from 10 to 15 years.
Once the ore is out of the ground, uranium’s next step is refinement and enrichment.
Enriched uranium: A matter of degree
After uranium is mined, it’s separated and dried into a refined form – commonly known as yellowcake.
Next, yellowcake is converted into a gaseous state and fed into centrifuges, which spin the gas rapidly.
These centrifuges separate the uranium isotopes in the gas to increase the proportion of the highly reactive uranium-235 in the gas – a process known as enrichment.
The level of enrichment achieved dictates whether the uranium is useful as nuclear fuel or in a nuclear bomb.
Reactor-grade uranium is 3-5% enriched, while weapons-grade is more than 85% enriched – big difference!
In other words, the exact same process that creates reactor-grade material can also create weapons-grade material – it’s simply a matter of degree.
The state of Uranium supply
I mentioned that uranium is quite an abundant element.
While that’s true, it’s only true on average.
Very few countries have been blessed with sizable stockpiles of uranium. In fact, global supply of the element is mostly concentrated in just a few regions of the world.
Where is the uranium?
Just three countries have more than 50% of the world’s proven uranium reserves: Australia (28%), Kazakhstan (13%), and Canada (10%).
But this data doesn’t tell the full story.
The location of uranium reserves is closely tied to uranium production – but it’s not 1-to-1.
In Australia, for instance, the uranium mining industry has been a matter of intense debate for years, both on environmental and ethical grounds – meaning production levels lag reserve levels.
Despite placing 2nd in uranium reserves, Kazakhstan is by far the world leader in uranium production, producing 43% of the world’s mined uranium in 2022.
Canada and Namibia take 2nd and 3rd in global production, with China being a huge investor in Namibia’s recent uranium development.
But as it turns out, a sizable minority of uranium supply doesn’t even come from mines…
The uranium recycling industry
Mines are the primary source of uranium – but there’s also a diverse array of secondary sources that provide either recycled or repurposed uranium for use:
- Civil stockpiles, like the American Assured Fuel Supply (which is similar to the Strategic Petroleum Reserve in oil)
- Reprocessed uranium, which is uranium that’s already been used as fuel in a nuclear reactor and gone through a recycling process to be reused
- And uranium from nuclear warheads repurposed for energy as part of disarmament treaties (like the Megatons to Megawatts Program, which involved uranium from decommissioned Russian warheads being used for fuel by US reactors)
In 2013, secondary uranium sources satisfied just 9% of global demand. But by 2022, that figure had risen to 26%.
Increased reliance on secondary sources highlights how primary production struggles to catch up to rising global demand.
Why is Uranium supply struggling to match demand?
Today, there are 437 operational nuclear plants worldwide, which provide about 10% of global electricity.
And all these plants need uranium to fuel them, with global demand currently hovering around 70,000 tonnes per year (about twice the annual demand for silver).
That demand looks set to increase markedly. Globally, about 60 new reactors are already being built with another 110 planned.
But at the moment, supply is poorly equipped to meet growing demand – for a few reasons:
- The average construction time for a nuclear reactor is “only” around 7 or 8 years. In comparison, it can take more than a decade for new mines to start producing ore – demand functionally grows quicker than primary supply.
- In the wake of the Cold War, there were plenty of uranium stockpiles to go around – but with the fall of the USSR firmly behind us, secondary sources are starting to run out.
- Low uranium prices in the late 2010s led to underinvestment in primary production. In fact, mine output fell by over 22% between 2016 and 2022.
While soaring uranium prices caused by these supply struggles should encourage more primary production investment, this isn’t a problem that can be solved overnight.
Enrichment bottlenecks compound supply challenges
While the uranium supply crunch is mostly about primary and secondary capacity, bottlenecks in the enrichment process also pose a threat.
Unsurprisingly, governments monitor enrichment technology closely, meaning only a few companies are licensed to operate in this space.
- In the US, the only reactor-grade enrichment facility currently in operation is run by Urenco in New Mexico.
Urenco is owned in 3 parts by the UK and Dutch governments and German utility companies and controls about 25% of global enrichment capacity (including facilities in all 3 countries).
- Meanwhile, the Russian state enrichment corporation Rosatom controls about 40% of global capacity and processes 27% of enriched US imports.
- The Chinese state-owned China National Nuclear Corporation (CNNC) controls an estimated 10% of global capacity (although very little of this is exported).
While scaling up enrichment capacity can be done quicker than building reactors or new mines, it’s still a multi-year process that requires significant capital investment.
The Uranium bull case
Uranium prices have seen a surprising resurgence over the past few years.
After the pop of uranium’s pre-GFC bull run, the Fukushima disaster in 2011 seemed like the final nail in the nuclear coffin, set to squash uranium demand permanently.
But after about five years in the doldrums, prices gradually started to climb again around 2017, hitting pre-Fukushima levels of up to $80/pound in 2024.
This latest bull run has renewed investor interest in the element, with some speculators betting on the start of a fresh uranium supercycle.
Here are the best arguments for being bullish on uranium in the near term…
Wanna get enriched?
Uranium supply can’t meet demand, and prices are soaring. There’s your bull case! Simple, right?
Well, there are some harsh realities about this market that you need to understand.
Unlock the full issue. We’ll lay out the full bull case, the bear case, and show you all the ways to invest.
