Shifting Energy: The Nuclear Energy Comeback and Uranium Powering It

March 2, 2024 | (12 mins 10 secs)

John Ciampaglia, CEO of Sprott Asset Management, joins Thalia Hayden on Sprott’s new video series, Shifting Energy. They discuss surging uranium prices, the latest nuclear renaissance and potential investment opportunities. The series was created in partnership with ETF Guide to keep viewers on top of energy transition investment opportunities. 

Video Transcript

Thalia Hayden (ETFguide): The global energy shift is driving demand for critical minerals, and uranium is among this group. On today's episode of Shifting Energy, we'll examine the uranium market and tell you about ETFs tracking it and factors that have turned uranium into a top-performing commodity. Stay with us.

I'm Thalia Hayden with ETF guide, and it's great to have you with us. Welcome to the very first episode of Shifting Energy, an original episode series that keeps you on top of big changes in the global energy transition. The quest for net-zero carbon emissions is upending businesses and governments across the globe. It's also creating massive demand for alternative energy sources and critical minerals to make it happen. Uranium is among these critical minerals, and ETFs linked to it, like the Sprott Uranium Miners ETF and the Sprott Junior Uranium Miners ETF, have seen sharp increases in their share prices over the past year, but what's behind the move? Will it continue, and how can you position your investment portfolio to benefit? John Ciampaglia, CEO at Sprott Asset Management, is here to discuss that and more. Hi John, and welcome to the program.

John Ciampaglia (Sprott Asset Management): Thank you for having me. It's great to be here.

Thalia Hayden: Great to have you with us. We know uranium was among the top-performing commodities in 2023, and it's off to a strong start in 2024. In turn, it's lifted the performance of the Sprott Uranium Miners ETF and Sprott Junior Uranium Miners ETF. Both funds have been hot performers. What's behind the surging uranium prices?

John Ciampaglia: It’s been an interesting commodity to watch, particularly over the last 12 months. And it's had two main drivers. One, the world is pivoting back to nuclear energy for a number of very compelling reasons. One, it provides zero greenhouse gas emission electricity production, which the world is increasingly focused on. This includes cleaning our grids while producing reliable baseload energy, which nuclear energy provides.

Second, it provides very high levels of energy security, a term many people haven't heard about before or haven't heard for probably 50 years. This was really in direct response to the energy crisis that we faced, particularly in Europe and Asia, in 2022, when Russia invaded Ukraine. People realized that if you didn't have a secure supply of energy, whether natural gas, coal, oil or uranium, they could put your economy and national security at risk. Nuclear power is a reliable form of baseload power, and governments are shifting back to it to help mitigate some of these other risks.

Lastly, it complements renewable energy. Governments around the world are trying to incentivize more solar, wind and other clean forms of energy production. While that's been great, you're dealing with an intermittent energy source. Nuclear is the perfect complement because it's on all the time. At the same time, you have this shift back to nuclear energy. You also have the fuel that powers all of these power stations in a supply deficit, and that's because we don't produce enough of it to meet our annual needs. As you can imagine, when there's a supply and demand imbalance, typically, you have a price that adjusts to incentivize more production, which is what the world needs in the coming decades. And that's exactly what's happening with uranium and why it went up 89% last year.

Thalia Hayden: That makes sense. Technological advancements are also impacting the uranium market. CNN, in fact, recently reported that next-wave nuclear technology, also known as small modular reactors, or SMRs, has kickstarted a nuclear power renaissance. Now, how promising are SMRs? And is it getting any public support?

John Ciampaglia: It’s a really exciting development that the industry is trying to capitalize on. When you think of a typical nuclear power station, these are large power stations. They power large cities and urban areas. There are about 434 in the world right now, with 59 more being built and another 100-plus being planned. That doesn't even include this new technology, called small modular actors, which, as the name implies, is a much smaller version of a power station. The reason why it's exciting is because the plan is to use these in a more versatile way, meaning they could be applied to powering smaller cities or towns. They could also be used to repurpose existing coal-fired power stations by swapping out the old coal-fired boiler, and putting in a small modular reactor. The thought is that you would build these in factories, bring them to the site, and put them together. The hope is they would be lower cost because they're smaller scale and they have a lot more applications, everything from producing electricity to producing industrial heat. There’s a lot of excitement and a number of companies that are commercializing the technology. Once these are deployed, at least five years from now, we could have hundreds of these new small modular reactors deployed worldwide, which is very promising. The UK, the U.S. and Canada are all at the forefront, trying to approve new designs, commercialize them, and deploy them at scale.

Thalia Hayden: That is promising. And besides geopolitical factors, the global shift to renewable or clean energy is another key trend at work. The International Monetary Fund recently said, “The world remains far too dependent on fossil fuels. Wind and solar energy alone will not be sufficient to break that dependence, and nuclear energy represents a potential solution to both. Problems are providing a firm source of electricity that can complement the variable sources of renewable energy on electrical grids.” How is the scramble for reliable energy sources impacting the long-term demand for uranium?

John Ciampaglia: That statement you read is like a perfect summation of the stars aligning now. Remember, we've had this technology for decades. We built out a lot of nuclear energy capacity in the 1970s and the 1980s, and that was because we were focused on energy security at that time after OPEC squeezed and embargoed oil. There are a lot of similar parallels that are happening today. Unfortunately, not all of them are positive, but there are a lot of similar parallels to what happened in the 1970s. This is why we think we're now entering another “nuclear renaissance,” another build-out period. Places like China, India and the UAE are leading that build-out. But we see a strong commitment back to nuclear energy happening across many countries in Europe, South Korea, Japan, the U.S. and Canada. We think this will last for not one or two years, but given the long lead times of these projects and energy policy in general, it will be very supportive for the uranium mining sector for the coming 10, 15 or 20 years.

Thalia Hayden: That's exciting. One of the unique features of the Sprott Uranium Miners ETF is that it includes exposure to both uranium miners and physical uranium itself. This innovative design offers a fresh approach to the uranium market compared to an all-equity approach. Can you tell us more about URNM's holdings and strategy?

John Ciampaglia: Many investors look at the supply and demand fundamentals and the resurgence and interest in nuclear energy. They naturally say, how do I get exposure to this in my portfolio? How do I invest in the sector? There are only two ways to invest in vehicles that own physical uranium, and Sprott has one of those. Or you can take a more holistic approach and invest in an index that holds a slew of different uranium producers, developers, and exploration companies, including some physical uranium. It's a nice way to play a higher commodity price and play the companies producing uranium or going to be producing uranium in the future as they move their projects from development to actual production. It gives you a nice cross-section across the entire uranium spectrum.

Thalia Hayden: Makes sense. But besides URNM, your firm also manages the Sprott Junior Uranium Miners ETF. How does URNJ work, and what type of investor could it appeal to?

John Ciampaglia:  URNJ is an ETF that's designed to play the companies that are very early-stage producers or small producers and up-and-coming producers. What we do with that particular index is remove any exposure to physical uranium. And we removed the two largest uranium producers in the world, which are meaningful players. So, you get the next tier of up-and-coming companies. It's going to be more volatile. The companies are smaller caps; they're less liquid and are still subject to many expiration risks. It’s for someone who wants to take a more aggressive bet on higher uranium prices.

Thalia Hayden: How do you see funds like the Sprott Uranium Miners ETF and Sprott Junior Uranium Miners ETF being deployed by investors and financial advisors inside an investment portfolio?

John Ciampaglia: We see a wide range of applications in terms of how investors position this in their portfolio. We often find investors who will put it within their energy allocation. Again, this is another form of energy. We sometimes find investors put inside of a thematic related to energy transition or decarbonization. Pairing it with renewable energy funds has been very popular. That's another application that we see. And then, finally, I would say we find some investors allocate this in their commodity bucket. It's an alternative way to get exposure to commodities. Most commodity indexes do not include any uranium whatsoever. They're heavily weighted to oil and gas and agriculture and whatnot. But most of these bellwether indices to get commodity exposure have zero weight to uranium, so it's a way to tilt your portfolio to a commodity you may be missing.

Thalia Hayden: That was extremely informative. Thanks so much, John, for the great insights, and we look forward to seeing you again soon.

John Ciampaglia: Thanks for the discussion. It was great.

Thalia Hayden : You're welcome. And that does it for today's episode of Shifting Energy. If you enjoyed the show, tell us in the comments section below by hitting that like button. To learn more about the investment strategies and ETFs we discussed on today's program, be sure to visit sprottetfs.com. I'm Thalia Hayden with ETF guide. Thanks for watching, and we'll see you next time.