The Motley Fool

How to Profit From Uranium Going Nuclear

Image source: Getty Images.

After the Fukushima disaster, uranium was hammered below $20 per pound. It has been a long and brutal bear market. However, the tide might finally be turning. It recently hit a new four-year high. And Uranium Participation (TSX:U) offers a relatively safe way to profit from this opportunity.

What makes uranium unique?

As you probably know, uranium is used to fuel nuclear power plants.

Utility companies know well in advance how much they’ll need. So, producers can lock down higher prices with long-term contracts.

Even with rock-bottom spot prices, these contracts help miners like Cameco stay afloat. Meanwhile, utility companies enjoy predictable costs.

Now, here’s where it gets interesting: most of these contracts either have expired or will expire soon. Due to low prices and, more recently, coronavirus, many mines have suspended.

Is a supply shock inevitable?

According to Swiss Resource Capital, only 90% of demand can be met from producing mines. This was written in 2019, before coronavirus. And it doesn’t count the upcoming demand from emerging markets.

China is the biggest electricity consumer. Yet nuclear power only generates 4% of its demand. China wants to increase this to 28%. Over the next 15 years, it is expected to build +80 new reactors. And that’s just one country.

India is also rapidly expanding into nuclear energy.

“Either prices go up or the lights go out”

Of course, the lockdowns might end. Miners could soon resume digging.

But why would they with prices this low?

Cameco has been buying uranium in the spot market to fulfill its contracts. Why? Because it’s cheaper. Cameco suspended its McArthur River mine long before coronavirus. Above-ground supplies are dwindling.

And these mines are highly concentrated. Just four countries supply roughly 75% of the market.

Considering all this, it’s hard to imagine how prices could possibly fall.

As commodities expert Rick Rule said on Bloomberg in 2018, “If prices don’t go up, the lights go out.”

Why Uranium Participation?

I don’t know about you, but I’m tired of worrying about the impacts of coronavirus.

I just want a straightforward investment that I can buy, hold, and not think about.

Uranium Participation holds physical uranium. It adjusts supplies based on its share price and net asset value (NAV). For example, if shares are trading a premium to NAV, Uranium Participation might issue new shares, then use the funds to buy more uranium. It’s dead simple.

This lets you invest in physical uranium without the risks of mining or exploration.

Operating expenses account for less than 1% of working capital.

And you can often catch shares at a discount to NAV. Last month, it reported a fair asset value of $696 million. This works out to $5.04 per share.

Theoretically, if you can buy shares for less, you’re getting a good deal. And if uranium prices rise, you could be getting a very good deal.

As for me, I bought a bunch of shares in my TFSA. I don’t know when I’ll sell. Maybe not for 20 or 30 years. Prices should be significantly higher by then. If they’re not, then I guess we’ll all be in the dark.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

Fool contributorAlex Busson owns shares of URANIUM PARTICIPATION CORP.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.