The global transition to a clean energy future has sparked renewed interest in uranium. Power generators, governments, and investors are seeing this heavy metal in a new light.
Energy security issues in 2022 caused by the war in Ukraine saw the uranium price hit its highest level in more than a decade. In this article, we look at how to invest in ASX uranium stocks and why they may be worth considering for your portfolio.
What are ASX uranium shares?
ASX-listed uranium stocks are companies traded on the Australian Securities Exchange that are involved in uranium mining and extraction. Uranium is a silvery-white metal and an abundant source of concentrated energy.
One uranium fuel pellet (the size of a fingertip) creates as much energy as one tonne of coal. One tonne of uranium can produce more than 40 million kilowatt hours of electricity, equivalent to 16,000 tonnes of coal or 80,000 barrels of oil.
Uranium is used to power commercial nuclear reactors, which produce electricity and isotopes used for medical, industrial, and defence purposes worldwide. Nuclear energy is one of the lowest carbon-emitting forms of energy generation.
Uranium's radioactive properties allow it to produce massive amounts of emissions-free energy with greater reliability than wind and solar. Growing global demand for electricity, coupled with targets for reduced CO2 emissions, means nuclear energy is expected to play a key role in decarbonising global power generation.
Why invest in uranium stocks?
Uranium prices have risen more than 100% since the beginning of 2020, a trend analysts expect to continue. Demand for the heavy metal is steadily increasing, which has prompted several producers to announce restarts at idle mines.
Analysts believe we are in the early stages of the new uranium bull market. The outlook for uranium demand is extremely strong as the world prepares to meet its energy needs and achieve carbon emission reduction targets at the same time.
Supply, however, has been predicted to fall by up to 15% by 20251. This could place upward pressure on the price of uranium. Significant demand growth from 2025 to 2040 will necessitate new production as resources are exhausted at existing uranium projects.
In addition, a large percentage of global production is in regions of the world with high geopolitical risk, which makes the market vulnerable to future disruptions and price volatility.
How are market conditions changing?
Political upheaval within the world's leading producer, Kazakhstan, and the conflict between Russia and Ukraine have affected supply and demand balances. Countries are also seeking to restart or add nuclear capacity amid high coal, oil, and gas prices.
More than 30 countries use nuclear power to some extent. Although Australia does not include nuclear power in our energy mix, we play host to the world's largest known uranium deposit2 – Olympic Dam in South Australia, which represents approximately one-third of all uranium.
Because of the cost structure of nuclear power generation, with high capital and low fuel costs, the demand for uranium fuel is much more predictable than probably any other mineral commodity. Once reactors are built, it is very cost-effective to keep them running at high capacity. Utilities can then make any adjustments to load trends by cutting back on fossil fuel use.
With electricity demand potentially increasing by about 50% between 2019 and 20403, there is plenty of scope for growth in nuclear energy generation in a world concerned with limiting carbon emissions.
Pros and cons of investing in uranium shares
Despite having a complete ban on domestic nuclear energy, Australia is home to the world's largest share of uranium resources and is a prominent supplier in the global uranium market.
Australian investors can gain exposure to uranium commodity prices by purchasing ASX uranium shares. Of course, not all ASX uranium stocks are created equal. Big miners such as BHP may provide stability, but there are also many mid-tier and junior uranium shares worthy of consideration.
Investors must also remember that mineral commodity markets tend to be cyclical, in that prices rise and fall substantially over time. The fluctuations in mineral prices relate to demand and perceptions of scarcity.
Prices cannot indefinitely stay below the cost of production nor remain at very high levels for longer than it takes for new producers to enter the market and create more supply.
Top ASX uranium stocks
The ASX has 51 companies listed in the materials and energy sectors involved in uranium operations.
This includes Rio Tinto Ltd (ASX: RIO), previously the third-largest uranium producer in the world, with uranium mining operations in Australia and Namibia.
Rio Tinto holds 86.3% of the shares in Energy Resources of Australia Ltd (ASX: ERA), which owns the Ranger Mine in the Northern Territory. It was Australia's longest continually operating uranium oxide producer until mining ceased in 2021. Clean-up of the site is now underway, with site rehabilitation legally required to be completed by 2026.
The small-cap Deep Yellow Ltd (ASX: DYL) also warrants a mention. A uranium exploration business focused on Namibia, Deep Yellow has developed a portfolio of geographically diverse exploration, early-stage, and advanced-stage uranium projects, which provides a strong development pipeline and significant growth optionality.
Deep Yellow has a key competitive advantage being the only ASX-listed company with two advanced projects in development – Tumas in Namibia and Mulga Rock in Western Australia.
|BHP Group Ltd (ASX: BHP)||Owns the largest known uranium deposit in the world, Olympic Dam |
in South Australia
|Paladin Energy Ltd (ASX: PDN)||Is restarting production at its uranium mine in Namibia because of |
rising prices. Also holds an exploration portfolio in Australia and Canada
|Boss Energy Ltd (ASX: BOE)||Is progressing the development of its uranium mine in South Australia, |
with the first production on track for December 2023
BHP is one of the world's largest commodities producers. It mines iron ore, copper, nickel, metallurgical coal, and uranium. In FY22, BHP is estimated to have produced 2.4 metric tonnes of uranium. The company's Olympic Dam mine in South Australia is the largest known uranium deposit in the world. Copper is currently the primary resource mined at Olympic Dam, but the project also hosts gold and silver.
Paladin is a uranium miner with a large-scale uranium production capability at the Langer Heinrich mine in Namibia. The mine was placed on care and maintenance in May 2018 due to continued low uranium prices. Now, with the price of uranium more than doubling since 2018, Langer Heinrich is set to recommence operations.
Forecast production from the Langer Heinrich mine will ultimately represent about 4% of annual global uranium production. Paladin is headquartered in Perth, Western Australia, and also holds a diversified exploration portfolio in Australia and Canada.
Boss Energy is focused on its 100%-owned Honeymoon Uranium Project in South Australia. The company is progressing offtake negotiations and project financing efforts, while advancing the project towards development.
First production is on track for December 2023. Drilling to extend Honeymoon's mine life and increase its production profile has yielded strong results. With improving market conditions, the company believes it is prudent to exploit known satellite deposits.
Are ASX uranium shares right for you?
Excitement about uranium is high, with many speculating the sector is on the verge of a renaissance. As the need for clean energy grows, investing while the spot price of uranium continues to show improvement could offer an opportunity.
However, whether uranium is a suitable investment for you depends on your investing goals, financial situation, and risk profile. You should do your own research and never invest what you cannot afford to lose.