Uranium price soars. Time to buy...?
BEING at primary school in 1986, I remember only two big global news stories from that year, writes John Stepek, editor of MoneyWeek magazine.
One was Scotland getting kicked out of the first round of the World Cup, after the triumph and heartache involved in the qualifying rounds in 1985.
The other – of much greater significance to everyone outside of Scotland – was the Chernobyl disaster.
In the year when unleaded petrol was first introduced to the UK and leaded was still go-to option at your local petrol station, and about a third of the UK's energy was still produced by burning coal (we've cleverly exported our coal burning these days), my main memory is of terrifying news stories about the fallout that was even now gusting across Europe.
To be very clear before I get a flood of angry emails, this is not to say that the fallout didn't have an impact, particularly on farmers in affected regions. My point is more that the stuff that was already hanging about in the air was levels of magnitude more toxic than what was being blown across the continent.
And this has historically been the problem with nuclear power. The campaign to cut carbon emissions is now embedded in public policy across the globe. If we discovered nuclear energy tomorrow, it would look like a miracle solution – the ability to generate power reliably, and plenty of it, with no carbon emissions.
It would be deemed a renewable energy source and picked as the desired baseload provider to back up more intermittent solar and wind power until we made the necessary battery tech breakthroughs.
Instead, nuclear has been seen as the ultimate in toxic energy production, and investment across the world has been patchy, with many countries keen to phase it out altogether, even while maintaining big coal plants (Germany is the obvious example here).
A poor public image is one reason for this. For example, venture capitalist Josh Wolfe of Lux Capital is leading a mildly amusing campaign to rebrand nuclear power as "elemental energy".
But while I can see the appeal of blaming hectoring from the greens (and there has been plenty of that) for the lack of uptake, I suspect politics and economics have in fact played a larger role. Power stations are costly to build and no one wants one in their back garden.
As with any collective project whose benefits are long term and whose costs (both financial and political) are mostly upfront, you need a very strong motivation to get behind it and build.
Throw in the vested interests of other energy industries and I don't think you can lay all the blame at the door of environmentalism, though they've served as a useful excuse for sure.
Anyway, that's all a long way round of making the point that we really should be very keen on nuclear power if we want to keep the lights on while simultaneously getting somewhere close to "Net Zero".
The good news is that there are signs of this now happening, even if it's taken an energy crisis to really drive home the urgency.
Dylan Grice of Calderwood Capital covered the "buy" case for nuclear in the pages of MoneyWeek as long ago as December 2019. If you're looking for a good backgrounder, check it out.
The easiest way to get exposure to the nuclear industry is through investing in nuclear fuel – uranium. And uranium has taken off strongly in the last few years.
What's interesting now from an investment point of view, though, is that uranium-related stocks have sold off in line with the rest of the commodities sector.
Now, while my gut is still longer-term bullish on commodities, I can see the reasoning behind the recent sell-off. You've had demand pulled forward, then pushed back out again. You have a wobbly Chinese economy (which is massive for commodities). And you have an environment which is definitely recession-y, even if you don't want to use that exact description. None of that is promising for raw material demand.
However, it's much harder to argue that the bull case for uranium has deteriorated, even in the short term. The collapse in relations with Russia is pretty significant, given that a lot of nuclear fuel comes from there. The energy crisis is also pretty significant, given that it puts pressure on politicians to find solutions, and nuclear power increasingly looks appealing.
The Japanese government wants to have more nuclear plants operational again for winter, while even the greens in Germany are looking at extending the lifespan of their reactors.
In other words, if anything, the bull case has only strengthened in the short term. And with the longer-term drive towards cutting carbon emissions without having to destroy our standard of living, it's hard to see what the alternatives are.