Why is Uranium Valuable?
Uranium is a silvery-white metallic element that is malleable, ductile, very dense and naturally radioactive. Uranium has several important industrial applications, but its principle use is as a fissionable material (atoms that can be split apart to release energy) to produce nuclear fuel for electricity generation.
Miners worldwide extract about 62,000 metric tons of uranium annually. The quest for cleaner, more environmentally-friendly fuels has propelled the growth of the nuclear industry in electricity generation. As a result, uranium has become an increasingly valuable commodity in world markets.
How Did Uranium Usage Evolve?
Civilizations have used uranium compounds for centuries. Archaeologists found yellow glass with 1% uranium oxide in an ancient Roman villa near Naples, Italy. In the later Middle Ages, glassmakers used pitchblende extracted from silver mines to color glass. However, chemists didn’t formally isolate uranium as an element until the 19th century.
In 1789, Martin Heinrich Klaproth, a German chemist, discovered uranium oxide in the mineral pitchblende. Although he believed the compound contained a new element, he failed to produce uranium on its own.
In 1841, Eugène-Melchior Péligot, a French chemist, finally succeeded in isolating pure uranium.
In 1896, the most important scientific discovery related to uranium occurred. French physicist Antoine Henri Becquerel placed a small quantity of uranium on to an unexposed photographic plate, and the plate became cloudy. Becquerel deduced that invisible rays emitted from the uranium caused this phenomenon. Becquerel had serendipitously discovered radioactivity.
Beginning in 1934, physicist Enrico Fermi conducted experiments with uranium that led to the development of nuclear reactors and the beginning of the nuclear age.
The first modern use of uranium was in warfare. The United States was on the brink of war with Germany when Fermi and his team of scientists created the first nuclear reactor, known as an atomic pile. Fearful that the Germans might be developing their own bomb, US scientists hastened efforts to create a nuclear weapon.
Ultimately, these efforts led to the development of the first nuclear bomb used at Hiroshima, Japan during World War II. Soon thereafter, an escalating nuclear arms race ensued between the Soviet Union and the United States.
However, after World War II, countries also began seeking peaceful uses of nuclear energy. In the early 1950s, American researchers successfully lit four light bulbs using nuclear power, and by 1957, the first nuclear power plant began operating in the United States.
In 1954, the world’s first nuclear reactor began producing power in Russia, and by the 1960s and 1970s, the nuclear power industry began to grow rapidly worldwide.
Until the early 1950s, the main global source of uranium was in the Belgian Congo. To meet the needs of the fast-growing nuclear power industry, more countries including the United States, Canada, France and Australia began developing uranium mines.
How is Uranium Produced?
Many natural minerals contain uranium including pitchblende, uraninite, carnotite, autunite, uranophane and tobernite. Phosphate rocks, lignite and monazite sands also contain the element.
Uranium ores typically have very low yields of the element of between 0.1 to 0.2%, and some have concentrations lower than 0.05%. (The Canadian Saskatchewan mines are the exception and have yields of more than 20% uranium. However, flooding and environmental concerns make the future of mining in this region uncertain.)
Extracting uranium from the earth takes place using three methods:
- Open Pit Mining
- Underground Mining
- In-Situ Leaching
Open Pit Mining
This form of mining, also called strip-mining, involves using heavy machinery to remove soil and rocks at the surface of the earth and uncover valuable uranium ores just below the surface.
Miners dump the surface materials, known as waste rock, near the open pit. They then dig a series of steps, known as benches, into the mine to facilitate removal of the uranium ores. Sometimes miners construct roads to allow hauling trucks easier access to ores or employ pumps to dewater the pit.
While open pit mining is less expensive than underground mining (see below), it produces a heavy toll on the environment. Open pit mines produce enormous and hazardous waste rocks, create groundwater contamination and expose miners and nearby populations to dust and radon gases.
Open pit mining usually produces ores with less than 0.5% uranium content, and the mining methods works only with minerals located less than 400 feet below the surface.
Underground mines allow miners to retrieve ores that surface mines can’t reach. Miners drill into the ground and use controlled explosives to shatter the ore into debris. They then transport the ores to the surface.
Underground mines have a smaller environmental footprint than open pit mines and produce less waste rock. In addition, better ventilation systems and robotic mining techniques have improved the safety of newer underground mines.
However, the method also has its drawbacks. Underground mining is expensive and can cause serious damage to local aquifers. As with surface mines, ore yields are typically less than 0.5% uranium.
After extraction, the ores from both open pit and underground mines require milling. Machines crush and pulverize the rocks into fine fragments. Processors first add water and then sulfuric acid or an alkaline solution to release uranium from the rocks. This produces uranium oxide (or yellow cake).
Another processing plant then enriches this uranium further to prepare it for industrial uses.
Typically milling allows recovery of 95 – 98% of the uranium residing in the rocks. Milling is the only effective method for extracting uranium from conventionally mined ores.
Some deposits of uranium lend themselves to a more environmentally-friendly method known as in-situ leaching. With this method, miners pump water with gaseous oxygen and (sometimes) sodium bicarbonate into injection wells at the site of uranium ores.
The method dissolves uranium from the rocks into the groundwater. Pumps then bring the uranium-rich water to the surface. Treatment plants then filter the water and remove the uranium.
In-situ leaching produces little waste rock and leaves a minimal environmental footprint. However, miners must monitor contamination of aquifers and ensure disposal of waste water.
In-situ leaching accounts for about 48% of all uranium mining, while open-pit and underground mining comprise about 47% of mining. The remaining 5% of mining occurs as a byproduct of other mining.
Top 10 Uranium Mining Countries
3 Main uses of Uranium
|Nuclear Fuel||Uranium fuel used in nuclear reactors is enriched with uranium-235 , a naturally occurring fissionable fuel. This produces a chain reaction that generates heat, which can be used to create steam for turbines and electric power generation.|
|Military||Uranium is used to powers nuclear submarines. It is also used to produce nuclear weapons.|
|Depleted Uranium Applications||Depleted uranium contains much less uranium-235 than natural uranium. Depleted uranium is less radioactive than regular uranium and used in several applications:|
Counterweights for aircraft
What Drives the Price of Uranium?
The price of uranium is driven mostly by these four factors:
- Nuclear Power Demand
- Global Supply Sources
- Global Inventories
- Macroeconomic Factors
Nuclear Power Demand
Demand for nuclear power in electricity generation is the biggest determinant of uranium prices.
As countries around the world seek cleaner alternative to fossil fuels, nuclear power use in electricity generation has gained greater acceptance. In France, for example, nuclear power accounts for more than three-quarters of electricity generation.
However, many factors could increase or lower this demand. One factor is the cost of fossil fuels such as coal and natural gas. Increases in their cost make nuclear power generators more attractive, while decreases in their cost make nuclear power less attractive
Environmental considerations are another factor that could influence demand for nuclear power. More power companies have adopted nuclear power because it is perceived as a greener technology than burning fossil fuels. However, if accidents such as the Fukushima Incident in 2011 or the Three Mile Island reactor meltdown in 1979 occur again, then public attitudes toward nuclear power could sour.
Global Supply Sources
Decisions by a small group of uranium suppliers can have a significant impact on prices.
Three countries – Kazakhstan, Canada and Australia – provide about two-thirds of the annual supply of uranium. Kazakhstan alone provides about 40% of world output. Therefore, events in these countries can have a disproportionate impact on prices.
Production decisions by Kazatomprom, the state-owned production company in Kazakhstan or Cameco, the world’s second largest uranium miner located in Canada, can have a big effect on spot uranium prices. Just as OPEC decisions impact oil prices, decisions by a small group of uranium suppliers can impact the direction of uranium prices.
Many utility companies hold inventories of uranium to buffer against disruptions of supply. Changes in the levels of these uranium inventories can impact the price of the commodity.
When uranium producers cut back on production, utility companies draw down on these stocks. This creates tight supplies and leads to higher prices. On the other hand, increases in production by uranium producers can lead to a build-up of inventories and lower prices.
The health and strength of the overall economy can have a big impact on uranium prices.
Electricity demand is often correlated with a strong economy. When the economies of the world are strong, industries and consumers use more electricity. This increased demand requires a source of power to operate the turbines that power generators.
As long as nuclear power remains a growing source of power for electricity generation, uranium prices should benefit from strong economic growth.
3 Reasons You Might Invest in Uranium
In general, the best reason for investing in uranium is to bet on the growing energy needs of the world.
Specifically traders should consider a uranium investment for the following reasons:
- Increased Acceptance of Nuclear Energy as a Power Source
- Emerging Market Demand
- Portfolio Diversification
Increased Acceptance of Nuclear Energy as a Power Source
Since nuclear power is used primarily to produce electricity, its increasing acceptance by the power generating industry is the main reason traders should consider the commodity.
More than 30 countries host about 450 commercial nuclear power reactors with an installed capacity of about 400,000 megawatts electric (mWe). Sixteen countries depend on nuclear power for more than 25% of their electricity needs, and some countries such as France depend on nuclear power for about 75% of their needs.
The price of uranium is likely to be influenced heavily by trends in nuclear power usage for electricity generation. The World Nuclear Association projects a 30% increase in electricity generation from nuclear power by 2030 and a 35% increase by 2035. These trends bode well for uranium prices.
Emerging Market Demand
According to the International Energy Agency, by 2035 more than 90% of net energy demand will derive from emerging economies.
Demographic trends across the globe show migration patterns from rural areas into cities. In places such as China, rising industrialization has accompanied these population shifts.
The United Nations forecasts that by 2030, there could be a 36% increase in the number of global cities with populations over 1 million people. New cities will require increasing amounts of electricity to power businesses and homes. As more countries seek to curb pollution while meeting energy demand, nuclear power demand could grow.
Investing in a critical resource such as uranium is a way to add diversification to a portfolio. Many of the factors that move demand for nuclear power are different than the factors that affect stock and bond prices. In fact, for many segments of the economy, demand for electricity is inelastic. As long as this remains the case, demand for uranium in power generation should remain strong.
Should I Invest in Uranium?
Traders who want to invest in uranium should consider purchasing the commodity along with a basket of other commodities that includes base metals (i.e., copper, lead, nickel and zinc), precious metals, agricultural commodities (i.e., dairy, meats and grains) and other energy commodities such as oil, natural gas and electricity.
Purchasing a basket of commodities helps protect traders from the volatility of any individual commodity. It also adds overall diversification to a stock and bond portfolio.
There are three reasons uranium prices could perform well in the years ahead:
- Emerging Market Growth
- Environmental Concerns
- Global Growth
Emerging Market Growth
China, India, Brazil, the Middle East and Africa are among the many fast-growing countries and regions that are becoming more industrial and urban. As populations in these regions migrate from rural areas into cities, demand for power should soar.
As the global economy expands, pollution is becoming a greater problem. This should benefit cleaner power sources such as nuclear energy.
Global growth is a positive catalyst for uranium prices. As the world economy expands, demand for power should grow, and uranium prices should respond favorably.
However, traders should also consider the risks of investing in uranium:
- A global recession could weaken power demand.
- Lower coal and natural gas prices could slow down the adoption of nuclear energy by power companies.
- Another nuclear reactor accident could be a serious setback to the uranium industry.
Global economic or political turmoil could strengthen the US dollar and weaken demand for commodities.
Expert Opinions on Uranium
Analysts are cautiously optimistic about uranium prices. Since the Fukushima accident in 2011 led Japan to shutter all its nuclear reactors, uranium prices have been in freefall. However, analysts believe that pessimism may have gone too far:
One analyst sees supply cuts by leading producers as a catalyst for higher prices:
“(The output cuts) sends a strong message to utilities that future supplies are by no means guaranteed at current uranium prices.”
BMO analyst Alexander Pearce
Another analyst concurs and believes the supply cuts could surprise the market:
“This is the type of supply shock that will spur strength in the spot price.”
Cantor Fitzgerald analyst Rob Chang
How Can I Invest in Uranium?
Uranium traders have several ways to invest in the commodity:
|Method of Investing||Complexity Rating (1 = easy, 5=hard)||Storage Costs?||Security Costs?||Expiration Dates?||Management Costs?||Leverage?||Regulated Exchange?|
The contract trades globally on the CME Globex platform and has various expiration months.
Futures are a derivative instrument through which traders make leveraged bets on commodity prices. If prices decline, traders must deposit additional margin in order to maintain their positions. At expiration, all of these contracts are financially settled.
Investing in futures requires a high level of sophistication since factors such as storage costs and interest rates affect pricing.
These financial instruments trade as shares on exchanges in the same way that stocks do. Global X Uranium ETF (NYSEARCA: URA) invests in a basket of uranium miners. In addition, VanEck Vectors Uranium + Nuclear Energy ETF (NYSEARCA: NLR) invests in both uranium mining and nuclear energy companies.
|Global X Uranium ETF||VanEck Vectors Uranium + Nuclear Energy ETF|
Shares of Uranium Companies
There are many publicly traded companies that mine, process and sell uranium. While investing in companies can be a leveraged way to gain exposure to uranium prices, many of these companies can react to other factors such as demand for their particular products, competition, production costs and interest rates.
Also, factors such as company management and the overall stock market can affect these investments:
Another way to invest in shares of uranium companies is through the use of a contract for difference (CFD) derivative instrument. CFDs allow traders to speculate on the price of companies involved in the uranium industry. The value of a CFD is the difference between the price of the shares at the time of purchase and their current price.
Some regulated brokers worldwide offer CFDs on shares of uranium companies. Customers deposit funds with the broker, which serve as margin. The advantage of CFDs is that trader can have exposure to share prices without having to purchase shares, ETFs, futures or options.
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