Warning: the uranium-stock rally might decay quickly

Companies around the world tied to the commodity have charged higher, but the excitement might be short-lived

Warning: the uranium-stock rally might decay quickly

Shares of uranium mining companies saw a boost Monday as a rally in the radioactive metal gave retail traders a new sector to be excited about.

As reported by the Wall Street Journal, Sydney-listed uranium miners Peninsula Energy, Energy Resources of Australia, and Bannerman Energy all closed the day more than 25% up from where they started. Aura Energy, which is listed in London, saw its share jump more than 35%. Yellow Cake PLC, a London-listed company that’s effectively a fund that gives investors uranium exposure, climbed 13%.

SwaggyStocks, a website that monitors WallStreetBets for mentions of ticker symbols, also detected an uptick in chatter around Cameco, a Canadian company listed on the New York exchange, which at one point became the third most-discussed company in the notorious Reddit forum after Apple and Alibaba. Cameco shares ended the day up 0.1%, though not before they saw a surge in premarket trading.

The uptick in uranium-focused conversation on WallStreetBets came on the heels of a sharp increase in the price of the physical metal, which is used mainly to power nuclear plants. Over the past month, New York-traded futures of the commodity have seen a roughly 40% boost to US$42.40, setting a roughly seven-year record.

“Huge purchases of the metal by the Sprott Physical Uranium Trust, a newly created fund that gives investors direct exposure to the metal, have been a significant driver of the rally,” the Journal said, citing Yellow Cake CEO Andre Liebenberg.

The Sprott uranium trust has hoarded nearly 25 million pounds of the commodity since launching in July; in just one day last week, the fund bought 850,000 pounds of uranium. In contrast, the total amount of uranium mined for the entirety of 2019 was 120 million pounds, as per the World Nuclear Association.

“The uranium market is quite niche and small but the interest I have seen from generalist investors has been much broader than I used to see in the past,” Liebenberg told the Journal, noting how governments including the U.S. and China have suggested that the diversifying the world’s energy mix to include nuclear power could help along efforts to curb or arrest climate change.

Still, investors’ near-term exuberance around the metal might be misplaced.

Drawing from conversations with Jonathan Hinze, president of uranium market research firm UxC, the Journal noted that Sprott isn’t acquiring its uranium directly from miners; rather, the spot-market activity that Sprott engages in is of the sort that usually occurs among financial players like traders and banks. That means the rally in the commodity could be just a mirage that doesn’t represent changes in the actual supply and demand dynamics in the markets.

The reverberations of Sprott’s uranium buying could also harm miners. As an example, because it has suspended operations at some of its mines, Cameco has turned to the spot market as a way to cover some contracts it has with utility customers. Tightness in the market could make that process painful – the miner estimated it would have to buy 11 million to 13 million pounds of uranium to satisfy its obligations this year – though it has some leeway to dip into its working inventory if prices at the market are too lofty.

“In the medium term, a rise in uranium prices means miners might command higher prices on future contracts with utilities,” the Journal said. “Those betting on a quick turnaround in nuclear energy’s outlook, however, may want to take a U-turn here.”