Uranium – time to shine in the roaring 20s?

Australia’s horrific summer of bushfires in NSW and Victoria have intensified national media focus on climate change and brought Australia’s efforts at CO2 emissions reduction into sharp focus. Although calls to increase national investment in renewable energy tend to dominate the Australian media, there has also been some discussion about the benefits (and risks) of nuclear energy.

Proponents argue it is CO2 emission free and also a potential replacement to coal in terms of base-load power.  Not to mention that Australia has the largest known uranium reserves in the world -almost a third of the world total (world-nuclear.org website, January 2020), including 111 known uranium deposits totaling around 1.8 million tonnes of material (mining-technology.com website, January 2020).

These facts make a strong argument for a nuclear energy industry in Australia, particularly in the context of taking action on CO2 emissions reduction without jeopardizing economic success with a (punitive) economy wide carbon tax or similar. However, opponents of nuclear energy point to nuclear disasters like Fukushima (March, 2011) and Chernobyl (April, 1986) as reason enough that Australia should maintain the status quo and leave nuclear out of the energy mix.

The uranium price is currently AUD $35.83 per pound which is well below the 12 month high of AUD $40.85 per pound in February 2019. Many analysts now predict 2020 and beyond will bring higher prices as global uranium inventories diminish and additional nuclear reactors under construction or planned come online.

How to invest in commodities

Commodity prices traditionally move in opposition to stocks, which means commodities investments may be more popular during bearish or volatile periods in the stock market. Investors often look to commodities to diversify a portfolio away from a reliance on traditional securities, or park cash during a volatile period. The most common example of this would be investors leaving bearish world stock markets to buy gold or silver as they are perceived as being a safe store of value, particularly in times of high inflation or currency devaluations.

Tradable commodity assets include; energy (oil, LNG, coal etc.), precious metals (gold, silver etc.), agricultural (barley, wheat, soybeans, coffee etc.), livestock and meat (feeder cattle, pork bellies etc).

Various exchanges around the world trade commodities including; The London Metal Exchange (LME), Chicago Board of Trade (CBOT), New York Mercantile Exchange (NYMEX), Chicago Mercantile Exchange (CME), Australian Stock Exchange (ASX).

Investors trade through licensed brokers dealing on these respective exchanges by buying and selling commodity futures contracts. Although many institutions and speculators invest using commodity futures, there are multiple options to get exposure to commodities.

Investors can obviously invest directly but only if it is practical to buy and store the chosen commodity- this might be workable for gold coins but clearly it is not for iron ore, uranium or lean hogs etc. Investors will instead choose to buy shares in Exchange Traded Funds (ETF) or buy shares in companies producing the preferred commodity.

ETFs typically buy the commodity and offer tradable securities to the public meaning investors can simply buy and sell shares in the ETF and over time, the performance of their (ETF) stock will track the performance of the particular commodity. For example, the SPDR Gold Trust (GLD) is an ETF trading on the NYSE and each of its shares represents 1/10th of the per ounce price of gold. (Note; each share is slightly eroded over time due to a small management fee).
An Australian example of a gold ETF is ETFS Physical Gold (ASX; GOLD).

Buying shares in listed companies with exposure to the chosen commodity is a common approach for retail investors. Investors can easily identify listed producers in different commodities e.g. beef, iron ore, oil etc. and then buy the preferred stock through their retail brokerage account.