Sprott sees buying opportunity as uranium stocks trail market

The recent selloff in uranium mining stocks has created a buying opportunity as rising long-term prices, stronger nuclear policy and constrained supply go largely unrecognized by investors, Sprott Asset Management says.

The long-term uranium price reached $94 (C$132.34) per lb. at the end of June, its highest in 18 years, while the spot price gained 4.3% during the first half. Uranium mining equities fell 3.9% over the same period and junior uranium miners lost 7.4%. In June alone, the two equity indexes dropped 14.4% and 17.5%, respectively.

“A rising long-term price shows that the market remains tight, even if equity markets don’t reflect it,” Jacob White, ETF product manager at Sprott Asset Management, wrote in the July 14 analysis.

The selloff has been driven by risk-off sentiment rather than weakening uranium fundamentals, according to Sprott. The firm says tightening long-term supply, stronger nuclear policies and rising electricity demand continue to support the commodity, creating a buying opportunity in uranium miners and developers.

The investment manager has an influential position in the physical market through the Sprott Physical Uranium Trust (TSX: U.U for USD; U.UN for CAD), the world’s largest physical uranium fund. It holds 81.4 million lb. of uranium oxide and has a net asset value of about $7.1 billion (C$9.9 billion).

Macro trends

Investor attention during the first half centred on artificial intelligence, the conflict involving the United States and Iran, energy security and broader economic uncertainty, White wrote. Yet Sprott maintains that those same issues strengthen the case for uranium because AI data centres, industrial reshoring, advanced manufacturing and electrification require increasing amounts of reliable baseload power.

Nuclear plants can provide around-the-clock generation while requiring comparatively small quantities of fuel that are less exposed than oil and gas to disruptions along shipping routes, Sprott said.

Long-term advantage

Long-term uranium prices are considered a stronger measure of the market’s underlying condition than spot prices because they more closely reflect utility contracting, mine economics and the prices needed to encourage new production.

The spot price briefly exceeded $100 per lb. earlier this year before easing, while the long-term price continued rising.

Sprott views that increase as evidence that utilities are becoming willing to pay more to secure future supplies, even though mining shares have failed to follow the commodity higher.

Lagging supply

Supply remains the main constraint. Utilities have contracted insufficient uranium to cover future reactor requirements, while inventories and other secondary supplies accumulated during earlier periods of oversupply are declining.

New production is unlikely to respond quickly. Uranium deposits can take years to permit, finance and develop, while restarts have frequently taken longer and cost more than operators initially expected. Higher prices have improved project economics and encouraged producers to revive idled operations, but Sprott does not expect these additions to keep pace with demand.

Governments are also shifting from broad support for nuclear energy towards financing and regulatory changes intended to advance projects.

Government tailwinds

The U.S. Department of Energy in June announced $17.5 billion in conditional loans to fund long-lead items for as many as 10 new reactors. U.S. utilities are also pursuing reactor restarts and operating-life extensions, while regulators have introduced reforms aimed at accelerating approvals for small modular reactors.

Canada is positioning nuclear energy as part of its plans to meet rising domestic electricity demand and expand energy exports. Ottawa’s Nuclear Energy Strategy supports new large reactors and small modular reactors, as well as increased uranium production, fuel processing and exports.

Ontario is advancing the first of four planned small modular reactors at Ontario Power Generation’s Darlington site, east of Toronto. The four units would have combined generating capacity of 1,200 megawatts, enough to power about 1.2 million homes.

China’s momentum

China remains the largest driver of new nuclear construction. It accounts for 38 of the 79 reactors being built worldwide and 41 of the 121 reactors in the development pipeline, according to figures cited by Sprott.

Beijing has also moved earlier than many Western utilities to secure uranium through long-term supply agreements, strategic inventories and investments in mining assets. Sprott expects that approach to place additional pressure on utilities that still need to contract material for future years.

Uranium equities could begin closing the gap with the commodity if utility contracting accelerates during the second half, Sprott says. Until then, the firm views the weakness in miners and developers as an opportunity rather than evidence that the uranium market is deteriorating.