URNJ: Good Industry Developments And The Recent Pullback Offers A Buying Opportunity

seekingalpha07-03 01:12

URNJ and URNM have both seen an increase in net asset value in 2024, with URNJ benefiting from inflows while URNM has seen minor outflows.Despite a decline in spot price in 2024, the contract price of...

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Those articles can be found here. URNJ has quite a bit of overlap with the Sprott Uranium Miners ETF (URNM), but the URNM has some of the largest producers; Cameco Corporation (CCJ) and Kazatomprom together with the investment vehicles; the Sprott Physical Uranium Trust - Unit (OTCPK:SRUUF) and Yellow Cake plc (OTCQX:YLLXF), among its largest holdings. These companies are not holdings in the URNJ, which is more focused on the miners just below the largest producers in the industry. Figure 1 - Source: sprott.com URNJ and URNM have both seen the net asset value increase this year, although the dollar value increase is much lower for URNM, even though it is five times the size of URNJ. That is because the junior ETF has seen a healthy amount of inflows during 2024, while URNM has seen very minor amounts of outflows. Figure 2 - Source: sprott.com 2024 Performance The spot price of uranium had a very strong run in 2023, up over 80%, but so far in 2024, it has declined a few percent. The long-term contract price has on the other hand continued to increase throughout 2024, so the difference between the two prices has decreased substantially over the last few months. The higher contract price is likely part of the reason why we have seen several miners have positive returns, despite a lower spot price. That also makes intuitive sense given that the contract market is larger than the spot market and miners do consequently have more exposure to the contract market than the spot market, even if many contracts are partially linked to the spot price. Figure 3 - Source: Numerco & Cameco Because of the weaker spot price in 2024, the physical uranium investment vehicles have lagged, which has benefited URNJ that doesn't hold the investment vehicles. However, Cameco has on the other hand outperformed in 2024, which has offset the weakness in the investment vehicles for URNM. So, the two ETFs have had relatively similar performance YTD and are up 2-3%. Figure 4 - Source: Koyfin Uranium & Nuclear Developments One way to gauge the sentiment in the uranium industry is to look at the discount to net asset value for the Sprott Physical Uranium Trust, which is presently at 12%. Based on how this trust has traded historically, that would equate to a rather depressed sentiment, which I would agree with. We have seen substantial declines among uranium miners on low-liquidity days, while positive uranium developments have only caused minor stock price increases lately. URNJ has, despite poor sentiment, held up relatively well this year. Figure 5 - Source: Sprott Physical Uranium Trust - sprott.com The Department of Energy recently announced a $2.7B request for a proposal for low-enriched uranium from domestic sources. Companies looking to expand their uranium enrichment capabilities will be the direct beneficiaries of this. However, it is still an important development for the nuclear and uranium market. It primarily illustrates the government's commitment to the nuclear and critical material industries. I also expect uranium miners and western uranium miners especially, which is a substantial portion of URNJ, to indirectly get some traction as the domestic supply chain is built out over the next few years. We continue to see more positive developments in the nuclear industry among Western countries, where Poland is making progress on its development plans. Saskatchewan is also engaging with Westinghouse on its latest technology. While we are still some ways from a shovel in the ground, nuclear buildouts were highly unlikely to happen in these locations a decade ago. So, there is no doubt a shift in the popularity of nuclear, even in the West. In the below chart of the 2024 National Nuclear Energy Public Opinion Survey, which was conducted in April-May this year, we can see that the support for nuclear energy in the U.S. is at a record level. Today, less than 25% of Americans oppose nuclear as an electricity source. Figure 6 - Source: Bisconti Research Conclusion 2023 was a very strong year for uranium miners and some level of consolidation is natural following that. I would admit that I did not think it would last six months. Especially given the many positive nuclear and uranium developments we have seen lately and given that there has so far been very little of a supply response from the miners. Figure 7 - Source: Koyfin The uranium market has been in a deficit over the last couple of years, which I expect to continue for at least 2-3 years. I have a hard time seeing that not being bullish for the uranium producers and developers, even if there will be delays for some of the companies in URNJ. I expect URNJ to outperform URNM going forward. With that said, if the liquidity remains low and sentiment continues to be poor, it might take some time for URNJ to get going, but I still consider this a very good buying opportunity in URNJ. I don't own URNJ directly, but my uranium portfolio is relatively similar to the ETF, with substantial exposure to the mid-cap uranium miners. Figure 8 - Source: My Uranium PortfolioFigure 9 - Source: My Uranium Portfolio  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.24.2","shortVersion":"4.24.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2448194214"}