After years of stagnant prices, a 37 per cent rally in prices for nuclear fuel uranium has helped attract investors back to the sector.
Funds such as Ben Melkman’s New York-based Light Sky Macro, Anchorage Capital and Tribeca Investment Partners have been positive on the outlook for the raw material, as a global energy crunch highlights the role of nuclear power in a transition away from fossil fuels.
The price of raw uranium, known as yellowcake, rose to its highest level since 2012 at $50 a pound last month. The move has attracted new investors into the market for the first time since before the financial crisis, when buying by investors drove the price from $20 a pound to a record high of $136 a pound in June 2007.
“We’ve been patiently waiting for something to happen for a long time,” said Ben Cleary, of Tribeca Investment Partners in Singapore, whose fund is up 345 per cent net of fees this year. “Clearly there’s speculative money coming back into the sector, there were massive price moves in September.”
Canadian asset manager Sprott has catalysed the price rise with significant buying of uranium, but investors say the broader energy transition is highlighting the key role of nuclear — a low-carbon source of baseload power.
Sprott’s Physical Uranium Trust is one of the few that buys and stores physical uranium. Most funds have added exposure through mining equities, which have rallied 58 per cent this year, according to the Global X Uranium ETF.
The rapid rise in natural gas and coal prices to fresh highs this month has exacerbated an energy crisis in Europe and China, and has “placed uranium back in the spotlight”, said Rob Crayfourd at CQS New City Investment Managers.
“The political fallout of this energy crisis will be a greater willingness in the west to extend the life of the existing reactor fleet,” he said. “It has focused governments on the benefits of secure supply of energy from the nuclear fleet. We expect that to lend support [to prices].”
Light Sky’s founder Melkman, who was previously a partner at hedge fund Brevan Howard, has gained more than 5 per cent this year, said a person who had seen the numbers.
“Light Sky Macro sees an immediate and sizeable opportunity in the uranium sector, making it one of our highest conviction views for 2021,” he wrote in a note to clients, seen by the Financial Times, earlier this year.
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A drawdown of inventory during the coronavirus pandemic has compounded tightening supply, while demand is expected to surge in the coming decades, added Melkman, who has been investing in the sector since 2018.
“The growing focus on ‘green energy’ at a political level and the growing demand for [sustainable] assets in the investment community should turn uranium into one of the most asymmetric trades for the coming years,” he wrote, meaning that the possibility of potential gains far outweighs the risk of losses.
Also profiting is Sean Benson, founder of London-based Tees River. His uranium fund, which buys equity stakes in uranium miners, is up 115 per cent this year.
Benson argues in an investor letter, seen by the FT, that a deficit of supply relative to demand and a “very supportive” climate change agenda mean that “the current uranium cycle is better than the last on every fundamental metric”. His Critical Resources fund, which invests about one-third of assets in uranium, is up 44 per cent this year.
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