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Uranium stocks have gone nuclear, here's how to play it

Kitco News

(Kitco News) Nuclear energy is seeing a major comeback with the demand for uranium stocks soaring, said Scott Melbye, Uranium Royalty Corp CEO and executive VP of Uranium Energy Corp.

"Demand for uranium and nuclear generation has responded back to pre-Fukushima levels. We've seen 57 new reactors come online around the world," Melbye told Michelle Makori, editor-in-chief of Kitco News.

Uranium is currently trading around $45, and due to this year's "mega-trend," it has the potential to go towards $100.

"In my 37 years in this industry, I haven't seen society really facing this kind of a conundrum. Policymakers and society, in general, want to move to cleaner carbon-free energy, but the math and science haven't exactly added up on how we get there," Melbye said. 

This is why nuclear energy has been seeing such an uptick in popularity, Melbye noted. "We've seen $10,000 electric bills in Texas. We've seen blackouts in California. We've seen an energy crisis in Europe. I think it's really beginning to be a broader realization amongst policymakers, environmentalists, investment community that nuclear energy is an important part of a carbon-free future."

The big plus with nuclear is that it is clean and runs 95% of the time instead of intermittent renewables that run 30% of the time, explained Melbye. 

The outlook for prices is quite bullish as the supply and demand fundamentals are getting tighter, and there is no excess supply.

"Economists may say $60 uranium price might be a nice equilibrium that will stimulate production, but there's no reason that uranium can't go to $100 when you have these dynamics in play."

And the Sprott Physical Uranium Trust, which provides an exchange-traded investment alternative for investors interested in owning uranium, is not the main catalyst here, Melbye added. 

"Sprott is not changing the market. They're just putting more price discovery, more liquidity into the market and draining that excess inventories faster than would have been the case," he explained. 

Another reason why this rally has legs is the low-point uranium equities are coming off of. "This uranium rally is really only in its first or second innings. Uranium at $47 a pound is a huge improvement, but you're not going to see a lot of mines rushing into production," Melbye said. 

In the future, Melbye sees nuclear energy co-existing with renewables and natural gas.

To find out how to best play this uranium rally, watch the video above. Follow Michelle Makori on Twitter: @MichelleMakori.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.