Unearthing Opportunity: Uranium Miners and the Global Clean Energy Movement

Global Energy is at an Inflection Point

Climate change is driving the urgent need for carbon-free electricity. We believe that the focus on energy infrastructure and commodity markets will increase and will likely usher in a new wave of technological changes geared toward higher efficiency. We believe that nuclear energy and uranium miners are poised to benefit from this shift.

This paper introduces the trends driving uranium markets and uranium miners and explains our positive outlook for growth. The case for uranium mining equities comes down to three converging factors.

  • First, the clean energy movement will have to embrace more nuclear power.
  • Second, uranium supply is not sufficient to meet the future demand.
  • Third, uranium miners represent a tiny share of the energy market today but are poised to claim an increasing share going forward.

Nuclear power has a complicated political history. Yet, it represents a unique mix of attributes that renewables can’t match at scale. Countries and states will need to embrace these attributes to make significant progress toward future decarbonization goals.

The Three Trends Driving Uranium Miners

  1. New nuclear reactors are under construction or planned globally.
    To meet global decarbonization goals, countries will need to embrace nuclear power more broadly, a sentiment that is gathering global support.
  1. Uranium mining supply shortfall is expected to rise relative to growing demand.
    Uranium mining has been lower than reactor demand since the Cold War ended in 1989. Now that de-weaponized stockpiles (secondary-source uranium) have been depleted, the projected supply gap is a more pressing issue.
  1. As nuclear power gains a greater share of global electricity generation (currently 10%),[1] uranium miners are poised to follow.
    To meet or even approach climate change mitigation, nuclear power needs to take a “share” of the energy market from high carbon-emitting fossil fuels; uranium miners may follow suit. Geopolitical upheavals, including the Russia-Ukraine conflict, have also magnified the need for secure energy sources.

What is the Clean Energy Transition?

The clean energy transition means shifting energy production away from sources that release significant greenhouse gases, such as fossil fuels, to those that release little to no greenhouse gases. Nuclear power, hydro, wind and solar are some of these clean sources…With around two thirds of the world’s electricity still coming from burning fossil fuels, reaching these climate goals by 2050 will require at least 80% of electricity to be shifted to low carbon sources.

Source: International Atomic Energy Agency.

The Global Commitment to Lower Emissions

The clean energy transition has a long way to go. Today, about two-thirds of the world’s energy comes from carbon-producing fossil fuel sources. As the world’s population has expanded and grown richer, carbon emissions have increased every year. Between 2010 and 2020, global carbon dioxide emissions climbed about 1% annually[2], even as developed economies began to embrace green energy sources and electric vehicles in higher numbers.

Green energy is not yet replacing fossil-fuel sources at scale. Researchers estimate that renewable energy production is being deployed in addition to— not instead of— fossil fuel sources. Meanwhile, emissions from surface transportation account for the continued annual growth. The COVID-19 pandemic, like prior economic downturns, did drive emissions downward, but this was only a temporary effect. As the world recovers from the pandemic, carbon emissions are resuming their upward trajectory.

Figure 1. Yearly CO2 ­Emissions Continue to Rise (1750-2022)

Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Please note that all performance figures are showing net data.

The Paris Agreement and the Net-Zero Movement

The drive to mitigate climate change has been gaining strong momentum. The Paris Agreement, an international treaty signed in 2015 and now ratified by 194 countries and the EU[3], established the global framework for cooperative efforts to address climate change. To date, only a handful of countries in the Middle East have not ratified the agreement. The Paris Agreement sets out shared goals, a framework of cooperative resources, and a monitoring system for parties to measure and report on their progress. But the real work of implementing green technologies falls on each country individually.

Currently, 89 parties representing 93 countries and 78.7% of global greenhouse gas emissions have communicated a net-zero target. Fourteen countries have net-zero targets outlined in laws, including Canada, the European Union, Japan, South Korea and New Zealand. Other major nations such as the United States, China, India, Brazil and Australia have included net-zero targets in policy documents. Countries that have not submitted net-zero documentation are generally third-world nations.[4]

Figure 2. Global Decarbonization Goals Are Ambitions

Source: climatechangedata.org. For illustrative purposes only.

Carbon Neutrality and Net-Zero, Defined

“Carbon neutrality” is a state of equilibrium between carbon produced and carbon captured/sequestered. Carbon neutrality relies first on eliminating carbon emissions as much as possible. Remaining carbon emissions are neutralized with an equivalent carbon offset. “Net-zero” is a term often used interchangeably for carbon neutrality. However, the phrase can also be used to indicate broader greenhouse gas impacts, including methane, nitrous oxides and other greenhouse gases.

Decarbonisation Will Require More Nuclear Power

The climate goals set in the Paris Agreement aim to limit global warming to a rise of 1.5 to 2 degrees Celsius. Scientists estimate that the world needs to cut annual fossil fuel production by 6% each year to meet the stated targets. However, the reality is that fossil fuel production is on track to rise 2%.[5]

To make significant progress, countries need to invest in infrastructure that can replace carbon-producing energy sources with carbon-free energy sources. Changes on the margin will not suffice. Small increases in renewable energy sources and incremental moves toward electric vehicles are considered low-impact tweaks that will barely move the needle.

By contrast, nuclear power has the potential to provide high-impact change that can significantly move the needle. Given that nuclear power can provide an appealing solution, sentiment has turned much more positive in recent years. Environmental advocates face the tough choices required to decarbonize economies. While there are still holdouts, particularly Germany and to a lesser extent Japan, the political tone toward nuclear power is on the upswing.

The recent invasion of Ukraine by Russia has forced countries like Germany and Belgium to readdress past policy decisions to phase out nuclear energy. The Russia-Ukraine conflict has highlighted the dual objectives that nuclear energy can support: the clean energy transition and the need for energy security.

Figure 3. Sentiment and Government Policy Have Turned in Favour of Nuclear Power

Source: Financial Times, Reuters, Fortune, Daily Journal, Bloomberg and the Washington Post.

Sources:

[1] https://world-nuclear.org/information-library/current-and-future-generation/nuclear-power-in-the-world-today.aspx

[2] https://www.nature.com/articles/s41558-020-0797-x

[3] https://unfccc.int/process/the-paris-agreement/status-of-ratification

[4] climatechangedata.org as of 7/2/2022.

[5] https://www.un.org/sg/en/content/sg/articles/2020-12-11/carbon-neutrality-2050-the-world%E2%80%99s-most-urgent-mission

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