A lot of uranium stocks have delivered spectacular returns recently. That’s because the commodity plays a major role in the nuclear energy industry and this is heating up. Here, I’m going to highlight a UK stock that offers exposure to uranium. I’m wondering if it could be a great play on the nuclear energy boom?
A nuclear energy revolution
Before I highlight the stock, it’s worth touching on the nuclear energy industry and how uranium is going to play a role in it.
The nuclear energy market is booming today because Big Tech companies are looking for new (clean) ways to power their data centres.
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Microsoft, for example, just teamed up with Constellation Energy to help restart the Three Mile Island nuclear reactor in Pennsylvania.
Amazon meanwhile, just signed three deals to support the development of small modular reactors (SMRs) – nuclear reactors that are significantly smaller than traditional nuclear power plants.
Now, the interest in nuclear energy has implications for uranium because it’s used to create this form of energy.
In a nuclear reactor, uranium atoms are bombarded by smaller neutron particles and this releases heat energy, which is used to heat water and create steam. This steam then spins a turbine, which creates electricity.
So, uranium could be in high demand in the years ahead if the nuclear energy market keeps growing.
It’s worth noting that supply could also be very tight. Recently Russia – a major producer of uranium – threatened to limit exports in retaliation for Western sanctions.
A UK uranium stock
That brings me to the stock in focus today, which is Yellow Cake (LSE: YCA). It’s a £1.1bn market cap AIM-listed company that provides investors with direct exposure to the uranium market through a physical holding of uranium oxide concentrate (U3O8).
As of 30 June 2024, the company owned 21.7m pounds of uranium oxide concentrate. That’s equivalent to roughly 15% of 2023 of global uranium production.
This company has an interesting business model. Unlike uranium producers, it doesn’t face the huge risks that come with exploring for uranium and building and operating a mine. At the same time, it can benefit from any increases in the price of the commodity as it owns a truck load of the stuff.
So, it could be worth considering as a play on the commodity. If uranium’s prices rise in the years ahead, this stock could do well.
Of course, the risk here is that uranium prices drop. This would result in the company being worth less and its share price falling.
This risk shouldn’t be ignored. Uranium is a very volatile commodity and its price can swing around wildly at times as the 25-year chart below shows.
Overall though, I think the stock looks interesting. If I was looking for exposure to the uranium or nuclear energy markets, I might have a nibble here.
