Canada is one of the most resource-rich countries in the world. This is why it really isn't surprising that our major stock index, the Toronto Stock Exchange, is made up primarily of cyclical companies like oil, gold, and uranium companies.
In this article, we're going to focus on the uranium end of things, including why the world is becoming bullish on uranium, what it's used for, and why some of the top uranium stocks to buy today are located right here in Canada.
How big of a uranium player is Canada?
Currently, Canada is the second-largest uranium producer in the world, accounting for 13% of total global output. It also has the world's largest deposits of high-grade uranium. In fact, the quality of its uranium deposits is 100x greater than the world average.
Keep in mind that it's important to note we're talking about high-grade deposits, not total deposits. For that, Canada comes third, behind countries like Australia and Kazakhstan.
You'd think with Canada being one of the biggest producers it's a very popular commodity. However, the industry is much smaller than you'd think.
In fact, the Government of Canada states that the mining and milling of uranium is only an $800M a year industry, employing just over 2000 Canadians.
Compare this to the oil and gas industry, which employs over 80,000 Canadians, and you can see that although Canada is one of the global leaders in uranium production and uranium exploration, it is still a relatively small industry. Why?
The slow adoption of nuclear power is weighing on uranium stocks, but maybe not for long
Uranium is primarily used to generate nuclear power. Nuclear power over the years has faced some tough criticism from environmentalists and the like, and for good reason. The Fukushima nuclear power plant incident in 2011, which was the most severe nuclear accident since Chernobyl, soured nuclear power generation for many countries.
In fact, many countries put nuclear reactors and power plants on standby after the incident, and they're still not up and running today. However, it does seem to be regaining its footing in recent times.
Even though Canada is one of the largest uranium producers and has the world's largest deposits, over 85% of our uranium is exported. In fact, we utilize very little nuclear power here, as it accounts for only 15% of our total electricity generation. This would be the opposite strategy of a country like Argentina that produces no uranium, importing all of its demand.
The main thesis for uranium and nuclear power, in general, is to provide somewhat of a stepping stone from fossil fuels to renewable energy. Many don't believe an immediate switch is possible, and with nuclear energy having a relatively low carbon footprint, this makes sense.
The bullish case for Canadian uranium stocks
There is one main reason investors looking to buy stocks should be bullish on Canadian uranium companies. That is nuclear power’s massive potential.
As mentioned above, nuclear is a green energy that doesn’t get nearly the attention of other environmentally friendly energy solutions. Yes, nuclear plants are expensive to build in the first place, but once the asset is in place it’s an incredibly efficient way to produce energy for decades.
However, there are also two main downfalls to nuclear energy. The first we went over above, and that is a risk of a meltdown. However, this is something that has been minimized by increases in technology over the years. I won’t argue that nuclear energy is 100% safe, but it’s pretty darn close.
The other downfall is nuclear waste, but today’s efficient reactors hardly generate any waste. Even with these downfalls – which have been improved significantly over the last couple of decades – nuclear is still a great power source that doesn’t get nearly the attention it deserves.
Is this a long-term solution to our energy woes? No, not necessarily. But, it certainly looks appealing in the short to mid-term as we transition away from dirtier forms of energy like coal.
Is there a uranium ETF?
Picking individual uranium stocks, especially ones that are pre-revenue and firmly in the exploration stages, poses significant risks.
If you're wrong about the horse you've bet on, you'll likely be faced with significant capital losses. So, many decide to invest in a uranium ETF to gain exposure to the entire uranium mining sector.
The one I tend to look at is the Global X Uranium ETF, which trades under the ticker URA. There aren't enough uranium producers here in Canada to warrant an ETF. So, we do have to head south of the border.
But, just because this is a US-listed ETF doesn't mean it doesn't contain some of the best Canadian uranium stocks. In fact, it contains most of the stocks listed below, including some additional ones like Denison Mines, Global Atomic Corp, and Energy Fuels. Feel free to check it out if you'd like.
But if you're interested in picking individual uranium stocks, let's move on to some of the top opportunities in Canada today. For the most part, we'll organize this list to go from most speculative to least speculative.
The best uranium stocks to buy right now
- Fission Uranium (TSE:FCU)
- NexGen Energy (TSE:NXE)
- Sprott Physical Uranium Trust (TSE:U.U)
- Cameco (TSE:CCO)
Fission Uranium (TSE:FCU)
Fission Uranium Corp (TSX:FCU) doesn’t just have a catchy name. The company is also poised to be a major uranium producer.
The company owns a 100% interest in the advanced, high-grade and near-surface Triple R uranium deposit, an asset that is located near the Athabasca basin by the Alberta and Saskatchewan border.
The company is excited about its uranium assets because they're located near other proven uranium reserves, and initial testing has shown the location boasts plenty of high-grade minerals near the surface, something that should not only accelerate construction time but keep extraction costs down once production starts.
The company is still pre-revenue, so this is very much a speculative investment. You'll need to be accustomed to share dilution and an extremely volatile share price as the company continues toward the path to production on the PLS property.
The company's Canadian production potential certainly puts it in a position to benefit from much higher quality reserves and is likely why this company is trading at a near $500M valuation before even generating a cent of revenue. In fact, its uranium project is expected to generate an internal rate of return of over 25%, highlighting the quality of the asset.
Fission Uranium is not for the faint of heart. With a beta of 3, this company is going to be extremely volatile, and investors buying in now need to not only have a high-risk tolerance but long-term conviction in the demand for uranium and the success of the company's primary asset.
NextGen Energy (TSE:NXE)
NextGen Energy (TSE:NXE) is another pre-revenue uranium exploration company. It acquires and explores for uranium properties in Canada. At the time of writing, the company's portfolio consists of 3 key projects. Those being Rook I, Radio Property, and IsoEnergy.
The company states it has slowly developed a highly concentrated uranium supply due to a 10-year bear market in the price of uranium. Its Elite Arrow Project, located in Saskatchewan, is exposed to one of the best mining jurisdictions in the world, is expected to have a 24-year operating life, and has some of the lowest expected costs in the world.
Its Rook I project is the largest development-stage uranium deposit in the world at the time of writing and has an expected mine life of just shy of 11 years. The mine will produce just under 29 million pounds of uranium a year and expected after-tax cash flows are predicted to come in around $930M. Considering the company currently has a market cap of around $2.5B, $930M of cash flow coming from a single asset is certainly an attractive proposition.
In fact, if the asset can get to 28-30M pounds a year in production, it could represent 15-20% of global production.
The only issue with NextGen right now is the fact that much like Fission, it is a highly speculative investment. You're paying a $2.5B valuation for a company that is not expected to generate any sort of revenue over the next few years. Share dilution has been an issue, with shares outstanding going from 140M in 2014 to 480M in 2022, and you're going to need to be very patient with this company moving forward.
The company holds some very strong assets, but investment now is a hope those assets prove to be fruitful in the future. Nothing is ever guaranteed, especially with volatile mining companies. So not only do you need to have an appropriate risk tolerance to invest in a company like this but the patience as well.
Sprott Physical Uranium Trust (TSE:U.U)
The Sprott Physical Uranium Trust is a unique way to invest in uranium, brought to you by Sprott Asset Management. Unlike the other stocks on this list, which can have operations that range from uranium mining, exploration, or sales, Sprott simply invests in uranium-based assets like uranium oxide and hexaflouride.
This is an investment fund and is the first-ever uranium trust. At the time of writing, it holds over 58 million pounds of uranium with a market value that exceeds $2.9B.
Sprott is a mainstay and what I would consider a blue chip in the commodity space, having several successful funds like this.
If you're looking to buy Sprott's uranium trust, you are more so looking to get direct exposure to price fluctuations in uranium. A fund like this will not be saddled with exploration, development, mining, or marketing and sales costs. It simply holds the underlying commodity and its main objective is to benefit from the increase in that commodity.
There's not much more to say about it than I already have, it's relatively simple!
Cameco Corporation (TSX:CCO) is a behemoth in the uranium business. It’s the world’s largest publicly traded uranium producer and it extracts nearly 20% of the world’s annual supply of the mineral. The company has over 450 million pounds of uranium reserves, ensuring it’ll be a big player for years to come.
Major assets include an ownership stake in Cigar Lake, a large uranium mine in Saskatchewan. It also owns a stake in Inkai, a uranium mine with low extraction costs located in Kazakhstan. Both mines are actively producing today, and Cameco also buys product from other producers and resells it to customers.
With the rising price of uranium, it looks like one of the company's most valuable assets is about to come back online. After being shut down due to a prolonged period of low uranium prices, its McArthur River operation in northern Saskatchewan is set to re-open. Production at the facility is expected to be in excess of 15 million pounds a year.
The announcement to re-open the facility was sent out in February of 2022, and it did note that it will take some time to get the plant from care and maintenance to full scale production. But when it does, there's no doubt Cameco will benefit.
Cameco is far from cheap. In light of rising uranium prices, valuations have shot up extensively. At the time of writing, the company is trading at nearly 32x expected earnings. However, considering the company is expected to post triple-digit earnings and EBITDA growth over the next few years, investors are more than willing to fork over the premium right now.
In my eyes, if you're looking for a blue-chip uranium producer, Cameco fits the bill. However, it's very important to understand that although Cameco would be considered "blue chip" in the uranium sector, it is far from stable. We can expect the company to be very volatile, especially if the price of uranium fluctuates extensively.
And, if the company fails to hit lofty estimates of triple-digit bottom line growth placed on it by analysts, it is very likely that earnings multiple could be rerated downwards. You could say Cameco is the least risky out of the bunch on this list but is far from without risk. Don't get the two mixed up.
The bottom line on uranium stocks
It’ll take a big increase in nuclear power for these uranium stocks to be a good investment.
Fortunately, it sure looks like that’s coming. However, there will still be plenty of controversial reports and environmentalists who think the path to a greenelir future doesn't go through nuclear energy.
But the case can be made it is a perfect transition away from fossil fuels on the path to zero-carbon energy sources. If that plan is put into action, the demand for uranium miners and the refinement, manufacturing, selling, and drilling for uranium will no doubt increase.
Just understand that these investments are not for the defensive investor. A company like Cameco is cash flow positive but is far from reliable. And speculative investments like the pre-revenue exploration and mining companies on this list are ones you really need to figure out if they fit within your risk tolerance.