As the price of the component used in nuclear fuel spikes, investment banks Goldman Sachs and Macquarie together with a few hedge funds are preparing themselves to profit from a newly buoyant uranium sector.

Five industry and hedge fund sources with knowledge of the deals claimed that Goldman and Macquarie are increasing trading in actual uranium and, in Goldman’s case, trading its options as well, while many other investment banks are still steering clear of the metal.
The increased activity is a result of utilities searching for fresh supply in the face of shortages that have driven up prices to 16-year highs.

A few hedge funds are also increasing their investments in uranium, indicating that the metal is beginning to gain traction with financial institutions again after a decade of stagnation following the Fukushima nuclear accident.

“With the headlines and positive momentum in nuclear more generally, hedge funds and other commodity investors are back in the (uranium) sector. A lot of it is done via physical funds, the easiest way to get exposure to uranium prices,” said Bram Vanderelst at trading firm Curzon Uranium.

Investors are taking notice of the metal as prices have quadrupled to $102 per pound over the past year, driven by cuts in output guidance by leading producers Kazatomprom and Cameco due to difficulties in ramping up production at reopened mines that had been put on hold to meet rising demand.

It also coincides with the resurgence of nuclear energy as a means of assisting governments in reducing their carbon emissions; this was emphasised in a December 2023 statement from the Group of Seven, the most developed nations in the world, which called for tripling nuclear energy capacity between 2020 and 2050.

For the first time, Goldman Sachs has developed a derivative for the metal by beginning to write options on actual uranium for hedge funds.

A person with knowledge of the bank stated, “Goldman has been increasing their visibility, they’ve been increasing their book steadily,” without disclosing the specifics of the deals due to their confidentiality.

According to a second source who dealt with both banks and declined to comment further due to the confidentiality of the information, Macquarie’s primary goal is to increase trading and marketing production from miners, whereas Goldman primarily serves financial clients like hedge funds.

Due to their unwillingness to reveal specifics of their private trade in public, all five sources declined to be identified.

No comments were offered by either bank.

Goldman Sachs entered the uranium business in 2009 when it acquired Nufcor, a nuclear fuel broker based in London.

However, five years later, following the 2011 Fukushima nuclear plant accident in Japan, which caused uranium prices to collapse, Goldman tried to sell Nufcor but was unable to find a buyer and announced that it would be winding down the company.

According to the most current regulatory reports, Nufcor maintained $356 million worth of uranium inventory by the end of 2022, indicating that the business never shuttered.
Based on calculations by experts, and information from the World Nuclear Association, it is sufficient uranium to power 17 large nuclear reactors for a whole year.

According to consultant UxC, the purchase of physical uranium by publicly traded funds and hedge funds accounted for around 15 million pounds of uranium oxide concentrate (U3O8), or roughly 26% of the amount traded on the spot market in 2023.

This was less than the 22 million pounds that investors purchased in 2022 because each dollar purchased less pounds of uranium due to higher costs in 2023.

“We’ve especially seen large volumes purchased by investors in 2021-2023,” said Jonathan Hinze, president of UxC.

When uranium ore is chemically treated, a fine powder known as U3O8, or yellowcake, is created and stored in steel drums.

Although exchange-listed funds possess the majority of investor-held physical uranium, a few hedge funds have been purchasing physical uranium in addition to shares of uranium miners and other nuclear-related companies for some time.

With around $250 million in assets under management, Sachem Cove Partners is a uranium-focused investment strategy that began investing in the industry in 2018 with stocks and proxies for real uranium, such as the Sprott Physical Uranium Trust.

It started purchasing uranium in person last year.

“It gives us a look into both markets, the physical market itself and the equity markets,” said Mike Alkin, chief investment officer.

(Adapted from Reuters.com)

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