Geopolitical instability in Kazakhstan, which is a resource-rich country accounting for roughly 40% of the world’s uranium supplies, is impacting the global energy market and, as a result, financial portfolios. As a zero-carbon and cost-effective energy resource, uranium attracts more and more investment due to higher demand for sustainable energy sources.
Sovereign Wealth Management CEO Gary Korolev, explains what benchmarks and developments are essential in this context and what we need to focus on for better financial performance.
Gary Korolev, CEO Sovereign Wealth Management: Today, we will talk about the riots and unrest in Kazakhstan and how it affects the uranium market, which has been an excellent investment over the last year.
Kazakhstan is home to Kazatomprom, which is the world’s leading producer of uranium. According to the WSJ, the company controls about 40% of uranium supplies globally which it sells to the U.S., Canada, Europe, and China. For many years Kazatomprom has been considered a reliable supplier, and partners with other major players. The most significant partner is Canada’s Cameco – the world's second largest uranium producer that, for instance, has a 40% share in a joint venture with Kazatomprom at Inkai.
Recently, we witnessed uranium’s price correction, which jumped 50% compared to a year ago. According to the WSJ, this “upswing ended an extended downturn sparked by the Japanese reactor meltdowns in 2011” that significantly eroded global demand. With a view to more recent developments (chart presented in vlog – ed.), you can see how last autumn saw a bit of a correction and the market consolidation looked like a bullish pattern.
However, when the news broke from Kazakhstan of a likely Arab Spring, the price of uranium jumped by 10%. Why? Because the country produces the lion's share of the world's uranium. Meanwhile, other factors also play a prominent role in these processes. To understand them, we need to look at the trends in the global energy market, especially in Europe, where countries declared their intention to adhere to the goals of the Paris Accord by significantly reducing CO2 emissions in the coming decade.
The energy transition process requires shutting down coal plants and switching to more ‘green’ energy sources. The EU is actively implementing this international climate change agenda to end the use of fossil fuels. In this context, uranium power usage is a perfect solution and can be used to offset the energy shortages that we’ve witnessed recently.
Sovereign Wealth Management sees a tangible trend that uranium will become a much more popular fuel down the road, not just in Europe but worldwide. Since there’s much talk of reducing carbon emissions in energy production, we must have reliable baseload power, and nuclear power has done this for decades.
Interestingly, if we look at the chart that shows trends for Sprott Physical Uranium Trust’s stock pricing (provided in the video -ed.), which only started trading recently, you can see quite a big jump since late 2020. And currently it does not look like we are breaking to the downside, even if we have had a consolidation.
Meanwhile, let's look at the dramatic news about what's happening in Kazakhstan. The Russian-led Collective Defense Organization has boots on the ground in support of the official Kazakhstan government and this has made international investors deeply concerned. The stock of this fund and companies included in its portfolio are now underperforming. On the other hand, uranium has posted more substantial growth, despite these upheavals. This is easy to explain - the companies are doing poorly because of geopolitical concerns, while the commodity itself does well due to greater global demand and those same concerns.
The traditional investor has several options to gain exposure to the Uranium market- whether it is through companies which extract and process Uranium or funds that hold the actual commodity to avoid potential geopolitical risks affecting the companies themselves.
Of course, this analysis can’t be seen as financial advice. We don't know each investor's exact needs, time frame, and other factors, which would determine whether this particular investment is suitable for you.
So please do your research or get in touch with us. We are happy to provide individual financial planning tailored to your needs. What we can say now, based on current trends, is that it’s likely this upward trend will continue for years to come; companies are also likely to survive this correction.