Is the Sprott Junior Uranium Miners ETF set for a meltdown?

Uranium stocks are tipped to benefit from the clean energy transition. However, despite the heavy metal’s price rallying earlier this year, the URNJ fund has dropped 16.3% year-to-date.

• Sprott Junior Uranium Miners ETF falls 13.3% year-to-date.
• Top holding Paladin Energy confirms impending production at its Namibian mine, but stock drops amid fears of government taking stakes.
• Uranium spot prices rise in 2023, but stocks remain a volatile bet according to Bloomberg.

The Sprott Junior Uranium Miners ETF [URNJ] has gained 4.3% in the past week, though it is down 13.3% since its inception on 1 February.

The fund’s performance may be positively affected by last week’s news that its second-largest holding, Australia’s Paladin Energy [PDN.AX], will restart operations at its Langer Heinrich mine in Namibia by June 2025.

However, the fund’s third-largest holding, NexGen Energy [NXE.TO], which is building a uranium mine in Canada’s Saskatchewan region, recently announced disappointing second-quarter (Q2) results, including widening losses. 

The URNJ fund is the only pure-play ETF offering exposure to small uranium miners. It tracks the Sprott Junior Uranium Miners Index, which features companies with mid-, small- and micro-caps in the uranium mining sector.

Uranium is a critical element in the clean energy transition, as it is necessary for generating low-carbon nuclear energy. In July, Sprott reported that, during the previous month, the uranium concentrate spot price climbed 2.61%, and rose 15.95% year-to-date, a period during which many other commodities had fallen.

Paladin’s eggs all in Namibian basket

As of 11 August, Paladin Energy is the URNJ fund’s largest holding, with a 13.30% weighting. The company explores for and operates uranium mines in Africa, Australia and Canada, though it has yet to record a profit.

In its July activities report, Paladin said that its Langer Heinrich project, in which it holds a 75% stake, was 60% complete, with a 1,000-strong workforce on-site. In an update last week, Paladin’s CEO Ian Purdy told Mining Weekly that the company is “looking at the first 15 months of stockpiled material, and in the middle of 2025 we will introduce fresh ore from the mine”.

At the end of May, the Namibian government said it might take minority stakes in mining projects in the country. Paladin said that it did not believe it would be negatively affected, but its stock tumbled 23% on the news, to its lowest level since August 2021. According to data compiled by Bloomberg, all Paladin’s revenues come from Namibia.

Paladin’s share price is up 14.3% year-to-date. 

The third-largest holding in the Sprott Junior Uranium Miners ETF is NexGen Energy, with a 12.38% weighting.

The Canadian clean energy firm recently posted its quarterly results for the period ending June 2023. It posted basic losses per share of C$0.04 for Q2, compared to earnings of C$0.03 a year earlier, and net losses of C$17.5m, compared to a net income of C$17.6m in Q2 2022.

NextGen’s share price slipped 4.1% across two sessions following the results, but is up 10.7% year-to-date.

Future for Sprott Junior Uranium Miners ETF

Uranium looks set to play a significant role in the transition to low-carbon energy sources, as nuclear energy does not rely on fossil fuels. However, further development of nuclear power is regarded as a risky proposition by some nations. 

According to uranium research company UXC, the heavy metal’s spot price reacted to Russia’s military action in Ukraine, jumping from $43 in February 2022 to a peak of $63.75 in April that year. Trading Economics reports its price is now at $56.75 per pound.

The global market for uranium may also be impacted by the recent coup in Niger, the world’s seventh-biggest exporter. France, in particular, relies on Niger as a source of uranium for its nuclear reactors.

In general, uranium is regarded as a volatile stock and carries potential risks for investors. Investing in a themed ETF, such URNJ, offers investors exposure to a range of companies in the sector.

URNJ is rated a ‘moderate buy’ by a consensus of 27 analysts polled at TipRanks.

Three analysts at TipRanks rate Paladin Energy a ‘strong buy’, while two analysts give NexGen a ‘moderate buy’ rating.