Uranium Stocks Soar After EU Seeks Green Light For Nuclear Projects

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by Tyler Durden
Monday, Jan 03, 2022 - 08:55 PM

Long before European energy prices went stratospheric, in December 2020, we predicted that Uranium stocks were set to surge as it was only a matter of time before the Green lobby lumped the Uranium sector along with the rest of the ESG space (see :"Uranium Stocks Soar: Is This The Beginning Of The Next ESG Craze"). So it would be stand to reason that the case to "bless" nuclear power was that much more powerful when European energy prices just went through a period of unprecedented hyperinflation.

That's exactly what happened on the first day of the year, when uranium companies surged higher, extending on one of the best trades in the past year (the Uranium URA ETF is double since we first recommended the space in early Dec 2020), after the European Union said it is planning to allow some nuclear energy projects to be classified as sustainable investments, a proposal that sparked immediate criticism from the Greens who would rather freeze to death and spend all their money to keep warm during the winter than allow a few nuclear power plants to restart.

According to the draft, sent on Friday to EU national governments for review, nuclear energy could be classified as sustainable as long as new plants that are granted construction permits by 2045 meet a set of criteria to avoid significant harm to the environment and water resources, Bloomberg reported.

“The Commission considers there is a role for natural gas and nuclear as a means to facilitate the transition towards a predominantly renewable-based future,” the EU executive arm said in a statement on Saturday.

The reason why global uranium stocks spiked is because the design of the EU investment classification system - known as the taxonomy - is closely watched by investors worldwide and could potentially attract billions of euros in private finance to help the green transition. The challenge is to ensure the decision on nuclear and gas gets political support, while avoiding the risk of greenwashing, or overstating the significance of emissions cuts, something that has plagued virtually every other aspect of ESG.

Europe wants to reach carbon neutrality by the middle of the century under the Green Deal, a sweeping overhaul that aims to accelerate pollution cuts in all areas, from energy production to transport. Yet for some lawmakers, investors and activists, classifying gas or nuclear projects as green would harm the entire sustainable investment rulebook.

“Including nuclear power and gas in the EU taxonomy is like labeling a caged egg as organic,” said Michael Bloss, a German member of the Green group in the European Parliament. “Instead of channeling money into investments in the solar and wind industries, old and extremely expensive business models can now be continued under false guise.”

On the other hand, considering that it will take years if not decades for solar and wind to be viable alternatives to coal, nat gas or nuclear, it really doesn't matter whether the egg is caged or organic as long as Europeans don't freeze, and one more winter like this one and Europe's parties of "Green" hypocrites will be kicked out of parliament permanently, as the locals decide they'd rather have at least nuclear power than spend their entire paycheck on heating and power bills.

As Bloomberg notes, the taxonomy aims to guide investors to clean projects. The decision on whether it should include gas and nuclear power was delayed in April following criticism that such an addition could undermine the credibility of the system.

Giving a temporary green label to certain gas projects gas projects could facilitate investments in cleaning up coal-based heating systems in countries such as Poland. That’s an argument often raised by East European politicians.

Meanwhile, the inclusion of some nuclear energy projects would help attract private finance in nations from France to the Czech Republic, which plan to rely on atomic power in their transition to net-zero emissions.

The Commission is also planning to ensure a high degree of transparency to investors concerning gas and nuclear energy, introducing specific disclosure requirements for non-financial and financial undertakings.

Member states and the Platform on Sustainable Finance have until Jan. 12 to provide feedback. The Commissions will then adopt the delegated act later this month. In the next step, it will be sent to EU nations and the European Parliament for scrutiny.

And while we wait, the market is clearly looking for a favorable outcome, leading to surges across most uranium sector names including:

  • Uranium Energy up 7.5%
  • Uranium Royalty up 8.2%
  • Energy Fuels up 7.9%
  • Denison Mines up 7.3%
  • NexGen Energy up 5.9%
  • Cameco up 4.0%
  • Global X Uranium ETF (URA) gains 5.00%

If the European outcome is favorable, expect much more upside as our core thesis plays out.