By Hugh Leask
Uranium is emerging as a major top-down commodity trade for thematic macro investors, with decarbonization and deglobalization trends highlighting the pressing need for more stable sources of energy, according to Trium Capital portfolio manager Thomas Roderick.
As grid-scale battery technology and the hydrogen economy remain distant prospects, and wind and solar power still face connectivity challenges, Roderick said there is a critical need for stop-gap solutions on the road to pure renewable power and transportation – with nuclear becoming widely accepted as an “unavoidable leg” on that journey.
Roderick – who runs the Trium Epynt macro hedge fund, which trades major macroeconomic and geopolitical trends using fixed income, FX, commodities and equities – said demand for nuclear has rebounded since the 2011 Fukushima power plant disaster.
In the past year, uranium prices have almost doubled to about $100 per pound.
Portfolio manager Roderick began his career at Brevan Howard as a trader and strategist, later moving to Hugh Hendry’s macro hedge fund Eclectica Asset Management in 2012 where he spent five years, most recently as an investment partner where he managed a macro portfolio. He joined Trium Capital in 2018 and currently runs the Epynt fund, a discretionary global macro strategy active in both developed and liquid emerging markets.
Uranium in short supply
In a recent investment commentary, Roderick zeroed in on the supply-demand imbalance in uranium which is likely to sustain the investment thesis going forward.
He noted how there are currently 436 operational nuclear reactors globally, with 62 new reactors under construction, and a planned further 118 set to be operational within 15 years. At the recent COP28 climate change summit in December 2023, more than 20 international signatories, including the U.S., the U.K. and France, pledged to triple their nuclear energy capacity globally by 2050.
But faced with that expected ramp-up in demand, uranium production remains stretched, with many new uranium mining projects still stuck in pre-production stages.
“Even at $100, prices are still below economic levels for some existing and prospective mines, and producers will likely want to milk it some more before deploying fresh capital,” Roderick explained. “As a result, the uranium market is in a severe supply deficit – with the gap between supply and demand having been met through drawing down inventories built up during the metal’s wilderness years.”
Roderick believes the uranium bull thesis is further bolstered by the ongoing process of deglobalization, with the rising geopolitical tensions of recent years further fueling concerns over energy security, and supply chains increasingly split along “West-versus-China” lines.
He also acknowledged the surge in secondary demand from financial market participants competing with utility buyers, and the increasing importance of commodity investment vehicles such as Toronto-based Sprott Physical Uranium Trust, which controls more of the uranium needed to plug the supply/demand deficit. “They will sell the physical uranium at some point but are not yet incentivized to do so as long as the primary deficit grows,” he added.
Roderick said: “Until we are better able to smooth out the power supply from intermittent wind and solar, nuclear will play a key role in replacing gas and coal as a source of clean - in terms of CO₂ emissions - and stable baseload power, as governments strive to deliver on ambitious net zero pledges.
“Widespread political intervention in pursuit of decarbonization has created a multi-year opportunity for thematic macro investors,” he concluded.
This article, “Taconic Capital unveils new merger arb launch as deal activity rises” was originally published on April 23, 2024 on Alternatives Watch and is republished here with permission from BMV Digital, Inc.
