Uranium – time to shine after a 7-year slump?

ASX small cap uranium players made strong gains late in theweek after Canadian uranium heavyweight Cameco (NYSE:CCJ) announced it wasextending the (6-month) suspension of production indefinitely at the group’sMcArthur River and Key Lake mines, laying off 550 site employees and 150 corporate staff.Note: the operations are amongst the world’s largest and highest-grade uraniummines, having a combined production capacity of 18 million pounds of U3O8 perannum or 11% of annual global primary uranium production of 160Mlb. In theoil market, this would be equivalent to Saudi Arabia effectively shutting up shop!The uranium price reacted positively to the news, spiking up 6.2%(US$1.25/lb) to US$25.65 – the biggest intraday move in the past two years.However, prices are still well below the US$70/lb level that producers enjoyedprior to the March 2011 Fukushina Daiichi nuclear disaster that forced Japan toshut down its entire reactor fleet. Most market commentators believe that atcurrent price levels, even the lowest cost uranium mining operations in theworld are struggling to break-even on an estimated “all-in” cost/lb basis. Ashigher priced supply contracts expire, we believe more and more producers maybe forced to curtail production – unless we see a significant upward shift inthe spot price. In addition, current prices are a long way off the US$60/lbtrigger price needed for new mines to come into production. On the demand side,uranium demand is growing with 59 nuclear reactors under construction and Japanpotentially restarting an additional 25 reactors (on top of 9 that haverestarted since 2011). Thus, it looks like over the next two years, theuranium supply/demand balance is going to become increasingly tight. Forinvestors with this sort of time horizon, uranium-exposed stocks – which havebeen heavily sold-off in recent years - could provide attractive returns. Stocksto consider: Producer: Paladin Energy (ASX:PDN), Near-term Producer: BossResources (ASX:BOE), Leverage play: Bannerman Resources (ASX:BMN)