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

ASX small cap uranium players made strong gains late in the week after Canadian uranium heavyweight Cameco (NYSE:CCJ) announced it was extending the (6-month) suspension of production indefinitely at the group’s McArthur 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 uranium mines, having a combined production capacity of 18 million pounds of U3O8 per annum or 11% of annual global primary uranium production of 160 Mlb. In the oil 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 intra day move in the past two years.However, prices are still well below the US$70/lb level that producers enjoyed prior to the March 2011 Fukushina Daiichi nuclear disaster that forced Japan to shut down its entire reactor fleet. Most market commentators believe that at current price levels, even the lowest cost uranium mining operations in the world are struggling to break-even on an estimated “all-in” cost/lb basis. As higher priced supply contracts expire, we believe more and more producers maybe forced to curtail production – unless we see a significant upward shift in the spot price. In addition, current prices are a long way off the US$60/lb trigger price needed for new mines to come into production. On the demand side,uranium demand is growing with 59 nuclear reactors under construction and Japan potentially restarting an additional 25 reactors (on top of 9 that have restarted since 2011). Thus, it looks like over the next two years, the uranium supply/demand balance is going to become increasingly tight. For investors with this sort of time horizon, uranium-exposed stocks – which have been heavily sold-off in recent years - could provide attractive returns. Stocks to consider: Producer: Paladin Energy (ASX:PDN), Near-term Producer: BossResources (ASX:BOE), Leverage play: Bannerman Resources (ASX:BMN)