It’s been a long few years for investors in the nuclear energy and uranium sector. The industry took a huge hit back in 2011, when Japan suffered the double disaster of earthquake and tsunami. That still-unfolding tragedy made producing power via nuclear means taboo and the sector has been considered the "dead money” ever since as both citizens and policy makers debated the safety of the power source.
Well, it looks like uranium may finally be getting its life back.
The recent expiration of a key international program could finally see prices for the energy source rising. For investors, the upcoming bull market in uranium could be one of the best plays in the mining sector.
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Sustained Increase
Despite being hated, the world still generates a lot of its power via nuclear means. Right now, there are 435 nuclear power plants in operation around the globe using about 165 million pounds of uranium a year.
That’s all fine and dandy, except that current uranium production from mines amounted to just 143 million pounds. The remainder of that supply comes from the U.S.-Russian Highly Enriched Uranium (HEU) Purchase Agreement. That program is designed to dismantle Cold War-era nuclear missiles and use the warheads for reactor fuel.
The issue lies within the fact that the twenty year program- also known as “Megatons to Megawatts”- is scheduled to end in 2013. Given Russian leader Vladimir Putin’s general distain for the U.S., odds are that the program will not be extended. That’s a big problem as the end of that program will remove roughly 22 million pounds worth of cheap supply off the U.S. market.
Secondly, the expiration of the HEU allows Russia to sell its bounty to the highest bidder. With more than 67 reactors currently under construction and another 317 proposed or in the planning stages, analysts estimate that uranium prices could more than double from today’s levels as Russia begins selling its warhead stock to other nations like China or India.
Other sources of supply aren’t necessarily a bargain either. Most recently, France’s Areva (OTC:ARVCF) found out how difficult it is to find safe reliable supplies. The company’s Somair uranium mine in Niger was bombed by Islamic Extremists and was temporally shuttered. Areva receives roughly a third of its uranium supplies from Niger.
All in all, rising demand in the face of dwindling supplies makes for higher longer term uranium prices.
SEE: Green Energy: Why We’re Still Not Using It

Betting On The Miners
With the world continuing to add reactor capacity at a rapid pace and supplies of the fuel already pressured, investors may want to consider the nuclear industry for a portfolio. The Market Vectors Uranium+Nuclear Energy ETF (ARCA:NLR) is still the go-to broad-based fund in the sector. The ETF tracks a basket of 21 different firms associated across the nuclear value chain. This includes nuclear-heavy utilities like Exelon (NYSE:EXC) as well as industry service companies like US Ecology, Inc. (NASDAQ:ECOL).
However, the biggest gain could come from the miners of the fuel. Uranium prices are still well below its $140 per pound peak hit in 2007. That means a bet on leader Cameco Corporation (NYSE:CCJ) could be in order. The company operates mines in Canada, the United States and Kazakhstan which hold roughly 465 million pounds of proven and probable reserves. Overall, Cameco mines are responsible for about 14% of global uranium production and its ore grades are some of the highest in the world. That puts it in the driving seat when it comes to adding additional supplies to the market. Add in the firm’s 1.8% dividend and investors can be paid to wait as uranium prices rise.
With such a value being placed on gaining additional supplies and production, the junior miners of the metal could be seeing their stars rise as well. However, miners like Denison (AMEX:DNN) and Uranium Energy (AMEX:UEC) all riskier propositions than Cameco. To that end, a broad take could be best. The Global X Uranium ETF (ARCA:RA) follows 20 uranium miners-both big and small. Overall, the fund could be the best way to broadly play the theme of higher prices.
SEE: ETFs Provide Easy Access To Energy Commodities

The Bottom Line
While nuclear energy and uranium has remained in the doghouse for several years now, that could be changing. As the U.S.-Russian “Megatons to Megawatts” agreement ends, prices for the fuel are bound to rise. That could mean big profits for investors who bet on the upcoming bull market in uranium.
At the time of writing, Aaron Levitt did not own shares in any of the companies mentioned in this article.