The last of Saddam Hussein’s notorious yellowcake uranium is on its way to Ontario, where it will be processed in the Lake Ontario city of Port Hope and up in Algoma country at Blind River.

That puts uranium squarely back in the public eye, somewhere it hasn’t been for a while.

While gold, copper, molybdenum, and other commodities (do we need to mention oil again?) have dominated the headlines, uranium has been sitting quietly in the background.

No more, says Mr. Grant Campbell, writing in Investor’s Digest of Canada. It is now time to buy and hold the best uranium stocks, he says.

First, we will see what pulled uranium out of the investment spotlight over the past year, then we’ll learn why it should be on investor’s radar screens today.

Spot price vs. contract price

Uranium prices have been misleading people, says Mr. Campbell.

“Interest in the uranium sector became a little overdone last year as the uranium price surged to over US$125 a pound,” he says. “The speculative interest reached a point that was unsustainable, and the inevitable correction took place, pushing the price down to the current level of US$60 a pound.”

But that’s the spot, or open market, price. The long-term contract price did not suffer the same fate, says the analyst.

Contract prices have been trading between US$85 and US$95 a pound over the past 12 months. “This is the price at which most of the production will have been sold.”

There are good reasons why the spot price is more volatile, adds the analyst. It has been “reflecting short-term concerns regarding supply and is influenced by the increase in speculative buying by funds and uranium consumers building additional inventory.”

Make no mistake about it, Mr. Campbell states. The contract price is the most accurate gauge of the uranium market.

Locking in supply

The uranium market is dominated by electrical utilities. They must have a secure long-term supply to operate. “The unique nature of nuclear power generation forces the power-generation companies to lock in supply over long periods of time and does not allow for a just-in-time delivery plan,” explains Mr. Campbell.

Over the past year, it appears that producers and consumers of uranium have been able to meet in the middle of the wildly fluctuating spot price, and settle on a stable and consistent pricing model for contracts.

“It seems that many investors have been preoccupied with short-term pricing in the market and have not fully valued uranium producers who have been operating in a relatively stable market trading at all-time historic highs,” says the analyst.

So it’s time to give producers their due.

Greenhouse gas emissions

Supply and demand calls for a rise in the price of uranium. No great surge, perhaps, but a steady upswing.

Nuclear power facilities are expanding around the world. The World Nuclear Association counts 439 nuclear reactors operating around the globe. 36 more are under construction with another 93 expected to be built over the next eight years. If all of these reactors come on line as planned, uranium demand will rise 25% over current levels.

And with the movement to reduce greenhouse gas emissions, still more power may have to come from nuclear reactors.

Canada is one of the world’s largest producers of uranium, and one Canadian company is the single largest producer in the world.

A core holding

Cameco Corp. (TSX: T.CCO, Stock Forum) accounts for some 20% of the global supply of uranium. “The company is in an excellent position to capitalize on increased demand by controlling 45% of the forecast new production to come on stream in the next decade,” says Mr. Campbell.

Cameco has four key mines in the Athabasca basin in northern Saskatchewan. Three of them produce 21 million pounds annually. The fourth, Cigar Lake, is the biggest undeveloped high-grade uranium deposit in the world. A 2007 flood pushed production back, but it should be turning out uranium by 2010.

There are also mines in Wyoming, Nebraska, and Kazakhstan. And Cameco operates those refineries in Port Hope and Blind River that will be dealing with Saddam’s uranium. Plus it has Zircatec Precision Industries, which sells fuel bundles for nuclear reactors … and it owns Bruce Power, which operates six of those reactors in Ontario.

This powerhouse should be a core holding for long-term diversified investors, the analyst states firmly. The shares opened today at $41.48.

Strong contender

But it’s not the only Canadian entry in the uranium sweepstakes. Denison Mines (TSX: T.DML, Stock Forum) is another strong contender. 

Denison runs the McClean Lake Mine and Milling facility in the Athabasca basin. It is licensed to process eight million pounds annually, including the ore from Cigar Lake.

The JEB Tailings Management Facility, converted from an open-pit mine, will process tailings from McClean Lake and Cigar Lake. It has an estimated 25-year life, but a new open pit should extend it even further.

The company has yet another milling facility in Utah, handily located between its three mines in Utah, Colorado, and Arizona. Not least, Denison manages publicly traded Uranium Participation Corp. (TSX: T.U, Stock Forum), which invests in uranium concentrates or uranium hexafluoride. “The unit offers an opportunity to invest directly in the uranium market,” Mr. Campbell tells his Investor’s Digest of Canada readers. Denison is trading at $8.02, while Uranium Participation trades at a slightly higher price, $9.11.

It comes down to this. If we are serious about reducing greenhouse gas emissions, clean power becomes a necessity. There are several alternatives – wind power being one – but so far the best established of these is nuclear power.

That’s why it’s back in the news – and back on investors’ radar screens.