As more than 600 nuclear industry representatives gathered in London in early September for the World Nuclear Association’s annual symposium, they had reason for self-congratulation: their predictions of a sustained bull market for uranium had come true.

At the time, spot prices for the metal were breaching US$50 per pound, an increase of more than 300% from prices three years previous; new nuclear reactors were sprouting up around the globe; and most publicly traded mining companies with a uranium focus were rewarding early investors. And the outlook remains rosy.

Yet investors should tread carefully through the field of 400 — and counting — publicly traded companies focusing on uranium. Uranium exploration and mining carries with it unique technical and political challenges that could threaten many of the projects currently being touted by the sector.

Conditions are good for a sustained rally, however. Ac-cording to the WNA’s 2005 market report, global uranium demand could soar to 110,800 tonnes by 2030 from the recent 66,000 tonnes, as the industry responds to growing electricity needs and concerns about the link between fossil fuels and global warming. As of December 2005, there were 32 reactors under construction and more than 150 planned or proposed globally.

The WNA assumes that — barring supply disruptions or delays in anticipated production — combined primary and secondary sources will just meet demand until 2012, when the market will move into significant deficit.

But Dustin Garrow, managing principal of Denver-based Colorado Nuclear Inc. and a marketing consultant for three newbie uranium producers, thinks the supply crisis is already here. “If you’re a utility and you need uranium before 2010, you’re in for a challenge,” he says. “Even in a US$50 market, the supply sector is slower to respond than people had thought. Except for a small group of imminent producers, it will probably be five years before any of the juniors can get into production.”

This is all is good news for the many companies listed on the Toronto Stock Exchange that have uranium resources they hope to develop over the next several years. But they will face challenges bringing their uranium to market. For one, public opposition to uranium mining or outright bans on it are serious impediments to development.

So, location is important. For example, some Canadian companies hold resources in Australia, which imposed a ban on new uranium mining years ago. These companies are gambling that Australia will change its policy under pressure from energy-hungry consumers in China and elsewhere. But even if they win the gamble, they probably will face a lengthy permit process and mining restrictions. Established uranium mining districts such as Saskatchewan and Wyoming, however, are expected to be more receptive to new projects.

Long lead times also threaten to derail some projects. For instance, any economic discoveries made in Saskatchewan’s Athabasca Basin, a global hot spot for uranium exploration, are expected to take 15 to 20 years to put into production.

As well, the quality and size of a deposit is crucial in determining whether exploration can take place. “A deposit that was evaluated as marginal in the late 1970s at US$45 per pound is probably still going to be marginal today at US$60-US$70 per pound because costs have gone up,” says Garrow.

In the Athabasca Basin, where the deposits tend to be deep and operating conditions challeng-ing, he estimates that 100 million pounds in the ground would be needed to justify the capital costs of building an underground mine.

Having both the financial and human resources to move from exploration to development is also key. “Many of the juniors are at the proverbial fork in the road,” says Garrow. “They’ve looked at their reserves and maybe done a little drilling. But they have only two to three people in the company. Moving toward production is a very tall order, even at US$50 uranium.”

If these juniors lack the money and/or expertise to become operators, their only option is to be swallowed up by established producers. But producers are few and can afford to be selective.

Marketing the final product is another consideration that many professionals accustomed to mining other commodities are either unaware of or not taking into account early enough in the development process, says Garrow, who markets production for Australia’s Paladin Resources Ltd. and Vancouver’s International Uranium Corp.

@page_break@Given these risks, the safest way for an investor to play the uranium market is to purchase either Toronto-based Cameco Corp., the world’s largest producer of uranium, or hold uranium directly through Uranium Participation Co., an investment holding company also headquartered in Toronto.

Cameco owns some of the highest-grade reserves and lowest-cost operations in the world and expects a 40% increase in production over the next five years. Meanwhile, Uranium Participation holds several million pounds of the heavy metal without incurring the risks inherent in exploration and mining.

Sprott Securities Inc. analysts Justin Reid and David Wargo of Toronto suggest investors take a “basket approach” by diversifying across a spectrum of producers, companies nearing production and exploration companies. Reid and Wargo have eight TSX-listed firms on their “buy” list, including two established producers, two new producers, three near-term producers and one exploration company.

The analysts’ long-term price forecasts for uranium average US$43 per pound in 2006, US$50 per pound in 2007 and US$55 per pound in 2008 and 2009. They consider US$50 uranium the minimum point at which small, low-grade, marginal deposits can be profitable.

Europe’s Deutsche Bank AG, which initiated coverage of the uranium market just this fall, is even more bullish. The bank expects uranium to average US$59 per pound in 2007 and US$63 in 2008.

Sprott’s producer picks include Cameco and the much smaller Toronto-based Denison Mines Inc., which owns a 22.5% interest in the McClean Lake uranium plant and a 25.2% interest in the Midwest uranium project, both of which are in Saskatchewan. The McClean Lake mill is under expansion to produce 12 million pounds of uranium per year, which will make it the second-largest uranium plant in the world.

Denison, which is also aggressively exploring landholdings in the Athabasca Basin, recently announced a merger with International Uranium (another Sprott pick) to form a uranium producer with a market capitalization of $1 billion and proposed production of 5.5 million pounds by 2010. International Uranium owns a permitted operating mill in Utah; it is also developing some small mines in Colorado and holds uranium deposits in Mongolia and uranium exploration properties in the Athabasca Basin.

Paladin, which just put the 2.6-million-pound-per-year Langer Heinrich mine in Namibia into production and is expected to develop another deposit in Africa by 2010, also makes Sprott’s “buy” list.

Sprott’s near-term producer picks include: Australia’s Equinox Minerals Ltd., which holds a copper deposit in Zambia with significant uranium resources; Toronto-based SXR Uranium One Inc., which expects to produce collectively more than three million pounds a year from its Dominion mine in South Africa (starting in 2007) and its recently approved development of the Honeymoon deposit in Australia — which obtained permission before that country’s current ban; and Vancouver-based Tournigan Gold Corp., owner of two advanced gold and uranium projects in Slovakia.

The one and only explorer on the “buy” list is Vancouver-based UEX Corp., which was formed under an agreement between Pioneer Metals Corp. of Vancouver and Cameco. UEX has 13 uranium properties in various stages of exploration in the Athabasca Basin. IE