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Uranium sector down, but not out Add to ...

Investors in the uranium sector have taken a powerful hit since Japan's nuclear disaster began in March. Yet shareholders have no reason to despair, analysts say, because the global push for clean electricity will continue, even though several countries are reviewing their nuclear power programs.

What we're looking for

Uranium miners that are worth a second look amid the uncertainty surrounding the future of nuclear power.

What we found

The knee-jerk selloff appears to have been overdone. Despite the negative headlines, demand for uranium is still likely to outstrip supply by next year, Raymond James mining analyst Bart Jaworski pointed out.

"We have updated our outlook on uranium supply/demand fundamentals and, after revisiting our reactor model and making adjustments to our projected reactor build-out per region, our outlook beyond 2011, to our surprise, remains fairly bullish," Mr. Jaworski said.

"A key point to make is that starting this year and carrying through the next six years, reactors currently under construction are finally expected to start coming on stream in large numbers," he wrote in a research report.

"We expect this situation to be no different than what happened after the Three Mile Island (1979) and Chernobyl (1986) accidents, where reactor growth continued quite strongly due to the large amount of reactors already in construction phase."

His top picks in the sector are Hathor Exploration Ltd. and Paladin Energy Ltd.

Hathor has the potential to reach 55 million pounds of reserves and should also benefit from continued speculation of a takeover, Mr. Jaworski said.

"Paladin is the only mid-tier uranium producer without a major third-party equity control block (good M&A potential, in our view), offers relatively low-risk, organic production growth, and is run by a strong management team," he said. It is priced at 0.9 times net asset value, compared with an average of 1.10 among its peers.

Another point in Paladin's favour is that it is a proven producer that provides both growth and leverage, said Adam Schatzker, an analyst at RBC Dominion Securities. He said the stock, which he rates "outperform," is one of his top producer picks.

Mr. Schatzker also likes Uranium One Inc., saying it has the "best production growth profile, with long-life resources and low operating costs," and provides the highest leverage to spot prices.

Another pick is Cameco Corp., which he calls "one of the world's top producers with a growth plan."

"We continue to believe that the uranium industry will again find its legs and that the public perception of nuclear power will shift positively," he wrote in a recent report. "We think that the uranium equities will perform better toward the end of 2011 into early 2012 as the full scope of the Japanese crisis is better identified and attention is again focused on clean, economic electricity generation."

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  • Cameco Corp
  • Updated August 22 11:24 AM EDT. Delayed by at least 15 minutes.

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