A Fresh Jolt for Uranium

Uranium observers have no doubt been wondering what catalyst would shake the sector out of its slump. It turns out that the biggest jolt since 2006's inflow at Cameco's (NYSE: CCJ) Cigar Lake Mine is ... another water inflow at Cigar Lake.

Dewatering efforts at the delayed megaproject hit a major hitch yesterday. This news is crucial to the uranium supply story, because the high-grade Cigar Lake Mine could provide about 10% of global consumption at today's levels. As it stands, uranium usage routinely exceeds global mine production. We can tap decommissioned warheads and other stockpiles to fill the gap, but that won't last forever. The longer Cigar Lake is delayed, the faster we blow through above-ground supply. That would do wonders for the spot price of uranium.

Cameco's shareholders are taking the blow in stride. They've gotten pretty accustomed to such woes. So who's gaining from Cameco's pain? While this is marginally positive news for diversified metal miners like BHP Billiton (NYSE: BHP) and Rio Tinto (NYSE: RTP), pint-sized uranium pure plays like Uranium Resources (Nasdaq: URRE) are really popping.

Investors are also pouncing on intermediate producer Denison Mines (AMEX: DNN). This is a company that I've never presented to Foolish readers, but it's an interesting one. Denison falls under the same corporate umbrella as bold base metal magnate Lundin Mining (NYSE: LMC), and its exploration targets are characteristically adventurous. Meanwhile, the company has an interest in McClean Lake, a top-notch producing property, not to mention two of the four operating uranium mills in North America.

Conveniently enough, Denison also reported quarterly results today. The company produced a modest 322,000 pounds in the period, but targets 1.7 million to 1.9 million pounds for the full year. The firm's Colorado assets are also chipping in several million pounds of the steel alloy vanadium, whose price has roughly doubled since last year.

None of these companies is immune to mining mishaps. Delays in permitting and other pesky problems have pushed back production schedules pretty much across the board. Still, the growth outlook is very favorable for Denison, which makes it the sort of stock you should own.

Denison is rated a full five stars in Motley Fool CAPS. This Fool remains underwater on his outperform call, but he sees bright things ahead. What's your vote?