The principal use for uranium is to fuel nuclear power plants for the generation of electricity, which currently produce approximately 16% of the world's power from more than 400 nuclear reactors. Certain countries are more dependent upon nuclear power than others. In France, for example, 78% of its electrical output is generated by nuclear reactors (at December 31, 2004).

Stages in the nuclear fuel cycle are exploration, mining, milling, refining and conversion, enrichment for light water reactors, and fuel fabrication. Once a deposit is discovered and mined, uranium ore is processed at a mill to produce uranium concentrates ("U₃O₈"). Conversion facilities process U₃O₈ into nuclear fuel products which are marketed to electrical generating companies.

Current trends continue to be encouraging for explorers and producers of uranium. The uranium spot price has increased over twelve times since the reported spot price of December 2000, and by March 19, 2007 the spot price was quoted at US$91.00 per pound U3O8, an increase of nearly 125% from the spot price of US$40.50 per pound U₃O₈ quoted on March 27, 2006.

In recent years, the nuclear industry has seen increased capacity at existing nuclear plants, extensions of plant licenses, and new plant construction. For example, the China Atomic Energy Authority has announced plans to accelerate construction of up to 30 new nuclear power plants in order to quadruple its nuclear power capacity by 2020. New reactors are scheduled for construction in India, Finland, France, Russia, and the Ukraine. UEX believes that public opinion in many countries has moved in favour of nuclear power, and rising natural gas and oil prices have made nuclear energy the lowest cost option in several countries. In the U.S., other than hydroelectricity, nuclear energy is the cheapest source of electricity, and in recent months, several U.S. utilities have taken steps towards the construction of new nuclear power plants. Global warming concerns also support increased interest in nuclear power.

Demand

As of January 2006, 440 reactors were in operation worldwide, with 82 new reactors planned to be constructed within the next ten years. Demand for nuclear electricity generation is growing worldwide, since world nuclear generating capacity continues to expand as more reactors are built than are closed, and existing reactors are being operated at higher capacity. Reactors in the United States, for example, increased operational capacity from an average of 58% in 1980 to approximately 90% in 2005. With these increases in demand, it is estimated by Cameco (Cameco 2005 Annual Report) that annual uranium fuel consumption in the western world will reach 217 million pounds in 2015.

Supply

Uranium supply sources include primary mine production and secondary sources. Principal primary producers of uranium include Cameco (approximately 19.4% of global mine production in 2005) and AREVA, both of which produce principally from deposits in the Athabasca Basin of northern Saskatchewan. In 2005, worldwide annual fuel consumption totaled approximately 175 million pounds U3O8 while world primary production was approximately 108 million pounds U3O8. The resulting shortfall has been covered by several secondary sources including excess inventories held by utilities, producers, other fuel cycle participants, reprocessed uranium and plutonium derived from used reactor fuel, and uranium derived from the dismantling of Russian nuclear weapons. These secondary sources will decline in importance as excess inventories and recycled uranium from nuclear weapons are progressively consumed over the next decade, resulting in the need for further primary mine supply. New uranium production is likely to come from deposits in Canada, Australia, Africa, Kazakhstan and the United States. Most deposits generally have much lower grades than the high-grade deposits in the Athabasca Basin, and consequently it is anticipated that the new supply will come at higher cost, which is expected to put further upward pressure on the uranium price over the next several years.

In 2000, uranium spot prices reached 26 year lows of US$7.10 per pound U3O8 due to the increased availability of secondary supplies and increased inventory sales. The spot price has since increased to US$72.00 per pound U3O8 as of December 25, 2006, and the long term uranium market outlook remains positive with increased consumption, and the continuing draw down of secondary uranium sources. In addition, the unexpected flooding of the Cigar Lake Mine in northern Saskatchewan in October 2006 provided upward pressure to uranium prices in the latter part of the year. Given the lead time necessary to find and develop new mines, the projected gaps in both supply and future depletion of existing high grade uranium deposits means that uranium exploration must be accelerated in order to meet future demand. Even now, with the spot price of U3O8 at US$72.00 per pound, uranium exploration budgets still fall short of the exploration expenditures carried out in the Athabasca Basin during the 1970's and 1980's when several new discoveries were made. The recent resurgence of concern over energy security and supply, and the corresponding interest in nuclear power as a reliable and clean source of energy has heightened the awareness that new uranium supplies will be needed in the long term. The new uranium production is likely to come from deposits in Canada, Australia, Africa, Kazakhstan and the United States. Most deposits generally have much lower grades than the high-grade deposits in the Athabasca Basin, and consequently it is anticipated that the new supply will come at higher cost, which is expected to put further upward pressure on the uranium price over the next several years.