The spot price of uranium has again decreased this past week, causing many speculators and investors in the uranium sector to question their positions.

Uranium Participation Corp (U.TO) is actually trading higher than its Net Asset Value (NAV), which means the company as a whole is trading at a premium to what it would be worth if all the U3O8 and UF6 were sold at spot and distributed to its shareholders. Investors paying a premium for U.TO shares expect an increase in the price of uranium, but the opposite has occurred in the last few weeks—as of March 31, the spot price is now US$34.70 per pound.

Why Isn't Uranium Going Up?

By all rights, uranium should be soaring.

The US is the world's largest consumer of uranium, but produces less than 10% of what it consumes per year.

One in every five homes in the US gets its base load power (reliable energy that can be generated 24/7) from nuclear energy, which needs uranium.

But the uranium bull market is waiting for Japan to restart its idle nukes.

The question is: When will that happen? The high cost of electricity generation from other, non-nuclear resources is killing the Japanese economy, and with 48 nuclear reactors on standby and ready to run, it is only a matter of time until the government returns to the fuel rods.

My guess is that  by the end of Q4 2014, two reactors will be on full production, then four by the end of Q1 2015… and by the end of 2015, 16 of 48 will be operating. It will take time for the Japanese nuclear plants to come back online, but it will happen.

Is There Hope in the Uranium Sector?

 Yes, definitely, especially for the low-cost producers. Plus, let's never forget that innovation grows out of necessity, and that's exactly how the ISR industry came about.

The Shirley Basin uranium project in Wyoming was originally a conventional mine that had a lot of problems with water control in the early 1960s. Long story short, the innovative prowess of the engineers created a push-pull system of injecting water and pulling out water with uranium.

After many years of trial, error, and more innovation, the in-situ leaching (ISL) sector was created. Three decades later, the sector rebranded itself as ISR (in-situ recovery, a much better name), perhaps something the fracking industry can learn from.

ISR production is a very eco-friendly process with almost 50 years of production in the US. It's most prevalent in Wyoming and Texas, as the geology is very amenable to such mining techniques.

Here are the basics of the ISR process:

1. A combination of water and oxygen is pumped via injection wells into the uranium ore body underground. Over the next 48 hours or so, the water works its way through the permeable rock and becomes pregnant with uranium—that is, uranium contained in the rock leaches into the water.

1. This solution gets pumped up a production well via the header house, where engineers can keep track of the process by measuring pressure, flow, and other variables.

1. From the header house, the uranium-rich solution is pumped to the processing plant, where the uranium is separated from the water.

There are four key steps in extracting the uranium from the water.

1. The uranium-rich solution passes through a tank full of ion-exchange resin, where the uranium is chemically attracted to the millions of resin beads and sticks to them. The water passes on through.

1. A saltwater solution washes the uranium off the beads to form a concentrated "rich eluate."

1. The dissolved uranium is precipitated out of the solution with acid.

1. After washing and filtering, the uranium precipitate is vacuum-dried into its characteristic yellow powder.

The dry yellowcake is now ready for packaging into steel drums for the trip to the conversion plant.

But, not all ISR is alike. Buyer Beware.

The Wiser Uranium Production Approach—WISR vs. ISR

Over a year ago, I started writing about the economic benefits of what I call WISR (pronounced "wiser," warm-ISR production), which is feasible in sunny Texas, over traditional ISR production. Kazakhstan and Wyoming are cold places in the winter, and the climate is 'not conducive to pumping liquids around. It's possible but expensive. The largest producer of uranium in Kazakhstan, Kazatomprom, has already stated publicly that it will not bring on any new production at US$35 per pound of uranium. The economics just don't work.

For example, in cold-weather areas of ISR production, the injector and producer wells need to be buried in the ground and then insulated so the wells don't freeze in the winter and halt production. WISR uranium injector and producer wells, on the other hand, don't need to be buried or insulated, which results in much lower costs.

Comparing wellheads: WISR (left) doesn't require burying and insulating like the traditional ISR wellhead does (right).

This may not seem like a big deal with a single well, but it takes hundreds of wells to make one ISR mine. Below-left is a photo of a WISR well field. Compare it to the photo on the right, where the hillside is dotted with hundreds of black boxes that need to be insulated, and you can see how the costs can add up quickly.

That's a well field? WISR well field (left) vs. ISR well field (right), where construction costs can really add up.

Another major advantage of WISR uranium production over ISR production comes with header-house construction and reclamation costs. Chilly Wyoming requires header houses. I've seen foundations made of concrete and structures that need to be insulated (see below right).

Header houses may look like shacks, but these shacks cost about US$250,000 each!

Warm-ISR production header house (left) and Wyoming ISR header house (right).

In Texas, where it's warm, no header house needs to be built. The photo at the left above shows six injector and six producer wells out in the open. That header rack unit costs about US$20,000 total.

But the biggest cost advantage is the cost of building the plant itself.

In Texas, because the processing facility doesn't need to be inside a large, winter-proof enclosed plant, the cost savings are in the tens of millions of dollars. In an open facility, companies can even move ion-exchange tanks around the project site or to another one entirely.

In short, it's a lot cheaper to build and run an ISR operation in Texas than it is in Wyoming.

There's also the reclamation phase to consider once an operation shuts down—this process factors into company costs as well.

Once again, warm ISR offers a significant cost advantage. I've been in two-story header houses in Wyoming with deep concrete foundations. Now, we're talking very high reclamation costs—I'd speculate even more than the construction. For example, the EPA will want that concrete to be treated as contaminated material.

Uranium is not a fool's investment. By definition, it is a classic contrarian investment, and in the junior resource sector, you are either a contrarian or a victim. As a contrarian, you look like you're wrong until you are right, and fortune favors the informed.

Do you know what the lowest-cost ISR producers in the world are, companies that can operate at uranium prices that would drive other uranium miners into ruin? We do, and we've been to their projects.