It is starting to look like the long, steep decline in uranium spot prices is coming to an end. And for producers like Denison Mines Corp. (DML/TSX), it couldn't come soon enough.

"I think we have hit the bottom on the basis of the cost of new production with reasonable profit built in," chief executive Peter Farmer said in an interview. "I don't think you're going to see a price again much below $60."

Uranium was the hottest commodity of 2006 and early 2007 as the spot price of the radioactive metal shot to US$138 a pound. That was triggered largely by hedge funds and other speculators .

But after the peak last summer, prices dropped precipitously before bottoming out at about US$57 a couple of weeks ago. The speculators largely exited the market and the utilities, which have been well-supplied with uranium, were not aggressive buyers.

The market is now finally turning positive again, with spot prices rising for three straight weeks. Spot uranium now sits at US$64, according to Ux Consulting Co. LLC.

It appears that speculative buying is again the main reason that prices have turned around. But there are also signs utilities are getting back into the market for the first time in months, and industry experts believe they will be more active buyers in the fall as they replenish their inventories.

There is another factor behind rising prices as well: the fundamentals for uranium remain very strong.

"With gas and coal prices having risen substantially, a lot of the 440 nuclear power plants around the world will be running flat-out," said George Topping, an analyst at Blackmont Capital.

"Nuclear is still the cheapest form of base-load electricity in terms of fuel." He added that talk of carbon taxes in North America also makes nuclear (a clean fuel) look better and better.

Mr. Farmer, meanwhile, believes that a price of around US$60 is necessary to have a healthy producing market. He figures that the investment funds suddenly realized that when the spot price dropped below US$60, and that is why they started buying again.

He also pointed out that the uranium buyers are counting heavily on supply increases from three sources in the next few years: Cigar Lake in Saskatchewan (which flooded), the Olympic Dam expansion is Australia (already behind schedule), and several projects in Kazakhstan (fraught with political risk). If any of those projects fail to meet expectations, uranium demand could fall far below supply.

A major nuclear reactor build is going on worldwide for the first time since the Chernobyl disaster, with about 30 reactors under construction and another 40 planned. China has also discussed building dozens more reactors to meet its growing energy needs. If it happens, experts believe the uranium market will get tighter.

"In our view the higher prices are positive not only for the uranium miners, but also for the industry overall as we think that higher prices may be required to stimulate the development of new mining projects that will eventually fuel the new reactors being planned for the 'nuclear renaissance,' " RBC Capital Markets analyst Adam Schatzker wrote in a note to clients.

TD Newcrest analyst Greg Barnes noted that many industry observers have said that U. S. utilities are relatively well-covered in their uranium requirements throughout 2008 and 2009. Mr. Schatzker also pointed out that utilities may choose to keep out of the spot market if prices quickly go back above US$70.

While the spot price of uranium has fluctuated, the long-term price has held steady between US$80 and US$100 a pound.

pkoven@nationalpost.com