Uranium spokesman and UEC boss Amir Adnani with $50,000 of yellowcake.

It’s becoming increasingly evident that a massive watershed moment for the uranium industry is inevitable in the very near future. Here’s why -- and how you can profit from it by taking advantage of the only US based and listed Uranium Producer.

Participants in all categories of the uranium industry have been whipsawed the past six or seven years like few other sector-specific followers. After the sharp sell-off high of $137/lb in 2007, everyone with an even remote interest in natural resource investing nervously watched Uranium prices climb back to ~$73/lb in early 2011, only to have an unimaginable black swan event occur: Fukushima. When governments responded by peeling back plans and shutting down reactors, uranium prices collapsed to $40/lb. The industry had to reassess however let us understand the overwhelming evidence as to where prices should go.

Some relevant hard facts:

1. Regardless of all the rhetoric, the HEU agreement (warheads for kilowatts) has already expired. The final deliveries are taking place now. HEU meant 24M lbs (of the overall global demand of 180M) of Uranium supply per year. Now, even in a readjusted atmosphere, it can’t be business as usual. Where would the excess supply come from? If HEU was a mine, it would be the single biggest producer in the world. It’d be impossible to build a mine that large before we begin to feel the impact of HEU’s expiration.

2. For the past year and a half, there has been excess supply of 30M lbs because 53 Japanese reactors put out of business by Fukushima no longer required uranium. But that just changed. On December 16th, the newly elected Japanese government won landslide elections, partially due to their promise of lowering crippling electricity prices. Indeed, Japan has actually stopped selling uranium and is in fact restocking. Why? They’re hoping to get 40 of these reactors back on-line due to a recent $13B investment in safety upgrades.

3. The Russians, Atomredmetzoloto (ARMZ), are buying Uranium ONE (TSX - UUU) for $1.3B. They already owned 51.4%. But now they’re going to take it private -- and it’s because they want all of that secure supply. How does this affect uranium index funds like Geiger and URA, some of which have/had UUU as a #2 or #3 holding? They’ll be forced to buy another of the few stock-listed uranium producers. And so will investors looking for production exposure. Thus the investment opportunity, our US based and heavily shorted Uranium Producer.

4. In Kazakhstan, there has been a very thinly distributed story of a major storm that’s disrupted the world’s largest production area -- some 38M lbs per year, which is 8%-12% of global production.

5. There are 65 nuclear reactors under construction and 167 planned. As this is written, there are ~435 nuclear reactors in operation in 30 countries. These are hard facts, not rhetoric. Even vocal anti-nuclear Germany is now talking about lowering crippling energy costs, well above .20/kwh, with less green and more "other" solutions.

6. Finally, and most critically for this discussion, is the economic reality that the industry needs at least $70/lb sustained Uranium prices to justify investment in new development. In fact a recent report by J.P. Morgan states that the new justification price is $83/lb.

So how can one profit from this?

Here’s one strategy. There’s a very narrow field of stock-listed uranium producers that are liquid, have a broad following, and are capable of receiving meaningful bids in a buoyant price environment. While the biggest impact will come in a rising price environment, positions can be built now in select uranium producers throughout 2013. I prefer Amir Adnani's well run, ZERO debt UEC.

Uranium Energy Corp (AMEX - UEC) has been a core holding and treated us well, less the Fukushima disaster, and is poised to please again. Recall that in early 2011, there was a 7M share short position that pushed the stock to $7 per share on the short covering rally only to be interrupted by the black swan. The shorts were rewarded. Now, almost two years later, there is an astonishing 12M share short position on UEC and at least 50% of the shareholders are loyal and well aware of this short position. So of the ~40M shares available, 12M are net short. The major reason why UEC was shorted was because it is the only US listed and based uranium producer that is liquid. This has to end badly for someone unless there is something wrong. Because the only way shorts win is if they’re right -- in other words, the company and/or sector is unhealthy. Uranium prices in my opinion must go higher, way higher, so if UEC continues to deliver growth one needs to understand what a potential shareholder obtains for UEC's $193M enterprise value and enjoy the inevitable short cover scramble...

UEC has a market cap of $210M with $17M cash, ZERO debt and only 85.2M shares outstanding. Also consider that it’s a producer, offering lots of torque per share.

UEC has 86M lbs of all category resources and climbing, so they trade at $2 p/lb in the ground. As a producer, that will do 350,000 lbs in 2013, ~750,000 lbs in 2014, and ~1M lbs in 2015, when the recently permitted Goliad reaches full commercial production.

UEC has been able to permit two projects in the State of Texas, the best ISR Uranium Jurisdiction in the World. My friend Marin Katusa of Casey Research has coined a new phrase, WISR (Warm InSitu Recovery), for low cost ISR projects in warm climates, even more robust than projects on frozen earth. Due to this low cost method of extraction UEC's cash costs to recover a lb of Uranium is ~$20/lb whereas conventional mining is ~$50/lb.

UEC’s reserve base is now ~10M lbs. The Burke Hollow project should add additional resources as the company has been drilling actively there. With a hub (their 100% owned Hobson processing facility) and spoke (all the field projects around Hobson) strategy, the old misnomer “not enough reserve base” doesn’t fly anymore.

We recall the short cover rally that took place in late 2010/2011 that pushed UEC to $7.25 p/s when there were 7M shares short. Now there are ~12M shares short and numerous major funds who are aware of this. These major funds have recently filed 13 G's, stating they’ve bought more. Blackrock owns 5.6%, Huber 14%, Vanguard 5.3%, Management 20%. Uranium indexes Geiger and URA own meaningful stakes and remember they will sell UUU and buy what? Of the available, tradable stock, over 30% is net short. This should end badly.

In this investor’s opinion, Uranium prices should trend higher -- not lower. There are few ways to benefit from this, as exploration is still too risky for nervous investors and there are very few producers. The intelligent uranium investors know this and have seemingly already chosen UEC as a staple investment. Will we see the old 2010 highs in UEC taken out in one of the most fundamentally sound uranium producers and heavily shorted stocks on the NYSE?

Disclaimer: This is not investment advice. Please do your own due diligence and talk to a licensed investment advisor before buying or selling any security (We are not investment advisors). Gianni Kovacevic owns a financial interest in UEC. All facts to be verified by the reader. These are opinions, not advice. We seek safe harbour.