Since the nuclear disaster in Japan in 2011, uranium investments have encountered a rough ride. However, as we noted in “Nuclear Powered Profits” (July 26 issue of Global Investment Strategist), we believe that concerns of a dramatic reaction against nuclear power in the wake of Fukushima are way overblown.

Global demand for uranium, the key fuel used in nuclear reactors, should continue to grow at a roughly 4 percent annualized pace over the coming decade, largely driven by increased use in emerging markets such as China.

China has taken advantage of weak uranium prices to add to its stockpile whenever the feedstock dips to the low end of its trading range. Investors should follow Beijing’s example.

Notice that the supply side is supportive of higher uranium prices. In 2011, uranium-mining operations produced 58,000 metric tons of the feedstock, well short of global demand.

Historically, the secondary market has bridged the gap, often in the form of government stockpiles or reprocessed Russian nuclear warheads. However, the Russian government will terminate its Megatons to Megawatts program at the end of 2013, placing the onus on mining outfits to offset the decline in secondary supplies.

The best way to gain exposure to this investment theme is through Canada’s Cameco (TSX: CCO, NYSE: CCJ). The company is the largest pure-play producer of uranium in the world, accounting for around 16 percent of global production of the metal. Last year, Cameco produced 22.4 million pounds of uranium from five operating mines.

McArthur River, based in Canada, is the company’s single largest mine with Cameco’s share of 2011 output totaling 13.9 million pounds. The ore mined from the McArthur River site is extremely rich in uranium with an average ore grade of 16.9 percent. To put that into perspective, the ore grade at the mine is 100 times higher than the global average for producing uranium mines.

Consequently, Cameco has to move far less pay dirt and ore to produce the same amount of uranium as most other producers. McArthur River is not only one of the world’s largest mines but it’s one of the world’s cheapest to produce, allowing Cameco to earn profits even when uranium prices are weak.

Cameco’s second-largest mine is Rabbit Lake, also located in Canada. With an ore grade of less than 1 percent, Rabbit Lake is not as rich a deposit as McArthur River but the mine has been in production since 1975 and continues to produce around 3.7 million to 3.8 million pounds of uranium per year.

Overseas, Cameco is the 60 percent owner of a joint venture called the Inkai Limited Liability Partnership to mine a site in South Kazakhstan. The firm has partnered with Kazakhstan’s state-owned uranium company, Kazatomprom, on this in situ project. In situ, Latin for “in place,” refers to the mining technique of injecting water underground to dissolve ore and bringing the uranium-impregnated water to the surface. Cameco separates the uranium oxide from the water.

In 2011, Cameco’s share of uranium production from this project was around 2.5 million pounds. The joint venture plans to continue exploring some promising blocks near the current mine operation and has received government approval to boost production capacity. Cameco’s share of production from Inkai should grow to around 3 million pounds per annum over the next few years.

Cameco employs a conservative marketing strategy, selling around 40 percent of its production under long-term contracts at fixed prices that provide a cushion when uranium prices are low.