Fat Prophets says investors need to tread carefully among the yellow cake as high uranium prices won't last.

Australia has about 40 percent of the world’s uranium reserves but there are still big question marks in my view over how quickly that uranium is actually going to get into production.

There’s obviously environmental issues, political opposition to uranium mining and although the federal government is talking about relaxing the rules on uranium mining and allowing for example, uranium exports to China for the first time, the states have a big role to play. And most of the state governments, in fact all of the state governments, are still controlled by Labor governments which fundamentally are still opposed to uranium mining.

So we think that’s a big issue and something that’s holding our uranium industry back.

The federal government seems very keen on developing not only a uranium mining industry here in Australia, but also an energy producing industry. From our point of view, we probably take, I guess, the view of the Labor Party in that uranium should be part of an integrated energy strategy, particularly from the point of view of dealing with greenhouse emissions.

There’s dozens of uranium explorers on the Aussie market at the moment, and look we’re quite sceptical about most of them. A lot of them are just mining investor sentiment, which of course has been very positive towards uranium since the start of the year, since the Chinese premier visited Australia and signed that landmark uranium supply agreement between Australia and China.

The reality is that uranium really isn’t going to start to flow under that agreement until probably 2011, and most of that uranium is going to come from the BHP mine at Olympic Dam in South Australia.

So a lot of companies are out there exploring. The exploration risks are just as high for uranium as they are for any other commodity, which probably means that nine out of 10 of those companies are going to fail, or fail to find something.

Out of that remaining one out of 10, maybe a handful of those will actually come up with a commercial deposit at the end of the day that’s going to go into production. So we’re not getting caught up with the hysteria. As far as Fat Prophets is concerned, we’ve probably recommended about four uranium stocks so far.

We’ve recommended Paladin Resources, which is the next big thing as far as uranium is concerned in the world now, they’re setting up a uranium mine in Namibia which will be operational in probably January.

We’ve also recommended Marathon Resources, which is an emerging uranium player here in Australia [with an] identified resource.

Bannerman [Resources] which is a pure explorer, but it’s got a fantastic exploration address in Africa, in Namibia fundamentally, [it] surrounds the Paladin deposit and also surrounds the Rossing mine of Rio Tinto.

Certainly the outlook for uranium and I guess uranium investment is very positive in the short term and probably, let’s say the next one to two years. After that a lot will depend on some of this new production that’s been spoken about coming on-stream.

But we would be looking at a high uranium price environment of between $60 and $80 a pound probably for the next five years. But we see that balancing out, we can’t see uranium prices staying at these extraordinarily high levels for more than five years.

We think that new suppliers will come onto the market and the laws of supply and demand will even themselves out.