* End of Russia weapons recycling program will cut supply
* New reactors seen boosting demand by 2022
* Some investors waiting to see uranium price recovery
By Rod Nickel
TORONTO, March 5 (Reuters) - After two years of mostly falling stock prices in the uranium sector, triggered by the Fukushima-Daiichi nuclear meltdown in Japan, junior miners have become attractive acquisition targets as investors eye more bullish conditions ahead.
The tsunami-triggered meltdown led to reactors being shut in Japan and Germany, and uranium prices tumbled as demand shrank. Uranium is now around $42 a pound, well off the 2011 high of nearly $73, according to producer Cameco Corp.
Some of the uranium sector's dominant players, including Cameco and Anglo-Australian miner BHP Billiton PLC, added to the gloom by shelving projects.
Still, the uranium sector, well represented at this week's Prospectors & Developers Association Canadian mining convention in Toronto, has seen a dozen deals in the last two years, as depressed valuations create buying opportunities, said Rob Chang, an analyst at Cantor Fitzgerald.
That is more than double that in the previous three-year period.
Chang singled out several small companies as attractive investments, including Uranium Participation Corporation, Kivalliq Energy Corp, Energy Fuels Inc and Uranerz Energy Corp.
"Uranium is an area of focus as it is one of the few commodities with a price that is not above its long-term average," Chang wrote to clients recently. Uranium also has "an excellent supply and demand backdrop."
Positive factors for uranium prices and demand include the scheduled end, later this year, of a 20-year-old program that Cameco says converted an estimated 24 million pounds a year of highly enriched uranium from Russian warheads into fuel for reactors.
And at the same time, construction continues on 64 new reactors worldwide that will sharpen demand. Cameco expects a net 91 net new reactors by 2022, pushing consumption up nearly one third to 220 million pounds per year.
Among recent deals, Rio Tinto PLC's takeover of Hathor Exploration last year prompted rival Denison Mines Corp to buy up Fission Energy Corp to gain control of nearby projects, said Fission Chief Executive Dev Randhawa.
The uranium junior mining sector is unique for its steady M&A despite challenging conditions across the broader mining industry, Randhawa said.
A move in January by Russia's state uranium company ARMZ to take Uranium One Inc private is also a sign that the market has likely reached bottom, he said.
Investors have also shown they're still willing at times to plow money into exploration.
Shares of tiny Alpha Minerals Inc jumped sharply after it announced encouraging drill results in November and February at its Patterson Lake South property in Saskatchewan's Athabasca Basin, one of the world's richest uranium areas.
The company, which partners with Fission Energy in the project, also says it's talking with many types of potential investors, including some uranium mining majors.
"We've definitely got their attention," said Chief Executive Officer Ben Ainsworth. "I can't say we've got any hot offers on the table at the moment. It would be a bit early."
Alpha's shares, now worth around C$3.08, are up seven-fold since the first set of drilling results in November.
To be sure, many junior uranium miners are still struggling to find capital as some of mining's biggest names cut costs and write down investments.
When Canadian uranium company U308 Corp needed to raise cash, it leaned on two of its directors for most of a C$3.2-million private placement that will tide it over for most of the year. "It is rough, so it's important for insiders to step up," said CEO Richard Spencer.
U308 stock is down 9 percent so far in 2013, following drops of 36 percent and 66 percent in each of the previous two years.
Cameco is worth around C$21.36 per share, or at less than half its value about a month before the 2011 Japan earthquake.
"(Potential investors) look at the downdraft that there's been in the industry and say, 'we're fine with the fundamentals. It will rebound but it's the timing of the rebound that we're going to watch,'" Spencer said, predicting more deals as junior miners forced to band together to survive.
With Russia's ARMZ taking Canada's Uranium One Inc private, the space for a new mid-tier producer is wide open, he said.
That could spell opportunity for U.S. companies either producing, or about to start producing small volumes of uranium, like Uranium Energy Corp and Ur-Energy Inc.
Since the Japan earthquake, Ur-Energy has steered its first uranium mine at Lost Creek, Wyoming toward first production, expected in the second half of 2013, and struck a deal to acquire uranium producer Pathfinder Mines Corporation.
Fukushima "didn't shut the nuclear industry down," said Rich Boberg, director of public relations and human resources for Ur-Energy. "They're still building plants."
A savvy investor might want to get in soon, said Doris Meyer, chief financial officer of European Uranium Resources Ltd , which hopes to build a mine in Slovakia.
"The market hasn't turned, but people ahead of the market think it will," she said at the mining convention. "If you wait until it starts turning, it's too late."