Seeking Alpha
Long/short equity, deep value, growth at reasonable price, long-term horizon
Profile| Send Message| ()  

Big news out of Moscow yesterday. And I don't mean the news that got the big headlines.

Someone in the Bush foreign policy and national security arena may just have been very much awake at the switch. If my analysis proves correct, the current president will get the credit but the American people and the rest of the world will reap the benefit, and a massive benefit it will be, surpassing any success in picking a stock or being right on a market gyration.

This is purely speculation on my part, but it is speculation born of 6 years in special operations and 30 more in intelligence operations and analysis. The big news out of Moscow yesterday is that the Russians, hungering for national security (as a nation with 57,792 kilometers -- 35,910 miles – of border to defend, always has) and a return to world power or at least world prestige, may be ready to do some serious horse-trading. It starts like this...

In exchange for Moscow allowing the US to transit military equipment to Afghanistan across Russian territory or airspace, I believe the US will quietly scale back its commitment to deploy defensive ballistic missiles in Poland and the Czech Republic, removing a major fear the Russians have of seeing yet another invasion from that direction.

However -- in the world of realpolitik, it may never have been our intent to place advanced weapons systems in locations so geographically untenable and easy to attack by any nation with lightning-fast armored, mechanized infantry and fine special operations forces – like, say, Russia.

But as a bargaining chip, it would have been a subtle threat, just like our long-ago opening to China to remove a Russian bulwark, or funding the much-derided Strategic Defense Initiative, both gestures that now-unclassified Soviet-era documents show clearly struck fear into the Russians. If it was intended as a bargaining chip to be used at a future time, it was brilliant.

Ah, but is it worth using this chip merely for an alternative access route to ensure re-supply and strategic air assets in Afghanistan? I don’t think so. But what I think is significant – and is the real quid pro quo – is buried deeper in the public statement, almost as if it were merely incidental to the process. It is a seed that, if it grows, will provide the prestige and power the Russians miss and crave.

It will ensure that China, Iran, Pakistan and North Korea, all of whom have ballistic delivery capabilities that can currently threaten Russian cities -- three of whom can do so with nuclear warheads -- are prevented or severely constrained from gaining access to the essential ingredients to threaten their neighbors.

And it will mean that US allies like Israel, the democracies of Western Europe, and Japan are no longer directly threatened by these bad kids on the block. Without the threat of Iranian nukes, how might Hizbullah and Hamas suffer in support, and how might Israel be able to deploy scarce resources elsewhere? A discussion might even be quietly taking place right now with the oil-rich Sunni kingdoms in the Mideast: “How far would you boys lower the price of oil if we promised that Iran couldn’t threaten you with nukes?”

I refer to the offhand comments that hinted at the notion that Russia and the US, two nations that have had the ability to destroy the world but have both acted like grown-ups (in that arena, at least) would work together to establish “governance” over the sourcing of uranium and other potentially fissile materials.

This would herald a revival of the once given up for dead Fissile Material Cutoff Treaty (FMCT). The FMCT was a proposal for an international treaty to prohibit the further production of weapons-grade uranium and plutonium. It would not have completely prevented the production of fuel-grade uranium and plutonium, nor of other components in nuclear warheads.

But neither was it pure “Why can’t we all just get along?” wishful thinking. Our two nations now have the intelligence-gathering and monitoring capabilities to drastically cut the flow of enriched uranium, without a continual supply of which rogue states cannot maintain a meaningful enough nuclear program to be a threat.

Without these two super-powers, compliance with FMCT wouldn’t stand a chance. But if both the United States and Russia lined up those allied with them, it would take a serious chunk – as much as 95% of what is available -- off the market or, rather, on the market, but tightly monitored and controlled.

Think that’s pie in the sky? It isn’t. Between the US and the nations closely allied with us, and the Russians and the nations closely allied with them, a monopoly on both uranium resources and uranium production forms a cartel so powerful that OPEC can only look on it with envy.

Canada, Australia, and the US produce 53% of the world’s uranium. Russia, Kazakhstan, and Uzbekistan produce an additional 27%. Just those six nations, working together, could mount a cartel controlling 80% of production, more than OPEC does in oil. With Namibia and Niger in the fold, the figure rises to 95%.

The story is nearly the same when we leave the world of production and go to the proven and probable reserves. Here’s what those look like:

World Uranium Reserves

You’ll notice that only Brazil and RSA (South Africa) have uranium in the ground accounting for 5% or more of world reserves. Add those 2 to the 8 discussed above and throw in Ukraine for good measure – which so desperately needs Russian gas and European trade that they would willingly participate in a renewed FMCT treaty -- and you'll find you only have to line up 11 of the world’s 201 nations. If the US and Russian allies all agree, that leaves just 5 remaining in this group to control 91% of the word’s reserves.

That leaves 9% for China, Pakistan, North Korea, Iran and anyone else who wants to create weapons-grade fissile material to try to out-bid each other. And to try to out-bid the uranium companies in the wealthier complying nations mentioned above. At some point it simply becomes uneconomic to try to join the club.

So we can wring our hands and debate and pontificate endlessly about the next Ahmadinejad, Kim Il Sung, Chavez or other tinhorn wannabe autocrat. Or…

We can sit around the table in our striped pants, talking nice and holding our teacups with pinkies extended, hoping our enemies will die of suffocation from the hot air being expended. Or…

We can take advantage of the opportunity to do something meaningful to make the world a safer place. It isn’t inevitable that “Iran gets the bomb.” Whether I am giving too much credit to the intelligence and foresight of the unsung Intelligence Community and State Department heroes whose strategy and deeds will only become public in 40 years (when such things are subject to a first review for declassification) or longer, or whether this scenario is solely of my own reading of the bones thrown into the circle, the net effect is the same: we can do it. We grown-ups can monitor and control what toys the bad kids get to play with. It only takes moral courage and the trading of some bargaining chips yet to be played.

The way to profit from the peaceful use of nuclear power, made easier if grown-ups are monitoring its production and export in cooperation with the rest of the Neighborhood Watch, is to buy the companies that extract and process uranium. Among the largest are BHP Billiton LTD (BHP), Rio Tinto plc (RTO), Cameco Corp. (CCJ), and Areva (OTCPK:ARVCF).

Full Disclosure: We have owned all of these but are not long any of them today. At cheaper prices, we are buyers.

Source: Profiting from Peaceful Uranium Use