Putin's Next Power Play

Canada Could Foil Russia's Next Plot

Written by Adam English
Posted March 25, 2014

While President Obama and his counterparts in western Europe wrung their hands and rattled their limp sabers, Russian President Vladamir Putin was already setting up his coup de grâce.

All eyes were looking to Russia's west while Putin signed a treaty last week annexing Crimea. Meanwhile, a trusted lieutenant was on his way east.

Igor Sechin served as Deputy Prime Minister of Russia under Putin, and is currently the Executive Chairman of Rosneft, Russia's leading extraction and refinement company.

The day after the treaty was signed, Sechin summoned media in Tokyo to make two points: Sanctions over the annexation would be counter-productive and an isolated Moscow can do just as well through business, energy deals, military contracts, and alliances in Asia.

The death blow to European sanctions and influence over an ascendant Russia will come in May. As Putin visits China, he's widely expected to confirm a long-term natural gas supply agreement with the country.

China's natural gas consumption is poised to double within two decades, and Russia can easily starve Europe by meeting China's demand, all while lurching the balance of power on the continent to the East.

Putin knows the only source of leverage Russia can use to ratchet up its global presence is its immense and largely untapped natural resources.

To turn this into source of political power, Putin tore apart the business empires of post-soviet oligarchs, only to redistribute the wealth to his own hand-picked lieutenants and friends.

He has near absolute control over natural resource operations in Russia, and he has proven he knows how to use them to his advantage without any meaningful backlash.

There is talk about exports from the U.S.A. to Europe, but any potential is years or decades away. Serious concerns about the economic viability of U.S. shale production are unsettled and could cause the shale gas explosion to fade long before Europe sees any relief.

The battle for global natural gas dominance has been over for a long time and the politicians know it. This will be the first of many post-Cold War public humiliations for the aging and weak colonial powers of Europe.

The war isn't over though, and Russia is quietly moving for dominance over the next crucial energy resource.

The First Blows

Last November, just blocks from our downtown Baltimore office, a heavily-guarded barge pulled into the harbor.

This was the last time it will ever happen. The shipment was the final uranium delivery of the joint Russian-U.S. Megatons to Megawatts program.

The U.S.A. imported 16,000 nuclear warheads worth of down-blended fuel. The suppressed value of uranium ore while the program was running kept mine production low because many resources weren't economically viable.

The end of the program completely changes the situation. We're now looking at a gaping hole in the balance between uranium supply and demand that cannot quickly be filled by new mining operations:

The impact on the U.S.A. will be far more significant than the lopsided natural gas situation across the Atlantic.

10% of the electricity produced in the country was generated by uranium from these Russian warheads. Nuclear power provides electricity to one in every five homes overall.

For now, a subsidiary of the Russian state nuclear energy company Rosatom will supply nuclear fuel to a private U.S. company for distribution. If America keeps up its rhetoric and sanctions against Russia, you can kiss that deal goodbye.

A Greater Problem

In recent years, Russia has pushed as hard as possible to uncover more reserves and ramp up mining operations.

Production in 2013 was about 3,000 tonnes of uranium. Russia's goal is to ramp up production to 18,000 tonnes by the end of this decade, although analysts highly doubt the target will be reached.

Even if Russia stayed on target, it wouldn't come close to satisfying global demand.

The World Nuclear Association predicted global uranium demand will have increased 33% by 2020, then soar another 100% over the next decade.

By 2040, global nuclear power capacity is expected to jump from 15 to 160 gigawatts — a 967% increase.

There are 432 nuclear reactors operating in the world. 68 are under construction, 167 are on order, and 316 new ones have been proposed, according to the World Nuclear Association.

Virtually all of that is going to power-hungry China, which is far more receptive to nuclear power plants than any other country:

Uranium ore prices, long held down by decommissioning Russian warheads, are going to soar as this new demand makes the supply shortfall from mines a critical strategic issue.

Thanks to our neighbors to the North, Russia's chances of dominating future uranium supplies are far from guaranteed.

Profit from World-Class Uranium

Canada was the largest uranium producer for years, accounting for about 22% of world output. Slumping prices shrank this market share as mining projects were shelved.

Kazakhstan took the top position in 2009, and has very close ties to Russia and state-owned Rostrom.

Now two recent developments are going to put Canada in commanding control of uranium supply. One of them is an investor's dream for getting a piece of the resurgence of nuclear power and preventing Russian hegemony in the sector.

Cameco Corp., the world's third-largest uranium produce, just started production at its massive Cigar Lake mine in Saskatchewan.

By 2018, it'll be at full production and will be feeding around 18 million pounds of uranium into the global market.

This is a great start to offsetting Russian mining expansion, but it won't be enough on its own. Plus, Cameco is a massive company with operations across the globe. The benefit of Cigar Lake is already priced into the stock value.

This will match Russia's ambitious goal, but won't be enough to negate it's influence. The second development, at a lake near the western border of Saskatchewan and the Athabasca Basin, will secure a friendly source of uranium for decades to come and foil Putin's plans.

Early exploration has uncovered a massive amount of highly mineralized uranium deposits. The uranium is less than 400 meters below ground, making it one of the shallowest in the world.

Based on the first phase of drill testing, much of the uranium mineralization is 21% to 52% rich. That's more than 50 times the grade of what's found in Australia and Kazakhstan.

One of the companies has already established reserves that are easily over 100 million pounds. Some analysts suspect it is more like 150-200 million pounds.

It hasn't drilled a single hole that didn't contain high-grade uranium mineralization. Some results are unknown because the purity of the samples was far higher than the testing equipment could handle.

The second company has just gotten started. Trends in early mapping and drilling results in the area suggest there could be one massive deposit that will make the small companies worth billions each.

This is the area that investors should pay attention to right now. Both of these companies offer fantastic potential for investors. Nick's Early Advantage subscribers are already seeing healthy gains from these two companies.

Unfortunately, there may not be much time left to get in on the positions. There is a lot of interest from Cameco, Rio Tinto, and other major miners in the sector. Buyouts and mine construction are bound to start happening in the near future.

Nick went up to Saskatchewan to research these companies in person and came back immensely impressed... check out his Early Advantage publication for more details. 

Take care,

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Adam English
Editor, Outsider Club

follow basic @AdamEnglishOC on Twitter

Adam's editorial talents and analysis drew the attention of senior editors at Outsider Club, which he joined in mid-2012. While he has acquired years of hands-on experience in the editorial room by working side by side with ex-brokers, options floor traders, and financial advisors, he is acutely aware of the challenges faced by retail investors after starting at the ground floor in the financial publishing field. For more on Adam, check out his editor's page

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