Iran's Uranium Jackpot

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If you have grown tired of opening up the newspapers and reading about Iran's flirtation with uranium, you may find some comfort in the fact that the freshest piece of news about Iranian nuclear activities doesn't involve the negotiated deal but does involve the commodities market.  Iran may not unload a nuclear bomb any time soon, but their discovery of a massive trove of uranium will unload a bomb onto the global economy.  The Iranian Atomic Energy Agency announced that the nation had found a huge node of high-grade uranium that they will seek to extract in a bid to become more self-sufficient for power.  Given that the uranium isn't believed to be capable of enriching to weapons-grade, the International Energy Agency won't put any caps on the quantity of uranium that Iran can mine, meaning that the upcoming market dump will provide a fantastic opportunity to short-sell the commodity.

A Thorny Past

Despite the recent hubub about a nuclear Iran, the nation's history of atomic development actually began far earlier than the past few decades -- indeed, the initial Iranian atomic energy projects were financed by the United States.  During the 1950s, the Atoms for Peace program provide Iran (along with Pakistan, who would use the framework to build the bomb) with the technology needed to build reactors that could harness the power of uranium to provide electricity to the nation.  At the time, the nation led by the Shah enjoyed close ties with the US, ties that evaporated with the Islamic revolution and the hostage crisis.  During the Iran-Iraq war of the 1980s, the Iranian government faced serious energy shortages since they had only their own crude pipelines to supply a nation of over 80 million persons with electricity.  The US leaned on a number of nations, including China and Argentina, to keep them from a nuclear cooperation with Iran.  Russia, however, chose to go the route of the greatest profit and helped Iran rebuild the bombed-out Bushehr atomic plant 1995 -- or at least Russia took the cash and said they would; the plant remains not operational.  One of the major difficulties in building a nuclear-independent Iran lies in the nation's relative lack of uranium.  While Iran has the 4th-highest proven oil reserves in all the world, they had yet to develop any serious uranium mining activities (of the 19 nations that mine uranium, France produces the least at only 5 tons per year, amounting slightly more than a quarter of a million dollars' worth of metal). 

New Developments

Iran's dependency on oil will drive their economy for the foreseeable future -- petroleum accounts for no less than 80% of their exports -- but their energy concerns may no longer need be tied to crude.  Ali Akhbar Salehi, the Iranian nuclear chief of the IRNA, stated that the first aerial prospectus revealed too little uranium radiation signatures for a concentrated mining campaign.  The fortunes of the mine, and perhaps that of Iran writ large, turned when discoveries in the Yazd province (an area in the central Iranian plateau) turned up far more radioactive signatures after a ground investigation.  The survey team, which has completed a sweep of nearly two-thirds of Iran's total landmass in search of uranium, issued a report stating that the finds were by far the largest in the nation's history.  More so, they come at an opportune time: Iran has completed the nuclear cycle needed to enrich uranium to fuel rods for electrical production, but had also exhausted their supply of raw "yellowcake" uranium (remember that the second Bush administration used proof positive of yellowcake enrichment as a cause for war against Iraq, a fact that will doubtless come up time and time again in the 2016 presidential election).  Prior to the Yazd find, it was believed that extracting fresh yellowcake uranium wasn't cost-efficient for Iranian power, making the new find a major change for the nation's infrastructure and possibly negating the need to import uranium from Kazakhstan and Zimbabwe, its two largest atomic trade partners.  The US has only stated that they will aggressively monitor the uranium in context of the commitment agreed to in the new nuclear deal -- and meet any violations with the "appropriate response."

Supply and Tehran

While uranium has more or less shaken off the problems that have affected most other metal commodities through 2015, stagnant demand has created stagnant prices on the commodities market.  Uranium's needle has barely moven in the past four months, which has in turn led to low trade levels and a general lack of interest.  Even with the advent of the discovery of one of the richest uranium sources in all of the Middle East, demand will likely stay steady, as few nations outside of Iran are seeking to expand nuclear power.  Germany, for instance, has lessened its reliance on atomic energy from 22% of the nation's total consumption to less than 18% in just four years.  With so few nuclear projects on the horizon, as such, Iranian uranium (a tongue-twister if there ever was one) will depress prices and create a seller's market.

  • The Takeaway: the discovery of the uranium trove offers a fantastic chance to short-sell the commodity.  Futures for delivery in the next twelve months will be depressed due to the abundance of uranium coming out of Iran.  Since the sanctions will be lifted by 2016, furthermore, Iran's economy will be in a far better shape and able to devote ample resources to mining and extraction.  Plan to short-sell in 2016, as the rest of 2015 will likely see a similar null-change period for uranium like that of the past four months.
  • If you already hold uranium in your portfolio, don't be afraid to sell off unless you're taking a serious loss for the exchange.  The continued mitigation of atomic power in governments throughout the world, Iran notwithstanding, has made the commodity particularly unappealing to most buyers.  If you had the good fortune to invest in uranium during the summer months of 2014, furthermore, you have an excellent opportunity to sell high at the moment.

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