Navigant Research Blog

Uranium Enrichment Company Fizzles, For Now

Richard Martin — August 18, 2012

It’s been a tough summer for USEC, Inc., formerly U.S. Enrichment Corp., the private company set up in 1992, after the fall of the Soviet Union, by the U.S. government to process uranium from dismantled Soviet warheads and sell it on the open market to the nuclear power industry.  Uranium prices have declined since the Fukushima nuclear accident last year, and USEC – which went public in 1998 and makes its money enriching uranium purchased on the open market for enrichment and resale to nuclear plant operators ‑ has seen its financial position crater.

On July 31 the company reported dismal financial results, including a loss of $92 million for the most recent quarter.  USEC’s share price has languished below $1 for months, and the company is faced with delisting from the New York Stock Exchange if the price doesn’t recover.  The company, which uses an outmoded gaseous diffusion process to enrich uranium, has staked its future on the modern American Centrifuge plant, which it plans to build in Ohio, but that program has been on life support since the Department of Energy (DOE) declined to issue a $2 billion loan guarantee for the project in 2009.

Since then, USEC has eked out its existence on dozens of millions of dollars in DOE stopgap funding. But this week, citing “competitive pressures with an oversupplied market and the continued delay of the Department of Energy loan guarantee,” Standard & Poors lowered its already lousy rating on USEC’s corporate debt.  The company has already acknowledged that, barring some miraculous recovery in the world uranium market, it will be unable to continue operating its Paducah Gaseous Diffusion Plant beyond the spring of 2013.  If USEC is unable to secure DOE funding for the American Centrifuge project, its days as an independent entity are almost certainly numbered.

USEC has received less publicity than ill-fated DOE loan guarantees to renewable energy companies, like Solyndra, but the outcome, at this point, looks equally dismal.  USEC was formed at a time when there was an urgent need to reprocess Soviet nuclear materials for peaceful use, but that source is nearly exhausted.  CEO John Welch’s ambitions for the new centrifuge plant were developed during talk of the anticipated “nuclear renaissance,” which for the moment looks like more of a retrenchment.  Nevertheless, Welch continues to speak about the worldwide nuclear buildout: “The rest of the world is moving on quite aggressively” on nuclear power, Welch told reporters last week. “As far as we’re concerned, we see a long-term market for our services that’s very strong.”

Even with Japan moving to restart at least two reactors in coming months, that sounds wishful.  The nuclear renaissance may still happen – particularly if China moves ahead with its plans for the more than two dozen reactors now under construction – and many experts believe that uranium supplies will tighten in coming decades.  But even in a recovering market for uranium, it’s not clear that USEC has a viable business.  And it’s even less clear that the U.S. government should spend more money to prop it up.

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