Europe's Nuclear Monopoly Pivots to ChinaBy
Urenco group is the only enricher of reactor fuel in the U.S.
Dutch-German-U.K. group had $821 million U.S. impairment
The European nuclear company that operates the only U.S. reactor-fuel manufacturing site is refocusing its strategy with an eye on Asia because of the dim outlook for atomic power in North America.
Urenco Ltd. is developing new technologies and pivoting toward emerging Asian nuclear markets to boost its value as the world’s second-biggest producer of enriched uranium for atomic fuel, Chief Executive Officer Thomas Haeberle said in his first interview since he was appointed in January 2016.
“Our market has changed fundamentally,” Haeberle said by phone from the company’s headquarters in Stoke Poges, England. “This change is of a permanent nature. As a company we have to react.”
Urenco has been buffeted by market and ownership challenges since completing its multi-billion-dollar U.S. uranium enrichment factory seven years ago. The meltdowns at the Fukushima nuclear plant in Japan in 2011 crashed the global market for reactor fuel. All of the closely held company’s owners -- the Dutch and British governments as well as German utilities EON SE and RWE AG -- say they’d be willing to sell their stakes to the right buyer.
Slack U.S. nuclear-fuel demand led Urenco earlier this month to report the first loss in its 46-year history. The company took a 760 million-euro ($821 million) impairment on its factory in Eunice, New Mexico, and finished 2016 with a loss of 456 million euros.
“The drop in our prices are going to be sustained for a while because of the inventory that has been built up in our industry,” said Haeberle, a German chemical engineer who worked at Evonik Industries AG before joining Urenco. “This is the very clear reason we had to do the impairment.”
At its four factories in Europe and the U.S., Urenco operates thousands of centrifuges -- sensitive metal cylinders that spin at supersonic speeds to separate the uranium isotopes needed for fission. France’s Areva SA also enriches uranium in Europe. Their business is strictly regulated because the technology can also be used to for nuclear weapons.
Asia and the Middle East are the only global markets where Urenco sees “strong growth potential” for nuclear energy, it told ownership this month. The company could supply about a third of the enriched uranium at China’s Daya Bay Nuclear Power Operations & Management Co., according to the London-based World Nuclear Association. Urenco declined to confirm the report and said it doesn’t name clients.
“China is not a market that is easy to access,” Haeberle said. “We are in close discussions and intense negotiations with some of the Chinese players already.”
The CEO pointed to fuel contracts in Ukraine and the United Arab Emirates to show that Urenco can compete outside its core western European and U.S. markets. Moreover, the December 2015 Paris climate accord helped Urenco’s business because “the world isn’t going to meet carbon dioxide” reduction goals without nuclear power.
Haeberle said he’s working with Urenco shareholders “in different ways to grow the value of the business.” The possibility of a sale hasn’t impacted day-to-day operations, which focus on fulfilling Urenco’s 15.5 billion euros of reactor-fuel orders for 50 customers in 19 countries.
Urenco needs to expand its global reach because low U.S. natural gas prices and liberalized markets are undercutting the outlook for nuclear power, the company wrote in its March strategic review. It trails only Russia’s Tenex, controlled by state-owned Rosatom Corp., as the world’s leading supplier of reactor fuel, according to the WNA industry group.
In a historical twist, Urenco, which was incorporated in 1971 to break U.S. monopoly power over Europe’s nuclear industry, became the last commercial atomic-fuel producer in America four years ago after USEC Inc. filed for bankruptcy and closed its last enrichment plant. Even if the amount of power generated from reactors has stalled, the U.S. still leads the world in number of operating nuclear reactors, according to the most recent Nuclear Regulatory Commission data.
For all of the U.S. market ills that dragged Urenco to a loss last year, the company managed to increase sales 3 percent to 1.89 billion euros. Earnings before interest, tax, depreciation and amortization rose 4 percent to 1.17 billion euros, yielding a 62 percent Ebitda margin, which puts Urenco near the top decile of global corporate profitability, according to data compiled by Bloomberg.
“I’m absolutely convinced that our American asset is of utmost importance going forward because we shouldn’t forget that we are the only civil enricher in the largest nuclear market in the world,” Haeberle said. “Our plant is important for this market but also has a global dimension.”