DealBook: Urenco, Powerhouse of the Uranium Enrichment Industry, Wants Out

UrencoAn inspection at what will be Urenco’s largest enrichment center, now under construction in Eunice, N.M.

CAPENHURST, England — The first thing you notice when entering Building E23 on a tightly guarded site here in northwest England is the loud tick-tock. The sound resonates throughout the long, low-slung building where, behind secured doors, sit row upon row of tall thin tubes.

That ticking means the building’s radiation detection system is working — crucial comfort. Inside each cylinder is a centrifuge, spinning a gaseous form of uranium to give it the atomic boost it needs to be used as nuclear reactor fuel.

The company that operates this uranium enrichment center, Urenco, is the world leader in the field. It is also plumply profitable. So why are its owners eager to sell it?

The answer, as with many things involving nuclear power, is a combination of economics, geopolitics and the Promethean prospect of an energy source that is as potentially green and abundant as deadly dangerous.

Urenco was formed by treaty in 1971 when Britain, West Germany and the Netherlands decided for strategic and business reasons to combine their uranium enrichment programs. The company is still owned by the British and Dutch governments, with one-third each, and with the German third held jointly by two big utility companies, E.On and RWE.

Urenco now has four enrichment plants — in Britain, the Netherlands and Germany — selling fuel for civilian energy purposes around the world, capturing nearly a third of the global market. It is also heavily investing in an American centrifuge complex in Eunice, N.M., that will eventually be its largest plant.

“Over the years we have developed generations of these machines,” said Helmut Engelbrecht, Urenco’s chief executive in a telephone interview. “If you do something continuously you always improve.”

Besides fuel, Urenco’s centrifuges spin off fairly good money: revenue of 1.6 billion euros, or $2.1 billion last year, yielding earnings of 402 million euros, for a profit margin of 25 percent. And its order book stands at 18 billion euros, which translates to at least 10 years of steady work.

Analysts estimate Urenco’s market value at about 10 billion euros. For all that momentum, though, the company is at a crossroads. Growth may flatten in the next couple of years, executives say, mainly because Japan — a major user of nuclear power until the 2011 Fukushima Daiichi disaster — has shut down its reactors, taking about 10 percent of the world’s nuclear energy generating capacity offline. And the Japanese have stockpiled substantial amounts of fuel for the day, if ever, that those reactors go back into operation.

The British government, intent on cleaning up its budget by selling state-owned enterprises, said in March that it had hired Morgan Stanley to look into disposing of all or part of its Urenco stake. In some respects Urenco is an easier business to sell than, say, the Royal Mail, because it has an internationally marketable product and a relatively small work force — about 1,400 employees.

UrencoUrenco’s New Mexico facility. The company sells nearly a third of the world’s reactor fuel; it had $2.1 billion in revenue in 2012.

The German utilities E.On and RWE have hired Bank of America as their adviser. With the German government’s having decided to get out of the nuclear industry in 2011 after Fukushima, the sale of their Urenco stakes would help the power companies beef up their thin balance sheets.

A sale became more likely Thursday, when the Dutch government said it wanted to sell its shares, as long as “the public interest in terms of nonproliferation, nuclear safety and supply security” could be safeguarded.

A person close to planning, who insisted on anonymity because of the delicacy of the matter, said if things went smoothly a sale might occur either late this year or in the first half of 2014.

“Nuclear strategies have changed,” said Michael Kruse, a consultant on nuclear issues for the management consultant Arthur D. Little in Frankfurt. “Governments no longer think they need to be in this business,” he said, “and utilities in several countries want out after Fukushima.”

People in the industry say the most likely buyers would be companies already in the industry that might want to offer clients fuel along with nuclear power stations. Areva, a French giant, might fit that bill. So might Toshiba of Japan, which is studying building nuclear plants in Britain. Still, “there are in my view not many companies that can buy Urenco,” Mr. Kruse said.

Urenco’s chief executive, Mr. Engelbrecht, in a presentation to analysts in March, declined to discuss a possible sale of the company, saying he would leave that to the shareholders. But he argued that fast-growing emerging economies would take up the slack left by Japan.

Already, he noted, China is in the midst of a nuclear plant building boom, and India is also seriously pursuing nuclear power. In the Middle East, Urenco has a contract to enrich uranium for the plants in Abu Dhabi being built by South Korean contractors. Countries that are seeing 10 percent to 15 percent increases in electricity demand and that have major air pollution problems “are all betting on nuclear, and that is where we believe the future of our business will be,” Mr. Engelbrecht said.

The company has 50 customers in 17 countries, which it denotes with little plaques on a wall in the enrichment center’s entranceway. The honorees include the Indian Point nuclear plant in Buchanan, N.Y.; Wolf Creek in Burlington, Kan., and the Olkiluoto plant on an island off western Finland.

Even if the potential buyers are a small pool, analysts say that buying into Urenco would present a rare opportunity. Urenco’s centrifuge technology, honed over several generations of machines, is considered the most efficient way to enrich uranium.

Urenco plants receive shipments of uranium hexafluoride, a granular substance derived from uranium ore, which is turned into gas by heating it. The gas is then piped into the centrifuges which use their spinning power to separate out the lighter and more reactive uranium 235 isotopes. When the gas is cooled again, it settles out as a solid resembling grains of sugar.

Urenco’s process increases the proportion of U235, raising it from a starting point of about 0.7 percent to end up about 4 percent — a suitable level for reactor fuel, but only a small fraction of the concentration needed to make a nuclear weapon.

Urenco’s enriched uranium is put in canisters that then go to a fuel fabricator, where it is converted into pellets and loaded into fuel rods which are then delivered to the power plants.

The centrifuges rarely stop at the Capenhurst plant, which sprawls over about 170 acres in what has long been a munitions testing site surrounded by cow pastures and farm ponds. The newest group of cascades — as the array of centrifuges is known — in the Capenhurst building was installed 15 years ago and “has never been brought to rest,” said Geoff Owens, a Urenco engineer.

Areva, of France, which has about 10 percent of the world market for nuclear fuel sales, began switching over to Urenco’s technology in the mid-2000s for its uranium enrichment. Areva’s and Urenco’s owners each have a 50 percent stake in a company called Enrichment Technology, based in Almelo, the Netherlands, that develops and makes the centrifuges.

It is very difficult for competitors to gain a foothold in Urenco’s business. The details of the technology are closely guarded, and the uranium trade is tightly controlled and regulated. “There are massive barriers to entry,” said Harold Hutchinson, an analyst at Investec in London.

Urenco produces the steady, long-run returns that might be valued by pension funds and private equity groups. But worries that the wrong people may gain access to Urenco’s world-leading technology will probably mean that the shareholders — and the British, Dutch and German governments — will be highly selective about who can buy stakes.

While Asian or Middle Eastern sovereign wealth funds are said to be among those interested, only companies from North America, western Europe, Japan, or possibly, South Korea, are likely to pass muster, people in the industry say.

“There are an awful lot of security concerns which arise around these types of businesses,” said Fiona Reilly, who heads the nuclear industry practice at Norton Rose, a law firm in London.

Besides potential candidates like Areva and Toshiba, another shopper might be Cameco, a big Canadian uranium mining outfit. It has shown interest in working with Urenco in the past and already uses a plant in Preston, England, that turns refined uranium ore into the uranium hexafluoride that could serve as feedstock for Urenco’s nearby Capenhurst complex.

“Enrichment is a potential growth area for us,” Gord Struthers, a Cameco spokesman said in an e-mail, while declining to comment on whether an offer might be imminent. “We are watching what happens with Urenco closely.”

Rift Widens Over Mining Uranium in Virginia

“This is the top of the deposit,” said Mr. East, an employee of a company that wants to mine one of the largest lodes of uranium in the United States, which happens to be found here in southern Virginia.

A fight over whether to drill beneath the oak hedgerows, an undertaking that would yield 1,000 jobs and a bounty of tax revenue in addition to nuclear fuel, has divided the region. The bitterness is reflected in competing lawn signs that read “No Uranium Mining” and, on the other side of the road, “Stop whining. Start mining.”

Now, after years of government reports and hundreds of thousands of dollars in political donations that included a trip to France for state lawmakers, the issue has reached the crucible of Virginia’s General Assembly.

Bills introduced last week would lift a moratorium on uranium mining at the site here, known as Coles Hill. Political supporters say that the mining would bring economic benefits and that risks from radioactive wastes, or tailings, can be safely managed. Opponents fear the contamination of drinking water in case of an accident, and a stigma from uranium that would deter people and businesses from moving to the area.

The politics of the issue do not divide neatly along party lines. Opponents include most state lawmakers from the region, all of whom are Republicans. A prominent supporter is the minority leader of the State Senate, Richard L. Saslaw, a Democrat, who lives in the northern suburbs. Asked about buried uranium tailings that remain a risk for hundreds of years, Mr. Saslaw, who is known for unguarded statements, said in a radio interview, “I’m not going to be here.”

Many lawmakers in the Republican-controlled General Assembly seem to be looking to Gov. Bob McDonnell for guidance.

But Mr. McDonnell, also a Republican, pointedly indicated on Tuesday, when the last research report he requested arrived, that he might not take a position at all. The governor will review the findings “before deciding whether or not to take any recommendation on uranium mining,” said Jeff Caldwell, a spokesman for Mr. McDonnell, who is thought to be considering a run for the presidency in 2016.

Proponents of extracting Virginia’s uranium, worth an estimated $7 billion, argue that national security demands more domestic mining, because 92 percent is imported. Mr. McDonnell used that same argument to push drilling for oil and gas off Virginia’s coast (now blocked by the Obama administration).

Supporters are disappointed and perplexed by Mr. McDonnell’s cautious stance so far, given that he once vowed to make Virginia “the energy capital of the East Coast.”

A spokesman denied that the governor was motivated by a political calculus over his national reputation. “He’s focused on public health and safety and smart public policy. That’s it,” said J. Tucker Martin, Mr. McDonnell’s communications director.

A National Academy of Sciences report in 2011 stopped the momentum in last year’s General Assembly for lifting the ban, imposed three decades earlier in the wake of the Three Mile Island nuclear plant accident. The report warned of “steep hurdles” to safe mining and “significant human health” dangers if a capped tailings pile leaks because of the state’s “frequent storms.”

After a follow-up report ordered by the governor, the Virginia Commission on Coal and Energy, a group of 13 legislators, voted to clear the way last month for lifting the ban in the legislature.

Patrick Wales, the project manager for Virginia Uranium, the mine developer, said he shared in the concerns for safety. “My son plays in these creeks,” Mr. Wales said. He said improvements in tailings storage have “largely eliminated” the environmental hazards associated with reckless uranium mining in the West through the 1970s.

To influence lawmakers, Virginia Uranium has poured more than $600,000 into campaign contributions and lobbying since 2008, according to public records. For the current 45-day legislative session in Richmond, it has retained 20 lobbyists.

The opposition, made up of a coalition of environmental groups, the Virginia Farm Bureau and cities downstream from the mine site, has also spent generously on lobbyists.

“By now, members are running and hiding” in the Capitol when they spot a lobbyist, a legislative aide said.

In 2010 and 2011, Virginia Uranium paid $122,000 total to fly about two dozen members of the General Assembly to France to visit a tailings storage site, which critics quickly labeled a junket. The sponsor of the Senate bill that would lift the uranium ban, John C. Watkins, was among those traveling.

“There is nothing in life that is 100 percent guaranteed,” Mr. Watkins said of the safety concerns of opponents, adding that he respected those concerns. His bill would direct the state to write regulations for mining, including protecting groundwater, a process that could take several years. “We are going to employ the best engineering, the best technology, the best science” to prevent contamination, he said.

In south-central Virginia, many officials have come out in opposition, most recently the Chamber of Commerce of Danville and Pittsylvania County, where Chatham is.

Delegate James E. Edmunds II, a Republican, said that in the event that radiation leaked into the groundwater, his district would be one of the first affected. “There’s no waiting for a big rain to clean it up,” he said. “I’m not going to have that as my legacy.”

The issue has turned many of the region’s elected Republicans, the party of “drill, baby, drill” and property rights, into mining opponents.

Officials described wrestling with their desire to bring jobs to an area facing high unemployment and whose tobacco and textile industries have collapsed. “It’s been very divisive, very difficult,” said Delegate Donald W. Merricks, who represents Chatham and opposes the mine.

In Chatham, a quaint town anchored by an 1853 courthouse with fat white columns, the nerves of many residents are so frayed that they would not say which side they were on for fear of angering neighbors.

But at Pat’s Place, a lunch counter on South Main Street, Jason Hicks, the 38-year-old owner, was not so shy. “I think it would be a good thing,” said Mr. Hicks, whose business has not fully recovered from the recession. “The county is starving for jobs. With that coming in, it would pick up the town a whole lot.”

Wanda Doss, 56, a clerical worker leaving Pat’s, said: “I’m afraid of cancer down the road and polluted water. You have a flood, and it’s going to get in the water system.”

Informal vote counters in the General Assembly said the House, where Republicans hold a supermajority, is inclined to say yes to mining. The State Senate, with Democrats and Republicans each holding 20 seats, is considered too close to call.

Even if Mr. McDonnell does not weigh in, his lieutenant governor, William T. Bolling, a Republican, may exert an influence; he casts the deciding vote in the event of a tie in the Senate. Thwarted by his party in his quest to become its nominee to replace Mr. McDonnell this year, Mr. Bolling has hinted that he might run as an independent.

He recently said he opposes uranium mining.

Uranium Plant Using Laser Technology Wins U.S. Approval

The Nuclear Regulatory Commission issued a license to General Electric-Hitachi Global Laser Enrichment this week to build and operate a uranium enrichment plant near Wilmington, N.C., deploying the laser technology instead of costlier centrifuges.

The approval alarmed some advocates of nuclear weapons control, who say they fear that allowing companies to use the cheaper and easier technology could increase the risk of it falling into the wrong hands.

“We think the approval of the license was done without due consideration of proliferation,” said Edwin S. Lyman of the Union of Concerned Scientists. “We’re already grappling with how to cope with Iran’s nuclear enrichment capability” and the laser technology “could make the problem of global proliferation intractable and uncontrollable.”

G.E.-Hitachi said it had not yet decided whether the project would be profitable enough to begin construction of the $1 billion plant. Part of the evaluation will involve weighing whether markets for enriched uranium will hold for years into the future, said Christopher White, a spokesman for the partnership.

But the company made assurances that its hold on the classified technology was secure.

“The company has worked with the N.R.C., the U.S. Departments of State and Energy and independent nonproliferation experts for several years to ensure the security of this technology and has met — and in many cases exceeded — all regulations pertaining to safeguarding this technology,” G.E.-Hitachi Nuclear Energy said in a statement.

The license, awarded Tuesday, allows G.E.-Hitachi to enrich uranium to 8 percent by weight. Uranium is enriched to 90 percent purity to build atomic bombs.

The United States and five other world powers have imposed sanctions on Iran because it has enriched uranium to 20 percent, a level that could be turned into weapons-grade material much more quickly than power-plant fuel.