Nineteen years ago, in the early days of the post–Cold War world, the new Russian state signed a deal with the United States to decommission thousands of nuclear warheads and sell the enriched uranium within them for use in American power plants. So far, over the course of that agreement (dubbed “Megatons to Megawatts”) more than 440 tonnes of highly enriched uranium, equivalent to more than 17,000 missiles, has been recycled and shipped stateside, helping provide, at times, as much as 10% of America’s electricity.
But all of that will soon come to an end. Megatons to Megawatts expires at the end of 2013. And when it does, a major supplier of secondary uranium will disappear from the global market. For Canadian mining giant Cameco Corp., that means opportunity. The Saskatoon-based company already has plans to double its own uranium output to 40 million pounds per year by 2018. In the interim, it intends to keep selling even more ore than it digs out of the ground.
To help do that, in late May, Cameco paid US$136 million to buy Nukem Energy GmbH, a nuclear-fuel broker, from private equity firm Advent International. (Cameco will also assume US$164 million in Nukem debt.) Founded in 1960, Nukem is one of the oldest players in the nuclear game. Working out of offices in Alzenau, Germany, and Danbury, Conn., the company sold about 12 million pounds of uranium last year. Add that to the 33 million pounds Cameco sold—22 million pounds sourced from its own mines—and the two companies handled more than a quarter of all the uranium sold worldwide in 2011.
In the short term, the deal gives Cameco access to some of the last of the Megatons to Megawatts supply. (Under an agreement signed in 1999, Nukem, like Cameco, is set to receive millions of pounds of enriched Russian uranium under the deal this year and next.) In the long run, it should also give Cameco better odds of locking down some of the world’s dwindling supplies of secondary nuclear fuel.
Even after last year’s disaster in Fukushima, Japan, which caused Japan and Germany, among others, to shut down nuclear capacity, there’s a significant shortfall between the amount of uranium produced by mining companies and that consumed by power plants. Worldwide, miners produced just 143 million pounds of uranium in 2011, while global consumption of the product hit 165 million pounds. To close that gap, brokers and other sellers turned to secondary sources such as re-enriched tailings or decommissioned warheads. The largest of those sources, by far, has always been Megatons to Megawatts. But when that deal expires, the gap between demand and primary supply will persist. Cameco, for one, is betting that Nukem, with its history in post-Soviet states like Kazakhstan and Uzbekistan, will be well positioned to help fill it. “These guys are experts at finding this material, acting as a broker and putting it on the market,” Cameco president and CEO Tim Gitzle said in a recent interview with the Regina Leader-Post. “It’s not something we’ve done, but we know the [secondary] market is there, [and] we’d rather be in it than watch it happen.”
Add the Nukem deal to Cameco’s recent consolidation of its Millennium mine project in Saskatchewan, and Salman Partners senior mining analyst Raymond Goldie sees more good news for the company. “That’s one more piece of evidence that the uranium business is getting more concentrated,” he says, “and generally the more concentrated an industry is, the more profitable it is.”