August 02, 2012
not a stock you want to own.
The company went public in 1998, with shares offered at $14.25. Within
two years, investor disinterest depressed USEC’s value by 70 percent. A brief bubble
inflated shares to nearly $24 in 2007. But today, the stock sags beneath a
buck, and it appears to be on the path to delistment.
What happened? Privatization gone horribly wrong.
USEC is one of many toxic stepchildren of the Cold War’s
technocracy. To wage its crusade against the Soviet Union, Washington’s globocops needed
oodles of fissile
material. Uranium, enriched to a precise isotopic composition, was used to make
bombs and propel naval vessels. In addition to the Manhattan Project’s cavernous
Tennessee facility, the Atomic
Energy Commission acquired the proper mixture of Element 92 at huge gaseous-diffusion
plants in Kentucky and Ohio.
As the decades passed, utilities obtained a growing share of their
juice from nukes, and the
East-West standoff cooled off. Federal uranium behemoths weren’t in the warfighting
business anymore -- they manufactured the fuel reactors “burn” to generate
electricity. In 1992, Congress created a government-owned firm, the United States Enrichment Corporation. Six years later, USEC
went Wall Street, and its sale of 100 million shares returned over a billion
dollars to taxpayers.
Fourteen years after USEC’s IPO, it’s clear that the company has
congenital defects it just can’t overcome. For starters, privatization arrived much
too late. In 1969, Richard Nixon, in a rare
display of pro-market sentiment, recommended that the feds get out of the uranium
racket. Privatization didn’t happen until the end of the Clinton administration, and during the
interim, domestic isotope-separation engineering stagnated. (Rest assured, billions
were spent on studies and experiments.) USEC continues to employ the cumbersome,
electricity-ravenous method developed during World War II.
Another albatross: USEC hasn’t fully detached itself from the U.S. Department of
Energy. Its Paducah,
Kentucky factory is owned by the DOE. Management flexibility is hamstrung
by deals with the department. And the company serves as the “executive agent”
for a treaty with Moscow.
The agreement, signed in the early 1990s, downblends uranium once housed in
Soviet bombs for use in U.S.
commercial reactors. When the program ends next year, it will have de-armed thousands
of warheads, and produced enough electricity to power America for two years. “Megatons to
Megawatts” is arguably good foreign policy, but it was foolish to put the project
in the hands of a for-profit entity that should focus on maximizing shareholder
value, not fighting nuclear proliferation.
USEC’s too-cozy relations with the government extend to its plan
-- well behind schedule, dramatically over budget -- to develop a cheaper, more
efficient production capacity. Enamored, at first, with laser enrichment, in
2001 USEC settled on a “disciplined evolution of classified U.S. centrifuge technology
originally developed by DOE and successfully demonstrated during the 1980s.” An
executive beamed that the process “is already proven, conservative, reliable,
manufacturable and operable.”
A new centrifuge complex would be expensive, but in its 2003 annual
report, USEC predicted that finding funding wouldn’t be a problem: “We have
full confidence that once we demonstrate the high efficiency and potential
returns of our … technology, the financial markets and other potential partners
will view [it] as an attractive investment.”
Within a few years, those “other potential partners” included Uncle
Sucker -- USEC went to D.C. for the big bucks it needed to secure private
investment. In July 2009, the
DOE unexpectedly balked at granting a $2 billion loan guarantee. But the
following March, the department signed off on a $45 million gift to the
company’s demonstration facility. This June, DOE committed to as much as
$280 million to “enhance the technical and financial readiness of the
centrifuge … for commercialization.”
A stock price in the sewer. Bonds rated as junk. A
half-billion-dollar loss in 2011. Withering market share at home and abroad.
And a record of relentless begging for bailouts.
Enough. If USEC can’t survive as a genuine commercial entity,
it’s time for the takeover/liquidation
vultures to swoop down and carry off whatever value remains. (It’s what
should have happened in 1998.) Don’t panic, economic nationalists -- America
will retain a uranium-refinement infrastructure. A European consortium is
existing centrifuge plant in New
Mexico, and GE Hitachi Nuclear Energy is moving forward with a pilot laser-separation
proposal in North Carolina.
USEC’s reckoning will be brutal. Shareholders will suffer. Pols
and unions will give angry speeches. Laid-off employees will whine.
Too bad. Taxpayers have sacrificed enough for Washington’s disastrous adventure in
D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.
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