Description

History always rhymes. But sometimes it just flat out repeats itself.

I’m old enough to have participated in the last uranium bull market, when Paladin, Denison, Cameco, and the rest saw their all-time highs. During that bull market run, a company called US Enrichment Corporation (USU) was undeservedly caught up in the mania. That company was the subject of short reports here on VIC in 2007 and 2011 (by me) and went bankrupt in 2014.

Today we are in the midst of a new uranium bull market. People have finally realized that nuclear energy is green/clean/environmentally friendly. This is happening at the exact time uranium supplies around the globe are running low, Sprott is dominating the physical market, and Japan is re-opening reactors. I won’t bore you with all the details. If you follow @hkuppy on Twitter, you’ll learn everything you need to know about the topic.

It being 2021 instead of 2005, the enthusiasm for uranium and nuclear does not stop at twitter. It goes all the way to WSB, where they have started a sub called “Uranium Squeeze.” And just like in 2007, the enthusiasm for uranium has bled over into a company that will reap little to no benefit from the bull market in yellow cake, sending it up ~3x in the last 2 months.

The company in question is Centrus Energy, a provider of low enriched uranium (LEU – hence the ticker) for commercial nuclear power plants. And Centrus Energy is the old US Enrichment Corp, cleansed of balance sheet liabilities by the catharsis of bankruptcy, and foisted back up on the public markets. So when I say you can read the old USU reports for background on the company, I mean that literally. It’s the same company with a new name, although a few things have changed.

Today, Centrus does not actually enrich any uranium. It’s legacy gaseous diffusion plant in Kentucky was retired in 2013. In fact, no commercial grade uranium is enriched in the US at all. In a rather astounding factoid, we get our commercial grade enriched uranium from Russia, who takes old weapons grade materiel, “downblends” it to commercial specs, and sells it back to us. Centrus sits in the middle of this transaction and acts as essentially an agent/importer of this fuel. They do their best to make the business sound fancy, but this is really all they do. They buy or trade unrefined uranium to the Russians, who sell LEU back to their dear friends in the United States. Acting as the government sponsored middleman is an okay business, which got a little better after some contracts reset in 2018. But it’s not a growth business and it’s not a high margin business. The US Government wants them alive because they manage old, shutdown enrichment plants, and because they do science experiments that in theory could one day help us enrich uranium on our own shore.

Back in the 2000s, USU’s plan was to transform the company by building the American Centrifuge Project (covered extensively in my 2011 writeup.) Today they have slightly changed the name, but the game remains the same – secure government dollars to fund their ever-failing science project. Today, they hawk their AC100M centrifuges, will they hope will one day product “High-Assay, Low-Enriched Uranium” (HALEU), which will be used to effectively power a new breed of nuclear reactor. That new breed of reactor hasn’t even been designed, much less built, to date. But HALEU sounds fancy, and you need to sound fancy to get government funding.

Unlike the last go round, USU/LEU isn’t going bankrupt anytime soon. It’s not a zero (at least unless and until they load up the BS with debt to fund more AC100Ms. But it also does not benefit from higher uranium prices, should not be caught up the “uranium squeeze” and should not have more than tripled its stock price in a couple of months. This will likely make a good standalone short or could be paired with uranium longs if one wished to hedge exposure. By all means make sure you do not own it – in the long term it's almost certainly radioactive`.

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