The small nuclear power related names have really taken it in the chin over the past year. Shares of USEC (USU), a leading supplier of uranium-enriched fuel that supplies more than half of the U.S. market and 30% of international markets, are down 65% year to date. And that dreadful performance includes a 71% run-up in shares since the beginning of October.
USEC has been beset by a variety of issues over the years. Japan's Fukushima nuclear disaster last year has certainly left a bad taste in many a mouth regarding the future of nuclear power, and this has weighed on the stock. In May, Germany announced that it will shut down all of its nuclear plants by 2022. While this will be no small feat, given that nuclear power generates more than 20% of the nation's electricity and it is unclear how Germany will make up the difference, the announcement illustrates the fear that resulted from Japan's disaster.
USEC's problems run deeper than skepticism over whether nuclear power is a safe and long-term solution. For years, the company has been attempting to secure a $2 billion loan guarantee from the U.S. Department of Energy in order to complete construction of its American Centrifuge Plant in Piketon, Ohio. Without the loan guarantee, the project is dead in the water.
Although USEC has been able to extend standstill agreements with major investors Toshiba and Babcock & Wilcox (BWC) through Oct. 31, giving the company some extra time to close the second phase of their investment in USEC, time is running out. USEC has slowed construction on the project and sent notices to American Centrifuge workers about potential layoffs. The company is attempting to secure a conditional loan guarantee from the Department of Energy by Nov. 1.
As an investor in USEC, I am nervous that the fate of this company is for all intents and purposes in the hands of the DOE, which is currently under fire for its "investment" in the bankrupt solar panel manufacturer Solyndra. It's rarely wise, in my opinion, to have an investment thesis whose success is predicated on help (or a bailout for that matter) from the federal government.
The question now is whether nuclear power has a future in this country and whether the completion of ACP is a vital part of that strategy. I believe there's a good probability that nukes will remain a major source of power. It may take some time for the stigma and fear of nuclear power to dissipate, but what alternatives do we have at this point?
Meanwhile, you can expect USEC to continue trading like an option. That's basically what it is at this point. This company is not for the faint of heart, and Nov. 1 is quickly approaching.