Areva inks $500 million nuclear fuel deal with Xcel for Monticello 

It is a vertically integrated contract covering the entire front end

French state-owned nuclear giant Areva had some good new this week in its U.S. market. The firm signed a unique integrated fuel and services contract on Jan 4 with Xcel Energy (NYSE:XEL) to supply the utility's Monticello nuclear generating plant in Minnesota. The contact is worth approximately $500 million for a ten year period of performance.

The deal, which starts in 2015, will cover six refuelings of the reactor. Products and services include uranium, conversion, enrichment, fuel design, and fabrication as well as related engineering services. It is the first integrated contract of its type in the U.S. in several decades.

In the past firms like Xcel used different firms for each stage of the fuel cycle. Utilities buy the uranium directly and then contract for enrichment and fuel fabrication services. Fuel is ordered years in advance to insure that it will be delivered to meet the schedule for fuel outages which occur every 24 months.

Mary Sandok, an Xcel spokesperson, told the news media in Minneapolis that Xcel awarded the contract after a competitive bidding process since the agreement with its long-time supplier Global Nuclear Fuel America was running out.

She said the evaluation of the winning bid showed a 5% savings over the life of the contract. Xcel Chief Nuclear Officer Dennis Koehl was quoted by World Nuclear News as saying the new Areva contract will control costs and that the savings will be passed on to rate payers. However, Xcel did not disclose the exact amount of the contract.

This is the first time Xcel will use Areva fuel in the 600 MW boiling water reactor (BWR). The reactor holds 484 fuel assemblies. A power uprate of 229 MW submitted in November 2008 is pending with the NRC. It is expected that the firm will complete the uprate in late 2012 according to a report in World Nuclear News.

The plant is located about three miles northwest of Monticello, MN, and 40 miles northwest of the Twin Cities on the banks of the Mississippi River.

Areva eyes stake in Urenco

Areva is reportedly taking a close look at buying a stake in Urenco, a European uranium enrichment firm that also has a U.S. subsidiary which owns and operates an enrichment facility in New Mexico. Urenco is currently owned by several German utilities and by the governments of Britain and the Netherlands.

According to a Reuters report for Jan 5, 2012, German utilities RWE and E.on, which own a combined stake of 33% of the firm, have asked investment bankers to seek a buyer. The UK government has been thinking out loud about selling its share since 2009. However, the Financial Times reported Jan5 that no financial advisor had been selected to handle the sale.

The total value of the firm is estimated to be {e}3 billion ($3.82 billion). The firm had revenues in the most recently reported financial year of {e}1.2 billion.

In December new Areva CEO Luc Oursel stopped capital construction spending on four nuclear fuel facilities in France and postponed the construction phase of the Eagle Rock Enrichment Facility in Idaho.

This new development suggests the firm is taking a page out of the playbook of the beer brewing industry. The way some brewers have boosted production capacity is to simply buy other breweries with existing plants and swap out the product line.

If that is the case, and this is only speculative, then it could be that Areva is thinking it would be a lot cheaper to take an equity stake in an existing uranium enrichment operation, like the one in New Mexico, than to spend $3 billion on a new plant in Idaho.

It isn't clear what kind of stake Areva is seeking in Urenco, e.g., majority controlling interest or just a minority share. If both the UK and the German utilities sell off their shares for sale, there is the possibility that private equity firms might also enter the bidding. The Dutch government has the final say on sale of any stake in the firm.

Neither Areva nor Urenco offered any comment to financial wire services about the possibility of a deal.

Update January 11, 2012

Areva denied reports in financial wire services that it plans to buy an equity stake in Urenco.  The French state-owned nuclear giant said that it is still cutting investments and selling assets in an effort to reorganize its balance sheet. So, for the time being, the firm says, there is no prospect of a deal.

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