Bloomberg bombs on uranium story

Wire service confuses yellowcake with weapons grade uranium

Bloomberg wire service put its foot in the bucket on April 14 with a muddled story about how Lehman Bros had an "inventory" of 500,000 lbs of yellowcake or uranium oxide commonly known by its chemical symbol U3O8. What set people on edge on both sides of the Atlantic was this aside deep in the article.

"A supply of 500,000 pounds of yellowcake is just “slightly” less than the amount needed to make one bomb, or fuel one nuclear power reactor for a year, if the latest enrichment technologies are used, said Gennady Pshakin, an Obninsk, Russia-based nonproliferation expert."

Now the question is this - what is a reference to bomb making doing in an article about Lehman Bros. and its bad business decisions? Even more to the point, the uranium is stored in Canada, not Russia. 

The reference in the Bloomberg article to the yellowcake inventory and its potential use in making a nuclear bomb appears to be an unfortunate effort to sensationalize an otherwise dull story about bad business decision making in a down vector commodity market.

How did a bank wind up owning uranium?

There is only one way Lehman Bros. would have wound up with the uranium, and that is a failed effort to take advantage of record high prices in 2007.  Normally, utilities buy uranium directly from mines and retain title through all processing steps which result in delivery of nuclear fuel to the reactor. Banks do not, as a rule, buy uranium nor take title to it.

Here's an example of how uranium deals usually work.  In the news April 14 is a report by Platts that "financially troubled uranium producer Denison Mines" reached a proposed agreement with Korea Electric Power Corp for the utility will buy 20% of Denison's U3O8 production and acquire about 58 million common shares of Denison, or a 19.9% stake in the company, for C$75.4 million (US$62.1 million).

Platts also reported that the company will provide for deliveries beginning in 2010 with minimum deliveries of 510,000 to 690,000 pounds of U3O8 per year from 2010 to 2015. 

According to the Bloomberg story, Lehman acquired its uranium “under a matured commodities contract” and plans to sell it when the market improves “to realize the best prices,” CEO Bryan Marsal said.  

Here's a translation - a speculative position in uranium couldn't be liquidated at a profit before the firm went bust, and selling the stuff at $40/lb isn't going to make the people managing the bankrupty proceedings very happy so we'll wait.

Fast with the facts on a slow news day

Bloomberg's mistaken logic that an inventory of yellowcake equates to bomb making needs correction.  The yellowcake is not weapons grade material and cannot be used to make a bomb directly. To make a bomb, first the uranium must be enriched to 80% U235. Next the metal must be machined and then fabricated with great precision.  The material cannot be exploded without specific types of detonation mechanisms. You can read all about it in comic books on the Internet. Note to wonks - yes, the use of neutron reflectors will lower the level of enrichment needed to make the bomb, but that's not my point here.

The usual path for yellowcake in the case of the inventory under the control of Lehman is to enrich it 3-5% for fabrication into commercial fuel for civilian reactors that generate electricity.

In the handing out of laurels (good job) and hardlys (foot in bucket), Bloomberg gets a “hardly” for its gratuitous use of bomb making comparisons where they do not belong.

NY Times ‘DealBook’ uncritical of the article

The NYT ‘Dealbook’ picked up and referenced the Bloomberg bomb angle apparently without thinking through the implications of the article. In an apparent effort to be funny, the NYT Dealbook asked, “Is it time to add Lehman Brothers to the list of undeclared nuclear states?” It referred in the headline to “Lehman’s (Literally) radioactive assets.” On a slow day this is the stuff of pun making.

Once the NYT column decided to play in Bloomberg’s sandbox, things went downhill. Contrary to the anti-nuclear nonsense that appeared in the comments section at the NY Times 'Dealbook" web page on the same day, there is little likelihood the Russians will acquire the Lehman Bros yellowcake and sell it to Iran.

It is a fact that Russia delivered commercial nuclear fuel to Iran’s Busher reactor in December 2007. The Russians are in it for the money, and they plan to take the fuel back. Also, spent nuclear fuel is a very poor material for making nuclear weapons. Here is a report from the LA Times

“Moscow’s Foreign Ministry insists that Russia won’t allow the fuel to be diverted. “All fuel that will be delivered will be under the control and guarantees of the International Atomic Energy Agency for the whole time it stays on Iranian territory.”

“All our processed fuel is to be returned, gram by gram,” said Sergei Karaganov, chairman of the Council on Foreign and Defense Policy in Moscow. “It was actually kind of a political lever more than an actual concern that our fuel could be used for weapons,” he said. “It can’t be used for weapons under any circumstances. This is a fact of life.” 

I might add that it is also a fact of physics.

Megatons to megawatts

Insofar as it relates to Lehman Bros and their yellowcake, the Russians derive most of their nuclear fuel to be used in civilian nuclear reactors by blending down highly enriched uranium (HEU) from weapons and selling it to the US through the “Megatons to Megawatts” program.

About 50% of all the nuclear fuel currently used in US reactors comes from this program. Put another way, 10% of all US electricity is generated with nuclear fuel that came from Russian weapons grade materials. Short and sweet — the Russians are very unlikely to be interested in Lehman’s yellowcake.

More likely, the Lehman yellowcake will be sold when the price of U3O8 rises to about $60/lb and it becomes worthwhile to ship it from Canada to France or the US for enrichment and then eventually on to fuel fabrication.

Also, more likely, the yellowcake will be sold off in batches rather than in one large sale. Currently, at $40/lb the 500,000 lbs of uranium oxide are worth $20 million. This is chump change for a firm used to transactions marked in billions of dollars.

It is not easy for the public to be realistic about such things, but it is even harder with articles like Bloomberg’s and the NY Times’ uncritical acceptable of the wire service story.

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