* Deutsche's uranium trade business one of biggest in market
* Holds around $200 mln in yellowcake stockpiles
* Formal sales process to start in Q1 2014
By David Sheppard
LONDON, Dec 19 (Reuters) - Deutsche Bank AG is
holding preliminary talks with potential buyers of its uranium
trading business - the first sign since announcing it was
largely exiting commodities trading that parts of the operation
are now on the block.
The bank's uranium desk is one of the biggest third-party
traders in the market, and holds substantial stockpiles of
low-grade uranium, known as yellowcake, and numerous long-term
deals with nuclear power plants.
The bank has had a number of expressions of interest in its
uranium business, and expects to start a formal sales process
early in the first quarter, sources familiar with the
Deutsche Bank announced it was shuttering its global
commodities trading business on Dec. 5, cutting 200 jobs in the
face of toughening regulations and lower profits. The majority
of commodity traders have already left the bank.
The bank is retaining a core team known as the Special
Commodities Group to wind down its operations, and will retain a
number of purely financial commodities traders. The bank will
also retain its precious metals business.
A Deutsche Bank spokesman declined to comment on the
discussions surrounding the uranium business.
Goldman Sachs, the other major bank active in uranium
trading, is also selling its nuclear fuel arm, but has said it
remains committed to its J.Aron commodities franchise where many
of its most senior executives started their careers.
The sale will include Deutsche's uranium trading book and
stockpiles of yellowcake - known as U308 in the industry - worth
about $200 million. At current prices that amounts to
approximately 5.7 million lbs of the low-grade fuel.
That would be enough to fuel around 10 nuclear reactors
producing 1000 megawatts each for between 12 and 18 months,
industry sources said.
The banks uranium traders are not part of the initial
discussions, but may go with the desk as part of any deal.
Deutsche is one of the biggest suppliers of longer-term
deals to nuclear power plants in the market, and is also an
active player in the spot market. All long-term deals would be
honoured as part of any sale.
Trading firms like Deutsche and Goldman buy and hold uranium
stockpiles in warehouses specially licensed to hold the fuel,
like U.S. conglomerate Honeywell International Inc's
ConverDyn facility in Metropolis, Illinois; Cameco's
Port Hope facility in Ontario; and French mining and energy firm
Areva SA's facility in France.
About 80 percent of global uranium supplies are traded via
long-term contracts between producers and utilities, but around
20 percent of deals are done in the spot market, which sets the
marginal price, according to the World Nuclear Association.
The sale comes as uranium prices languish at their lowest
Spot prices of U3O8 <UX-U3O8-SPT>, a material that is
converted to uranium hexafluoride for the purpose of uranium
enrichment, have traded at $34-$35 a pound since September, less
than half the price prior to the Fukushima disaster in Japan in
Financial firms started to get into the uranium business in
the mid 2000s when uranium prices were rising on expectations
demand for the fuel would grow during a so-called nuclear
renaissance. The price of uranium surged last decade to peak at
nearly $140 per pound in 2007.
That renaissance projected power companies around the world
would have to build more nuclear reactors to meet strict rules
limiting greenhouse emissions and falling fossil fuel supplies.
But a surge in cheap shale gas production in the United
States, a lack of federal rules limiting carbon emissions, and
the wide-ranging impact of the Fukushima disaster on the nuclear
industry has hammered prices since 2011.
Nevertheless, the Deutsche Bank trading desk has been
profitable in each of the last five years, sources say.
(Editing by William Hardy)