Tuesday, April 14, 2009

Lehman Sits on Bomb of Uranium Cake as Prices Slump

From Bloomberg:

Lehman Brothers Holdings Inc. is sitting on enough uranium cake to make a nuclear bomb as it waits for prices of the commodity to rebound, according to traders and nuclear experts.

The bankrupt bank, in the throes of paying off creditors, acquired uranium cake “under a matured commodities contract” and plans to sell it when the market improves “to realize the best prices,” Chief Executive Officer Bryan Marsal said.

Lehman, once the fourth-largest investment bank, has an estimated $200 billion in unsecured liabilities left to pay. The uranium, which may be as much as 500,000 pounds, might fetch $20 million at today’s prices of about $40.50 per pound, said traders who asked not to be named because of the confidential nature of the data. Marsal said the traders’ estimate of Lehman’s uranium holding is “reasonable,” while declining to be more specific.

Uranium has dropped for five straight months from $55 a pound on Dec. 1 on concerns that countries including China and India would delay nuclear power projects because of the global economic crisis, and because Lehman might dump its radioactive material on the market, the traders said.

More than 43 million pounds of uranium-oxide concentrate, or yellowcake equivalent sold on the spot market last year, more than doubling the 2007 trading volume, according to Roswell, Georgia-based Ux Consulting Co.

Illiquid Market

The oversupply in an illiquid market pushed prices down about 30 percent between September and November, spurring sales by speculative investors, such as hedge funds, said John Wong, a fund manager in London at CQS UK LLP, which has $6 billion under management including shares of funds that own uranium.

“What people found out is that this is not like playing copper where it’s a liquid and deep market,” Wong said. “A lot of the funds playing this market have blown up.">>>MORE

An unfortunate turn of phrase.