C.C.A.T.

By Eric Frankowski
Daily Record News Group

CAÑON CITY — Prior to 2001, the Cotter Corporation's logo was a golden nucleus surrounded by the circular paths of orbiting electrons, a reflection of the company's long history of milling uranium at a complex just south of Cañon City.

But sometime last year, management decided nuclear was passé, and that a change was in order.

The new logo is now a forest-green nucleus surrounded by three thick arrows forming a triangle.

The international symbol for recycling.

Company officials insist the change is merely superficial and that Cotter's future remains in processing uranium and perhaps zirconium from natural ore.

"Our agenda is not to become a disposal facility or an alternate feed facility," said Rich Ziegler, Cotter's executive vice president and a 30-year employee of the company. "Our business plan involves conventional ores."

But a number of factors suggest that Cotter's letterhead transformation is part of something much deeper.

For starters, as company officials have acknowledged, processing uranium from ore in the United States hasn't been a viable business activity since the early- to mid-1980s, and the industry's future is just as gloomy.

"Conventional mining and milling production from U.S. uranium deposits is unlikely for a decade or more," James J. Graham, the chairman of Cotter's board of directors, said in a March 2002 trade-journal article he authored on the state of the nuclear power industry.

Graham concluded the article in Mining Engineering by soliciting Cotter's services to any comers.

"Cotter is exploring new technologies to recover uranium from nontraditional sources. The company is investigating nontraditional methods of recovering uranium from Colorado's Western Slope uranium-vanadium deposits," he wrote. "And Cotter is always on the lookout for uranium production opportunities."

The most promising opportunity, according to company officials, is the development of a new process to extract zirconium.

"We were hoping that it could be 80 percent to 90 percent of our business," said Cotter President Richard Cherry, who is negotiating to acquire rights to the process from CMS Energy, the company that spearheaded the project but abandoned it earlier this summer.

According to Cherry, that is why state approval for the mill to accept 470,000 tons of contaminated soil from a Maywood, N.J., Superfund site is so critical. Without the dirt, Cotter does not have the capital to proceed with the zirconium project, he said.

But at least some of Cotter's business has already come from the mill's new ownership.

In February 2000, Commonwealth Edison, Cotter's corporate parent since 1975, sold the company and the mill to General Atomics, a La Jolla, Calif.-based company with a legacy in the design and construction of nuclear reactors and in the fabrication of nuclear fuel.

At the time of the sale, nuclear industry insiders speculated that General Atomics wanted the Cañon City property "to begin competing for processing the sizable quantities of so-called 'alternate feed material' that are becoming available from the cleanup of various government sites around the country."

"Strategically, it is a good fit for us," Graham, then the senior vice president for nuclear fuels at General Atomics, was quoted as saying in the February 2000 issue of the trade journal NuclearFuel.

At the same time General Atomics was completing the Cotter deal, it was also negotiating with the Nuclear Regulatory Commission over plan specifics for the clean-up of a uranium-processing facility it owned in Gore, Okla. The Sequoyah Fuels Corp. plant — which processed uranium oxide, or yellowcake, from mills such as Cotter into uranium hexafluoride for conversion into nuclear fuel — was shut down in November 1992 after a series of environmental and safety violations, including a toxic explosion that killed one worker.

"Coincidental," Cherry called the timing of the deal.

"General Atomics primary interest in Cotter was that it was a viable mineral-processing mill," said Cherry, who worked as the marketing manager for General Atomics subsidiary Nuclear Fuels Corp. before taking over the helm of Cotter. "The very first thing we did was to move off into zirconium processing."

However, less than a year after General Atomics bought Cotter, the Cañon City mill received its first shipment of waste from Sequoyah.

According to materials acceptance reports filed with the Colorado Department of Public Health and Environment, three shipments of uranium concentrates and sludge arrived between Jan. 12 and Jan. 14, 2001.

One shipment consisted of three tankers, each loaded with 32,510 pounds of liquid waste, half of which was uranium. The second had five drums weighing a combined 2,800 pounds of mainly uranium waste, but which also included arsenic, beryllium, cadmium, chromium, mercury, selenium and lead.

Both these loads were mixed into thickening tanks at the mill to be processed for their uranium.

The final shipment brought 5,000 pounds of soil sludge tainted with uranium, thorium, radium and ammonia to Cotter.

Jake Jacobi, the head of the state health department's Radiation Services Program, said after Cotter submitted a lab analysis of the load for a safety evaluation, his office determined that it did not fall within Cotter's permit, and the company had to refuse the shipment.

And as a result of recent NRC rulings, even more material from Sequoyah is also now eligible for disposal.

In January 2001, Sequoyah Fuels applied to the NRC to have 185,000 cubic meters of radioactive soil — 77 percent of the clean-up at the facility — classified as 11e(2) waste, the exact same type of uranium byproduct that Cotter is authorized to process and dispose of. Sequoyah petitioned the NRC in 1993 for the same change in classification and was denied.

In their recommendations to approve the proposal — which was ultimately approved — NRC staff said although the plan called for on-site disposal in Oklahoma, reclassifying the waste as 11e(2) "could also lead to other remediation options."

"Mill tailings could be directly disposed in an off-site mill tailings impoundment at an existing uranium mill," without having to obtain approval from the Department of Energy or from states with low-level waste compacts, NRC staff said.

In fact, the NRC went even further.

Under federal regulations, when uranium-processing facilities such as Sequoyah are decommissioned, they are turned over to the Department of Energy. But DOE will accept them only if the entire site is under its authority.

If a site contains waste that is out of the agency's purview, such as hazardous chemicals regulated by the EPA, it could jeopardize DOE custodianship.

Because approximately 23 percent of the waste at Sequoyah fits that definition, DOE could be reluctant to take over the site, meaning the other 77 percent of the cleanup could be shipped elsewhere.

"SFC (Sequoyah Fuels) has not proposed any of these alternatives, but would have the flexibility to choose them . . ." the NRC recommendation said. "This flexibility may be needed if DOE is unable or unwilling to accept non-11e(2) byproduct material left on site."

According to Ziegler, if it came to that, shipping the EPA-regulated material would be the least economical option for solving the problem.

"If DOE didn't want any non-11e(2) material, it would not be cost-effective to dig up the 11e(2) material and move it. That would cost millions of dollars," he said. "It would be much cheaper to move the non-compliant material off-site and keep the 11e(2) on site."

Sequoyah aside, there is enough glittering in the waste end of the uranium business to catch the eye of struggling mills such as Cotter.

Cotter recognized as much in its license renewal application, which was submitted to the state health department in December 2000.

The document includes a potential five-year production schedule, which includes projects to extract 12.2 million pounds of uranium from 275,075 tons of material, 45 percent of which would come from tailings, slag and nuclear fuel production byproducts. Projections also included another 500,000 tons of material, such as the contaminated Maywood soil, that would qualify for direct disposal in the mill's tailings impoundment.

In fact, Cotter managers recognized at the time that the Army Corps of Engineers program cleaning up the Maywood site had the potential to provide the mill with 60 percent of that waste material.

Ziegler said owners of tailings piles from around the country often call looking for a place to dispose of their waste, but that it's not fiscally smart to fill up the mill's impoundments with material that lacks substantial mineral value.

"I tell them, 'We're not in the business of disposal, but if you've got something with uranium in it, we'll consider it,' " he said. "We don't see it making sense to get into the alternate feed business."

But there's also no denying that there's virtual gold to be had by accepting others' contamination.

Before the state health department suspended all radioactive shipments into Cotter in July, the agency approved a request by the mill to accept 35,000 tons of waste from a contaminated site on Long Island.

By Eric Frankowski
Daily Record News Group

CAÑON CITY — Its mill has fallen on hard times and management is forced to lay off most of its workforce. The uranium market is severely depressed and the Cotter Corporation is looking for something to keep the facility operating.

A government agency is cleaning up an out-of-state site contaminated with radioactive tailings containing uranium and thorium.

Cotter seizes the opportunity and wins the contract to ship the stockpiled tailings to Colorado. Company officials later deny that they have any interest in turning the mill into a disposal site for radioactive waste.

That was the late 1960s.

Fast forward 30 years, and Cotter now finds itself in similar circumstances, forced by economics and outside forces to rely on radioactive waste shipments as a way to stay afloat.

The beginnings

Cotter was founded in 1956 by a group consisting of Manhattan Project research chemist David Marcott and two oilmen, Robert O. Anderson and Parker Wilson.

Like other Atomic Age entrepreneurs, their goal was to carve out a profitable niche by milling radioactive thorium and uranium for the burgeoning nuclear industry, which had been opened to the private sector only five years earlier.

The partners chose a site several miles south of Cañon City, which, according to a newspaper ad, was "ideally situated in an area midway between the thorium-rich areas in the Wet Mountains to the south and the uranium-rich areas to the north and west."

In 1958, they opened a pilot mill. A government contract guaranteed the company $8 for every pound of uranium oxide concentrate, or yellowcake, produced.

The mill struggled from its outset, burdened with an Atomic Energy Commission license that permitted it to process 72 tons of ore a day, only 36 percent of its 200-ton capacity. The mill later received approval for a $1.25 million expansion, but it never reached its potential.

Then in 1964, things got worse.

The Atomic Energy Commission turned the tables on the industry by ending the government's exclusive right to uranium and authorizing its sale on the open market. By mid-January 1965, Cotter had laid off 138 workers. A month later, after Cotter lost a lawsuit against the AEC and its government contract, the mill shut down. It would stay closed for the next 18 months.

When the mill reopened, Marcott, who ran the facility, purchased the Schwartzwalder Mine outside Golden to secure an in-house supply for all its uranium ore.

But according to Deyon Boughton, whose husband Lynn was the chief chemist at the mill from its opening until 1979, business did not immediately turn around, which left Cotter scrounging for revenue.

Marcott found one opportunity in 1968, when the Atomic Energy Commission auctioned off 100,000 tons of tailings waste — containing 192 tons of uranium — left over from the nation's first atomic bomb-making project, the Manhattan Project.

"The mill was desperate," Boughton recalled. "They were facing losing everything. When you're in that situation, you grasp at any straws you can."

The mill processed the Manhattan Project waste for three years until 1971. The community didn't find out about it until eight years later. When they did, they peppered Marcott with questions about whether the mill's future was as a radioactive waste dump.

"Asked if Cotter intends to be a national dumping ground for radioactive wastes, Marcott said no," a May 1979 Cañon City Daily Record article said. "He added, however, that Cotter might accept future out-of-state tailings shipments 'if there are large recoverable values as a result.' "

During the late '60s and early '70s, Anderson, who had bought out Wilson in 1966, was not concentrating on processing uranium. He was on his way to building Atlantic-Richfield into one of the world's largest oil companies and himself into the largest landholder in the world, according to some reports.

"His main focus was to do whatever was necessary on paper to make it salable," Boughton recalled.

In 1975, Anderson's efforts paid off. Electricity giant Commonwealth Edison, which was looking for a direct source of uranium to fuel its growing stable of nuclear reactors, bought Cotter in a stock swap worth $17.9 million, according to Illinois Commerce Commission records.

But along with that security, ComEd also acquired a litany of environmental problems. Reports of livestock and people getting sick started surfacing in the early 1970s, and studies soon confirmed that there was uranium and molybdenum contamination in soil and well water in the rural subdivision of Lincoln Park, about two miles northeast of the mill.

"You have to remember that in the '50s and '60s, it was state-of-the-art to dump tailings directly into the ground," said Cotter executive vice president Rich Ziegler. "In fact, they (tailings ponds) were designed to seep into the ground."

As part of a facelift, Cotter constructed a new mill, which opened in 1979, and built three lined tailings ponds and transferred all the old tailings to the new impoundments.

But the environmental damage had already been done.

Based on vocal resident complaints to the governor, the Colorado Bureau of Investigation began investigating Cotter in 1979 and came out with a scathing report a year later. Then, in 1983, the state filed a federal lawsuit against Cotter seeking $50 million in damages to clean up contaminated groundwater and wells of Lincoln Park residents.

With plenty of ammo to aid its own inquiry, the U.S. Environmental Protection Agency began investigating Cotter, and in 1984 officially added the mill and Lincoln Park area to the National Priorities List, or Superfund.

It took five years of litigation, but in 1988, the state and Cotter reached a settlement over their lawsuit and agreed to a Remedial Action Plan to clean up Lincoln Park. The company was on the hook for $11 million in cleanup — not the $50 million originally sought — and also faced damages from several lawsuits filed by residents.

Legal liabilities were not the company's only problem.

Partly as a result of the mill's problems and partly because of the plummeting price of uranium, Cotter began laying off workers. By January 1985, the mill's workforce was down to 33, far below the 234 who worked there just five years earlier. A year later, it shut down, with the exception of skeleton crews kept to clean up the facility and maintain equipment.

Cotter would not process any ore for another 13 years.

When it reopened in March 1999 on a probationary basis, however, the market was still practically non-existent. With uranium prices continuing to decline, Commonwealth Edison made the decision to cut the Cañon City mill loose.

"Cotter does not fit into the company's future business plans as mining is not a core competency of ComEd," a press release said.

ComEd sold its investment in a facility worth tens of millions for $1 million and wrote off a $22 million after-tax loss as a result of the sale, according to federal Securities and Exchange Commission documents.

Enter General Atomics

On the buying end of the deal was General Atomics, a La Jolla, Calif.-based company with subsidiaries specializing in the conversion of yellowcake into uranium hexafluoride for fabrication into nuclear fuel and the construction of nuclear reactors. GA also owns a uranium mine in Australia, and is involved in fusion research, radiation-related electronics and telecommunications.

Privately owned by the Blue family of Denver, GA had estimated sales revenue of $464 million and employed 1,750 people in 2000.

The company is probably best known for its research reactors. According to its Web site, General Atomics has 66 research reactors built or under construction "at universities, government and industrial laboratories, and medical centers in 24 countries," including one that went online in 1969 at the U.S. Geological Survey in Denver.

GA also constructed the Fort St. Vrain high-temperature gas-cooled nuclear reactor north of Platteville, an unsuccessful venture that ended in the power plant's conversion to natural gas.

Like Cotter, General Atomics was founded by a son of the Manhattan Project, prominent physicist Frederic de Hoffmann. According to one chronicler of the Atomic Age, it was "the first company anywhere dedicated to building atomic reactors."

Soon after, GA was acquired by industrial giant General Dynamics, which expanded the company's reactor construction activities.

General Dynamics sold its interest in General Atomics to Gulf Oil in 1967, and its ownership was swapped several times between it and Royal Dutch/Shell before the Blues acquired it in 1986. Neal Blue remains its chairman and chief executive officer.

In 1988, General Atomics purchased Sequoyah Fuels Corp., a plant built in 1970 in Gore, Okla., to convert yellowcake into uranium hexafluoride, an intermediate step in the manufacture of uranium dioxide for use in fuel rods and weapons.

Federal nuclear and environmental officials documented numerous violations and accidents at the plant, including a release of highly toxic uranium hexafluoride gas in 1986 that killed one worker and hospitalized another 42 people.

Scrutiny of the facility intensified in August and September 1990, when inspectors discovered widespread contamination of groundwater, and that its "manager knew of the contamination before NRC was informed and took no action to deal with it."

In 1991, the NRC shut the facility down for six months after continued serious violations, including a health and safety manager who "intentionally gave false information to investigators and withheld information from inspectors."

Following another gas release in November 1992, which resulted in more injuries, the NRC closed the plant again, and soon after General Atomics decided not to reopen the facility and applied for decommissioning.

A year later, the NRC ordered both Sequoyah Fuels and General Atomics to pony up $86 million for cleanup and decommissioning. GA put up a strong corporate defense, suing the NRC on two fronts, and the agency settled in late 1996 for $9 million in cleanup costs.

Meanwhile, General Atomics had also entered into a joint venture with Honeywell, forming the ConverDyn Corp. to operate the only remaining facility in the United States capable of converting yellowcake into uranium hexafluoride.

When General Atomics purchased Cotter in February 2000, the deal created a family of nuclear industry businesses, from the initial mining and milling to conversion and then reactors themselves. The mill also provides an added asset that GA and Sequoyah Fuels have already taken advantage of: a place to put some of the radioactive waste that its operations generate.

"We're a subsidiary of General Atomics, but we have an independent board of directors," said Cotter President Richard Cherry, the former marketing director for Nuclear Fuels Corp. "We run as a stand-alone corporation."

By Eric Frankowski
Daily Record News Group

CAÑON CITY — When the U.S. Atomic Energy Commission licensed the Cotter Corporation mill to begin processing south of Cañon City in 1958, the federal government agreed to pay the company $8 per pound for processed uranium oxide, or yellowcake, the raw material used to make enriched fuel for nuclear weapons and reactors.

It was one of the only economically stable periods the mill, and the uranium industry, ever knew. For more than four decades, the uranium market has been significantly influenced by government manipulation and outside economic forces.

The marketplace is on a steep decline that shows no immediate promise of ending.

From a high in the 1970s of $50 a pound, last year, according to the U.S. Department of Energy, prices averaged only $10.15 a pound and were as low as $7.92 on the spot market for non-contract sales. That's 8 cents less than it was nearly a half-century ago. Meanwhile labor, processing costs and other expenses have continued to rise since 1958.

"The U.S. uranium mining industry has been hurt by factors that all mining operations must contend with," James Graham, the chairman of the Cotter board of directors, wrote in the March 2002 issue of the journal Mining Engineering. "These include more stringent environmental and labor laws, and new higher-grade, lower-cost deposits being developed outside the U.S. More significantly, uranium mining has always been subject to political whims. And the story is the same today."

According to Michael Amundson, a history professor at Northern Arizona University and author of "Yellowcake Towns," which chronicles the rise and fall of four uranium mining areas, the industry has undergone two boom-and-bust cycles.

"Basically, there have been two periods of massive demand, followed by massive build-up of stockpiles and then large oversupply," said Amundson.

The first coincided with the Manhattan Project and the development of the atomic bomb. Under the auspices of national security, the federal government funded a massive search for and development of uranium resources.

"The government totally subsidized the industry," Amundson said, "mining, milling, processing, even hauling."

Prices began to decline in the late 1950s and early 1960s as the U.S. and its allies leveled off their weapons production.

According to Amundson, government-instituted programs such as the stretch-out program, which guaranteed government purchases of uranium over lengthened contract periods, provided some assistance to the struggling uranium industry.

"Basically, (the government) was trying to wean them along until atomic energy took off and demand recovered," he said.

But in 1964, the oversupply problem was exacerbated when Congress passed the Private Ownership of Special Nuclear Materials Act. The new law, which allowed industry, rather than the government, to own nuclear fuel, essentially ended the subsidies and turned uranium mining and milling over to the free market. Soon after, suppliers had saturated the market and prices dropped.

The recovery began in the next decade as more nuclear reactors came on line and orders for additional ones accumulated. Demand began to rise. When Arab countries instituted an oil embargo in 1973, the ensuing energy crisis forced prices for energy to skyrocket.

"That made nuclear power much more attractive," said Amundson. "There was a huge demand for uranium"

According to the federal Energy Information Administration, in that year alone, U.S. utilities turned in orders for construction of a record 41 nuclear power plants.

The uranium market hit its peak in the mid-1970s, when the price for yellowcake soared to nearly $50 a pound on the spot market — the equivalent of $90 a pound in 2000 dollars.

But the momentum could not maintain itself.

By Eric Frankowski
Daily Record News Group

CAÑON CITY — For a $50 million facility tooled almost exclusively to process uranium from natural ore, a market severely limited for nearly two decades has provided meager business opportunities.

So when Cotter had the chance to begin generating a steady stream of revenue by adapting its mill to process ore very similar to its traditional stream of material, the company took it.

Milling zirconium was far from Dearborn, Mich.-based CMS Energy's roots in generating electricity. But when the company discovered that 165,000 tons of low-grade Brazilian uranium ore, which it had acquired from the Department of Defense, had high concentrations of the mineral, it decided to branch out.

CMS turned to Cotter in January 2000, and contracted with the mill to provide the facilities to chemically extract the zirconium, which is used mainly in the ceramics industry.

A CMS business development manager estimated at the time that the venture could produce between 7,000 and 9,000 tons of high-purity zirconium during the first year, and that production could eventually ramp up to between 15,000 and 18,000 tons annually. The price for zirconium is roughly $400 per ton.

According to Cotter officials, they saw a bright future in zirconium, and planned to make it their bread and butter. But refining the process and upscaling the mill's pilot plant to full-scale production required a hefty infusion of capital that Cotter did not have readily available.

Enter the Army Corps of Engineers and 470,000 tons of contaminated dirt from Maywood, N.J., which, according to Cotter President Richard Cherry, would provide a steady income.

"This was presented in the business strategy as an adjunct to our processing business," Cherry told a state House subcommittee in late March. "The income from the Maywood project is helping fund the processing and development we're doing in zirconium."

He estimated the Maywood soil itself would create only about 12 to 15 jobs at the mill, but more importantly, it would allow Cotter to move full-scale in zirconium processing, which eventually would employ about 200 people, he said.

According to quarterly documents filed with the federal Securities and Exchange Commission, CMS abandoned the zirconium recovery project in June "after evaluating its future costs and risk." The company recorded a $31 million after-tax loss from discontinuing the operation.

Zirconium was only one of numerous peripheral businesses worth hundreds of millions of dollars, including oil and gas exploration in Africa and South America, that CMS scrapped after the SEC began investigating it for questionable business dealings.

As a result of so-called "round-trip" trading, in which no power was ever actually bought or sold, CMS has admitted that it overstated its financial statements for 2000 and 2001 by a combined $5.2 billion.

Farr said although the zirconium process was successful, "due to CMS's capital constraints, it no longer made sense for us to continue the zirconium operation."

According to Cherry, Cotter is negotiating with CMS to acquire the rights to the zirconium technology and equipment. Those negotiations are at a delicate stage, he said in an interview. That puts even more pressure on the mill to get final approval for receiving the Maywood soil.