Centrus Spent $116 Million on a Supplier With Oil and Gas Customers. Here's the Nuclear Reason Why.

Rising power demands from data centers and zero-emissions targets make nuclear an ideal energy source because it can provide 24/7, reliable baseload power. Meanwhile, next-generation small modular nuclear reactors require special fuel, and Centrus Energy (NYSE: LEU) provides it.

With federal bans on Russian nuclear imports slated to go into effect in 2028, Centrus is working to establish an American-owned and operated uranium enrichment supply chain. To do so, the company is reestablishing commercial enrichment capacity in the U.S. as it aims to be a vital domestic supplier for traditional nuclear plants and advanced small modular reactors.

As part of its efforts, Centrus recently acquired an oil and gas supplier, but for very specific nuclear reasons.

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Centrus's acquisition de-risks its supply chain and diversifies earnings

Centrus Energy recently acquired Westerman Holdings for $116 million, funded with $95 million in cash and $21 million in stock. Westerman operates manufacturing facilities that produce equipment and systems for upstream and midstream oil and gas operations. It also fabricates uranium hexafluoride cylinders, centrifuge casings, and large-scale components that Centrus needs to expand its manufacturing abilities.

Westerman was already a key vendor for Centrus, and bringing this specialized manufacturing in-house will help Centrus mitigate supply chain bottlenecks and gain direct control over production timelines. In addition, vertically integrating this part of the supply chain can help Centrus lower manufacturing project costs and capture the margin internally.

Beyond nuclear components, Westerman manufactures surface equipment and storage systems for upstream and midstream oil, gas, and marine markets, helping diversify Centrus's earnings beyond nuclear fuel.

Centrus aims to be a domestic manufacturer of nuclear fuel

The acquisition is part of Centrus's primary objective to transform from a nuclear fuel broker to a producer of low-enriched uranium (LEU), which is the nuclear fuel used in traditional nuclear reactors, and high-assay, low-enriched uranium (HALEU), the nuclear fuel that powers many of the next-generation small modular reactors (SMRs).

Centrus has relied heavily on TENEX, a Russian state-owned entity, for its LEU. However, in 2023, Congress passed the "Prohibiting Russian Uranium Imports Act," which blocks imports of natural uranium and LEU produced by Russian entities. Some have been granted waivers, but the waivers expire on Jan. 1, 2028, while the ban extends through 2040.

Centrus is a picks-and-shovels stock for the nuclear revival

Centrus is investing billions of dollars in its Ohio and Tennessee facilities to build on its domestic enrichment capacity. The company is investing $560 million to produce thousands of AC100M centrifuges in Oak Ridge, Tennessee, while expanding its Piketon, Ohio centrifuge and enrichment plant to develop LEU and HALEU at scale.

The Westerman acquisition is part of Centrus's broader strategy to boost American-produced nuclear fuel. The move helps bring some processes in-house and de-risk Centrus's supply chain while also underscoring the capital intensity of Centrus's multi-year domestic build-out.

That said, Centrus is well-positioned to become the domestic nuclear fuel supplier for traditional and next-generation nuclear technology and is a picks-and-shovels play on America's nuclear future.

Courtney Carlsen has positions in Centrus Energy. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.