Tuesday, August 16, 2011

USEC’s centrifuge project progress at a standstill

Its investors show unusual patience while the firm plugs for a Department of Energy $2 billion loan guarantee

turtleUSEC (NYSE:USU) announced Aug 15 that it has entered into an amendment to its standstill agreement with Toshiba America Nuclear Energy Corporation (Toshiba), and Babcock & Wilcox Investment Company (B&W) to extend the agreement through September 30, 2011.

The two firms want to invest a total of $200 million in the firm in return for a 30% equity stake. It's terrific bargain for the investors if the loan guarantee goes through.

To get it they will have to deal with the turtle like progress of the government in conducting its due diligence on the project. Some of the delay may be contrived as the Department of Energy hopes over time USEC can get its finances into better shape. It had better not wait too long.

The amended agreement provides only a limited additional period of time, about 45 days, for USEC to complete and enter into a conditional commitment with the U.S. Department of Energy for a $2 billion loan guarantee to support the construction of the American Centrifuge Plant (ACP) and achieve the closing of the second phase of Toshiba and B&W's investment in USEC.

So far the firms have put up $75 million, but another $125 million hangs in the balance.

In May 2010, Toshiba and Babcock & Wilcox signed an agreement to invest $200 million between them in USEC, in part aimed at strengthening USEC’s financial position for the deployment of the centrifuge plant.

Additional details of the new deadline for investor action are provided in a Form 8-K that USEC has filed with the Securities and Exchange Commission.

It is the second time in three months investors in the $3.5 billion plant have extended the deadline to give the federal government more time to grant the loan guarantee.

No minced words about the future

Uranium enrichmentIn a telephone conference call with investors last week, USEC CEO John Welch, who has never been one to mince words, said a decision is needed soon from DOE or the firm will stop work on the project. USEC "demobilized" the project once before in August 2009 when DOE said that neither USEC's technology nor finances qualified it for the loan guarantee.

After accepting $45 million from DOE for more R&D on the centrifuge technology, USEC then restarted work and inked the current deal with the two investors.

Welch told the investors on the call that DOE is still not ready to grant the loan guarantee. The reasons he said are the the firm's finances still don't meet the government's requirements and there are continuing doubts the firm can build and operate the plant.

"If we're not seeing a steady progress towards moving forward with the project, we're not afraid to do what we have to do," Welch said.

Cash flow is a problem and USEC has made no bones about its plans to once again shut down work on ACP if the loan guarantee is not forthcoming. Other investors, who would not be covered by the loan guarantee, are understandably cautious about putting up the additional $600 million to $1 billion that may be needed to build the plant.

Role reversal for politicians

Ohio's two senators made appropriate bipartisan statements of support given the 4,000 jobs that would be created by construction of the plant. In an ironic twist, the state's republican senator touted jobs and the democrat talked about fiscal conservatism.

Republican Sen. Rob Portman played the national security card and linked it to the creation of new jobs.

In effect, Portman said as long as the bean counters at the Office of Management & Budget (OMB) hold sway over the due diligence process for the loan guarantee, it is unlikely to happen.

Portman's view, translated from press release language, is that the federal government needs to get out of its accountant's mentality and see uranium enrichment for what it really is, and that's a step in the direction of energy security.

However, Democrat Sen. Sherrod Brown hedged his bets saying, "Before approving the loan, the administration is committed to a through review in order to protect taxpayer investments."

USEC’s touts benefits of ACP

USEC also operates an expensive and antiquated uranium enrichment plant in Paducah, KY. It gobbles up electricity from coal fired plants run by TVA like a whale eating krill. USEC has pointed out that taking the Paducah plant out of service, and building the ACF, will result in a 95% reduction in electricity use. The firm has promoted this reduction in the firm's carbon footprint as one of the benefits of awarding the loan guarantee.

According to World Nuclear News for August 15 . . .

“The basic technology for the American Centrifuge is a tall carbon fibre centrifuge unit based on designs developed at the Oak Ridge National Laboratory and demonstrated by the DOE in the 1980s. Main buildings for the plant have been constructed at USEC's site in Piketon, Ohio. It should eventually house around 11,500 centrifuges, which together would have a capacity of 3.8 million separative work units per year. A lead cascade began operation at Piketon in September 2007.”

USEC Inc., a global energy company, is a leading supplier of enriched uranium fuel and nuclear industry related services for commercial nuclear power plants. USEC, which supplies enriched uranium fuel for commercial nuclear power plants, applied for the loan guarantee in 2008. When complete, the American Centrifuge Plant will provide low-enriched uranium to fuel nuclear power reactors.

In June 2010 Urenco began operating its 3 million SWU/year enrichment plant in Eunice, NM. Later this year Areva expects to get a license from the NRC to build a similar plant in Idaho. Scheduled to break ground in Spring 2012, the plant is expected to start production in 2014. Both Urenco and Areva has filed license modifications to double their production capacity in 2018.

Further out, General Electric continues to maintain it plans to build a laser enrichment technology based plant. However, the firm, which completed a test loop for the technology, has not yet formally said when or if it will build a production facility.

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1 comment:

Anonymous said...

The continuing saga of Loan Gaurantees from DOE has become farcical. It is obvious at this point that the technology of the American Centrifuge will never be commercially feasible and the DOE's latest moves to "study" the process is nothing more than a jobs program for the Obama administration to hold on to a key swing state. Hopefully, a new Republican administration will rebuff the Speaker and kill this pure-pork ridiculousness.