USEC WARNS ‘MARKET CONDITIONS’ MAY NOT SUPPORT ACP

USEC warned investors earlier this week that current market conditions may no longer support the company’s efforts to develop its new American Centrifuge enrichment plant. While the ACP has long been seen as crucial to USEC’s future, the company said in its latest earnings report that, “Given the current enrichment market conditions and the challenges these conditions present for obtaining the capital necessary for commercialization of the American Centrifuge Plant (“ACP”), USEC is evaluating and pursuing the feasibility of alternatives and the actions necessary to proceed with the commercial deployment of the American Centrifuge technology including the availability of additional government support.” USEC went on to say that it “continues to evaluate its options concerning the American Centrifuge project including its ability to continue the project prior to or upon completion of the RD&D program, further demobilization of or delays in the commercial deployment of the project, and termination of the project.”

According to USEC, the current “oversupply” of nuclear fuel in the market, caused largely by the shutdown of reactors in Japan and Germany following the 2011 Fukushima nuclear power plant disaster, has “increased challenges to the economics” of deploying the American Centrifuge Project. “An oversupply of nuclear fuel available for sale has increased over time and has resulted in significant downward pressure on market prices for LEU. In particular, based on current market conditions, we see limited uncommitted demand for LEU relative to supply prior to the end of the decade, and therefore fewer opportunities to make additional sales for delivery during that period,” USEC’s earning report states. “In addition, low prices for competing fuels such as natural gas in the United States could slow the need for new base load nuclear power capacity or hasten the retirement of some older nuclear plants in the United States.”

USEC also warned it could continue to face difficulties in obtaining financing to finish the project. USEC has estimated that it will need approximately $4 billion to complete the ACP, of which $2 million has been sought for years in the form of a Department of Energy loan guarantee. USEC has also had talks with Japanese export credit agencies for up to $1 billion in financing, conditioned on the company receiving the DOE loan guarantee. “We currently anticipate the remaining sources for capital to include cash generated by the project during startup, our available cash flow from operations and additional third-party capital.  We are uncertain regarding the amount of internally generated cash flow from operations that we will have available to finance the project in light of the delays in deployment of the project and potential requirements for our internally generated cash flow to satisfy our pension and postretirement benefits and other obligations,” USEC’s earnings report says, adding, “The amount of capital that we are able to contribute to the project going forward will also impact our share of the ultimate ownership of the project, which will likely be reduced as a result of raising equity and other capital to deploy the project.”

To obtain additional capital, USEC said it would need to develop “a viable business plan that supports loan repayment and provides potential investors with an attractive return on investment based on the project’s risk profile.” The company went on to state, “The economics of the American Centrifuge project are increasingly challenged under current enrichment market conditions … which have continued to decline during 2013. We have no assurances that we will be successful in obtaining this financing and that market conditions and the delays and cost increases we have experienced will not adversely affect these efforts. Given the current enrichment market conditions and the challenges these conditions present for obtaining the capital necessary for ACP commercialization, we are evaluating and pursuing the feasibility of alternatives and the actions necessary to proceed with the commercial deployment of the American Centrifuge technology including the availability of additional government support. We have no assurance that we will be successful in achieving any of these measures, including obtaining additional government support that may be necessary to successful commercial deployment, or the timing thereof.”