USEC Inc. (NYSE:USU) has submitted a comprehensive update to its
application with the U.S. Department of Energy (DOE) Loan Guarantee
Program to help finance construction of the American Centrifuge Plant.
The ACP is a more than 'shovel-ready? project deploying innovative U.S.
technology and U.S. manufacturing that will support approximately 8,000
jobs during its construction.
The update was submitted at the end of July and reflects the significant
steps taken by USEC to address concerns expressed by DOE about our
application for a $2 billion loan guarantee last year. Among the steps
taken in the past year:
Completed a thorough quality assurance program review;
Worked with our strategic suppliers to build and operate more than 40
AC100 machines, which are the production-ready commercial centrifuge
machines;
Assembled and operated AC100 machines configured for a multi-stage
cascade that replicates anticipated commercial plant conditions;
Gained substantial cascade operating experience, including maintenance
and repairs in an operating environment;
Continued development work and value engineering to increase the
machine′s productivity and lower its unit cost;
Entered into an agreement for a strategic investment of $200 million
by two leading companies in the nuclear industry; and
Produced detailed updates to project scope, cost and schedule based on
close collaboration with our suppliers.
'We have addressed, head on, each concern raised in the independent
engineer′s report that was prepared for DOE last year. The American
Centrifuge program is much stronger today because of that sharp focus,?
said John K. Welch, USEC president and chief executive officer.
'We have seen solid performance from our production-ready AC100 machines
operating in a cascade configuration. Our Lead Cascade testing program
has accumulated more than 480,000 machine hours since mid-2007. We are
continuing to assemble, install and operate additional centrifuges, and
collectively these will accumulate significant additional machine hours,
further confirming that this technology is ready for commercial
deployment.?
'On the financial front, we have taken steps to reduce project-related
risk factors and signed a definitive agreement for a three-phased
investment of $200 million by nuclear industry leaders Toshiba
Corporation and The Babcock & Wilcox Company. This investment and
related strategic relationship strengthens USEC′s position in the
nuclear fuel industry,? Welch said. 'The relationship with Toshiba has
opened the possibility of additional financing through Japanese export
credit agencies, an option we are pursuing.?
Update to Loan Guarantee Program
'We are pleased with the progress we′ve made over the past year and the
steps we′ve taken to strengthen our application. Based on that success,
we provided an update to the Loan Guarantee Office in late July,? he
said.
'We have engaged the DOE Loan Guarantee Office. We are prepared to
answer any questions that may arise and work towards a timely
conditional commitment for funding. Since this is an update, we will
work with DOE to review the application expeditiously,? Welch added.
Activity has increased in the DOE Loan Guarantee Program in recent
weeks. Southern Company has been offered and has accepted a conditional
commitment for a loan guarantee of approximately $3.4 billion for two
new power reactors at the Vogtle Plant. Our competitor Areva has been
offered and has accepted a conditional commitment for $2 billion in
financing to build an enrichment plant in Idaho. Areva, which is
substantially owned by the French government, has stated they expect to
receive a construction and operating license from the U. S. Nuclear
Regulatory Commission (NRC) for the plant in 2011. USEC began building
its plant in May 2007 after receipt of a NRC construction and operating
license but has demobilized plant construction due to uncertainty of
funding to complete the plant.
Over the past several months, USEC has been working with our suppliers
to update the scope, cost and schedule to build the ACP. Several factors
have contributed to the increase in our cost estimates since we
established our initial baseline project budget in 2008, including:
Costs related to the demobilization and remobilization and costs
associated with continued ACP activities prior to any remobilization
period;
Cost increases as a result of additional design work and refined cost
estimates from our suppliers related to machine manufacturing and
engineering, procurement and construction (EPC) costs; and
Costs related to the maturity of scope of the project.
Based on our work with suppliers to date, we estimate the cost to
complete the American Centrifuge project from the point of closing on
financing on a DOE loan guarantee will be approximately $2.8 billion.
This estimate includes AC100 machine manufacturing and assembly, EPC and
related balance-of-plant work, start-up and initial operations, and
project management. We believe we have reduced significant risk in the
American Centrifuge project since our last estimate in 2008 and our new
cost estimate is based on a significantly more mature project scope.
The $2.8 billion estimate is a go-forward cost estimate and does not
include spending from now until financial closing of a DOE loan
guarantee, our $1.8 billion investment through June 30, 2010, overall
project contingency, financing costs or financial assurance. Until
potential financial closing of a DOE loan guarantee, we expect to
continue to invest at a rate consistent with our anticipated spending
indicated in our outlook for the remainder of 2010, while taking into
account our anticipated cash from operations and other available
liquidity. We are currently evaluating the appropriate level for overall
project contingency, taking into account the level of risk given the
maturity of the project. We are also evaluating the financing costs and
financial assurance required for the project, which will be affected by,
among other things, the overall financing plan for the project, the
amount of the credit subsidy cost for any DOE loan guarantee, and the
amount and sources of the additional financing we need to complete the
project.
We continue to work with suppliers to refine our estimates and seek
reductions in the project cost. With respect to schedule, we anticipate
it will require 18 to 24 months to begin initial commercial operations
upon receiving financing. We also anticipate that it will require 30 to
36 months to complete the plant after initial commercial operations. We
continue to work with our EPC contractor and suppliers to reduce the
deployment schedule for the ACP.
We will need additional funding beyond the $2 billion in loan guarantees
from DOE, proceeds from the Toshiba and B&W investments and internally
generated cash flow to complete the American Centrifuge project.
Toshiba′s agreement to invest in USEC also opens the potential of
financing through Japanese export credit agencies and we have initiated
discussions with these export credit agencies.
If we are successful in obtaining a DOE loan guarantee and other
financing required to complete the project, the American Centrifuge
project could create nearly 8,000 jobs in the United States, with almost
half located in Ohio.
Agreement for Investment by Toshiba and B&W
On May 25, 2010, we announced that Toshiba and Babcock & Wilcox (B&W)
signed a definitive agreement to make an investment in USEC to support
the ACP. Under terms of the agreement, each company will invest $100
million in USEC, over three phases, each of which is subject to specific
closing conditions. The first phase of $75 million from the strategic
investment is expected to close in the third quarter of 2010 and will
promote continued deployment of the ACP over the remainder of the year.
Conditions for the first phase include obtaining necessary regulatory
approvals and concluding agreements related to a joint venture between
USEC and B&W announced last year to manufacture USEC′s commercial AC100
centrifuge machines for the American Centrifuge Plant. The joint venture
will be a single point of responsibility for centrifuge machine
manufacture and assembly for the plant, and will integrate the efforts
of the other suppliers.
Deployment Continues
Although we significantly demobilized construction and deferred
high-volume machine manufacturing pending resolution of our application,
we have continued to manufacture a limited number of centrifuge machines
as part of the scope of work under a March 2010 cooperative agreement
with DOE. Approximately two dozen AC100 machines have been operating in
a cascade configuration since March 2010. Approximately 20 more machines
were assembled earlier this year and were operated individually. We
recently reconfigured the cascade to introduce these additional machines
into the cascade, thus creating a cascade with about 40 AC100 machines.
Our suppliers are continuing to build and assemble AC100 machines, which
will increase the total number of machine hours of AC100 centrifuge
operation. We have operated centrifuges as part of our Lead Cascade test
program for more than 480,000 machine hours.
During the second quarter we took the initial cascade of prototype
machines off-line that had been operating since August 2007. We have
disassembled and examined components from some of those prototype
machines as an element of our deterministic approach to assuring
reliability of the AC100 centrifuges. The machine positions in the
demonstration area used for the initial cascade have been refurbished
with upgraded control systems and instrumentation in preparation for
installation of 25 AC100 machines by the end of the year. These
additional machines will run individually to provide additional data and
to accumulate additional operating hours. By the end of 2010, we expect
to have roughly 65 AC100 machines in operation. This activity maintains
our supplier base, demonstrates the capability to manufacture
production-ready centrifuge machines within our design specifications
and our robust quality assurance program.
'The AC100 machines have been operating in line with our predictive
models. The Lead Cascade testing program has provided our staff with
invaluable experience in assembly and startup procedures, operations and
maintenance,? Welch said.
'We believe the American Centrifuge offers our country energy security
through technical ingenuity that can keep us competitive in a growing
global market that is dominated by foreign governments,? Welch said. 'We
are ready for the American Centrifuge to transition to a commercial
operation and we have a solid business case that supports repayment of a
loan through the DOE Loan Guarantee Program.?
USEC Inc., a global energy company, is a leading supplier of enriched
uranium fuel for commercial nuclear power plants.
Forward Looking Statements
This news release contains 'forward-looking statements? ? that is,
statements related to future events. In this context, forward-looking
statements may address our expected future business and financial
performance, and often contain words such as 'expects,? 'anticipates,?
'intends,? 'plans,? 'believes,? 'will? and other words of similar
meaning. Forward-looking statements by their nature address matters that
are, to different degrees, uncertain. For USEC, particular risks and
uncertainties that could cause our actual future results to differ
materially from those expressed in our forward-looking statements
include, but are not limited to: risks related to the deployment of the
American Centrifuge technology, including risks related to performance,
cost, schedule and financing; our success in obtaining a loan guarantee
for the American Centrifuge Plant, including our ability to address the
technical and financial concerns raised by the U.S. Department of Energy
('DOE?); our ability to raise capital beyond the $2 billion of DOE loan
guarantee funding for which we have applied; the impact of the
demobilization of the American Centrifuge project and uncertainty
regarding our ability to remobilize the project and the potential for
termination of the project; our ability to meet milestones under the
June 2002 DOE-USEC Agreement related to the deployment of the American
Centrifuge technology; restrictions in our revolving credit facility
that may impact our operating and financial flexibility and spending on
the American Centrifuge project; our ability to expand our revolving
credit facility with additional commitments from financial institutions
to increase the total capacity beyond $250 million; risks related to the
completion of the announced three-phased strategic investment by Toshiba
Corporation ('Toshiba') and The Babcock & Wilcox Company ('B&W'),
including our ability to satisfy the significant closing conditions in
the securities purchase agreement governing the transactions and the
impact of a failure to consummate the transactions on our business and
prospects; certain restrictions that may be placed on our business as a
result of the transactions with Toshiba and B&W our ability to achieve
the benefits of any strategic relationships with Toshiba and B&W changes
in U.S. government priorities and the availability of government
funding, including loan guarantees; the competitive environment for our
products and services; changes in the nuclear energy industry; and other
risks and uncertainties discussed in our filings with the Securities and
Exchange Commission, including our annual report on Form 10-K and
quarterly reports on Form 10-Q. Revenue and operating results can
fluctuate significantly from quarter to quarter, and in some cases, year
to year. For a discussion of these risks and uncertainties and other
factors that may affect our future results, please see Item 1A entitled
'Risk Factors? and the other sections of our quarterly report on Form
10-Q and our annual report on Form 10-K. We do not undertake to update
our forward-looking statements except as required by law.
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