USEC Inc. (NYSE:USU) today provided an update on the American Centrifuge project and the ongoing cooperative research, development and demonstration (RD&D) program. USEC is successfully executing the RD&D program with the Department of Energy (DOE) to reduce the technical risks and improve the future prospects of commercial deployment of the American Centrifuge technology. During the RD&D program we have built plant control systems, assembled AC100 centrifuge machines and conditioned the machines with uranium gas in our existing lead cascade. Importantly, the RD&D program continues to operate on schedule and on budget. The company has taken a non-cash charge of approximately $1.1 billion for previously capitalized costs related to the American Centrifuge project during the period of 2007 through late 2011. This action has no effect on the RD&D program or the assets that have been transferred to DOE. More information on the non-cash charge is contained in our annual report on Form 10-K filed with the Securities and Exchange Commission and posted on our website. “We’ve seen solid performance from our team working on the RD&D program and the program remains on budget and on schedule,” said John K. Welch, USEC chief executive officer and president. “We are pleased to see continued broad-based, bipartisan support for the American Centrifuge project due to its importance in meeting national and energy security goals, and the opportunity to create more jobs.” Welch added, “Our American Centrifuge team is on track to meet program goals and we remain committed to moving forward with commercialization of the technology. We believe that is the path to USEC’s long-term competitiveness in the uranium enrichment business and the best way to maximize value for all stakeholders.” The RD&D program is being conducted under our Lead Cascade license issued by the U.S. Nuclear Regulatory Commission. We have operated centrifuges as part of our lead cascade test program for more than one million machine hours since August 2007. Through the lead cascade test program, we demonstrate the performance of centrifuge machines, demonstrate the reliability of machine components, obtain data on machine-to-machine interactions, verify cascade performance models under a variety of operating conditions, and obtain operating experience for our plant operators and technicians.
In June 2012, we entered into a cooperative agreement with DOE to provide cost-share funding for the RD&D program. The cooperative agreement provides for 80 percent DOE and 20 percent USEC cost sharing for work performed during the period June 1, 2012, through December 31, 2013, with a total estimated cost of $350 million. DOE’s total contribution would be up to $280 million and our contribution would be up to $70 million.The cooperative agreement is being incrementally funded, and $177.8 million of DOE funding has been provided. Most recently, $44.4 million was provided this month by DOE transferring the separative work unit component of low enriched uranium to USEC that DOE had previously acquired from us in 2012 in exchange for the transfer of quantities of our depleted uranium tails to DOE. The remaining obligated funding has not yet been authorized and is subject to congressional appropriations, congressional transfer or reprogramming authority to permit the use of DOE funds previously appropriated for other programs, or other sources available to DOE. Although we have adjusted our program spending to accommodate changes to the timing and amount of federal funding, we remain on schedule and budget to complete the RD&D program by the end of 2013. The amount of federal funding made available to date is expected to fund RD&D program activities through mid-June 2013, and we will continue to work with Congress and the administration to fully fund the RD&D program through December 2013 and achieve the remaining program milestones. Under the cooperative agreement, we and our newly created subsidiary American Centrifuge Demonstration, LLC (ACD) are carrying out the RD&D program. ACD has put in place a program management and enhanced program execution structure, which includes a board of managers who oversees and directs the management of the RD&D program. The seven-person board is comprised of two independent managers, two managers appointed by USEC, and one manager appointed by each of Babcock & Wilcox Technical Services Group, Inc., Toshiba America Nuclear Energy Corporation and Exelon Generation Company, LLC.
The RD&D program is responsible for 1,175 direct jobs, including 470 in Ohio and 430 in Tennessee. Approximately 320 jobs have been added in recent months as a result of the program. The RD&D program also supports jobs at 169 companies from 28 states.The cooperative agreement includes technical milestones for the RD&D program. The first two technical milestones have been achieved and certified by DOE. On March 15, 2013, we amended the cooperative agreement with DOE to provide for additional incremental funding. As part of that amendment, we added four new milestones related to specific testing requirements associated with the test program we developed with DOE for the RD&D program. The original remaining milestones have a milestone date of December 31, 2013, tied to the completion of the RD&D program. The new milestones have milestone dates beginning as early as May 15. In addition, the cooperative agreement contains non-binding performance indicators that are designed to be achieved throughout the RD&D program and ensure that the RD&D program is on track to achieve the milestones and other program objectives. Under the agreed upon test program, construction activities for the new demonstration cascade required the suspension of machine operations for several months since late 2012. During this period we have removed existing cascade support equipment, constructed new infrastructure equipment and will soon be conducting integrated systems testing. Manufacture and assembly of AC100 machines is continuing and may continue through the end of the program. Centrifuge operations and testing is also continuing at our test facility in Oak Ridge during this construction period. The new plant systems and other equipment have been installed and testing has begun, AC100 machines are being installed and we expect to operate the demonstration commercial cascade in the second half of 2013. We are working with our strategic suppliers to maintain the manufacturing infrastructure developed over the last several years. However, we are constrained by our reduced level of spending. The RD&D program provides for the continued production of AC100 machines, which helps our suppliers gain additional cost experience and familiarity with the manufacturing process. Although we have delayed high-volume production of the AC100 machines, our strategic suppliers have demonstrated flexibility and initiative to keep the project moving forward. However, we face challenges with ensuring the ability and willingness of our strategic suppliers to continue at low rates of production for a prolonged period of time absent greater certainty on funding for the project and a definitive timeline for full remobilization.
Significant additional financing is needed to complete the American Centrifuge Plant (ACP). Potential sources of financing include:
- We applied for a $2 billion loan guarantee for the project under the DOE Loan Guarantee Program in July 2008. We continue to pursue a DOE loan guarantee and are planning to update the DOE loan guarantee application for the project during 2013.
- We have also had discussions with Japanese export credit agencies regarding financing up to $1 billion of the cost of completing the ACP, with such potential financing predicated on the project receiving a DOE loan guarantee.
- We also expect to need at least $1 billion of capital for the project in addition to the DOE loan guarantee and the Japanese export credit funding. The amount of additional capital is dependent on a number of factors, including the amount of any revised cost estimate and schedule for the project, the amount of contingency or other capital that DOE, Japanese export credit agencies or investors may require, and the amount of the DOE credit subsidy cost that would be required to be paid in connection with a loan guarantee. We currently anticipate the sources for this capital to include cash generated by the project during startup, available USEC cash flow from operations and additional third party capital. We expect the additional third-party capital would be raised at the project level, including through the issuance of additional equity participation in the project.
Forward Looking StatementsThis news release contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934 – 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: uncertainty regarding the timing, amount and availability of additional funding for the research, development and demonstration (“RD&D”) program and the dependency of government funding on Congressional appropriations; restrictions in our credit facility on our spending on the American Centrifuge project and the potential for us to demobilize the project; limitations on our ability to provide any required cost sharing under the RD&D program; uncertainty concerning our ability through the RD&D program to demonstrate the technical and financial readiness of the centrifuge technology for commercialization; uncertainty concerning the ultimate success of our efforts to obtain a DOE loan guarantee and other financing for the American Centrifuge project and the timing and terms thereof; potential changes in our anticipated ownership of or role in the American Centrifuge project, including as a result of the need to raise additional capital to finance the project; the impact of actions we have taken or may take to reduce spending on the American Centrifuge project, including the potential loss of key suppliers and employees, and impacts to cost and schedule; the impact of delays in the American Centrifuge project and uncertainty regarding our ability to remobilize the project; changes in U.S. government priorities and the availability of government funding, including loan guarantees; and other risks and uncertainties discussed in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, which is available on our website at www.usec.com. We do not undertake to update our forward-looking statements except as required by law.