Profits down as USEC tightens belt

07 May 2009

Increased spending on the American Centrifuge coupled with a lower gross profit margin have resulted in first quarter losses of $2.1 million for USEC as the company tries to conserve cash pending a decision on a loan guarantee for the new plant.

Total revenue for the quarter, at $505.6 million, was up on the $343.3 million recorded for the same period in 2008. However, this was offset by higher costs for producing and purchasing enrichment coupled with lower-than-expected profit margins on US government contract services and revenue from uranium sales, the company says. The $2.1 million first quarter loss compares with a net income of $4.4 million for the same quarter in 2008 but the company warns that short-term comparisons are not necessarily indicative of longer term results, in part because the reactors that it serves are refuelled on 18- to 24-month cycles.

In February, USEC announced that it would be taking steps to conserve cash by reducing the planned escalation of its project to build a new centrifuge uranium enrichment plant, known as the ACP (American Centrifuge Plant), pending the outcome of a decision on its application for a federal loan guarantee. Nevertheless, advanced technology expenses for the quarter, at $31.4 million, were $5.75 million up on the same period last year. USEC president and CEO John K Welch, said that this was as expected, and noted that the expense was related to assembling an initial cascade of AC100 centrifuges and efforts to reduce manufacturing costs. "Although our gross profit was higher year-over-year, the additional expense left us with a loss for the quarter," Welch said.

In terms of operations, the company noted that it continues to underfeed the enrichment process at its operating plants based on market conditions.

Loan guarantee awaited

In a separate update of progress on the ACP project, USEC reports that the initial cascade of AC100 centrifuge machines is being assembled and prepared for operation. A second design release for the AC100, referred to as AC100 Mod 1, has been completed and the company is continuing with work to reduce the cost of manufacture. However, even though USEC has applied for a federal loan guarantee from the Department of Energy (DoE) to help finance the new plant there is still uncertainty over where the money will come from.

According to USEC, without a DoE loan guarantee or other financing, the company has enough cash flow to last about 9-12 months. If a guarantee or alternative funding is not forthcoming, the company says, it will implement further project spending reductions to ensure sufficient liquidity but warns that additional funds may be needed sooner if its current cash conservation measures fail or in the event of increases to costs of the ACP project and other unanticipated costs.

"We are seeking an expeditious funding commitment by DoE and financial closing later this year," the company noted, but went on to say that even if the loan guarantee is forthcoming it could still take an extended period for the funding to be finalized. In the light of this, the company says it "continues to evaluate the potential for third-party investment."

The new plant had been scheduled for commercial operation at the end of the first quarter of 2010, reaching 1 million SWU capacity in the first quarter of 2011 and its full 3.8 million SWU capacity at the end of 2012. USEC now says it expects an initial cascade of AC100 machines to be operational in the third quarter of 2009, but warns that its decision to slow spending until DoE makes a decision on its loan guarantee application will increase costs and extend the project's schedule.