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USEC and DOE Making Solid Progress Toward
Conditional Commitment
For American Centrifuge Plant Loan Guarantee
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Due diligence process well
underway
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USEC made significant progress
in 2010 to address DOE concerns
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Discussions continue with
Japanese export credit agencies for additional financing
BETHESDA, Md. - USEC
Inc. (NYSE:USU) today reported on the progress of ongoing negotiations with
the Department of Energy's (DOE) Loan Guarantee Program office on a term
sheet for a conditional commitment for the financing of the American
Centrifuge Plant.
"We are pleased
with the progress being made between DOE and USEC staff to develop the terms
and conditions for a conditional commitment," said John K. Welch, USEC
president and chief executive officer. "Based on our recent discussions
with DOE, I am optimistic that we can reach an agreement on terms in the near
future and that DOE will then be able to move promptly to issue the
conditional commitment. We want to move forward as quickly as possible so
that we can begin remobilizing construction of the American Centrifuge Plant,
but recognize that DOE needs to structure an agreement that protects the
American taxpayer by ensuring loan repayment and we are committed to
achieving that goal as well.
"USEC made
substantial progress during 2010 to address DOE's technical and financial
concerns. This had the very positive effect of eliminating or mitigating
project risks. Our cascade of AC100 machines demonstrated that we have a very
solid machine, and the technology is ready to deploy commercially.
"The American
Centrifuge staff has been working closely with DOE's independent engineering
firm as it prepares a report that will be a key part of the due diligence
process. We believe the report will recognize the technical progress made
since the independent engineer's 2009 review of the project.
"We also
strengthened the financial foundation of the project in 2010 through the
strategic investment of Babcock & Wilcox and Toshiba Corporation. With
Toshiba's significant assistance, we are also in discussions with the
Japanese export credit agencies for additional funding of up to $1
billion," he said.
"During the past
year, we saw many signs of support that show DOE values the American
Centrifuge technology that it originally developed. A cooperative agreement
with DOE for cost-sharing during 2010 helped to support operation of the
AC100 cascade, the manufacturing of additional AC100 machines and refinement
of the rotor tube manufacturing process. We also appreciated DOE's recent
agreement to extend the milestones included in our original 2002
agreement," Welch said.
The American
Centrifuge technology USEC is deploying requires 95 percent less electric
power to produce low enriched uranium on a per SWU basis than its current
gaseous diffusion technology. This will
significantly reduce both USEC's production costs and exposure to price
volatility for electricity, the largest production cost component for gaseous
diffusion. The American Centrifuge technology is a disciplined evolution of
classified U.S.
centrifuge technology originally developed by DOE and successfully demonstrated
during the 1980s. USEC has improved the DOE technology through advanced
materials, updated electronics and design enhancements based on highly
advanced computer modeling capabilities.
As
of December 31, 2010, USEC has invested approximately $1.95 billion in the
American Centrifuge program, which includes $767 million charged to expense
over several years for technology development and demonstration. Construction
on the American Centrifuge Plant (ACP) began in May 2007 after a construction
and operating license was issued by the U.S. Nuclear Regulatory Commission.
Centrifuges have been operated as part of a lead cascade test program for
more than 625,000 machine hours since August 2007. This gives USEC confidence
in the performance of the technology and provides operating data and
experience as the project transitions to commercial operation. Due to
uncertainty of funding, at the time of an August 2009 agreement with DOE to
delay consideration of USEC's loan guarantee application, USEC significantly
demobilized and reduced construction and machine manufacturing activities in
the American Centrifuge project. USEC continues limited manufacturing,
assembling and operating of centrifuge machines in the lead cascade test
program and ongoing development efforts pending receipt of funding to
remobilize the project and complete the plant.
During
the course of 2010, USEC continued its lead cascade test program with AC100
machines. Installation of these AC100 machines further demonstrated the
ability of suppliers to build components, assemble the machines and
successfully bring them into operation. More than 400,000 machine hours have
accumulated in AC100 machine operations since the summer of
2009. This cascade was in a commercial plant like configuration and operates
under commercial plant like conditions. These machines are production-ready
and could be deployed in the commercial plant. During cascade operations,
USEC demonstrated that the cascade operates as designed and that a range of
commercial product assays can be produced for USEC's customers.
USEC
believes the DOE's Loan Guarantee Program is essential to obtaining the
financing needed to complete the ACP and it has applied for a $2 billion loan
guarantee.� In
late October 2010, following an initial technical review of USEC's updated
loan guarantee application submitted in July, DOE provided USEC with a draft
term sheet that has served as the framework for discussions with DOE.
Completion of due diligence by DOE and negotiation of terms and conditions
with DOE are the next steps toward the potential issuance of a conditional
commitment. USEC is working with DOE and its technical, legal and financial
advisors to obtain such a commitment in an expeditious manner. After
obtaining a conditional commitment, USEC will need to conclude final
documentation and to satisfy any technical, financial and other conditions to
funding in order to close on the financing.
In order to obtain a DOE loan guarantee, USEC needs to demonstrate that
sufficient capital is available to complete the project. The Company is in
discussions with Japanese export credit agencies regarding financing up to $1
billion of the cost of completing the ACP. Their willingness to provide
financing is closely tied to USEC obtaining a DOE loan guarantee. USEC is
also looking to complete the remaining two phases of a $200 million strategic
investment by Toshiba Corporation and Babcock & Wilcox Investment Company
in 2011. The next two phases are conditioned upon progress in obtaining a DOE
loan guarantee and other conditions. The first phase of the investment of $75
million was completed in September 2010. USEC cannot provide any assurance
that it will be successful in obtaining any or all of the financing being
sought.
In August 2010, USEC announced an estimated cost of approximately $2.8
billion to complete the plant from the point of closing on financing. The
$2.8 billion estimate is a go-forward cost estimate and does not include
USEC's investment to date, spending from now until closing on financing
needed to complete the plant, overall project contingency, financing costs or
financial assurance. This estimate includes AC100 machine manufacturing and
assembly, engineering, procurement and construction costs and related
balance-of-plant work, start-up and initial operations, and project
management. USEC believes risk in the American Centrifuge project has been
substantially reduced since its initial baseline project budget in 2008 and
the new cost estimate is based on a significantly more mature project scope.
USEC continues to work with suppliers to refine its cost estimates. USEC is
seeking reductions in the project cost and to transition to supplier
contracts that are structured to mitigate cost risk through fixed or maximum
price contracts.
USEC's
current schedule anticipates that it will require approximately 24 months to
begin initial commercial operations following the close of financing needed
to complete the plant. USEC also estimates that it will require about 36
months to complete the plant after initial commercial operations begin.
In
early 2011, USEC's suppliers are continuing to build centrifuge parts at a
rate of approximately eight new AC100 machines per month, then assemble and
operate them in the lead cascade program. These machines reflect improvements
identified in prior testing and are expected to operate at a target
production level of approximately 350 SWU per machine, per year. The
continued production of machine components helps to accomplish the goal of
having the core manufacturing base in place to facilitate the ramp up of
production when USEC closes on financing to complete the project in the
future.
USEC is also continuing to work with Babcock & Wilcox toward
establishing a joint venture for the manufacture and assembly of AC100
centrifuge machines. B&W employees have been producing the classified
AC100 components at USEC's American Centrifuge Technology and Manufacturing
Center in Oak Ridge, Tennessee. The joint venture will establish a single
point of manufacturing accountability and will manage all aspects of AC100
machine production, including supply chain management through the integration
of all suppliers and subcontractors and the assembly of the machines at
Piketon. In 2010, USEC and B&W also agreed on a non-binding term sheet,
including pricing, for the supply by American Centrifuge Manufacturing of
centrifuges and related equipment for the ACP. USEC is currently working to
make the joint venture fully operational.
USEC Inc., a global energy company, is a leading supplier of enriched
uranium fuel for commercial nuclear power plants.
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Forward-Looking Statements
This
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: 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 from DOE for the American Centrifuge Plant, including our ability
to address the technical and financial concerns raised by DOE and the timing
of any loan guarantee; our ability to reach agreement with DOE on acceptable
terms of a conditional commitment, including credit subsidy cost, and our
ability to meet any required conditions to funding; our ability to obtain
additional financing beyond the $2 billion of DOE loan guarantee funding for
which we have applied, including our success in obtaining Japanese export
credit agency financing of up to $1 billion; 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 the November 2011 financing milestone and other milestones
under the June 2002 DOE-USEC Agreement; restrictions in our credit
facility that may impact our operating and financial flexibility and spending
on the American Centrifuge project; risks related to the completion of the
remaining two phases of the three-phased strategic investment by Toshiba
Corporation ("Toshiba") and Babcock & Wilcox Investment 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, which are available on our
website at www.usec.com. We do not undertake to update our forward-looking
statements except as required by law.
Contacts:
Investors:������� Steven Wingfield (301)
564-3354
Media:����������� Paul Jacobson (301)
564-3399
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