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Technology development and demonstration continues; updated
AC100 production machines being prepared for lead cascade testing
program
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Demobilization of project began in early August; approximately
1,000 project jobs lost to date
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Seeking most cost-effective plant deployment business plan
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USEC schedules conference call on ACP status update September 29
at 11 a.m. ET
BETHESDA, Md.--(BUSINESS WIRE)--Sep. 28, 2009--
USEC Inc. (NYSE:USU) is providing an update on the status of deployment
of the American Centrifuge technology following an agreement with the
Department of Energy in early August to delay final review of USEC’s
loan guarantee application to build the American Centrifuge Plant (ACP)
in Piketon, Ohio.
Following DOE’s decision, USEC began demobilizing the project in August.
In parallel, the Company is continuing American Centrifuge demonstration
activities, evaluating how best to configure the project on a go-forward
basis, and seeking to reduce technical and financial risk for the
project.
“During the past two months, we have been preparing an action plan that
balances a demonstration of commercial, production-ready centrifuge
machines with our need to preserve cash. We previously made it clear
that absent a loan guarantee, we would take action to ensure that we
have adequate liquidity for our ongoing operations, and we have done
so,” said John K. Welch, USEC president and chief executive officer.
“This has been a challenging time for the American Centrifuge program as
we had to demobilize the project at a point when we had expected to be
ramping up towards commercial operation,” Welch said. “Approximately
1,000 USEC employees and team members working for our strategic
suppliers have lost their jobs in recent weeks. This has been a
difficult decision for USEC and no doubt a painful one for the affected
individuals. We appreciate their hard work and dedicated effort to
rebuild America’s industrial base and to support the deployment of this
American technology to fuel our nation.
“We continue to believe in the American Centrifuge technology and we are
working to address the issues that concerned DOE so that we can update
our application to the Loan Guarantee Office in early 2010,” Welch said.
“Upon resolution of DOE’s issues, we will ask the Loan Guarantee Office
to act promptly on our application.”
Lead Cascade Testing Program Update
USEC continues its lead cascade testing program in Piketon. The
prototype centrifuges operating there for more than two years have
accumulated more than 265,000 machine hours. Data from this testing
program has provided valuable assembly, operating and maintenance
information, as well as operations experience for the American
Centrifuge staff. The prototype machines continue to operate.
We refer to our production centrifuge machine design as the AC100 series
machine. USEC’s suppliers assembled approximately 40 AC100 series
machines over the summer and initial AC100 cascade operations were
planned for the third quarter. However, our project team determined that
at least some of the machines were not assembled in full compliance with
the specified drawings and procedures. As a result, we initiated a stand
down from our operation of the AC100 cascade in order to remove,
disassemble and inspect all of the AC100 machines. We are taking
advantage of the machine disassembly to install improved components that
were incorporated in the design finalized earlier this year. These
enhanced machines are production-ready and would be deployed in the
commercial plant. We subsequently enhanced procedures to ensure
compliance with our quality assurance program for centrifuge component
manufacturing and assembly. We expect to restart lead cascade testing of
AC100 machines by early 2010.
Demobilization Update
As previously noted, USEC began demobilizing the project in early
August. Construction work on the plant infrastructure and finalizing the
balance-of-plant design ceased in August. The plant design work is
approximately 80 percent complete and would be resumed following a
decision to remobilize the project. Machine part manufacturing efforts
have also been affected.
As a result of the demobilization, USEC reduced project employment by
almost 1,000 jobs over the past six weeks -- approximately 120 USEC
employees and more than 850 workers directly employed by suppliers have
lost their jobs to date. Several thousand indirect jobs have also been
affected. Job losses have occurred in eight states, with Ohio and
Tennessee having the largest job losses.
USEC’s spending plan going forward for the project is still in the
process of being developed. In the first six months of 2009, our spend
rate on the project was approximately $45 million per month. We do not
expect to see the full impact of recent spending reductions from project
demobilization until the fourth quarter. We expect to set a spending
level for the project for the next several months that will vary
depending on available funds. DOE previously committed to provide the
Company $45 million over 18 months to assist in the cost of continued
development, but details of how those funds will be provided to USEC are
not final. Discussions between USEC and DOE on a cost sharing
arrangement for additional development and demonstration activities are
ongoing.
USEC is working with its strategic suppliers to maintain the
manufacturing infrastructure developed over the last several years. We
want to be in a position to ramp back up at the time we receive funding
in 2010 from the DOE Loan Guarantee Program. For example, should
development funds become available in the near-term, we may build a
limited number of additional AC100 production machines over the next
several months. This would further demonstrate the manufacturability of
the AC100 design and validate the quality assurance improvements
instituted in the assembly process. In order to accomplish the goal of
having the core manufacturing base in place and ready to go, our
suppliers would selectively continue to produce components for the AC100
production machine.
To better integrate the process of building components and assembling
the machines, USEC continues to work with B&W Technical Services Group,
Inc. toward establishing a joint venture. B&W employees have been
producing the classified components at USEC’s American Centrifuge
Technology and Manufacturing Center in Oak Ridge. In May 2009, USEC and
B&W entered into a non-binding memorandum of understanding to form a
joint venture that will establish a single point of accountability to
provide integrated manufacturing and assembly of the AC100 centrifuge
machines. As envisioned in the memorandum of understanding, the joint
venture would manage all aspects of manufacturing the AC100 machines,
including supply chain management through the integration of all
suppliers and subcontractors and the assembly of the machines at Piketon.
As we seek the most cost-effective deployment plan, we are evaluating
the scope and scale of the plant, the deployment of machines over a
longer time period, alternate financing structures, and the cost and
feasibility of remobilizing at a later date. Based on the results of
this evaluation of our strategic options for the future of the project
or in the event of a further delay in or a decrease in the likelihood of
obtaining DOE loan guarantee funding or for other reasons, we may reduce
spending and staffing on the project even further or might be forced to
take other actions, including terminating the project.
Path Ahead
Our near-term goals for the American Centrifuge project include the
following:
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Successful start up of the AC100 lead cascade testing program by early
2010 using the upgraded production machines to improve DOE’s
confidence in the machines’ reliability through consistent operation.
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Maintain a manufacturing infrastructure to meet the needs of the lead
cascade testing program and have a process in place to support
potential remobilization.
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Continue development efforts to further improve reliability of the
AC100, increase the machine’s productivity as measured by SWU output
and lower its capital cost per SWU through value engineering.
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Reduce perceived project risk and take other steps to improve our
financial structure.
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Negotiate contracts with suppliers that can provide greater certainty
of cost and schedule and develop a revised project plan.
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Continue working with customers to enter into additional long-term
contracts to build on the $3.4 billion in committed sales for the
output from ACP.
USEC will hold a conference call with shareholders and the financial
community on September 29 at 11 a.m. ET. The call will be open to
listeners who may log in through the Company’s website, www.usec.com.
A link to the call will be located in the Investor Relations section and
a webcast replay will be available through October 12.
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: the impact of the demobilization of the
American Centrifuge project on the costs, schedule and viability of the
project; uncertainty regarding our ability to remobilize the project and
the economics of the project; risks related to the American Centrifuge
technology, including risks related to performance, cost, and schedule;
our success in obtaining a loan guarantee and any other financing needed
for the American Centrifuge Plant; risks related to our ability to
extend the operations of the gaseous diffusion plant; uncertainty
regarding the cost of electric power used at our gaseous diffusion
plant; our dependence on deliveries under the Russian Contract and on a
single production facility; our inability under most existing long-term
contracts to directly pass on to customers increases in our costs; the
decrease or elimination of duties charged on imports of foreign-produced
low enriched uranium; delays in U.S. government actions needed for us to
collect money from antidumping duties deposited by importers of French
low enriched uranium on past imports of French low enriched uranium in
connection with trade measures imposed on such imports; pricing trends
and demand in the uranium and enrichment markets and their impact on our
profitability; changes to, or termination of, our contracts with the
U.S. government and changes in U.S. government priorities and the
availability of government funding, including loan guarantees; the
impact of government regulation; the outcome of legal proceedings and
other contingencies (including lawsuits and government investigations or
audits); the competitive environment for our products and services;
changes in the nuclear energy industry; the impact of volatile financial
market conditions on our pension assets and credit and insurance
facilities; and other risks and uncertainties discussed in our filings
with the Securities and Exchange Commission, including our Annual Report
on Form 10-K and subsequent quarterly reports on Form 10-Q. We do not
undertake to update our forward-looking statements except as required by
law.
Source: USEC Inc.
USEC Inc.
Investors:
Steven Wingfield, 301-564-3354
or
Media:
Elizabeth
Stuckle, 301-564-3399
