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Zero Sum Game Between Silex Systems (SLX.AX) And USEC (USU)

|Includes:Centrus Energy Corp. (LEU)

On July 26, Silex Systems Limited (SLX.AX) confirmed the receipt of a $15 million USD payment from GE-Hitachi for the completion of the third milestone of their laser enrichment technology development program. This follows US Nuclear Regulatory Commission Approval for the construction and operating license of a laser enrichment plant planned for Wilmington, North Carolina and an additional opportunity for the construction of a laser enrichment facility in Paducah, Kentucky. The inroads that Silex Systems continues to make into the development and deployment of third generation enrichment technology poses a major threat to the long-term survivability of United States Enrichment Corporation's (USU) business model.

Uranium enrichment output is measured with a standard unit of measure termed a Separative Work Unit (NYSE:SWU). USEC recently estimated the enrichment industry market at 50 million SWU per year. USEC has delivered 9 to 13 million SWU per year since 2007. European enrichers Urenco and Areva estimate a capacity expansion to 18 million and 7.5 million SWU per year by 2015 respectively. The World Nuclear Association estimates that Russia's Rosatom/TENEX will have a capacity of 30-35 million SWU per year by 2020. Most importantly, through a licensing agreement with GE Hitachi's "Global Laser Enrichment" spin off, Silex Systems expects to receive 7% to 12% royalties on up to 6 million SWU per year from the Wilmington plant.

Independent uranium enrichment general counsels estimate 2020 demand of 50 to 70 SWU. Silex Systems forecasts a positive medium and long term outlook as the industry capacity for SWU is reduced by 6 million SWU due to the planned closure of the Paducah GDP plant and reduced by an additional 6 million SWU's from the completion of the US-Russian HEU agreement. The 2002 Department of Energy - USEC Agreement contains a 2020 milestone for commercial American Centrifuge Plant annual capacity of only 3.5 million SWU per year.

Most importantly, USEC is on the wrong side of this zero sum game. Within the latest quarterly filing, USEC recognizes these impending facts stating, "We are preparing to be a significantly smaller company with lower revenues." The company will be a fraction of its former self with industry forecasters believing former USEC production capacity will shift directly to Silex Systems.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Stocks: LEU