Centrus Energy Corp. (LEU) An Emerging Green Energy Giant
Growth, Momentum, Portfolio Strategy, Tech
Seeking Alpha Analyst Since 2021
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Summary
- Under longstanding US policy, foreign uranium or foreign enrichment technologies are prohibited for national security purposes. Centrus Energy Corp is currently the only U.S. based company that can deliver uranium.
- High-Essay Low Enriched Uranium is the next generation nuclear power and LEU is working quickly to demonstrate effectiveness and safety.
- In October, the Department of Energy announced the two winners of the Advanced Reactor Demonstration Program. LEU has strong relations with both winners, TerraPower and X-energy. LEU has partnerships with.
- The current Biden administration is set to prioritize “clean” energy, including carbon free nuclear power.
- LEU purchases its uranium from TENEX and in 2019 a price reduction of low enriched uranium (LEU) dropped the price from 140 per pound to 40 per. This dramatically increases Centrus Energy’s cost basis and profitability.
Thesis
There are several key reasons why Centrus Energy Corp, (I will often refer to as LEU), is an attractive investment. The first, and most straightforward reason; LEU is the only U.S. based manufacturer and distributor of uranium. Furthermore, LEU is quickly advancing High Essay Low Enriched Uranium (HALEU) technology. HALEU is the next generation of cleaner, more efficient and in high demand uranium (nuclear) fuel. LEU is currently running demonstrations for HALEU effectiveness and safety and these demos are projected to be completed in early 2022. LEU is working directly with several major companies including, Terrapower, which have already signed multi-year contracts with LEU. There is huge potential here. LEU essentially has a monopoly on Uranium distribution in the US and while 2021 may not substantiate huge growth; the anticipated HALUE market, which should be live in early 2020, will likely prove extreme opportunity for LEU.
Contents
1. Valuation
2. HALEU
3. Risks
4. Conclusion
Background
1992: USEC was created under the United States Energy Act.
1993: Operations officially began as a government-corporation.
1998: USEC was fully privatized during an initial public offering (IPO). The US government received roughly 3 billion dollars.
2013: USEC continued to operate until the last plant was shut down in 2013
2014: Financial restructuring and the company reemerged as Centrus Energy Corp.
2015: The board selected a new leadership team and started to focus on expansion and diversification.
Present-2026: Centrus Energy Corp has contracts lined up as far as 2026 and has a multi-billion dollar order book.
Valuation
Why am I super optimistic about LEU?
The first major reason; High-Assay, Low Enriched Uranium (HALEU). HALEU is the next generation of nuclear energy. It enables more power and less waste and is a huge asset for LEU. LEU is currently running demos on HALEU and these currently are projected to be finished early 2022
Daniel Poneman, Ceo of Centrus Energy Corp. during Q3 Earnings Call.
“Turning to our Centrus technical solutions segment, our incredibly talented team continues making steady progress on the three-year $115 million contract we have in place with the U.S. Department of Energy. Under that contract, we are building a cascade of centrifuges that will demonstrate production of a next-generation nuclear fuel called High-Assay, Low-Enriched Uranium, or HALEU, as we call it.
With the help of our contract with the U.S. Department of Energy, Centrus is working to solve that problem for the industry. We intend to be the first to market with commercial HALEU production under license by the U.S. Nuclear Regulatory Commission and we are well on our way. Construction activities are on track, on schedule and on budget.”
There will be a huge demand for HALEU. Once HALEU is done with testing and is approved by the US government it will likely scale extremely quickly.
Another key reason LEU has huge potential is that LEU has the only deployment-ready U.S. enrichment technology that is usable for the military and the navy especially uses a lot of uranium. U.S. policy states that the use of foreign origin uranium or foreign enrichment technologies for national security purposes is prohibited. LEU is strategically positioned to meet this demand. While the army and navy currently have stockpiles of uranium left over from the cold war, The Department of Energy has made it clear that a supply of domestic enrichment will be needed in the future. This is another potential multibillion dollar industry per year that LEU can potentially meet.
HALEU
High Essay Low Enriched Uranium is the next generation of efficient nuclear power and has many advantages that will improve reactor performance, decrease reactor size and enable them to be fueled less often. Finally less waste will be produced!
Centrus is working under contract with pioneering reactor company, X-energy, in the aim to produce a fuel fabrication facility that would produce X-energy's uranium fuel forms using HALEU. This is important because it would be a unique fuel that could power the new generation of advanced reactors around the world and would solidify the US as the source of this emerging power supply.
LEU is also working directly with the US Department of Energy to create a fleet of Centrus’ AC100M centrifuges at the Piketon, Ohio plant. This is estimated to be fully demonstrated and implemented early 2022.
The chart below is directly from Centrus’ official website.
High-Assay Low-Enriched Uranium - Centrus Energy Corp
Risks
There are two risks that I can foresee. The first is that the US and other nations decide to prioritize other forms of clean energy and refrain from nuclear. This is quite unlikely as countries like France, Germany, Russia, and China have made it clear that they will be ramping up their nuclear power plants.
The other risk is that HALEU demonstrations get postponed or delayed. This could easily happen, however even if HALEU is delayed the US government and many other multi billion dollar companies have a large interest and investment passing this technology in a timely manner. For this reason, if there are delays I think that they will be minimal.
Conclusion
LEU is an attractive company and I believe will play a crucial role in the distribution of US nuclear energy moving forward. Many strategic partnerships with the US government and other multi billion dollar companies like Terrapower and X-energy are already underway. There are huge monetary incentives but also safety and environmental incentives to get upgraded and successfully demo HALEU safely and efficiently. In the short term (the next 12 months) if LEU will see major profit increase. I believe that moving towards 2022 momentum will drastically pick up as the inception of HALEU will push to move the effectiveness of US and global energy forward.
Analyst's Disclosure: I am/we are long LEU.
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