DOE Denies USEC Loan Guarantee; Shares Plunge 50%

[bananas]

Source: Dow Jones

USEC Inc. (USU) said Tuesday that the U.S. Department of Energy won't proceed with the nuclear-fuel supplier's application for a loan guarantee to finish building a uranium-enrichment facility, sending the company's shares plummeting nearly 50%.

The Bethesda, Md.-based company said in a press release that it has started to demobilize the American Centrifuge Plant in Piketon, Ohio, and engaged outside advisors to evaluate "strategic alternatives." USEC said it invested $1.5 billion in the project and offered $1 billion of additional corporate support. It added that the application with the DOE has been pending for a year and the company has addressed concerns raised by the department.

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Jefferies & Co. cut its rating on the company's shares to hold from buy on the news. Analyst Laurence Alexander said in a note to clients that the application for $2 billion in funding "was key for USEC to move forward on the construction" of the project. "Without the DOE funding, we expect USEC will have to seek alternative financing sources."

Shares of USEC were recently down 33% at $4.13 after reaching a low of $3.22 earlier in the day.

Read more: http://money.cnn.com/news/newsfeeds/articles/djf500/200907281146DOWJONESDJONLINE000478_FORTUNE5.htm

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Good - "a review indicated the project was not ready":

USEC loan guarantee application rejected; shares plunge
Washington Business Journal - by Tucker Echols Staff Reporter

The Department of Energy has decided not to proceed with consideration of a loan guarantee application from USEC Inc. for a new uranium enrichment facility in Ohio, triggering a plunge in the price of the Bethesda firm's stock.

The Department of Energy said Tuesday that it was encouraging USEC to withdraw its application for $2 billion in loan guarantees to complete the American Centrifuge Plant in Piketon, Ohio giving the company time to resolve technology issues facing the plant in the next 12 to 18 months without hurting the chances for future approval.

USEC, which has invested $1.5 billion in developing the plant and warned in June that it would not be able to continue work without the guarantees because private financing would not be available, responded to the decision by saying it would initiate steps to demobilize the project. USEC said the company had addressed all concerns raised by DOE while the application had been pending over the last year and it was, "shocked and disappointed" by the decision.

DOE said it saw promise in the ACP technology as a next generation uranium enrichment technology but that a review indicated the project was not ready to move to commercial scale operations and the loan application was therefore unlikely to be approved. Because of project's upside potential, DOE said it would offer up to $45 million over the next 18 months to support ongoing research and development work at ACP. DOE said the funds would allow USEC to continue operations, maintenance, and research at Piketon as well as another facility in Oak Ridge, Tenn.

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[bananas]

1. "Secretary of Energy Steven Chu and other energy department officials said this morning ..."

Lots more in this article:

http://www.columbusdispatch.com/live/content/local_news/stories/2009/07/28/piketon29.html?sid=101

U.S. offers new cleanup jobs at ex-nuclear plant in Piketon
Second chance for loan guarantee included, too
Tuesday, July 28, 2009 12:10 PM
By Jonathan Riskind
THE COLUMBUS DISPATCH

WASHINGTON -- The U.S. Department of Energy is offering hundreds of new nuclear site cleanup jobs to southern Ohio workers and a second chance for USEC to win a $2 billion federal loan guarantee after department officials today said a planned uranium enrichment plant in Piketon isn't yet technically or financially ready.

<snip>

But Secretary of Energy Steven Chu and other energy department officials said this morning that the project's technology has not yet proven itself and that USEC's ability to complete the project financially also remains in doubt. Therefore, the Obama administration doesn't believe it has the authority under the federal loan guarantee program to grant USEC's request, they said.

However, because the project has "promise," the Obama administration is offering $45 million to USEC to continue research and development work, and wants USEC to formally withdraw its loan guarantee application and resubmit it in 12 to 18 months, said department officials say.

That's something USEC will have to study, since it wasn't aware this morning of that offer of more research and development money, said Elizabeth Stuckle, a USEC spokeswoman. However, she stressed that without the loan guarantee and resulting ability to win the final $2 billion in financing to complete the project, there would be no more construction or deployment activities, Stuckle said.

Meanwhile, the energy department is offering up $150 million to $200 million in additional cleanup money for the site, which includes the 3,700-acre, 415-structure area housing the old enrichment plant.

<snip>

[bananas]

2. Some more details at the Washington Post: "not commercially viable"

"not commercially viable", "risk of either major cost overruns or reliability problems or both":

USEC Assails Obama After $2B Loan Request Is Rejected

<snip> White House spokesman Benjamin LaBolt said on Tuesday. But he added that the USEC technology "is not commercially viable today according to an independent engineering review, and therefore not eligible for DOE's loan guarantee program at this time." He added that the administration "believes holds promise."

<snip>

Matt Rogers, who oversees grants and loan guarantees at the Energy Department, said that USEC only finalized designs three months ago and that the company had tested only 38 centrifuges while 11,000 would be needed to run the plant. "The project runs the risk of either major cost overruns or reliability problems or both," Rogers said. "Given the problems they have had on the run time, we decided they needed more time before it went to mass production."

<snip>

[GETPLANING]

3. Nuclear power is high, high risk

Nuclear power can not survive in the marketplace without massive government intervention and support. Next time an anti-government, free market sucker starts talking about the "magic of the invisible hand" of the free market, tell them about what happened to USEC today, and how hundreds of thousands of investors were cut off at the knees.

USU was reccommended by several analysts. It is on one of my index tracking lists, but I would never buy it precisely because of what happened today. Overnight, the stock falls 50%. Disastrous.

For any investors on DU, look into a company called A-Power energy Generation Systems, (APWR).
They build complete energy grids powered by windmills, some solar, and some biomass. I have been following APWR for over a year now. I own A LOT of shares.

http://apowerenergy.com/

[cosmicone]

4. They can always collaborate with India

under the new US-India Nuclear Cooperation Treaty.