USEC, DOE making progress on commitment for centrifuge plant loan

Bethesda, Md., February 23, 2011 — USEC Inc. reported on the progress of ongoing negotiations with the Department of Energy’s 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 CEO. “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 and Wilcox and Toshiba Corp. 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 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 about $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.

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 Corp. and Babcock and Wilcox Investment Co. 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 about $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 about 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 about 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 about 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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