Centrus Busts a Move in Nuclear Fuel Market

The most recent post “Uranium Import Brake” highlighted U.S. politicians’ efforts to give the domestic uranium industry a boost.  Centrus Energy Corporation (LEU:  Nasdaq) is one of the companies that is expected to benefit from proposed restrictions on imports of Russian uranium.  In addition to private customers Centrus contracts with the U.S. Department of Energy to enrich converted uranium components.  

Its stock symbol LEU coincides with Centrus’ primary product, low-enriched uranium, a component used in the production of nuclear fuel for power reactors.  In the twelve months ending June 2020, the company reported $281.1 million in total revenue, providing $57.2 million or $5.88 per share in net earnings.  In the same time period, Centrus squeezed $48 million in operating cash flow out of sales.  Ample cash flow generation has left the company with a strong balance sheet plumped up by $199 million in cash resources.  Centrus has no debt.

In October 2019, Centrus maneuvered onto the leading edge of nuclear fuel development with a three-year cost-share contract with the U.S. Department of Energy.  Centrus is to produce an advanced nuclear fuel material called high-assay, low-enriched uranium (HALEU) for use in research and development projects.  The DOE has pledged to reimburse Centrus for 80% of its costs up to $115 million. 

HALEU is currently not available for commercial purchase.  It is expected to improve nuclear reactor economics that could reduce operating costs for electric utilities.  HALEU is also thought to have other advantages over conventional LEU:  1) better safety, 2) lower waste and 3) less chance for nuclear proliferation.  The U.S. Nuclear Industry Council has identified the availability of advanced fuels as one of the most critical challenges faced by the nuclear power industry.     

More recently in April 2020, Centrus signed a cooperative agreement with the privately-held Advanced Reactor Concepts (ARC) to produce HALEU for ARC’s sodium-cooled fast reactor design.  There are still some years to go before ARC brings its new reactor technology to the commercial market.  Centrus aims to win a purchase order to supply ARC with all the nuclear fuel components it needs.

Centrus has not put all its eggs in one basket.  In September 2020, TerraPower, a designer of advanced nuclear power reactors, announced plans to partner with Centrus to establish commercial-scale production capacity for HALEU.  TerraPower and its development partner GE Hitachi Nuclear Energy has put a proposal in front of the U.S. DOE Advanced Reactor Demonstration Program. 

Centrus got a good deal from the U.S. DOE with coverage of the majority of its HALEU development costs.  Nonetheless, management was not content with cost reimbursement alone.  In August 2020, the company raised $23.5 million in new capital through the sale of 2.35 million shares of common stock at $10.00 per share.  The money will help pay off preferred stock as well as support technology development.

Traders may be a little disappointed in the recent pullback in the LEU price.  The stock had traded to a high of $18.90 just a week before the common stock sale mentioned above.  Yet, the story is not over for Centrus.  With consistent profitability from a strong customer base and a series of promising new partnerships, Centrus appears poised to become a more significant player in the U.S. nuclear fuel market.

     

 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.