Centrus Energy Corp. (LEU) Earnings Call Transcript & Summary

All right. Hey, everyone. Marc Bianchi here from the research team at TD Cowen. We're excited to be joined by Dan Poneman, who's CEO of Centrus, which Dan will explain. He has involved in enrichment and the future of enrichment, if we'll call it that, with HALEU. But Dan, maybe before we get into all the questions I've got, could you just give us a quick introduction to Centrus and without getting into too much detail because we'll get into it later, but just like the HALEU and LEU opportunities that you have.

Sure. I'll do this fast. For those of you who may not have heard of Centrus, you perhaps heard of our grandfather, which is the Manhattan Project. Centrus is literally the direct descendant of the Manhattan Project. For those of you who watched the movie Oppenheimer, you will have seen in Oak Ridge Tennessee, they were filling a ball full of marbles, well, that's what we do, right? We enrich uranium, the technology was invented in the Manhattan Project at Oak Ridge. We still have our manufacturing facility in Oak Ridge, Tennessee. After the war ended, the Manhattan Project became the Atomic Energy Commission, that became the Department of Energy, and then the United States in 1998 write a book about it someday, became the only country in the world to privatize this technology, which can be used to make nuclear weapons. And it privatized under the name of U.S. Enrichment Corporation, long story. But after Fukushima crushed the market, the company went through Chapter 11. I came in to try to turn it around. Turning it around and became profitable. And then this will segue to Marc's second question. We got a cost share contract from the U.S. Department of Energy to build most advanced centrifuges in the world, and we have now completed that cascade, 16 machines. They're about to start operating next week actually in Piketon, Ohio. This will be the first new U.S. production from a U.S. technology enrichment plant to begin production since 1954. And what are we going to make? We're going to make a fancy new kind of fuel that's called high-assay, low-enriched uranium. Here's a nickel primer on enrichment. You can think like alcohol proof. But you can pull uranium out of the ground [Audio Gap] It's not the one you want. You want the 0.7% [Audio Gap] uranium 235 [Audio Gap] which is famous because it splits more easily and can underwrite circumstances, sustain a chain reaction and release heat. Now if you crank up the proof of this whiskey, so to speak, from the 0.7% found in nature to 4% or 5%, that will be good enough to generate steam and all 93 reactors now operating in the United States use what we call low-enriched uranium. The same technology that cranks it up in concentration of 4% or 5%, you keep going. You can get all the way up to 90%. And now you're back at the Manhattan Project and a [indiscernible] bomb or a reactor that's so strong and powerful in a compact form that you can fit a reactor onto a boat like a submarine or a carrier. So what's the difference between low- and high-enriched uranium? Well, legally, it's 20%. We don't have time to go into the wise in the wear force, but that's the legal limit between low and high. So if I'm Bill Gates, say, and I want to get a fancy new reactor that's got all kinds of performance enhancements, but I don't want to risk bombs getting built or all the regulations that go with that dangerous level of enrichment, I go just shy of 20%, 19.75%. Centrus Energy Corp. has the only Nuclear Regulatory Commission license to make that very special kind of fuel, which we call high-assay, low-enriched uranium. And for people who have time limitations, we shortened that to HALEU. And so up until [Audio Gap] about 3:00 p.m. on February 24, 2022, everybody in the world thought they were going to get HALEU from the only commercial source, which happens to be Russia, and as of 25, nobody wants to get it from there. And so we are right front and center, super excited. Next week, we're going to start to producing enriched uranium in Southern Ohio because we ship the parts from Oak Ridge, Tennessee to the plant in Piketon, Ohio, that is the size of the Pentagon. And the good news is not only will we be producing but this thing is like infinitely scale -- I should say infinitely, it's scalable to a huge degree, the building size there is about the same square foot as the Pentagon. We could put thousands of machines in where we now just have 16. So Marc that's a brief primer.

Yes, good one. So we've got about 15 minutes left. These are short sessions. I want to talk quickly about your LEU business and opportunity. So tell us quickly, what's SWU and explain kind of the supply-demand dynamic for low enriched globally and the impact of this Russian situation?

Yes, I'll be [indiscernible] since we don't have much time. A SWU is simply the amount of effort that is required to raise enrichment from 1 percentage assay to another percentage assay. You can't hold the SWU in your hand. It's a measurement of work in a sense. And so it's a weird unit of account, but that's how enrichment typically has been measured. Here's the problem. When -- basically, for a lot of reasons, the United States fell from the largest export or the largest importer of enrichment over many decades. Actually, Russia moved in to take our place and they did. Russia has 46% of the global supply capacity to enrich uranium. What does that mean? That means of the global demand, which is 48 million SWU per year without Russia being included [Audio Gap] If you took Russia out of the equation, the supply falls -- the supply to meet that 48 million SWU demand is 33 million. That shortfall of 15 million SWU is the same as 100% of U.S. consumption of enrichment per year. And add to that, Europe consumes 10 million or 11 million SWU of enrichment per year. So if people are and they are assiduously trying to get off of dependence on Russian imports of enriched uranium, there's a huge, I mean, ginormous market opportunity to fill that gap, and we are ambitious to play our role. We will not be the only ones in that space. Obviously, there are big incumbents already in place, but the world wants more suppliers, not just more supply. There's only 4 commercial suppliers and they're all state-owned enterprises in Russia, China and Europe, and we would like to add an American supplier to the mix.

And what is your opportunity there? Could you restart the assets you have? Do you have to build new assets? And what's the time line to hear more about that from you guys?

[Audio Gap] in place. You can see some of the pictures on our [indiscernible] New York time story. It's a vast [Audio Gap] building with -- how long would it take? Well, to make LEU, we could -- from an FID, get the first SWU off line in about 36 months. And once we get the supply chain up and running, we could be adding cascades, which is how we build out in a modular fashion. First, it will take 6 months for the second cascade, but quickly, we get down to 2 months per additional cascade. Each cascade has 120 [Audio Gap] once we get going.

You might have -- you broke up for me. I don't know if it's my -- on my side or it's on your side. But maybe what would be good if you could just review the time line when we would know about your ability or decision to move forward with that? Like what are the chips that need to fall?

There's -- for the LEU -- I got to distinguish. The LEU opportunity is different from the HALEU opportunity. So you asked about LEU, so I'll answer LEU. We need basically two things. Number one, every enrichment plant in the history of the world has been bought and paid for by governments. No -- as I said before, no other country ever privatized uranium enrichment. So we will need to get onto the playing field with these fully bought and paid for facilities, fully amortized by foreign governments, we need a government contribution. The good news is, if you saw in the House, they passed the House Appropriation Committee at $2.4 billion mark for enrichment over 3 years. The Senate has had legislation that had numbers up to $3.5 billion. It's not in there now, but they did pass 96 to 3 of the Nuclear Fuel Security Act. So there's strong support on both sides of the hill, on both sides of the aisle. So those are the kind of numbers that we need from the government. And the second thing we need is we need long-term offtake from creditworthy offtakers. So you would imagine all of the major U.S. utilities that have fleets of reactors would be people we would be talking to. And so as soon as we get those two things, this -- because there is a known market of known size with a very well-heeled big balance sheet, Moody's rated offtakers in the form of big U.S. utilities, this is a very financeable deal. Once we get those two pieces in place, which is a commitment by the government to do their part. It's got to be a public-private partnership and then some level of support from the market in terms of utility offtake.

And that $2.4 billion House mark and whatever we'll see what happens with the Senate, is that specifically low enriched? Or could that cross over between any kind of enrichment?

That would cover both LEU and HALEU. But our machines can do either and both, right? Our license goes up to 20%. But obviously, that includes 4% or 5%. So we can make either or both LEU and/or HALEU.

I think you reviewed this before, but it might have frozen. Just the time line now switching over to the HALEU program, just you've got the -- I guess, the pilot [Audio Gap]

Yes, I'm sorry [Audio Gap]. Yes, very quickly, from a final investment decision, 42 months later, we can add a cascade of 120 machines. That cascade would produce 6 metric tons of HALEU based on 4.95% feedstock into the cascades. After that, the second cascade would follow 6 months later. And then quickly, we cycle to a 2-month build [Audio Gap] per cascade because the supply chain would be up and running. It actually is a little shorter to start making LEU because we already have a lot of designs -- design work done. So our first shoot come off the line for an LEU cascade in 36 months instead of 42 months.

Got it. Got it. Okay. Great. And you have the only NRC license for HALEU. How hard is it for somebody to get a license? What should we think about the competitive positioning here with that license?

I would say [Audio Gap] letters why, which stands and tell you exactly how long, but you can think in terms of [Audio Gap] say at least 2 or 3 years. So we have a significant head start. And of course, you have to start from somewhere, and you can read the trade announcements as well as I have. But a lot of the incumbents, unlike us, we're scrappy and small. We got to be aggressive. And they've got very large and attractive EBITDAs on their existing business. And so -- and they're run by governments. So I think we have a number of advantages in terms of being able to move quickly.