The U.S. and Russian governments approved the plan. USEC said a financial boost should come during the first half of the year.
By Joe Walker firstname.lastname@example.org
The company announced Wednesday that the U.S. and Russian governments have approved the deal, which will take effect in January. USEC said the financial boost should be felt starting in the first half of the year.
"Resolving price issues with Russia for about half our product supply is a key step in strengthening our core business," said William Timbers, USEC president and chief executive officer.
He said the company now expects to earn "at the high end" of a range of $9 million to $12 million this fiscal year, ending June 30, and roughly the same next year. That is a significant drop from $41 million last fiscal year, which was down more than 60 percent from the previous year.
USEC is the middleman for sales of the Russian material, accounting for about half the enriched uranium used by U.S. nuclear plants. About one-third comes from the Paducah plant and the rest from European competitors.
A supplier of about 30 percent of the nation's nuclear fuel, the company says the cheaper Russian uranium helps offset the higher-cost uranium enriched in Paducah. USEC will pay a fixed price of $90.42 per unit of enriched uranium this year, about $15 less than plant-produced uranium.
The announcement came a day after USEC and the Department of Energy disclosed that they had signed an agreement allowing the firm to remain the exclusive buyer of the Russian material. In return, USEC promised to run the outdated Paducah plant — the nation's only uranium-enrichment facility — until at least 2010 while it deploys more efficient gas centrifuge technology at either Paducah or Piketon, Ohio.
News of the last two days prompted Standard and Poor's to improve its USEC outlook from negative to stable. It reaffirmed USEC's BB, or junk-bond, credit rating, noting the company had $500 million in debt as of March 31.
"Although profitability measures are expected to remain weak, Standard and Poor's expects that these events will allow USEC's financial performance to be relatively stable over the next few years," S&P credit analyst Scott Sprinzen said. "USEC's large cash position, positive cash flow generation (about $200 million) and available bank credit afford adequate downside protection."
USEC spokeswoman Elizabeth Stuckle said the developments "are very positive steps" for the company and its workers, as well as the Energy Department and nuclear industry. She said congressional and state officials, including U.S. Sens. Jim Bunning and Mitch McConnell, 1st District U.S. Rep. Ed Whitfield and Gov. Paul Patton, "were instrumental in securing these two successes."
Leon Owens, president of the plant's energy workers' union, said the agreement and Russian deal are vital to the workers, nearly half of whom are union members.
"We're by no means under the false assumption that the gaseous diffusion technology will continue for an undetermined period of time," he said. "The best case is that prior to full deployment of gas centrifuge, Paducah is still running and at levels needed for a significant number of workers at the plant."
Nuclear power plants, including some USEC customers, fought the company's remaining as sole agent for the Russian uranium at cheaper prices. They argued that doing so would give USEC, their main supplier, too much price control. Some lobbied to replace or join USEC as agent.
Last year, USEC won a federal trade battle alleging that Urenco, a competing European enrichment firm, was undercutting its prices via governmental subsidies. Urenco has now joined Exelon and other USEC customers in forming a group that plans to build a centrifuge plant about five years sooner than USEC. Paducah is among eight finalist cities, and a site decision is expected by the end of the month.
Among the terms of the Russian agreement:
A commitment through 2013 to buy at least 5.5 million units annually, derived from about 30 metric tons of highly enriched uranium, for a total purchase of 500 metric tons.
A market-based formula resulting in long-term and spot-price discounts.
An expectation that Russia will receive at least $7.5 billion over the 20-year nuclear disarmament agreement. In the eight years since the program began, USEC has paid Russia nearly $2.5 billion for the equivalent of 6,000 nuclear warheads. The total deal would eliminate about about 20,000 warheads.