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  • Hold by alpha (31/01/2024)
    • 75.00 +37.72% by 01/06/2024

    Centrus is a US based uranium supplier of LEU (>$225M) and technical services ($50M) with customer in the US, Asia and Europe. It is the only company licensed by the US Department of Energy to produce HALEU (20% U-235) required for Small Modular Reactors (SMRs).

    The company is valued at <20x PE TTM after Q3'23. My estimated earning for 2023 are $3.5/share (incl. $15M from pension deal) and $4-5/share in 2024 as a result from Phase 2 in the HALUE contract.

    Earnings are volatile and the investment is a high risk bet on a trend for the next 25 years supported by US National Security policy to turn the clock back 40 years! My thesis is that demand for HALUE and the general momentum in the nuclear energy market will support the share price going forward.

  • Business (6)
    • Global 'green' demand

      There are three trends supporting the growing need for green electricity in the future:

      • Replacement of fossil-fuels as source for 60% of electricity production.
      • Electrification as part of the green transition towards carbon-free energy.
      • Increasing electricity demand by a growing part of the worlds population.

      The demand for nuclear energy can be expected to double or quadruple in the next 10-20 years as part of the green transition. Globally new government initiatives and funds are made available to develop nuclear power facilities.

      Wind and solar will not be able to meet the demand for electricity and provide grid stability.

      Estimates are that the commercial HALEU market can grow from 'zero' to >$1B after 2030. Centrus has a strategic position as key-supplier in the HALEU supply-chain for commercial use. In the US competition could come from Urenco and potentially Orano (France), currently a key supplier to Centrus.

      UK government announced £300M investment in HALUE (2024-01-07).
      31/01/2024 by ALPHA
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    • Nuclear waste

      Spent nuclear fuel contains <5% high level radioactive waste that requires geological safe (underground) storage. 95% of the nuclear waste can be recycled into new fuel. HALEU can be produced from existing nuclear waste, which can be an energy source for many decades. The US and other countries currently do not recycle nuclear waste and use short-term storage.

      31/01/2024 by ALPHA
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    • HALEU

      New SMR's are gas-cooled, liquid metal, or molten salt, that often require HALEU (20% U-235).

      SMR's are factory produced nuclear power facilities. The CO2 foot-print is similar to other green energy sources (11-12gCO2e/kWh vs Hydro 24g, Solar 40-50g). Market expectations are that SMR's will come into production after 2030.

      Centrus operates the first facility licensed by the U.S. Nuclear Regulatory Commission for HALEU production. The company is contracted by the US Department of Energy (DOE) to deploy and operate AC100M centrifuges at the American Centrifuge Plant in Ohio. This facility is the only alternative in the world for HALEU from Russia.

      In 2024 Centrus is to delivery 900kg HALUE ordered by the DOE (est. $90M). More HALUE and capacity will be needed to support the 9 committed/ongoing SMR design projects. The DOE drafted an RfP for the purchase of 145 MTU in 10 years (est. value of almost $4B).

      TerraPower’s Natrium reactor and X-energy’s plants are expected to require 21 MTU over a three-year period. Centrus partners with Oklo and Terrapower to develop SMR facilities, capacity and nuclear fuel.

      HALUE prices are estimated to $25k/kgU. LEU (35 SWU) is the feed material for HALEU production (6 SWU) and a key component in the HALUE price. On a fuel cost level HALUE is competitive to other fuel alternatives like gas or coal.

      31/01/2024 by ALPHA
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    • LEU order-book

      In 2022 the company added $275M new sales for LEU to its $1B order-book with deliveries until the end of the decade (avg. $150M/year). The main suppliers to Centrus are TENEX (Russia) and Orano (France). Its market share of the global LEU market is less than 5% (of global 50 million SWU).

      31/01/2024 by ALPHA
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    • Regulated market moat

      Centrus owns the American Centrifuge technology and is the only company licensed to produce HALUE in this heavily regulated market. The only commercial enrichment facility for LEU in the US is operated by Urenco. The regulatory oversight and complex centrifuge technology provides moat that is not visible on the balance sheet. The required investment in technology, a safe facility and the regulatory process are hurdles for potential competitors (est $300-$500M CAPEX).

      31/01/2024 by ALPHA
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    • Strategy

      In the 2023 shareholders letter it states that the company signed purchase contracts at low rates which indicate margin improvements in the coming years.

      Centrus is currently mainly a broker in the supply chain and aims to expand its role in participation of global & geopolitical developments. It is well-positioned to play a larger role in the further nuclear energy market. Its strategy aligns with US National Security policy. The US allocates billions of dollars to stimulate the development of nuclear energy. Also several other countries start or plan new activities.

      The company has a first-mover advantage in the future HALUE market.

      31/01/2024 by ALPHA
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  • Financial (2)
    • Deferred revenue and margins

      Deferred revenue liability is 35% of the balance sheet. This can impact revenue to cash conversion and the gross profit margin. From the reporting it is not totally clear how the company is contractual exposed or hedged. Although, in the 2023 shareholder letter the CEO announced an improvement in margins.

      31/01/2024 by ALPHA
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    • Historic financial position

      Centrus is the successor to USEC that emerged from bankruptcy protection in 2014. Due to this history the company had preferred share, uncovered pension obligations and a negative equity value.

      Most of the issues on the balance sheet are resolved in 2023.

      31/01/2024 by ALPHA
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  • Risks (6)
    • US election 2024

      The US presidential election is a risk for the funding of HALUE development.

      01/02/2024 by ALPHA
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    • Sanctions / geopolitical

      Sanctions or other measures by the US, Russia or other governments that could disrupt the supply chain of uranium and LEU. In particular to obtain LEU under the supply contract with the Russian government-owned entity TENEX. In May '23 US imposed restrictions for Russian uranium/LEU import. And Russia has stopped shipments to the US. There is a risk that Centrus must purchase at high spot prices to meet customer demand.

      Currently Russia has 44% of the global uranium enrichment capacity, and the rest of the world does not have sufficient enrichment capacity to fuel nuclear power stations. Replacement of the Russian capacity is a potential catalyst for Centrus. The geopolitical situation could also become a business driver!

      31/01/2024 by ALPHA
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    • Equity deficit

      The company has an equity deficit due to accumulated losses from past operations. In the past years the deficit declined and the company is making progress towards a positive equity value latest in 2024.

      31/01/2024 by ALPHA
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    • Piketon facility lease

      Centrus has a lease agreement with the DOE for the Piketon facility and enrichment equipment. In the agreement the DOE is responsible for Deactivation and Decommission (D&D) which reduces liabilities. However the agreement limits control over the equipment, technology and future operations. The NRC HALUE license is for the Piketon facility and a termination of the lease would end the company's HALUE future!

      31/01/2024 by ALPHA
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    • Legal exposure

      Several court cases are ongoing in the US related to past operations (at the Portsmouth GDP in
      Piketon, Ohio).

      31/01/2024 by ALPHA
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    • TENEX

      The Russian TENEX is a major supplier of SWU to Centrus. Centrus typically supplies the uranium to TENEX in return for LEU after SWU. The company must purchase a minimal amount of SWU. The purchase obligation exceeds the Centrus order book and requires new sales.

      The supply contract is complex with major political risks that could have a major impact. Centrus has a similar supply contract until 2030 with French Orano that could also supply SWU.

      31/01/2024 by ALPHA
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