USEC case
USEC Case
Case Analysis
In response to the Energy Policy Act of 1992, the United States Enrichment Corporation (USEC) was created to privatize uranium enrichment for civilian use (Wikipedia). In 1998, USEC went public, and has been operating as a leading global energy supplier of enriched uranium fuel for commercial nuclear power plants. The following report details USEC’s opportunity to embark on a massive capital-expenditure project known as the American Centrifuge Project (ACP). Currently, USEC is utilizing gas-diffusion technology to enrich uranium. 100 million dollars have already been invested with the Department of Energy (DOE) in the development of the ACP technology, and a balance of $1.6 billion would be required to execute the project. While the investment cost is significant, the ACP would provide distinct advantages for USEC. This new technology would allow USEC to leapfrog over the current technology of its competitors, while simultaneously reducing current enrichment costs by 50%. After analyzing the financials of this opportunity, we recommend that USEC proceed with development of the ACP. The following report will detail our specific calculations and conclusions.
As of quarter two 2006, Paducah was producing at its capacity of 3.5M Separative Working Units (SWU’s) annually. The cost to produce 1 SWU in 2006 will be $43.26 (increasing annually with inflation). Our assumption is that USEC will not proceed with the M2M purchase incentive detailed in the case; instead, they will purchase raw uranium as needed at market value. USEC is responsible for $8M annually to the DOE for the lease of the Paducah plant and $30 million is spent annually on capital expenditures; both of which are expected to increase with inflation. Furthermore, depreciation is expected to approximate capital expenditures for the near future.
Paducah will begin to reduce production levels in 2011. Only 1M SWU’s will be produced at Paducah in 2011, and all production will
Case Analysis
In response to the Energy Policy Act of 1992, the United States Enrichment Corporation (USEC) was created to privatize uranium enrichment for civilian use (Wikipedia). In 1998, USEC went public, and has been operating as a leading global energy supplier of enriched uranium fuel for commercial nuclear power plants. The following report details USEC’s opportunity to embark on a massive capital-expenditure project known as the American Centrifuge Project (ACP). Currently, USEC is utilizing gas-diffusion technology to enrich uranium. 100 million dollars have already been invested with the Department of Energy (DOE) in the development of the ACP technology, and a balance of $1.6 billion would be required to execute the project. While the investment cost is significant, the ACP would provide distinct advantages for USEC. This new technology would allow USEC to leapfrog over the current technology of its competitors, while simultaneously reducing current enrichment costs by 50%. After analyzing the financials of this opportunity, we recommend that USEC proceed with development of the ACP. The following report will detail our specific calculations and conclusions.
As of quarter two 2006, Paducah was producing at its capacity of 3.5M Separative Working Units (SWU’s) annually. The cost to produce 1 SWU in 2006 will be $43.26 (increasing annually with inflation). Our assumption is that USEC will not proceed with the M2M purchase incentive detailed in the case; instead, they will purchase raw uranium as needed at market value. USEC is responsible for $8M annually to the DOE for the lease of the Paducah plant and $30 million is spent annually on capital expenditures; both of which are expected to increase with inflation. Furthermore, depreciation is expected to approximate capital expenditures for the near future.
Paducah will begin to reduce production levels in 2011. Only 1M SWU’s will be produced at Paducah in 2011, and all production will