Australia | Sep 24 2012
– GLE recommended for laser uranium enrichment plant
– Silex enrichment technology to be deployed
– JP Morgan and RBS rate Silex as a Buy
By Chris Shaw
Technology developed by Silex Systems ((SLX)) is being used by Global Laser Enrichment (GLE), which is seeking to construct and operate a commercial laser uranium enrichment facility in North Carolina in the US.
JP Morgan points out Silex's laser-based enrichment technology is the only third generation technology of its type available and offers lower operating and capital construction costs compared to existing gas diffusion and centrifuge technologies.
The GLE project is likely to be developed in two stages, a test phase to verify performance and reliability, followed by a commercial scale plant construction phase. JP Morgan suggests a final decision by GLE on building a commercial scale plant may take a few months.
As noted by RBS Australia, The US Nuclear Regulatory Commission's Atomic Safety and Licensing Board (ASLB) has recommended GLE be issued a licence to develop the proposed plant. The formal announcement of the decision is expected in a few weeks.
This is a significant development for Silex, as the granting of this licence was a pre-condition to GLE deciding whether or not to commercialise Silex's technology. The ASLB decision improves the chances Silex's technology will be commercialised, especially given significant investment made in the technology over the past five years.
Silex has an exclusive global licence agreement with GLE, which means milestone payments and royalties are received for uranium enriched using Silex's technology. On the news, RBS Australia makes no changes to earnings forecasts for Silex. In earnings per share (EPS) terms, the broker expects results of minus 8c in FY13 and minus 6.9c in FY14.
JP Morgan is the other broker in the FNArena database to offer coverage on Silex and forecasts EPS of 1c in FY13 and minus 7c in FY14. While JP Morgan's earnings estimates are also unchanged on the news, the broker notes if the GLE consortium continues to proceed with construction of the plant it would likely trigger a $15 million milestone payment to Silex in the second half of FY13.
JP Morgan believes one condition of Silex's exclusive licensing agreement with GLE is a 'use it or lose it' clause. This means if GLE decides against commercialisation of Silex's technology within a reasonable time frame, the company would then be free to pursue partnerships with other major uranium enrichment players.
To account for an adjusted risk weighting for the business JP Morgan has lifted its price target to $5.00 from $4.75. RBS Australia's price target is unchanged at $5.12.
Both RBS and JP Morgan retain Buy ratings on Silex, JP Morgan seeing upside from the fact Silex has first mover advantage in the sector and approval for a plant using the company's technology has been received.
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