Silex basks in the afterglow

Laser technology company Silex Systems enjoyed its best gain in over 3½ years as the Paducah uranium enrichment plant took a big step forward to becoming a reality.

Laser technology company Silex Systems (SLX) enjoyed its best gain in over 3½ years as the Paducah uranium enrichment plant took a big step forward to becoming a reality.

The United States Department of Energy (DOE) is in exclusive talks with GE-Hitachi Global Laser Enrichment (GLE) to build the facility in Kentucky and Silex’s chief executive Michael Goldsworthy told Eureka Report that negotiations are expected to be completed in January next year.

The stock surged 19.5% to $2.39 in lunch time trade, but there is still plenty of room for Silex to climb given that joint-venture company GLE will pay a royalty of between 7% and 12% in perpetuity to Silex for using its laser system to enrich the nuclear fuel.

Details of the plant are still being worked through with DOE and GLE, but if the Paducah plant has a similar 6 million separative work unit (SWU) capacity to the proposed Wilmington facility that GLE is also looking to build, the upside is very material as Paducah alone could add $50 million to $86 million a year to Silex’s bottom line if we assumed no recovery in the depressed uranium market.

“The medium- and long-term outlook for uranium and enrichment look very positive with global nuclear expansion,” says Goldsworthy. “There’s going to be hundreds more reactors built over the next 20-years.”

GLE has not made a final decision on the Wilmington plant in North Carolina and sceptics doubt whether any of the enrichment plants will be built given poor demand for uranium in the wake of the Fukushima disaster.

If Paducah gets built, the DOE will supply uranium tails left over from previous enrichment activities using a more ineffective process to Silex’s laser. Silex notes that depending on the production rate (which will be worked out in negotiations), production from Paducah could match the world’s largest uranium mines with a 40 year operating life.

We have a favourable view on Silex, but the stock is a high-risk high-reward proposition. Silex is the best performing stock on the Uncapped 100 this afternoon.