US is enriching for Silex

The catalyst for 1999's big rise was a difficult-to-explain piece of rocket science called Separation of Isotopes by Laser Excitation. It may sound like the stuff of boring high school physics lectures but it's also highly commercial as well.

Physics revisited

The 'separation' part of Silex's know-how involves separating one different type of a particular chemical element from another by provoking a chemical reaction with lasers. Silex reckons this is just the thing for cheaply and efficiently 'enriching' uranium. That element generally comes in two isotopes, U-235 and U-238. The latter constitutes 0.7% of the total in a pound of 'yellowcake' but before it can go into a nuclear power plant it needs to be 3%-5% of the total.

That would be all academic were it not for the fact that the US Enrichment Corporation (USEC), an American company which enriches more than a third of the world's uranium, has been looking for a way to cut its cost of production by switching over to new Silex-style technology. USEC started looking at Silex and a competing technology in late 1996. In 1999 the competing technology was dropped, leaving Silex as the sole contender. In January 2000 the first milestone was successfully achieved, with $5m being paid to Silex. USEC will pay two further milestone payments of US$13m over the next three to four years, provided its program targets are met. But the big money rolls in when USEC switches to the new technology, with a royalty of 5% - 8.75% of gross revenues derived from the technology paid to Silex. USEC's gross revenues are currently in the range of approximately $1.3 - $1.5 billion p.a. That means between $65m and $131m will be Silex's due when that happy day arrives. Meanwhile the company's also working on applications for the technology in enriching silicon for semiconductors. We rate Silex a SPECULATIVE BUY.