Ann: Silex and Cameco sign new Term Sheet with GE-Hitachi, page-26

Scaggs - this is an issue I tried to cover in my post here.  Since that time I see that I made a mistake in that the 2018 SLX annual report states that:

""Despite concerted efforts to restructure licensee GLE, on 12 June 2018 Silex announced that it had terminated the Term Sheetwith GE-Hitachi Nuclear Energy (GEH) with regard to Silex potentially acquiring GEH’s 76% interest in GLE. The overarchingfactor which contributed to the decision to terminate the Term Sheet is the current negative state of the global nuclear fuelmarkets. As a result of termination of the Term Sheet, Silex’s funding obligations for GLE’s operations (approximately $0.6m permonth) ceased and development activities at GLE’s Wilmington Test Loop facility were suspended"

This basically says that GEH's (76%) of the costs was US$600,000/month prior to 12 June 2018; my mistake was assuming this was the whole of the GLE Wilmington costs but of course this is NOT taking into account the part paid by Cameco (i.e 24%) so the actual monthly cost of Wilmington GLE prior to 12 June 2018 was US$600,000/0.76 which is about US$800,000/month.   What appears to have happened is that since September 2018 monthly GLE costs have dropped to US$300,000/month; on top of this are the Lucas Heights rent and development costs (not including SLX management costs and overheads of about A$210,000/month) which appear to be currently running at about A$460,000/month.  We can expect that going forward from signature of the term sheet (i.e 1 May 2019) the Lucas Heights and Wilmington costs will be paid by GLE; so the ongoing GLE running costs will be around A$460k/month + US$300k/month (i.e A$430,000/month) = A$900,000/month.   Of this Cameco will pay 49% so the ongoing costs of GLE to SLX will be about the same as current (i.e A$460k/month); in conclusion NO CHANGE

The issue is how sustainable are the US$300k/month cost at Wilmington; I would guess that this covers little more than Care and maintenance expenses for the test loop but this passes control of GLE (which includes the test loop, Wilmington enrichment licence and strategic location next to GNF fuel fabrication plant) to SLX and gives a breather until Cameco (and SLX) consider that the uranium market has improved sufficiently to proceed with Paducah and/or the LIS prototype (prior to committing to Paducah). 

The LIS prototype means that the laser development (currently at Lucas Heights) is integrated with the separator development in Wilmington and will no doubt result in an increase in GLE's outgoings.  In addition the FEED (Front End Engineering Design) and FID (Final Investment Decision) for Paducah will (in my estimation) cost about US$100m.  For this work SLX will need to sell down its 51% to 25% and hope that it can fund the increased expenditure from the proceeds of this sell down.  Another big concern of mine is "what has happened to the Wilmington team since June 2018?".  If they are still available then GLE may need to increase its expenditure in the short term (at a cost to SLX & Cameco) to keep the core team together so as to build the LIS prototype (i.e integration of Lucas heights Lasers and Wilmington separator and UF₆ handling equipment at the test loop site).  The other advantage of getting control of GLE is that we (SLX and Cameco) can actively pursue developments such as HALEU and potential sources of DoE funding which appear to have lapsed since about 2014.