the australian 14th november

Nuclear power on wayto winning the greens November 12, 2009 12:00AM Silex Systems (SLX) $6.63

IN the 1970s, no self-respecting hippy's Kombie van would leave the commune without a flower-power decal, a peace logo and a triangular "solar not nuclear" sticker.

The "solar not nuclear" message was based on the naive notion the sun's rays could replace the output of a nuclear power station. But with dirty coal replacing uranium as the bogyman du jour, the two energy sources are no longer mutually incompatible to some (certainly not all) of the most ardent greens.

In this vein, don't be surprised to see the Woodstock generation slipping Silex Systems into their ethical investments portfolio and plonking "solar and nuclear" stickers on their 1976 Volvos.

On the nuclear side, Silex holds the rights to a uranium-enrichment technology that is cheaper and more efficient.

Criterion's dubious credentials don't include a nuclear physics degree, so we'll put the technology to one side. The real judge is a business venture called GLE, which consists of Cameco (the world's biggest uranium producer), General Electric and Hitachi.

GLE will decide on commercialising the technology by Christmas. GLE plans to build its own facility, generating royalties to Silex of 7-12 per cent. ABN Amro Morgan's Scott Power estimates a $53 million royalty payment in 2014, rising to $300m in 2018 (presuming a 7 per cent royalty).

But Silex's short-term utterances have been more about the solar side as it ramps us production of its next-gen solar cells.

Silex last week said it would re-start its Sydney Olympic Park manufacturing plant, previously owned by BP Solar, thus installing Silex as the only domestic solar-panel maker. Initially, Silex will produce enough panels to produce 50 megawatts, with the capacity to expand to 250MW (about the size of a small power station).

Silex expects sales to start in the March quarter (Power forecasts revenues of $30m a year from 2011).

Solar industry conditions have subdued of late because of chopping-and-changing government policies on rebates, but Silex notes the first sales will coincide with the NSW Solar Bonus Scheme, which includes a highly favourable feed-in tariff regime by which householders are paid 60c per kilowatt hour for electricity fed back into the grid (this is more than double what consumers pay for peak-rate power). Silex CEO Michael Goldworthy says the solar industry went "ballistic" in Germany and Spain after a similar regime was introduced. "Drive along a road in Germany and there's house after house with solar panels -- and it's not even very sunny," he says.

Regrettably for bargain hunters, Silex commands a $975m market cap. The horror scenario (nuclear meltdown aside) is that GLE says no. We gather that's highly unlikely, as the method has been in gestation for 20 years. A more likely scenario is that the revenue timetable slips.

"But if a world-class enrichment technology has been endorsed by a major player, the stock is worth a lot more than $1 billion," Power says.

Criterion has been burnt by technology companies, which involve a leap of faith for non-Ziggy Switkowskis.

We cautiously ascribe a speculative buy. GLE's assent should add another dollar or two to the share price. After that, perhaps it's time to leave the love-in.


http://m.theaustralian.com.au/OpinionNews/...01B749A71BBDBDA