2. OVERVIEW OF ACTIVITIES: Silex is a materials technology company developing the following two materials sets: • Isotopically Engineered Materials (The SILEX Technology – uranium, silicon, oxygen, carbon) • Band-Gap Engineered Materials (The Translucent Technology – solar, photonics, semiconductors, thermoelectrics). These materials are being developed for application to two industry sectors: ⇒ The Alternative Energy Sector (Uranium Enrichment, Solar Energy, Thermoelectric Energy) ⇒ The Semiconductor & Photonics Sector (Silicon Photonics / Laser, Advanced Semiconductor Materials). Advanced materials are proving to be of pivotal importance in both the Alternative Energy and Semiconductor/Photonics markets. Future progress in these industries is fundamentally dependent on materials innovation. We believe the initiatives currently underway at Silex and Translucent have the potential to satisfy several key requirements of such materials. 3. ALTERNATIVE ENERGY PROJECTS 3.1 The Uranium Enrichment Project (i) Market Perspectives & Demand for Carbon-free Energy With the need to reduce fossil fuel consumption becoming more urgent in the face of global climate change, the tide has turned in favour of increasing utilization of nuclear power worldwide, as evidenced by several recent international studies[1]. This in turn will give rise to increasing demand for nuclear fuel services, including uranium enrichment. World Nuclear Association data[2] indicates steadily increasing demand for enriched uranium in the short term and accelerating demand in the medium to long term. Additionally, a unique situation exists in the enrichment industry on the supply side, whereby up to 40% of the current supply base[3] may not be available beyond 2013. Even with the construction of planned new centrifuge capacity, there could be a significant enrichment supply deficit in the 2015 time-frame and beyond. This represents a potential window of opportunity for the timely deployment of SILEX Technology. In light of this opportunity, GE should remain highly motivated to commercialise the SILEX Technology as early as possible. (ii) The Silex – General Electric Agreement Closing The Silex-GE Agreement signed in May 2006 was subject to US Government approval which was received on 4 October 2006. This approval was necessary to ensure the appropriate safeguards and security measures are in place to transfer the technology to the US and to undertake its deployment in the US. After receipt of the approval, GE and Silex conducted a closing in accordance with the agreement, through which Silex received a further US$15 million in addition to the US$5M payment received in June. - 3 - (iii) The Test Loop Program – Wilmington, North Carolina Since the receipt of US Government approval in October 2006, there has been a rapid acceleration of Silex activities to support the Test Loop Program. The major accomplishments to date include the following: • The SILEX uranium enrichment test facilities at Lucas Heights have been decommissioned. • Equipment to be re-deployed in the Test Loop Program is in the process of being shipped to GE’s existing nuclear facilities in Wilmington, North Carolina. • A team of 12 key Silex staff, including scientists and engineers, are in the process of re-locating to Wilmington to participate in the Test Loop Program. • A major contract to develop Test Loop laser equipment was recently awarded to a large US defense contractor. 3.2 Ultra-High Efficiency Solar Energy Cells (i) Overview During the previous reporting period, Palo Alto based subsidiary Translucent Inc announced a breakthrough with the potential application of variants of its unique patented photonics and semiconductor materials to Solar Energy conversion (refer ASX release 6 June 2006). With ever-increasing interest in Solar Energy world-wide, this is an important development with considerable commercial potential. However, whilst the Solar Energy industry undergoes unprecedented expansion, widespread utilization of Solar Energy technology has been hampered by inherently low efficiencies and high costs relative to conventional energy sources. Translucent’s solar energy materials have the potential to significantly improve efficiency and drive costs lower. Over the past three decades, the solar industry has been based almost entirely on crystalline silicon wafer ‘single-junction’ technology, with conversion efficiency in commercial modules inherently limited to approximately 20%. Over recent years there has been a move towards lower production costs via alternative ‘thin film’ solar technologies, however silicon based solar still accounts for around 93% of today’s market[4]. Although thin film technologies offer lower production costs, their singlejunction conversion efficiencies are generally lower (in the order of 10~15%), and their large scale deployment is still limited by uncertainties such as long term degradation and availability of materials (Indium and Tellurium), resulting in limited up-take of these technologies to date. By contrast, Translucent’s approach to solar is to bring new ‘multiple-junction’ thin film materials to the industry which have the potential to significantly increase conversion efficiency (perhaps by a factor of 2 or more) without increasing production costs (possibly with a reduction in costs). Translucent’s new solar materials, which were spawned out of its photonics materials project, have not previously been considered for application to solar energy conversion. If successfully deployed, these materials could represent a revolution, rather than an evolution, in solar technology. With these factors in mind, Translucent has elevated its solar project to highest priority with a view to achieving industry validation of solar cell prototypes in the next 6~9 months. - 4 - (ii) Solar Cell Project Status and Plans Proof-of-concept for Translucent’s solar energy conversion material has already been demonstrated with narrowband photo-electric conversion. Current activities in the solar project are continuing to focus on producing sets of prototype cells for third party testing and industry validation. In order to facilitate this work efficiently, an industrycompatible standard process module has been constructed at the Company’s Palo Alto laboratory, and will soon be commissioned. Broad-spectrum solar cell prototypes will then be produced and optimised in the mid year timeframe, with the aim of having cell performance tested and validated by third parties most likely in the third quarter of 2007. Depending on the outcome of the validation process, a pilot program for a solar cell production line is planned for commencement in the second half of 2007, with initial production from the pilot line expected to commence sometime in 2008. Ideally, this might involve collaboration with an existing commercial solar manufacturer to reduce time to market. The objective of the pilot production program will be to demonstrate the scalability of the manufacturing process and confirm the economics of the technology. 4. PHOTONICS AND ADVANCED SEMICONDUCTOR MATERIALS 4.1 Silicon Photonics, Silicon Laser and Optical Interconnects Translucent’s ‘optical silicon’ invention is the original materials development project upon which the company was founded in 2001. The development of optically active silicon which is fully compatible with today’s silicon chip fabrication techniques has been a long held objective of the semiconductor industry, and is becoming ever more critical to the continued progress of the silicon chip industry according to Moore’s Law. In particular, the development of a silicon laser and optical amplifier (both requiring optical gain) and silicon optical interconnects scaleable to current and future nanotechnology nodes is of fundamental importance to such progress. We believe Translucent’s optical silicon project is at the forefront of this field, and is moving steadily towards achieving a complete materials solution for full opto-electronic integration in the silicon CMOS industry. The Translucent silicon project is part of the Electronics and Photonics Integrated Circuits (EPIC) Program funded by the US Defense Advanced Research Project Agency (DARPA). Under the DARPA Contract which commenced in January 2005, Translucent is funded to develop proprietary silicon-based optical gain materials and devices as part of the broader EPIC Program, details of which can be found at: www.darpa.mil/mto/epic/. Translucent is currently proceeding with Phase II milestones in this project, which will result in the demonstration of an electrically driven Silicon Optical Amplifier (SOA) prototype. The SOA device will potentially be used in CMOS compatible silicon-based optical interconnects and gain elements for planar lightwave circuits. As part of the DARPA EPIC program, Translucent is also collaborating with the Micro and Nano- Photonics Research Group (Painter Lab) at the California Institute of Technology (Caltech). The Caltech Painter Lab (refer to link: http://copilot.caltech.edu) is integrating Translucent’s optically active materials into their state-of-the-art optical microdisc resonators. This effort will potentially result in accelerated demonstration of optical amplifier and laser devices suitable for optical signal processing in late 2007. - 5 - 4.2 Advanced Electronic Materials – High-k and SOI Translucent’s silicon-based Advanced Electronic Materials (AEM’s) are being developed to address key issues that have been identified by the International Technology Roadmap for Semiconductors (ITRS) and International Sematech (the world’s leading semiconductor industry organisations) as future technology roadblocks to achieving roadmap targets (essentially the continuation of Moore’s Law). In particular, the Company is targeting applications requiring Silicon-on-Insulator (SOI) substrates and ‘high-k’ dielectric materials. The semiconductor industry is seeking a suitable ‘high-k’ material to address the well known issue of ‘transistor gate leakage’, a major source of excessive power consumption in silicon chips, at the 45nm semiconductor technology node and beyond. Recently there have been disclosures by both Intel and IBM[5] of high-k solutions for the 45nm node. However it is not clear whether these solutions will be applicable to nodes beyond 45nm. In any case, Translucent will continue the development of its novel high-k material, for upcoming technology nodes. Similarly, an ultra-thin SOI material which is scalable beyond the 45nm node is required to address ‘body leakage’ in silicon chips, that is, electrical current leakage from the device layer to the wafer substrate which also causes excessive power consumption and heat build-up. Although material solutions may be available for the 45nm node, we believe Translucent’s SOI and High-k materials will prove successful in addressing these issues beyond the 45nm node. In addition to high-k and SOI applications, Translucent’s Advanced Electronic Materials have been the subject of negotiations concerning a third potential semiconductor application in recent months. This application was brought to our attention through the enquiries of a major chip manufacturer, however the negotiations have not been successful in reaching agreement on commercial terms. Regardless of this, these discussions confirm our view that Translucent’s innovative materials have the potential to solve several key issues confronting the semiconductor industry today. Whilst the Translucent team will focus primarily on the solar project in the near term, efforts in the SOI/high-k materials project will continue in conjunction with the Saraswat Group in the Integrated Circuits Laboratory at Stanford University. The timeline for this project will be reviewed after an assessment of the recent industry developments noted above. 5. FIBERBYTE Fiberbyte is an Adelaide-based subsidiary (90% owned by Silex) developing novel electronics equipment for the Data Acquisition (DAQ) and Electronics Instrumentation industries, incorporating its proprietary USB-inSync™ technology. In essence, Fiberbyte’s USB-inSync™ technology transforms the ubiquitous USB connection bus from a ‘dumb’ connection to a ‘smart’, more powerful and synchronous bus with greatly improved capabilities and many more potential applications. The initial target market for this technology is the PC/laptop-based DAQ industry, estimated to be worth in excess of US$100M p.a. and growing. Additional larger markets have been targeted for application of USB-inSync™ technology, in particular, the Test and Measurement (T&M) instrumentation market. Fiberbyte recently released its second commercial product range, and the third is soon to be released (refer Fiberbyte website: www.fiberbyte.com), after which Fiberbyte will resume marketing activities. Meanwhile, discussions with several major commercial entities in the T&M and DAQ markets are evolving, with the aim of forming strategic partnerships to accelerate adoption of USB-inSync™ technology in key target markets. - 6 - Further information on the Company’s activities can be found on the Silex website: www.silex.com.au or by contacting the persons listed below. Contacts: Dr Michael Goldsworthy (02) 9532 1331 Mr Chris Wilks (02) 9855 5404
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