the american centrifuge plant
TRANSCRIPT
The American Centrifuge PlantgProject Overview and Site Tour
November 29, 2007
Topics and Presenters
J h W l h
p
Introduction John WelchPresident and Chief Executive Officer
Project OverviewPhil SewellSenior Vice PresidentjAmerican Centrifuge & Russian HEU
Machine Design & ManufacturingBob EbyDirectorTechnology & Process EngineeringTechnology & Process Engineering
Lead Cascade OperationsDan RogersGeneral ManagerAmerican Centrifuge Plant Operations
Cost, Schedule & Execution Vic LopianoVice PresidentAmerican Centrifuge
Conclusion John Welch
Page 1
Legal Notice
This presentation contains “forward-looking statements” – that is, statements related to future events. In thiscontext, forward-looking statements may address our expected future business and financial performance,and often contain words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “will” and otherwords of similar meaning Forward-looking statements by their nature address matters that are to differentwords of similar meaning. Forward looking statements by their nature address matters that are, to differentdegrees, uncertain. For USEC, particular risks and uncertainties that could cause our actual future resultsto differ materially from those expressed in our forward-looking statements include, but are not limited to:the success of the demonstration and deployment of our American Centrifuge technology including ourability to meet our performance targets, target cost estimate and schedule for the American Centrifuge Plantand our ability to secure required external financial support; the cost of electric power used at our gaseousdiffusion plant; our dependence on deliveries under the Russian Contract and on a single production facility;diffusion plant; our dependence on deliveries under the Russian Contract and on a single production facility;our inability under most existing long-term contracts to pass on to customers increases in SWU pricesunder the Russian Contract resulting from significant increases in market prices; changes in existingrestrictions on imports of Russian enriched uranium, including the imposition of duties on imports ofenriched uranium under the Russian Contract; the elimination of duties charged on imports of foreign-produced low enriched uranium; pricing trends in the uranium and enrichment markets and their impact ongour profitability; changes to, or termination of, our contracts with the U.S. government and changes in U.S.government priorities and the availability of government funding, including loan guarantees; the impact ofgovernment regulation; the outcome of legal proceedings and other contingencies (including lawsuits,government investigations or audits and government/regulatory and environmental remediation efforts); thecompetitive environment for our products and services; changes in the nuclear energy industry; and otherrisks and uncertainties discussed in our filings with the Securities and Exchange Commission, including ourrisks and uncertainties discussed in our filings with the Securities and Exchange Commission, including ourAnnual Report on Form 10-K and quarterly reports on Form 10-Q. We do not undertake to update ourforward-looking statements except as required by law.
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2007: A Year of Action and Risk Reduction
Date ActionFebruary Establish $2.3 billion target cost estimate for ACP
April NRC issues construction and operating license for ACP
May USEC begins ACP construction
June 5-year electric power purchase agreement signed with TVA that provides additional operational flexibility and underfeeding opportunity at Paducah
June USEC executes contracts with BWXT to replace Boeing on project after Boeing decided to cease Tennessee operations
August USEC executes contracts with Hexcel, ATK and Major ToolAugust USEC executes contracts with Hexcel, ATK and Major Tool
August Lead Cascade integrated test program begins at Piketon
September Common stock and convertible debt issued to fund ACP constructionSeptember Common stock and convertible debt issued to fund ACP construction
October USEC informs DOE that Lead Cascade operations meet milestone
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Project OverviewPhil SewellPhil Sewell
Senior Vice President
Expected to Provide Several Strategic Advantagesp g g
iLower Production Cost
iHigher Efficiency
0Uses approximately 95% less electricity than current gaseous diffusion technology
iHigher Efficiency
0≈ 350 SWU/machine/year0 Substantially more productive than competition
iSecurity of Supply
0Enhances long-term nuclear fuel supplyEnhances long term nuclear fuel supply0Supports national energy security 0Re-establishes an essential U.S. technology
iModular ExpansionModular Expansion
0Production can begin incrementally as machines are installed0Allows for potential future expansion beyond expected initial 3.8 million SWU
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Project is Based on a Solid Foundation
i USEC’s design takes advantage USEC’s American Centrifuge is based on the U S D t t f E ’ i i l
j
g gof >$3B investment by DOE
i DOE demonstrated 200 SWU/year
U.S. Department of Energy’s original centrifuges (pictured here), which operated in
the 1980s at the Piketon facility.
ymachines, and tested >300 SWU/year machines
i More than 1300 GCEP machines installed in Piketon between late-1984 and mid-1985, operating for about 1.2 million machine hoursmillion machine hours
i Prior to 1982, GCEP-scale prototype had accumulated over 10 millionhad accumulated over 10 million machine hours
Approximate Scale
Page 6
Approximate Scale
Three Distinct and Integrated Phases
Technology Demonstration and Commercial Plant Deployment
g
Demonstration Facility
Commercial Plant
– NRC license issued in April and construction began in May 2007Demonstration Facility
(Lead Cascade Test Program)
construction began in May 2007– Strategic suppliers preparing for
ramp-up in manufacturing– Expected initial capacity of ≈ 3.8
million SWU/yearM d l d l t h
– Prototype machines assembled and installed
– Closed-loop cascade testing d i A t 2007
– Modular deployment approach mitigates technology risk and enables potential cost and performance improvements
Centrifuge Testing
Individual full size machines built and tested
commenced in August 2007– Continue testing for extended
period at variety of operating conditions and configurations
– Individual full-size machines built and tested– Demonstrated machine performance of ≈350 SWU/yr in October 2006– Optimizing aspects of individual machine performance – Manufacturers educated on design, assembly and operation– Ongoing improvement to performance and costs
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g g p p
Project Organization
Senior Vice President
j g
Phil Sewell
Vice PresidentVi L iVic Lopiano
Regulatory & Quality Assurance
Pete MinerDirector Technology &
Process Engineering Commercial Plant EPC
Business Ops & Project ControlsLindsey Krause
Director
g gBob EbyDirector
American Centrifuge Plant Operations
Plant EPCJim BolonDirector
Centrifuge
Special ProjectsMario Robles
Director
Plant OperationsDan Rogers
General Manager
gManufacturingVernon Gordon
Director
T d ’ S k
Page 8
Today’s Speakers
Design & ManufacturingBob EbyBob Eby
Director, Technology & Process Engineering
What is a SWU?
i A Separative Work Unit (SWU) is a measure of the ff f 235separation effort required to produce a higher assay of U235
isotope in low enriched uranium
0 It is a single number that combines both the quantity andIt is a single number that combines both the quantity and enrichment level of product
i Typical rules of thumb
0 It takes 7 SWU to produce 1 kg of low enriched uranium (≈ 4.6%) from 9.4 kg of natural uranium
0 It takes ≈ 100,000 SWU to fuel a 1000-MWe reactor for a year
i As the cost of uranium increases, it is more economical to perform additional separative work from a given quantity of uranium
Nuclear fuel assembly
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How Does a Gas Centrifuge Work?
i Rotor, containing UF6 gas, spins at high speed Depleted
g
, g 6 g , p g pinside a vacuum casing
i Centrifugal force concentrates heavier U238
molecules at the outer wall and lighter U235
molecules toward rotor center
Depleted Stream (U238 )
FeedStream
(UF6 ) molecules toward rotor centeri Gas circulation carries product and tails to opposite
ends of the machinei Enrichment levels and capacity are increased by
ti t if i i d i ll l
(UF6 ) Enriched Stream
(U235 )
connecting centrifuges in series and in parallel, called a “cascade”
Illustrative ProductAll UF CascadeConfiguration
Product (Enriched
Uranium, 4.95%)
Feed
All UF6
Tails (Depleted
Uranium, ~0.3%)
Feed (Natural Uranium,
0.711%)
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= Individual Centrifuge, )
Comparison with Other Centrifuges in the World
SWU ∝ Length
SWU ∝ Velocity 4
RTM2DπSWU
22
2V)(ρ
2
-= M1 L
SWU ∝ Length
The American Centrifuge
European
Russian Centrifuge
EuropeanCentrifuge
Tenex ≈ 4 - 8 SWU TC12 ≈ 40- 45 SWU AC100 ≈ 350 SWU
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Competitor Centrifugesp g
Russian (Tenex)(≈ 4 - 8 SWU/yr)
European (TC-12)(≈ 40 - 45 SWU/yr)
S
Page 13
Approximate Scale
U.S. Government Centrifuge Performance
Advanced Gas Centrifuge (AGC)Oak Ridge, TN
Mac
hine
SWU
per
M
Gas Centrifuge Enrichment Plant (GCEP)Piketon, OHS
1960 1970 1980 1990 2000
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Reconstituting U.S. Centrifuge Technology
● In 1999 obtained Access Permit to U S centrifuge technology● In 1999, obtained Access Permit to U.S. centrifuge technology
● Hired experienced centrifuge staff from the original program
− Training the next generation of centrifuge technologists
● Recovered and reviewed ≈ 20 years of centrifuge documentation
− Technology− ManufacturingManufacturing− Cost− Operation
● Since 2002, built or refurbished modern facilities for component manufacturing, assembling p g gand testing in Oak Ridge
● Identified and incorporated strategic suppliers
● In 2006 developed and demonstrated a prototype machine that has exceeded original● In 2006, developed and demonstrated a prototype machine that has exceeded original performance of 320 SWU during individual centrifuge testing
− Designing the production AC100 machine based on the prototype machine design
Page 15
The Prototype Machine Designyp g
i USEC’s prototype is functionally equivalent to DOE GCEP and AGC machines
0 Demonstrated ≈ 350 SWU/year/machine at K-1600 special test facility in Oak Ridge
0 Active gas test program has been running since November 2005
i USEC has incorporated and used advances in technology to develop the prototype machine designmachine design
0 New materials
0 Advanced analytical modeling toolsy g
0 Modern power electronics
0 Digital instrumentation and controls
i AC100 machine will be a value-engineered (lower cost) version of the prototype machine
Page 16
The AC100 Series Machines
i USEC has demonstrated that the fundamental technology meets the SWU performance goals for the commercial plant of ≈ 350 SWU/year
0 However, prototype machines so far used have been custom built with a high labor component and high material costs
0 Demonstration of performance in Oak
i AC100 machines will achieve both SWU performance goals and target economic savings relative to the prototype machines through:
e C
ost
0 Demonstration of performance in Oak Ridge and Lead Cascade in 2008
0 Simpler design by reduced “part count”
Mac
hine0 Reduction in labor cost by incorporating
“lean” and automated manufacturing techniques
Reduction of material cost by volume
Value Engineering and Supplier High-Volume Manufacturing
0 Reduction of material cost by volume procurements
0 Continued improvements from “learning curve” during manufacturing
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g g
Involvement of Experienced Strategic Suppliersp g pp
Rotor Assembly, Balancing and FinalBalancing and Final Machine Assembly
Rotor TubesClassified
Machining and Unclassified Part
Procurement
Engineering, Procurement and Construction
Page 18
Centrifuge Manufacturingg g
i USEC technologists ork closel ith strategic s ppliers ATK BWXT and Hone elli USEC technologists work closely with strategic suppliers ATK, BWXT and Honeywell
0 Supplier representatives assigned to Integrated Product Teams
i Suppliers are being qualified to manufacture components and perform processes through specification and functional checks of “first article” produced by the supplier
i C t d lifi ti h b l t d f th f ll ii Component and process qualifications have been completed for the following:
0 Rotor tube 0 Rotor balancing0 Lower suspension assembly0 Lower suspension assembly0 Casing parts
i These components have been incorporated into the Lead Cascade prototype machines
i Strategic suppliers are gearing up now to begin manufacturing in late 2008, ramping up to high-volume manufacturing in 2010
Page 19
ACP Employs Deterministic Approach for Reliabilityp y pp y
Failures eventually occur
AC100Approach
DETERMINISTICAPPROACH
STATISTICAL APPROACH
• Requires understanding aboutwhy and how failures occur
• Allows prevention of failures
• Requires data regarding prevalence of failures
• Allows prediction of failures
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Engineering Definition and Approachesg g pp
i Reliabilit is the abilit of an item to perform its intended f nction nder designatedi Reliability is the ability of an item to perform its intended function under designated operating conditions for a designated period of time (or number of cycles or stress)
FeatureStatistical Deterministic
FeatureApproach Approach
Design Process “After the fact” “Upfront”
Testing Numerous life tests Few functional tests
Agent of Failure “Time” Physical process
Knowledge Requirements Little to none Extensiveo edge equ e e s e o o e e s e
Applicability Only to identical units To all similar units
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Reliability in the DOE Programy g
i Reliability assessments of the American Centrifuge benefits from extensive operations during the prior DOE centrifuge programduring the prior DOE centrifuge program
i Key data in DOE reports are the catalog of f il d d h ifailure modes and mechanisms
- Sources of unreliability- Resolution of issues
O t iti f f th i t- Opportunities for further improvements
i Less important but still useful is that DOE reports provide initial prediction of failure rates
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Reliability Assurance During Manufacturingy g g
i C t t ll d f t i t i l d t i ti Computer-controlled manufacturing extensively used to assure consistency
i Strategic suppliers are members of integrated product design teams to ensure manufacturability identify cost improvements and assure thorough technology transfermanufacturability, identify cost improvements, and assure thorough technology transfer
i Extensive vendor qualification occurs before release for high-volume manufacturing to assure components meet specification and functional requirementsassure components meet specification and functional requirements
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Reliability Assurance During Operationy g p
i Goal of plant operations is safety with maximum availability and capacity p p y y p y
i Business plan assumes an output of ≈ 3.8 million SWU/year (94% availability at 100% capacity)
i Assuring availability is based on a risk-informed evaluation of key plant processes
MachineParts
RawMaterials
Machine Assembly Processing Customer
ServiceFinished Goods
Support Systems
TailingsFailedMachines
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gMachines
Conclusions
i The U.S. Government successfully developed tall, fast centrifuges that are substantially fmore productive than centrifuges currently deployed by competitors
i USEC has successfully reconstituted U.S. centrifuge technology
0 Prototype machines functionally equivalent to DOE machines with important advances0 Prototype machines demonstrated world-class performance
i Deterministic approach provides assurance of reliability
0 Failure modes and mechanisms cataloged from over 20 years of U.S. government experience, as supplemented by more recent USEC design, testing and operations, are addressed and resolved in the design and demonstration phase
i The AC100, value-engineered machine, will incorporate several improvements from the prototype machine
0 Increased performance0 Lower manufacturing costs0 Enhanced reliability
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i USEC has strategic suppliers engaged in demonstration and preparing for deployment
Lead Cascade Test ProgramDan RogersDan Rogers
General Manager, American Centrifuge Plant Operations
Goals of Lead Cascade Test ProgramGoals of Lead Cascade Test Program
i Obtain machine-to-machine interaction dataObtain machine-to-machine interaction data
i Demonstrate ability to generate commercial product assay
i Validate cascade performance models
i Confirm performance of support systems
i Verify component performance over time
i Provide operator and technicians hands on training and experiencei Provide operator and technicians hands-on training and experience
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Machine Assembly and Cascade OperationMachine Assembly and Cascade Operation
i Receive finished components at dock
i Assemble machine and perform initial tests in R/A B ildiBuilding
i Transport and install machines in Process Building
i Pump down (evacuate)
i Accelerate machine to target speed
i Condition machine on process gas
i Connect machines in desired cascade configuration
Page 28
Recycle Cascade Operationsy p
i Enrichment levels and capacity are increased by connecting centrifuges in series and inEnrichment levels and capacity are increased by connecting centrifuges in series and in parallel, called a “cascade”
= Individual CentrifugeEnriched Product Stream(Enriched Uranium, up to 10%)
Initial Feed Using Cart (Natural Uranium, .711%)
Enrichment Stages(relatively few stages needed compared
h 1000 i d fto more than 1000 stages required for a gaseous diffusion process)
Depleted Tails Stream (Depleted Uranium, ≈ 0.3%)
NOTENot actual cascade
configuration
Page 29
Lead Cascade Test Program Resultsg
i A small cascade of prototype centrifuges operated at partial inventory of gas, then at p yp g p p y g ,target inventory of gas
i A larger cascade of prototype machines operated in a second phase of integrated testing, first at partial inventory gas then at target inventoryfirst at partial inventory gas then at target inventory
i Test results were consistent with predictions of analytical models for product assay and SWU performance
i Test results met October 2007 milestone criteria of generating product assay in a range useable by commercial nuclear power plants
i Several key additional objectives for the Lead Cascade test program were also achieved during cascade operations:0 Information on machine-to-machine interactions0 Operation of cascade support systems0 Verification of component performance over time0 Familiarization by operators with cascade operation
Page 30
Lead Cascade Test Program Future Plansg
i Continued operation of the Lead Cascade prototype units in 2008 to provide additional p p yp preliability and operational data to support AC100 design
i AC100 value-engineered improvements will be introduced into the Lead Cascade throughout 2008throughout 2008
i Expect to deploy several dozen AC100 machines in the Lead Cascade in late 2008 and begin test operations in early 2009
Page 31
Project Cost, Schedule & ExecutionVic Lopiano
Vice President, American Centrifuge
Current Project Cost EstimatesCurrent Project Cost Estimates
Deployment Cost Distribution Total Capital Requirements
• Target cost estimate $2.3 billion
p y(estimated)
p q(estimated)
Demonstration and Project
Management
• Items not included in target cost− Contingency: 15-20%
− Financing costs: TBDManagement
Centrifuge Manufacturing
& Assembly
Financing costs: TBD
− Financial assurance for D&D
• Unless cost savings can be identified, the 2008 updated cost estimate will y
Balance of Plant be higher than $2.3 billion
• Spending as of 9/30/07 of approx. $$541 million
• Spending in 2008 expected to be roughly $600 million
Page 33
roughly $600 million
Project Schedule
5
r)j
4
High volume manufacturing (400 centrifuges per month)
AC100cascade lli
on S
WU
/ yea
r
3
Lead
≈ 3.8mm SWU plant in 2012
1mm SWU capacity
Commence limited
testing
Cen
trifu
ges
(mi
2
Lead cascade closed-
loop tests begin AC100
commercial operations
ty o
f Ins
talle
d C
1
begin design freeze
duct
ion
Cap
acit
0
Jan-2007 Jan-2008 Jan-2009 Jan-2010 Jan-2011 Jan-2012
AC100 Testing and High-Volume Centrifuge Lead Cascade
Prod
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C 00 est g a dInitial Deployment
g o u e Ce t ugeDeployment
ead CascadeTest Program
Contracting Strategiesg g
● Contracting Strategiesg g
− During the current demonstration phase, we are working with strategic suppliers under cost reimbursable agreements
− Actively working to modify agreements to share cost, schedule and performance risksduring initial AC100 production
− Intend to transition to a fixed price or incentive-based model for the balance of the commercial plant machine production
R t M j C t t● Recent Major Contracts
− In August, USEC entered into an approximately $100 million manufacturing supply agreement with Hexcel Corporation and ATK for carbon fiber for rotor tubes g p
− Also in August, we entered into an approximately $175 million contract with Major Tool & Machine Inc. to manufacture steel casings for centrifuge machines
Page 35
Plant Construction
● Fluor is the engineering, procurement and construction management firm for the g g, p gcommercial plant
● Fluor began construction on May 31, 2007 after NRC license received in April 2007
− One month ahead of the 2002 DOE-USEC Agreement milestone schedule− NRC-approved graded-approach used for initial construction
● Expect about 45% of overall plant design to be complete by end of year
Page 36
Project Executionj
i Approximately 550 people working on the projectpp y p p g p j
- Bethesda (4)- Oak Ridge (≈ 190)- Piketon (≈ 160)( )- Strategic suppliers (≈ 200)
i Enhanced project control processes being implemented as we transition from the demonstration to the deployment phase p y p
● Procedures ensure rigorous control of key activities in Piketon and Oak Ridge
- Operations and maintenance - Regulatory, radiological, safety, security, environmental - Engineering- Quality assuranceQ y
Page 37
Project Expansion Potentialj p
A il bl L dExisting Buildings (≈ 3.8 M SWU) Available Land
e &
B
ldg.
ProcessBldg. 1
Mai
nten
ance
ssem
bly
B
Opportunities to leverage economies of scale
ProcessBldg. 2
M As
Environmental impact evaluated to Current U.S. market
Page 38
o e ta pact e a uated todouble initial plant production is ≈ 12 M SWU
Summaryy
i U S developed the most productive centrifuges in the worldU.S. developed the most productive centrifuges in the world
i U.S. centrifuge technology has been successfully reconstituted and world class performance demonstrated in prototype machines
i Working with strategic suppliers to rebuild manufacturing infrastructure to deploy the AC100
i There is high confidence in the reliability of the AC100 based on a deterministic approach that f f fis focused on understanding failure modes and mechanisms, and preventing failures
i The capability of the American Centrifuge technology to produce low enriched uranium at commercial product assay levels has been demonstrated
i A target project cost and schedule published in early 2007 continues to be refined; update of target cost estimate expected in early 2008
i There is a skilled group of managers and staff, sophisticated processes and rigorous procedures in place to execute the project safely and within the target cost and schedule
i There is expansion potential with significantly improved economies of scale prospects
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There is expansion potential with significantly improved economies of scale prospects
Wrap UpJohn Welch
2007: A Year of Major Accomplishments
During the past year, we continued to make solid progress on demonstration and deployment
2007: A Year of Major Accomplishments
of the American Centrifuge---the future of USEC:
i Executed lease and royalty agreements with DOE in December 2006 providing site control
i Obtained construction and operating license from NRC in April 2007 and began construction in May 2007
i Executed a 5-year agreement with TVA that allows us to continue to control production y g pcosts and operate the Paducah plant efficiently and economically during the transition years
i Initiated Lead Cascade test program in August
i Lead Cascade test results meet October 2007 DOE milestone criteria
i Proceeds from September common stock and convertible debt issuance, along with credit f ilit d ti i t d h f ti iti USEC t t J 2008facility and anticipated cash from operations position USEC to meet January 2008 milestone
i Executed several supplier contracts in 2007 that will allow us to refine cost and schedule for the project
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for the project
2008: Continued Focus on Reducing Risksg
i Continue to make progress on the American Centrifuge projectContinue to make progress on the American Centrifuge project
i Execute long-term contracts with customers for output from the American Centrifuge Plant and continue to make improvements to sales backlog
i Maintain focus on efficient Paducah GDP operations and optimize production for enrichment and underfeeding natural uranium
i Continue focus on non-power production costs and SG&A expenseContinue focus on non-power production costs and SG&A expense
i Continue supporting the U.S. government on trade matters
i Refine and execute our financing plan; execute debt financing in second half of 2008i Refine and execute our financing plan; execute debt financing in second half of 2008
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Questions?Questions?
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