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Non-Tech : United States Enrichment Corporation (USU)
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To: Daniel Chisholm who wrote (72)8/31/1999 11:04:00 AM
From: Daniel Chisholm  Read Replies (1) of 81
 
This is in response to #reply-11114594 on the Value Investing thread, written by James Clarke.

The S+P concern about the Russian contract is more interesting to me. This is a fixed price contract which looked like moderately profitable at the time it was negotiated. With the decline in SWU pricing, the contract has become a real albatross for USEC.

I don't understand. I thought that the Russian contract ("Megatons to Megawatts") was more of a public service obligation that USEC had to perform; they made some small amount money on it, but on strictly commercial terms they would probably not have taken on the business. I though I recall it being previously stated that if they were to lose the Russian contract, they would be better off for it.

Since the Russian processing contract is fixed price, where is the damage to USEC being done? Or is it fixed price in the sense that USEC agreed to pay the Russians a fixed price for the feedstock, a price that now looks to be quite high?

I really don't care about quarterly volatility or timing of shipments, what I'd like to know is whether the original story is intact. The original story being, of course, that they are a profitable company engaged in a business that has natural barriers to entry and whose services will continue to be required for a good long time, in addition to them possessing significant non-operating assets (inventories) that can be liquidated over the course of 5-7 years, as well as recent earnings figures being artificially understated due to nonrecurring R&D (AVLIS) expenses.

So is USEC still a rich cash cow with generous liquidateable (?? ;-) nonoperating assets, or is it an ugly commodity processor competing with pseudogovernmental non-profit-driven entities (French and Russian)?

- Daniel
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