Monday, June 27, 2011

The End of Cheap Uranium (USU)

Working on this paper...

The USU bond is back down to 70, yielding 14%.

1 comment:

Felix Hoenikker said...

I think USU is a terminal short bc their revenue streams appear to be drying up: "megatons to megawatts" was a cash cow that is over now and USU can't enrich uranium at a market clearing price bc they use a costly ACP "American Centrifuge Project" technology (~2x more costly as compared to the traditional Urenco process). USU has spent over $5B ACP so far and is maxed out in debt/equity, which is why USU has been asking the DOE for a $2B loan. I don't believe the DOE has any intentions of USU a loan because the DOE knows exactly how out of the money ACP enriched uranium is. I see the Toshiba/B&W investment as ineffectual. Now there is a $575M convert note that us trading around $70. Is that because the note holders believe they are safe because they are covered by the assets on the BS? Consider the value of that note if the decommissioning cost is 2-3x the value of the assets? Then wouldn't that note actually be worthless today? If you believe the DOE will deny USU the $2B loan and that the decommissioning cost is $600M+ then I would consider trying to get a nice clean CDS on that note.....if you can get it cheap enough that is.