- The Washington Times - Saturday, January 27, 2001

USEC Inc., a Bethesda uranium enrichment company, has a lot of potential but it must first resolve two troublesome pricing issues with its clients and competitors, analysts say.

USEC, formerly known as U.S. Enrichment Corp., is the only American uranium producer and one of a few in the world that enrich uranium to sell to utilities. The other main uranium producers are government-related companies in Europe and Russia. Created in 1993, the company went public in the summer of 1998.

Shares of USEC closed at $6 on the New York Stock Exchange Friday, having reached their 52-week high of $6.56 two days before.

The stock price is unexpected, analysts say, considering USEC announced earnings for its second quarter ended Dec. 31 were lower than the same period last year. The company said profits fell 36 percent to $20.9 million (26 cents per diluted share) from $32.6 million (36 cents).

Diluted shares reflect the value of options, warrants and other securities convertible into common stock. Net sales also dipped by 13.5 percent to $387.1 million from $447.6 million.

"The increase is more explainable when one looks at the political issues," says David Schanzer, an analyst with Janney Montgomery Scott LLC in Philadelphia. "It's a mixed bag, but the market seems to be reacting to them in a very positive way."

USEC's main unresolved problem surrounds a 20-year deal it has with Russia to convert uranium from the country's nuclear warheads into usable energy products. The deal was set up by the U.S. government to keep warhead uranium away from terrorists.

Under part of the contract, USEC is paying $88 per unit for the product, well above the market price of about $80 per unit.

"Existing low prices have dramatically diminished the profitability of the company's contract," wrote Scott Sprinzen, analyst with Standard & Poor's in New York, in his last report on USEC. "Increased competitive pressures from lower-cost producers and weakening uranium prices have eroded profitability measures."

One of the Clinton administration's last decisions was to approve an informal agreement between USEC and Russia to sell Russian uranium at market prices. Russia, in turn, could sell some of its non-weapons grade materials to the United States.

"But this OK only takes you so far," says Mr. Schanzer, referring to the administration's decision. "The Russians have to be in the same mind as they were several months ago, that they want to go ahead and do this deal … and the Bush administration would have something to say about this, and that has not yet been heard."

In a separate matter, the International Trade Commission, an independent agency, backed the USEC's request for an investigation into whether its two main competitors, Eurodif SA of France, and Urenco Ltd., which is jointly owned by the British, Dutch and German governments, are selling uranium in the United States at below production-cost rates.

If those charges are true, the United States could levy duties on its two competitors. USEC holds 75 percent of the uranium market in the United States and 25 percent of the global market.

"From that perspective, a lot of people are happy and that has had to do with the stock price," Mr. Schanzer says.


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