USEC expects cumulative spending for the RD&D program for the period June 1, 2012 through December 31, 2013 to be approximately $320 million. The cooperative agreement, which has been incrementally funded, provides for 80 percent DOE and 20 percent USEC cost sharing for work performed during the period June 1, 2012 through January 15, 2014. On November 20, 2013, USEC and DOE entered into an amendment to the cooperative agreement for an additional $15.7 million in government funding for the funding period November 2 to January 15, 2014, bringing total government funding to $256.9 million.
The economics of the project are severely challenged by the current supply/demand imbalance in the market for low enriched uranium and related downward pressure on market prices for SWU which are now at their lowest levels in more than a decade. At current market prices USEC does not believe its plans for commercialization of the American Centrifuge project are economically viable without additional government support. In addition, USEC does not currently have any funding in place for the project following the completion of the current RD&D program in December 2013 and anticipates that funding will be needed for the project for the period from completion of the RD&D program until the receipt of financing for commercial deployment. The amount of any such funding would depend on the level of operations, manufacturing and other project infrastructure that is to be maintained in order to support a potential future ramp up to commercialization as well as the length of time until financing could be obtained for the plant. USEC is evaluating and pursuing the feasibility of alternatives and the actions necessary to proceed with the commercial deployment of the American Centrifuge technology, including the availability of additional government support and has initiated discussions with DOE regarding the project’s need for this support. However, USEC has no assurance that it will be successful in achieving any of these measures or the timing thereof. In light of USEC’s liquidity, USEC does not have the ability to continue to fund the American Centrifuge project at its current levels beyond the end of 2013 without additional government support and even with this support USEC’s ability to provide funding in 2014 will be limited. Therefore, USEC continues to evaluate its options concerning the American Centrifuge project, including its ability to continue the project prior to or upon completion of the RD&D program, further demobilization of or delays in the commercial deployment of the project, and termination of the project, and could make a decision to demobilize or terminate the project in the near term. Any such actions may have a material adverse impact on USEC's ability to deploy the American Centrifuge technology, on its liquidity and on the long-term viability of its enrichment business.
Significant additional financing is needed to commercially deploy the American Centrifuge Plant. However, in order to successfully raise this capital, USEC needs to develop and validate a viable business plan that supports loan repayment and provides potential investors with an attractive return on investment based on the project's risk profile. Factors that can affect this plan include key variables related to project cost, schedule, market demand and market prices for low enriched uranium, financing costs and other financing terms. USEC has experienced cost pressures due to delays in deployment of the project.
USEC has been pursuing a loan guarantee under the DOE Loan Guarantee Program, which was established by the Energy Policy Act of 2005, in order to obtain the funding needed to complete the ACP. In July 2008, USEC applied under the DOE Loan Guarantee Program for $2 billion in U.S. government guaranteed debt financing for the ACP. Instead of moving forward with a conditional commitment for a loan guarantee, in the fall of 2011, DOE proposed a two-year RD&D program for the project. DOE indicated that USEC's application for a DOE loan guarantee would remain pending during the RD&D program but has given USEC no assurance that a successful RD&D program will result in a loan guarantee. In order to obtain a loan guarantee, USEC will need to demonstrate a viable commercialization plan which is dependent on the factors described above. Additional capital beyond the $2 billion of DOE loan guarantee funding that USEC has applied for and USEC's internally generated cash flow also would be required to complete the project. USEC has had discussions with Japanese export credit agencies regarding financing up to $1 billion of the cost of completing the ACP, with such potential financing predicated on USEC receiving a DOE loan guarantee.
In addition to the DOE loan guarantee and the Japanese export credit agency funding discussed above, USEC anticipates that it would need at least $1 billion of additional capital to complete the project. The amount of additional capital required would include contributions from USEC and would be dependent on a number of factors, including the amount of any revised cost estimate and schedule for the project, the amount of contingency or other capital DOE would require as part of a loan guarantee, and the amount of the DOE credit subsidy cost that would be required to be paid in connection with a loan guarantee. USEC anticipates that under such a financing plan the potential sources for this capital could include cash generated by the project during startup, available USEC cash flow from operations and additional third-party capital. USEC would expect that the additional third-party capital would be raised at the project level, including through the issuance of additional equity participation.
As described above, current enrichment market conditions do not support a viable business plan for obtaining the capital necessary for commercialization of the American Centrifuge project without additional government support. If USEC is able to obtain the additional government support needed to proceed with the financing and commercial deployment of the ACP, USEC also is uncertain regarding the amount of internally generated cash flow from operations that USEC will have available to fund the project in light of the delays in deployment of the project, reduced cash flow from operations as a result of ceasing enrichment at the Paducah GDP and potential requirements for USEC's internally generated cash flow to satisfy its pension and postretirement benefit and other obligations. The amount of capital that USEC would be able to contribute to the project going forward would impact USEC's share of the ultimate ownership of the project, which would be reduced as a result of raising equity and other capital to deploy the project.