SLX 0.71% $1.39 silex systems limited


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    Over a period of 2 days in June 2000 (from 14/6, to 15/6), the share price for SLX rose from $1.72 to $2.30, prompting a "speeding ticket" from the ASX.

    At the time, SLX responded that it had "at all times complied with its obligations under Listing Rule 3.1. At th(at) point in time there (were) no announcements which that Company believe(d) should be made in compliance with Listing Rule 3.1"

    In response to the Item 5 (other possible explanations) question, SLX advised that "(o)ver recent months the Company has announced a number of positive developments and achievements including .... (and a listing was provided)". The Company then went on to note that "(d)espite these positive developments over the past five months, the Company's share price ha(d) fallen from $4.85 on 25/01/2000 to $1.55 on 01/06/2000. The Company believe(d) that the rally in the share price reflect(ed) the market's re-assessment of the Company's potential, and in particular the significant progress made (at that time), as highlighted by the announcements noted above (in the ASX release)".

    On 27/6/00, SLX then advised the ASX of a USEC milestone being achieved, resulting in"USEC (paying) US$2.5 million to Silex Systems, following the recent completion of an Agreement for Cooperation between the United States and Australia. The Agreement makes possible ongoing development work on SILEX, a laser-based technology for enriching uranium, and facilitates the transfer of classified aspects of the technology".


    In January 2002, SLX again responded to an ASX "speeding ticket" advising that:

    "In previous announcements to the ASX, the company has explained that a number of its iecbnoiogy developmeni programs are scheduled to reach milestones during 2002 calendar year. The company believes that any increased interest in acquiring its shares possibly relates to speculation that some of the company’s research activities will be successful and that a number of these milestones will be achieved".


    In response to yesterday's "speeding ticket", SLX advised that:

    "Firstly, it should be noted that the Company's share price fell significantly (from levels of over $3.00 to below 50c) during the first quarter of this financial year on the back of negative press speculation regarding the relationship with uranium project partner USEC. (This was compounded by the world-wide sell-off of technology stocks around the same time). The Company issued several releases over the second half of 2002 calendar year denying such rumours, clarifying the facts and confirming the continuing strength of the USEC partnership, including a positive revision of the SILEX Technology development agreement with USEC. After several months of uncertainty, we believe the market has at last recognised the facts of the matter as set out by the Company, and has realised that there may have been an over-reaction to the negative speculation regarding the uranium project.

    "Secondly, in previous detailed announcements to the ASX, the Company has explained that a number of its technology development programs are scheduled to reach milestones during the 2003 calendar year. The Company believes therefore, that increased interest in acquiring its shares may also possibly relate to an expectation that some of the Company's research activities will be successful and that a number of these milestones will be achieved. Finally, the Company has become aware of a perceived 'stock overhang' in the market due to a major institutional shareholder selling its interest, and also sales by index funds as a consequence of Silex no longer being part of the ASX200. The Company believes that these sales have now been largely completed, thereby removing some negative pressure on the Company's share price"


    On 21/10/02, SLX advised the ASX of "the successful completion of the preliminary series of "Direct Measurement" tests in its Uranium Enrichment Program. The results of the tests were conclusive, demonstrating macroscopic scale enrichment with the SILEX Process. The Direct Measurement tests are an important step in the development of the Process because, for the first time, small samples of enriched product were collected, extracted from the test facility and then fully analysed".

    The statement went on to suggest that the focus would "now turn to optimizing and measuring process efficiency, requiring the facility to be ramped up to nearly full operating capability. Commercial plant cost estimates and projected economics will then be updated. This work is expected to be completed in the first half of 2003, and will contribute to the next Program Milestone decision by project partner USEC Inc".


    This harked back to the earlier ASX release of 16/10, where the USEC Development Agreement was updated with a new milestone schedule, as follows:

    Milestone IIA:
    The achievement of positive Direct Measurement results and a decision by USEC to commence Scale-up and Optimisation work.

    Milestone IIB:
    Achievement of positive Scale-up and Optimisation results and a decision by USEC to commence Test Loop design.

    Milestone IIIA:
    Filing of an application for a regulatory licence either from the US NRC or ARPANSA in order to construct the Test Loop in the US or Australia respectively.

    Milestone IIIB:
    Receipt of licence from NRC or ARPANSA to permit the construction of the Test Loop in the US or Australia, and a decision by USEC to commence construction of the Test Loop.

    Milestone IIIC:
    Successful commissioning of the Test Loop and commencement of laser uranium enrichment tests.

    Milestone IIID:
    Successful Test Loop demonstration and decision being made by USEC to apply for licence from NRC to construct a commercial plant.

    Milestone IIIE:
    Commencement of construction of a Commercial Plant after receipt of licence from the US NRC


    In it's 2002 Annual Report, SLX advised that:

    "There still remains several different tests to be conducted under a wide range of conditions before process efficiency can be more accurately determined. We expect to be in a position to provide further details on the outcome of the current test program early in 2003".

    The Annual Report then went on to suggest:

    "These tests are being conducted in a unique facility utilising equipment which has been designed and built by the Silex-USEC team over the past two years. The scale of the equipment is impressive, much larger than that used to achieve the first mijestone, and is designed to measure the efficiency of the SILEX process via enriched material collection and analysis (using relatively smail quantities). Once this test program has been successfully completed, the focus will turn to equipment scale-up and optimisation of enrichment performance".

    These statements suggest that:
    Milestone IIA is close; and
    Milestodne IIB is within reach.

    Collectively, both milestones would be worth US$3.0m (or ~$5.2m at current exchange rates). More importantly, they would bring SLX to the business end of its uranium enrichment R&D programme (ie: where regulatory licences would be applied for, test facilities built, and commercial plants brought into prospectiave development).


    According to SLX's Investor's presentation (of 26/11/02):
    the Gaseous diffusion process accounts for ~45% of the current global enrichment market, but costs >US$100 per unit of output (however calculated);
    the Centrifugal force process accounts for ~40% of the global enrichment market and costs ~$US70 -80 per unit of output; and
    the Laser excitation process (being developed by SLX, and to which USEC holds the "exclusive" global rights) currently holds 0% of the global enrichment market, and is estimated to cost ~$US30 -40 per unit of output.


    This seems to validate what USEC was saying in their 2002 Annual Report (ye30/6/02).

    In the report, USEC stated that they had:

    "... secured exclusive worldwide rights to the commercial use of the SILEX laser-based technology for enriching uranium hexafluoride, which USEC is developing in partnership with Silex Systems Limited in Australia. SILEX or Separation of Isotopes by Laser Excitation uses lasers that are tuned to excite only the U235 isotopes and not the U238 isotopes, enabling separation through a gas dynamic effect. If successfully deployed, SILEX would reduce the cost of enriching uranium primarily because it would use less electric power compared with gaseous diffusion and would have lower capital costs compared with gas centrifuge. USEC continues to develop SILEX at a pace consistent with its stage of development".

    Again, according to the USEC Annual Report:

    "Under the DOE-USEC Agreement reached in June 2002 regarding a variety of domestic issues, USEC is moving ahead with its plan to demonstrate, and, before the end of the decade, deploy, U.S. advanced enrichmenttechnology. USEC and DOE are working to implement the DOE-USEC Agreement, and DOE has approved a 5-year $121 million Cooperative Research and Development Agreement to deploy a lead cascade test facility that uses U.S. gas centrifuge technology. Preliminary work at centrifuge test facilities in Oak Ridge, Tennessee is underway to support meeting the first two milestones under the DOE-USEC Agreement. Fabrication of a key centrifuge component is complete, and component testing will begin in January 2003.

    "USEC has received competing proposals from the states of Kentucky and Ohio to locate the lead cascade at the Paducah or Portsmouth plant. USEC plans to announce selection of its lead cascade site later this year. USEC is adding staff to its advanced technology group, which is preparing a license application for the lead cascade that USEC expects to file in early 2003 with the Nuclear Regulatory Commission. USEC expects to begin construction of its lead cascade facility in 2004, with start up of the first centrifuges beginning in 2005. Deployment of a full-scale commercial plant will follow later this decade".

    In a speech to the World Nuclear Association on 6 September 2002 (entitled: Fuelling the Nuclear Renaissance"), USEC's COO, Dennis Spurgeon commented that:

    "Let's not forget about SILEX. We're continuing to invest in SILEX, a third generation laser-based technology being developed in Australia. We have the exclusisve rights to this new uranium enrichment technology, and we will continue to fund SILEX research at a level that's commensurate with its rate of development. I should point out that it's not at the same advanced stage of development as the centrifuge technology: it's still in the research and development stage right now, whereas the U.S. centrifuge technology is close to commercial deployment. However, we have seen some promising test results".


    The key to all this is that:
    the gas diffusion process is obsolete and in the process of being phased out;
    the gas diffusion process currently accounts for >45% of the global uranium enrichment market;
    the centrifuge technology has been about since 1985 and is in varying stages of efficiency;
    the centrifuge technology currently accounts for 40% of the global uranium enrichment market;
    the cost differential between the 3 technologies is such that the laser excitation process is 2.5x more efficient than is gas diffusion, and 2x more efficient than is the centrifuge technology;
    whilst the DOE may have a preferential bias towards the centrifuge technology (after all, the DOE originally developed the technology and spent ~US$3B on associated R&D work until abandoning that work in 1985), the global market is such that both technology processes will be deployed, both in the USA and elsewhere globally; and
    regardless of what improvements have been made by USEC in the development of new centrifuge component parts, the cost differential is such that the Laser excitation process will always be favoured as the least cost technology, whilst (at least in the USA) the centrifuge technology will enjoy a comparative timing advantage.

    All things considered, the centrifuge technology will be used by USEC to satisfy USA national security, defence, and /or related domestic (including, employment) issues, whilst the Laser excitation technology will be used to:
    supplement USA production (and lower the overall costs to production); and
    be used as the preferred global enrichxment technology (due to its superior economic value).
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