Case Study and Profitability Essay

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UNSEC

USEC Extension

USEC's pursuit of the ACP is driven largely by a need to increase the profitability of uranium enrichment; given the current market forces and the type of product being offered for sale, increasing profit margins by increasing the price of the product or by increasing market share/market size are simple not tenable options. Instead, cheaper and a more efficient way for enriching uranium into saleable product units is needed in order to make the industry and activity truly profitable, and this is what the ACP represents. The enrichment process using the ACP is radically different from the process currently in use by USEC, and will allow them to generate enormous savings while maintaining production levels to fit demand. This will make the company far more profitable than its few competitors in the industry, which will allow them to increase market share and dominance. Key value drivers for the ACP include the cost of uranium, which is fixed for USEC, as well as the cost of the project's construction and the real cost of production once the ACP is operational.

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Estimates and forecasts for these figures are provided in the case study, yet changes in these numbers could lead to major differences in the overall valuation of the project. A sudden change in the uranium market -- for example, a sudden reduction in the demand for nuclear power and the scrapping of plans to build more nuclear reactors due to a major environmental incident -- could drastically reduce the market price for usable units of enriched uranium, which would eat away any profits that might be expected after the first few years of the ACP's operation. If the decrease in production costs is not as significant as projected, this….....

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