I received a pleasant surprise near the end of May while performing a spot check of my modest portfolio of individual stocks. Lightbridge (NASDAQ: LTBR), a holding that hasn’t performed well for several years, had nearly doubled since my check a week before. Since then it has ratcheted up another 20% or so.
My online broker provided no specific news that could explain the price jump. A broader search showed that Lightbridge had issued its first quarter 2017 earnings report and held a related investor conference call on May 10.
The transcript of that call provided several bits of information that combine into a possible explanation for the sudden breakout in the stock.
Let me emphasize that I am not an investment advisor and this is not an investment publication that provides any recommendations for purchases or sales of individual stocks.
I’m an interested industry observer who thought that Atomic Insights readers might be interested in hearing some good news about progress being made in nuclear fuel design and testing.
AREVA JV Now Creating Commercial Market
About a year ago, Lightbridge announced that it had signed a memorandum of understanding (MOU) with AREVA to develop a joint venture to fabricate and market its proprietary metallic alloy fuel in a form that can be an assembly for assembly replacement for conventional nuclear fuel.
What Is Lightbridge Fuel?
Conventional fuel consists of long tubes of zirconium alloy lled with hundreds of small uranium dioxide ceramic fuel pellets.
Lightbridge fuel consists of uranium-zirconium metallic alloy clad with a co-extruded layer of zirconium alloy.
The rods are as long as and have similar cross-sectional area as conventional fuel. The cross-section is shaped as a cruciform instead of a circle.
The metallic alloy and the greater surface to volume ratio of the cruciform fuel rod provides better heat transfer capability and reduces the operating and peak temperature at the center of the fuel rod.
The rods are produced with a continuous twist that creates touch points between adjacent fuel rods at regular intervals along the length of the rod. Those touch points serve the same function as the spacer grids that are a part of conventional fuel assemblies.
Eliminating the need for spacer grids reduces assembly flow resistance, allowing a higher core coolant flow rate and a higher rate of core heat removal [reactor power] without making any additional system changes.
The new fuel is designed to operate in any light water reactor with assemblies that are one for one replacements for conventional fuel assemblies.
At the time, the company’s forward looking statements indicated that it expected to complete the JV negotiations and sign a commercial agreement before the end of 2016. Those discussions have not yet been completed and no agreement has been announced.
Missing the expected date for meeting an announced milestone might have played a role in suppressing investor interest in the company during the delay.
During the May 10 conference call, CEO Seth Grae and Chief Nuclear Fuel Development Officer Jim Malone explained that the deal had evolved to include a more expansive role for Lightbridge than was originally envisioned.
Instead of simply licensing intellectual property to AREVA to fabricate the fuel, the Lightbridge-AREVA JV is actively developing a commercial market for Lightbridge-designed metallic alloy fuel assemblies.
Under the guidance of Malone, a well-known veteran of the commercial fuel market, the JV is creating commercial end use agreements with two U.S. utility companies for lead assembly testing in non-limiting locations in operating reactors.
That lead assembly testing will be in addition to and in parallel with the more extensive irradiation testing program that can be arranged inside the Halden research and test reactor in Norway.
Severe accident and design basis testing will be conducted in Idaho National Laboratory’s TREAT facility.
Finalization of the JV agreement between Lightbridge and AREVA is progressing. It has been delayed by the increased complexity of making commercial agreements with third parties at the same time.
Grae said that Lightbridge would be making a major announcement related to the JV within a month.
Note: Lightbridge recently issued an announcement indicating that Seth Grae will be addressing the American Nuclear Society annual meeting this week. Perhaps that will be the scene for an important announcement.
Effort to Provide Financial Flexibility
One of the callers during the earnings conference call questioned a provision in the most recent proxy voting material seek- ing approval of an additional stock issue in excess of 20% of te currently issued shares.
Grae stated that the company had no immediate plans to sell equity to raise additional capital. He explained that the provision was included in case an opportunity arose.
He then shared an intriguing thought indicating that the company might have some visibility of promising, but not quite mature opportunities in the near future.
“The rationale for this request in trying to maximize financial flexibility is that we want to do this in advance of what we believe will be the most major milestones in the history of this company, and potential very significant strategic transactions with major entities in our industry this year,” said Grae.
“And we want to utilize this authorization if and only if following one or more significant events. We believe that there are terms that we could use to bring value to the investors in the company, and we want to have the ability to pounce and not wait months for an authorization after that point. So that’s why we’re doing it.”
Once Overlooked, Now Embraced
Though Lightbridge has not participated in the U.S. Department of Energy’s accident tolerant fuel program as a grant recipient, DOE and nuclear utility companies have started to realize that its fuel invention might be an even more capable solution than the ones that the program has supported.
Malone, answering a question posed by a caller about accident tolerant fuel said, “We considered it [participating in the program] early on and were not looked upon favorably by the advisers to DOE at the utilities because of the zirconium in the fuel. They were overreacting to the fact that we have zirconium and zirconium was a problem at Fukushima.”
But the Energy Department recently invited Lightbridge to participate, along with the Nuclear Energy Institute and the Electric Power Research Institute, in all the events and meetings related to accident tolerant fuel.
“I spoke at the meeting in Idaho and said that while Lightbridge fuel was once an ugly duckling it is now certainly turning into a swan in the eyes of the community,” joked Malone.
Unlike the accident tolerant fuel schemes that were favored because they replaced zirconium cladding with cladding made from materials like SiC, Lightbridge fuel improves heat transfer and allows higher linear heat rate.
The company’s designers realized that hydrogen is generated from zirconium-water reaction only after their interface rises above certain temperatures.
Instead of trying to address hydrogen generation concerns by getting rid of zirconium, it chose to prevent the required temperature from being achieved. Its fuel has an average temperature that is several hundred degrees lower than conventional fuel.
Under severe accident conditions, the interface between zirconium and water never approaches the temperature needed to create the zirconium-water reaction that generates hydrogen gas.
One of the major uncertainties in any nuclear energy development is whether it will be accepted by regulators. No matter how good the inventions look, if they cannot achieve regulatory approval, they cannot be sold.
Senior Vice President Jon Johnson was portrayed as a special weapon for the company. Before moving to Lightbridge he served as the deputy director of reactor regulation at the Nuclear Regulatory Commission.
When Johnson explained the phased approach Lightbridge will use to ensure its fuel is readily accepted and allowed to be used in commercial reactors, his words carried weight.
Following such an informative earnings call, it is understandable why investors have decided to express additional interest in the company’s future prospects.
Note: A version of the above was first published by Fuel Cycle Week in its May 26, 2017 edition. It is republished here with permission.