SILEX SYSTEMS LIMITED 
By Silex Systems Limited
A.C.N. 003 372 067
CEO's Letter to Shareholders 20 May 2014Level 8, Suite 8.03
56 Clarence Street
Sydney NSW 2000 Australia
PO Box 364
Sydney NSW 2001
Tel: + 61 2 9704 8888
Fax: +61 2 9279 1051 www.silex.com.au
The CEO and Managing Director of Silex Systems Limited (ASX: SLX) (OTCQX: SILXY) ("Silex"), Dr Michael Goldsworthy, released the following letter to shareholders via the ASX today:
20 May 2014
Dear Shareholders,
I am writing to you to provide an update on the Company's activities in response to an increased volume of shareholder queries received in the last few weeks and the unexpected erosion of our share price.
A number of factors have contributed to the decline in our share price; the global nuclear industry remains in a state of recovery following the Japanese Tsunami three years ago, a small number of our institutional investors have sold down mainly due to portfolio rebalancing, the changes to ARENA announced in the Federal Budget created uncertainty in relation to conditional funding contributions for our Mildura 100MW Solar Power Station project, and there has been some minor slippage in the expected timeline for finalisation of negotiations for the recently disclosed Paducah Laser Enrichment Facility opportunity in the US.
All these factors are frustrating and appear to have collectively resulted in a lack of confidence around our business; however we remain confident that Silex is entering an important and exciting phase of its development where we expect to see strong progress.
Our primary economic asset is our foundation technology - the SILEX Uranium Enrichment Technology, which remains the world's only third generation laser-based enrichment technology being commercialised today. Our commercial partner GE has described this technology as "game-changing" and, along with partners Hitachi and Cameco, have invested hundreds of millions of dollars into commercialising our technology since signing a Technology Commercialisation and License Agreement with Silex in 2006. They continue to invest in our technology and the program continues to progress well. In addition to this funding, less than a year ago Silex received a Milestone payment of US$15 million for the successful completion of the Test Loop Technology Demonstration Program.
The finalisation of negotiations between General Electric-Hitachi Global Laser Enrichment LLC (GLE) and the US Department of Energy (DOE) in relation to the proposed Paducah Laser Enrichment Facility (refer to ASX release dated 28/11/13 for details) has taken a little longer than we expected.
Silex is not involved in the confidential GLE-DOE negotiations; however the latest advice we have is that these negotiations are proceeding constructively, despite taking longer than anticipated. We remain hopeful that these negotiations will be finalised in the very near future. A positive outcome from these negotiations would potentially provide a clear path to market for our disruptive laser enrichment technology and set a strong commercial path for Silex.
Subject to completion of the Phase II commercial scale-up work and obtaining the necessary license from the US Nuclear Regulatory Commission for the Paducah facility, the world's first commercial laser enrichment plant could be in operation in the next few years.
We firmly believe this plant could be the first of several SILEX-based laser enrichment plants that may win a significant share of the global uranium enrichment market, which is set to at least double over the next two decades. Both internal and third party analyst calculations of the present value for various scenarios of commercial enrichment plant deployments and future royalty income to Silex, suggest valuations well above today's share price.
Despite the difficulties the global nuclear industry has experienced over the last three years, the outlook for nuclear power in the medium and long term remains extremely positive. The world urgently needs more clean energy and nuclear power is the only long term economic alternative to coal for base load electricity generation. All forecasts point to a significant expansion of the nuclear industry over the coming years. It is important to keep sight of these facts as the industry overcomes short term difficulties.
Solar Systems 100MW Mildura Power Station
The Federal Government's Budget delivered on 13 May 2014 confirmed the Government's intention to abolish the Australian Renewable Energy Agency (ARENA). However, the Government also confirmed that $1 billion of funding for "existing priority projects" will remain available. We understand that the $75 million conditional funding commitment for the Mildura
100MW Solar Power Station Project, planned by Silex subsidiary Solar Systems Pty Ltd, is
included in the "existing priority projects" funding and therefore remains available. This funding and the fate of ARENA depends on the passage of legislation through the Parliament (in particular the Senate) which is still uncertain. In the meantime, the Company continues to proceed with the Mildura project planning and awaits additional advice from ARENA.
With current cash reserves of approximately $67 million, zero bank debt and low overheads, we remain in a strong financial position and are adequately funded to continue to progress our novel technologies to market.
We are well positioned to execute key business decisions over the next 12 to 18 months across our three subsidiaries. The Company's priorities during this period are summarised as follows:
(i) Solar Systems Pty Ltd Concentrating PV Technology:
Demonstrate cost competitiveness (i.e. an acceptably low Levelised Cost of Energy - LCOE) and bankability of utility-scale projects in target markets such as Australia, the Middle East and the USA.
Progress towards a strategic partnership during FY15 with a view to achieving a value-creating transaction during or soon after that timeframe.
(ii) Translucent Inc:
Take the first product to market during FY15 ('vGaNTM' epiwafers for the power electronics industry) and generate initial revenues.
Finalise a value-creating agreement with an industry/strategic partner with a view to investment or divestment during or soon after FY15.
(iii) ChronoLogic Pty Ltd:
Complete a value-creating agreement with an industry/strategic partner by
30th June 2014. (Management is currently advancing an OEM agreement for
ChronoLogic's existing DVI product range with an industry leader.)
The Board has determined that achieving these key priorities and outcomes in the timelines stipulated will be critical to obtaining further support for the respective business units.
The fundamentals of Silex remain strong. We have world leading technologies that are highly disruptive and "game changers" in the world's energy supply market and high tech industries. We remain firmly focused on the future potential of this business which once achieved will naturally resolve issues around our share value.
On the SILEX technology alone, we believe the Company is significantly undervalued. Add to this the possible upside of our other three novel technologies, the commercial potential for Silex Systems remains very exciting.
In conclusion, we believe that the Company is within reach of success, and remains solidly focused on value creation and shareholder returns.
Yours sincerely,
Further information on the Company's activities can be found on the Silex website:
www.silex.com.au or by contacting the persons listed below.
Company | Media and Investor Relations |
Michael Goldsworthy, CEO, or Julie Ducie, CFO / Company Secretary +61 2 9704 8888 | Media: Ben Oliver, Buchan Consulting, +61 3 9866 4722, +61(0)402 242 9825 Investor: Jane Lowe, Buchan Consulting, +61 2 9237 2800 |
About Silex
Silex Systems Limited (ASX: SLX) (OTCQX: SILXY) is a world leader in research, development and commercialisation of leading edge technologies in key strategic markets, including nuclear power, solar power, semiconductor materials and instrumentation. Silex is a member of the S&P/ASX 300 index and operates four divisions:
Silex has licensed its 'SILEX' laser-based uranium enrichment technology to Global Laser Enrichment (GLE), a business venture comprising GE (51%), Hitachi (25%) and Cameco (24%). Silex and GLE are commercialising the technology for potential deployment in the USA. Solar Systems has developed ultra-high efficiency concentrating photovoltaic (CPV) technology based on its proprietary 'Dense Array' dish concentrator system, targeting deployment of utility-scale solar power stations in key global markets. Translucent has developed novel semiconductor materials based on the 'rare earth oxide' family for application to the manufacturing of next generation devices in the semiconductor, power electronics and solar industries; and ChronoLogic has developed the world's first high precision timing and control products based on theultra-low cost USB-inSync™ platform, targeting applications in the electronic instrumentation markets.
Forward Looking Statements and Business Risks
Silex Systems is a research and development Company whose assets are its proprietary rights in various technologies, including, but not limited to, the SILEX technology, Solar Systems technology and business, Translucent technology and ChronoLogic technology. Several of the Company's
technologies are in the development stage and have not been commercially deployed, and therefore
are high-risk. Accordingly, the statements in this announcement regarding the future of the Company's technologies and commercial prospects are forward looking and actual results could be materially different from those expressed or implied by such forward looking statements as a result of various risk factors.
Some risk factors that could affect future results and commercial prospects include, but are not limited to: results from the SILEX uranium enrichment commercialisation program; the demand for enriched uranium; the risks associated with the development of Solar Systems technology and related marketing activities; the outcomes of the Company's interests in the development of various semiconductor, photonics, instrumentation and alternative energy technologies; the time taken to develop various technologies; the development of competing technologies; the potential for third party claims against the Company's ownership of Intellectual Property associated with its numerous technologies; the potential impact of government regulations or policies; and the outcomes of various commercialisation strategies undertaken by the Company.
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