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Revolution Brewing in Nuclear Fuel Technology?

Not content with causing geopolitical chaos, the Russians are wreaking havoc in the energy sector, too.

In a positive way, that is.

On Monday, I noted how Russian scientists have created floating nuclear power plants, which offer a radical solution to expanding nuclear power as an energy source.

Well, the Russians aren’t the only ones innovating in this area.

One company much closer to home has taken a giant step further…

It’s actually trying to reinvent the way nuclear fuel is produced. To do so, it’s going right to the source of nuclear energy.

The technology even boosts power output, and is safer than conventional uranium-based nuclear fuel.

There’s no question that it represents a major advancement in nuclear science.

But the question is: How does its stock match up?

This Company Wants a Nuclear Revolution

Based on the outskirts of Washington, D.C., in McLean, VA, Lightbridge Corp. (LTBR) is a little-known nuclear fuel technology firm.

Its business is essentially divided between its technology R&D and nuclear energy consultancy services.

Lightbridge wants to shift the focus of nuclear fuel from conventional uranium to an element called thorium.

It’s a sound idea. As you’ll see, thorium boasts several benefits over uranium.

But there’s often a huge gap between innovation and execution. And as you’ll also see, getting this innovation off the ground and widely accepted as a nuclear fuel is a monumental challenge.

~Cash

Take a glance inside Lightbridge’s books, and things quickly turn dark.

And that’s putting it mildly.

The firm sports some of the worst numbers I’ve seen in a long time.

For example, revenue and gross profit have steadily declined for over five years now. In fact, Lightbridge’s revenue has plummeted by 1,068% since 2008, dropping from $22.2 million to only $1.9 million last year.

Gross profit? Same story.

It nosedived by 1,288% – from $11.1 million in 2008 to a woeful $800,000 in 2013. Other major metrics are similarly awful.

Lightbridge CEO, Seth Grae, claims the company is in a “developmental stage.”

That’s partly true…

While the name “Lightbridge” has only been around since 2009, the company isn’t a startup. The company was actually founded in 1992 and was previously known as Thorium Power, Inc. – and Novastar Resources, Ltd. before that.

Not only does this company appear to have an identity crisis, it seems to have been in a “developmental stage” since 1992. That’s 22 years, with a steady drop in financial performance.

C.H.A.O.S. Meter: 1/20

~High Impact

As the global population rises, so does the strain on the energy infrastructure and existing resources.

When it comes to the nuclear industry, the world needs safer and more economically competitive nuclear power.

Well, Lightbridge has invented and patented high-impact fuel technology that it believes will achieve both goals. How?

By offering customers all-metal and thorium-based fuels to replace today’s uranium-enriched power.

You see, after uranium is mined, it gets converted to a gaseous form. It’s then transferred to an enrichment plant, where it’s “enhanced.” That enriched, gaseous uranium is then transported to a fuel fabrication plant, where it’s converted into uranium dioxide powder.

The powder is pressed into small fuel pellets that are then inserted into fuel rods. When bundled together, these rods form fuel assemblies. That’s what powers nuclear reactors.

But Lightbridge’s fuel rod technology offers new reactors and two alternative fuel types.

First, there’s thorium.

Thorium is a radioactive metal. Traces of it can be found in most rocks and soils, and it’s about three times more plentiful than uranium. That helps ease concerns over the uranium constraints.

Lightbridge claims its array of thorium-based rods are better than conventional uranium ones because they reduce the weight and volume of used fuel by 40% and uranium requirements by 10%.

All-in-all, Lightbridge says its thorium-based fuel will increase nuclear reactor power output by 30%, and eliminate nuclear waste material that’s used for nuclear weapon development.

Lightbridge also offers an interchangeable all-metal fuel rod.

These entirely metallic fuel rods boast three key benefits…

  • They provide a power output boost of up to 17%.
  • They result in a 30% rise in reactor uprate (time spent running).
  • The required operating temperature of the fuel created from its all-metallic rods is 716 degrees Fahrenheit. Compare that to the molten-hot 2,732 degrees Fahrenheit required for oxide fuel. This lower operating temperature keeps the fuel from approaching dangerous temperatures during accidents.

C.H.A.O.S. Meter: 17/20

~Acceleration

When it comes to short-term stock accelerants, there’s a common theme with Lightbridge…

Given the company’s $44-million market cap and thin volume, any whiff of good news or bad news in the nuclear industry has the potential to move the stock big time…

Take a look…

Lightbridge's news-driven profits and loses

In addition, Lightbridge announced two weeks ago that it will be the first U.S. company to work with the Vietnam Agency for Radiation and Nuclear Safety (VARANS) to help develop the country’s nuclear energy program.

This is a lucrative opportunity. Vietnam’s $10-billion nuclear industry is second only to China’s in Southeast Asia. And the U.S. Commerce Department says the market will grow to $50 billion by 2030.

As governments focus more on nuclear safety and finding innovative ways to generate power, while avoiding disasters, Lightbridge is well-placed to offer traders quick opportunities to profit.

Be warned, though: This is a dangerous game to play. Given the stock’s low volume, you’d be hard-pressed to get out unscathed if shares fall hard.

C.H.A.O.S. Meter: 13/20

~Orders

The demand for nuclear power solutions today is stronger than ever.

Given that Lightbridge’s fuel offers both new and existing nuclear power plants better safety and power output, the company believes it can generate revenue from new plants, plus the maintenance and upgrade of existing ones.

That’s great in theory. But up to now, it has yet to generate any orders or revenue.

The other segment of Lightbridge’s business model is its nuclear strategy and consultation work to global governments and commercial operations.

It has a large and well-respected team here, including the former head of Advanced Nuclear Fuel Design at General Electric (GE), the former head of Nuclear Technology at Westinghouse, the former head of the International Atomic Energy Agency, and a slew of former nuclear regulators from several different countries.

Since Lightbridge isn’t generating revenue from its technology, the company’s consultation work is the crux of its business.

Needless to say, relying on just one segment for revenue is pretty risky, given that business will rise and fall.

Unfortunately, Lightbridge has experienced more downs than ups recently. In 2013, revenue from its consulting segment sank by 100%, pulling in $1.8 million, compared to the $3.6 million it generated in 2012.

Hopefully, the VARANS deal will produce an upturn here.

C.H.A.O.S. Meter: 7/20

~Scalability 

It’s fair to say that Lightbridge is “all in” on its technology. If it gains widespread traction, it will finally transform the company’s fortunes.

If not… well, it would spell disaster.

Lightbridge does boast strong, established relationships through its consulting segment. And in order to grow, it intends to license its nuclear fuel design to existing nuclear fuel fabricators. It’s also looking for fuel fabricators that have long-term fuel supply contracts with nuclear power plants.

The structure of these licensing agreements will likely require major fuel suppliers to share fuel development costs. Also, fuel suppliers will need to pay an upfront technology access fee to Lightbridge, plus royalties from future fuel sales.

The company believes that continued heavy R&D spending, coupled with product demonstrations, will ensure commercial licensing contracts in roughly one to two years.

I’m skeptical…

Successful commercialization is multi-pronged. And one of those prongs requires expensive marketing costs to potential fuel fabricator customers, while the other requires raising government awareness.

Despite Lightbridge’s solid team of former government agency heads, it doesn’t help speed the exorbitant time that government processes tend to take. This is evidenced by the company’s prolonged efforts since 1992.

Given its financial situation, time is a luxury that Lightbridge does not have.

C.H.A.O.S. Meter: 5/20

ChaosOVERALL C.H.A.O.S. RANKING: 43/100

Final Verdict: An investment in Lightbridge is an investment in thorium and metallic fuels. Or, more accurately, an investment in the belief that thorium will become a major source of nuclear energy.

Given its abundance and environmental benefits over uranium, it’s likely that thorium will have a growing role in the nuclear industry. But it’s not a certainty – and not anytime soon, either.

Even Lightbridge’s own timeline doesn’t project ample commercialization until beyond 2020. In the meantime, it’ll be spending much more on researching and developing its metallic fuel than its consulting business can keep up with.

And that’s the problem… Lightbridge’s near-term life expectancy seems rather fragile.

If anything, the best I can say is that this is a “pre-chaos” company, whose main catalysts at the moment come from news-driven events, rather than its own disruptive breakthroughs.

Your eyes in the Pipeline,

Marty Biancuzzo

Marty Biancuzzo

, Technology Analyst

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