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By Team Ace Investors

Company Overview

Silex Systems Limited (“SLX” or the “Company”) is a high-tech company focused on the delivery of unique and disruptive Laser Enrichment Technology for the global uranium enrichment industry. The company invented and initially developed the laser-based uranium enrichment technology in Sydney during the 1990s. The technology was licensed exclusively to GE-Hitachi Global Laser Enrichment LLC ('GLE') in 2006, a business venture currently comprising GE (51%), and Cameco (49%) following the restructure of GLE. In Jan 2021, Silex acquired a 51% interest in GLE following a restructure of the GLE. The transaction also resulted in Cameco Corporation increasing its interest in GLE from 24% to 49%. Silex and GLE have been jointly involved in the development and commercialization of its uranium enrichment technology for potential deployment in the US since 2007. In Feb’2023, In 2023, GLE’s owners agreed to a plan and budget to accelerate activities in the commercial-scale pilot demonstration project for the SILEX uranium enrichment technology. SILEX technology is a unique laser-based process that has the potential to economically separate uranium isotopes. It has several advantages over conventional uranium enrichment processes as (i) Inherently higher efficiency; (ii) Smaller environmental footprint than centrifuge and diffusion plants;(iii) Greater flexibility in producing advanced fuels for next-generation small modular reactors (SMRs); and (iv) Anticipated to have the lowest capital costs of all enrichment technologies. In February 2023, the Company commenced the Medical Isotope Separation Technology (MIST) Project, focusing initially on a proof-of-concept project to investigate processes for economic production of high-purity Ytterbium (Yb-176) for medical isotope production. On 17 August 2023, The Company announced the SILEX Quantum Silicon (Q-Si) Production Project following the successful completion of the Zero-Spin Silicon Project in FY23. The Quantum Silicon Production Project is being undertaken with project partners Silicon Quantum Computing Pty Ltd (SQC) and UNSW Sydney (UNSW) at Silex's Lucas Heights facility, to commercialize a variant of the SILEX technology and for the commercial production of Quantum Silicon, a key enabling material for the emerging silicon quantum computing industry. Silex's operations are currently focused on the development and commercialization of the SILEX enrichment technology for two commercial applications:

(i) Uranium production and enrichment for the production of nuclear fuel for the nuclear power industry; and

(ii) Silicon enrichment for the production of ‘Quantum Silicon’ used in the emerging silicon quantum computing industry.

Investment Rationale

Focused on the commercialization of its innovative SILEX laser enrichment technology across multiple markets

The company has pioneered several innovative technologies such as uranium enrichment technology and silicon variants which have wide applicability in the nuclear fuel and semiconductor sectors. The SILEX technology is the only third-generation laser-based uranium enrichment technology known to be under commercial development today. Subject to the successful completion of the commercialization project, market conditions, and other factors, the SILEX technology could become a major contributor to nuclear fuel production for the world’s current and future nuclear reactor fleet, through the production of uranium in several different forms viz. natural grade uranium (Unat), low enriched uranium (LEU), and high assay LEU (HALEU). GLE is well positioned to address the emerging nuclear fuel supply chain issues, with the unique potential to produce all three grades of nuclear fuel required for current and future nuclear power plants The uranium enrichment project aims to complete the construction of a full-scale laser and separator equipment which will be deployed in GLE's Test Loop facility in Wilmington, to demonstrate commercial pilot-scale (TRL-6) enrichment of the SILEX technology by the mid-2020s. Silex is focused on the commercialization of its innovative SILEX laser enrichment technology across multiple markets. The company identified three pathways to commercialization-

• Through Silex’s ownership of a 51% interest in exclusive uranium technology licensee GLE;
• Developing the SILEX technology for the production of Quantum Silicon products based on Zero-Spin Silicon (ZS-Si) - a key enabling material required for silicon quantum computer chip fabrication; and
• Further diversifying the business case for the SILEX technology through the potential production of medical isotopes, initially focusing on the enrichment of Ytterbium-176 - a key enabling material for a breakthrough nuclear medicine cancer treatment.

Silex made substantial progress during FY24 toward completing a pilot demonstration project (TRL-6) by the end of CY24

Silex has made substantial progress in its various enrichment technology projects, with a primary focus on the commercialization of its laser-based uranium enrichment technology in the US.

• During FY24, Silex and GLE have constructed, integrated, and commissioned full-scale pilot equipment in GLE's Test Loop facility in Wilmington, NC to complete a pilot demonstration project (TRL-6) by the end of CY24, subject to an independent assessment and report. The TRL-6 pilot demonstration project is a key milestone in the de-risking of the SILEX uranium enrichment technology for commercial deployment. The company is also entitled to the first million milestone payment of US$5 upon successful completion of the TRL-6 pilot demonstration project under the technology commercialization and license agreement signed with GLE in 2006. If completed in 2024, the TRL-6 demonstration would have been achieved 12 months before than originally planned.
• GLE has also agreed to a CY24 plan and budget to support its commercialization efforts related to the planned PLEF, including the advancement in technology maturation (i.e., TRL-7 and 8) and manufacturing activities (i.e., MRL-7 and 8) in preparation for commercial deployment; fit-out of GLE's new facility in Wilmington (occupancy taken up in June 2024), which provides significant additional space for in-house manufacturing capability to support GLA's commercialization program; the acquisition of Paducah, KY site for the planned PLEF; and the preparation of NRC commercial plant license for the PLEF.
• Subject to various factors, including the successful completion of the TRL-6 pilot demonstration, industry and government support, a feasibility study for the PLEF, and continued supportive market conditions, GLE will continue to advance these commercialization activities to support the potential commencement of commercial operations at the PLEF ahead of the original plan of 2030.
• In Aug’2023, Silex announced a 3.5-year Q-Si Production Project in conjunction with partners, SQC and UNSW. The Project’s objective is to establish the first Q-Si Production Plant and to develop the skills and capability to manufacture Q-Si products, produced from Zero-Spin Silicon (ZS-Si) halosilane. It is anticipated that the Plant, which is currently being constructed at the Company’s Lucas Heights facility, will produce up to 20kg annually of ZS-Si, which will be converted to Q-Si product forms (gaseous and solid) required by potential customers in the global silicon-based quantum computing industry. A key benefit of the SILEX laser isotope separation technology is its modular nature, allowing for the Production Plant to be scaled up with more production modules over time, based on market demand and other factors. In Jan 2024, Silex announced the expansion of its commercial arrangements with longstanding partner, SQC, in support of the Q-Si Production Project. This included an increase to SQC’s product offtake commitment for Q-Si products and additional funding arrangements that will result in a cash contribution of $4.35m to the Q-Si Project.
• In February 2023, Silex announced the MIST opportunity and the commencement of its MIST Project. The Project is initially focused on the development and demonstration of a process to economically produce enriched Yb-176, which is the precursor isotope required for Lu-177 production. The Lu-177 radioisotope has enabled a breakthrough development, called targeted beta therapy, for the diagnosis and treatment of several types of aggressive metastatic cancers. It has been approved for use in several applications in the US, Europe, and the UK, and is under trial in Australia. In December 2023, the company completed Stage 1 of the Project (proof-of-concept), with a Silex custom-built test system at its Lucas Heights facility. Silex is currently undertaking Stage 2 of the Project and is completing a series of activities to validate the process at prototype scale, representing a significant level of scale-up.

ACE’s Recommendation

Silex is focused on the commercialization of its innovative SILEX laser enrichment technology across multiple markets; with a priority focus on a reliable and sustainable supply of nuclear fuel for the world's clean energy needs and quantum materials for next-generation quantum computing technology. The company identified three pathways to commercialization (i) through Silex's ownership of a 51% interest in exclusive uranium technology licensee GLE; (ii) Developing the SILEX technology for the production of Quantum Silicon products based on Zero-Spin Silicon (ZS-Si) - a key enabling material required for silicon quantum computer chip fabrication; and (iii) Further diversifying the business case for the SILEX technology through potential production of medical isotopes, initially focusing on enrichment of Ytterbium-176 - a key enabling material for a breakthrough nuclear medicine cancer treatment. During FY24, Silex has made substantial progress in its various enrichment technology projects, with a primary focus on the SILEX laser-based uranium enrichment technology. During FY24, Silex and GLE constructed, integrated, and commissioned full-scale pilot equipment in GLE's Test Loop facility in Wilmington, NC, to complete a pilot demonstration project (TRL-6) by the end of CY24. The TRL-6 pilot demonstration project is a key milestone in the de-risking of the SILEX uranium enrichment technology for commercial deployment. The company is also entitled to the first milestone payment of US$5 million upon successful completion of the TRL-6 pilot demonstration project under the technology commercialization and license agreement signed with GLE in 2006. We believe that the completion of a commercial-scale pilot demonstration (i.e., TRL-6) plant in CY24 is a key near-term catalyst for growth. The stock closed the day at A$3.500/share and presents an investment proposition. So, we would like to recommend a BUY rating on the stock.

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