On 19 October 2023, we showed that NuScale’s key business contract with Utah Associated Municipal Power Systems (“UAMPS”) was at significant risk of termination. NuScale dismissed our report, labelling it as ‘riddled with speculative statements with no basis in fact’. Just a few days later, the company announced the termination of the UAMPS contract. Bloomberg characterised the cancellation as ‘abrupt’ but our report had already pointed out multiple signs that suggested its impending demise.
In its rebuttal, NuScale wrote that “…the CFPP being developed by Utah Associated Municipal Power Systems has its own project challenges not attributable to NuScale’s SMR technology”. The fact is UAMPS members abandoned ship because of escalating costs, which occurred even before any construction had begun. This structural problem is likely to repeat itself in future commercial relationships.
“Once you are on a dead horse, you dismount quickly and move on to others,” said NuScale CEO John Hopkins when referring to the UAMPS contract on the 3Q23 earnings call. That poor horse was the cornerstone of NuScale’s business case and we are now left with the other major contract: Standard Power.
We reiterate that this contract is a pipe dream that was designed to divert attention from the loss of UAMPS. People familiar with project finance along with performance and credit risk (we are) would shake their heads. To recap, Standard Power is a small crypto dataserver company — with minimum internet footprint — to whom NuScale expects to deliver 24 units of 77 MWe modules, totalling 1,848 MWe in capacity. We estimated this contract was worth ~$37bn. NuScale questioned this number saying the company did not provide “any forecast for the expected value of the agreement with Standard Power…”. To get our number, we simply used the UAMPS price adjusted for the number of reactors. So it’s undoubtedly a massive contract.
Crypto miners typically require the lowest-cost energy sources such as hydropower. Why then would Standard Power be interested in a Small Modular Reactor solution? It is way more expensive as the UAMPS fallout has demonstrated. This incongruity is already a red flag. We also wonder: why did Standard Power not participate in the UAMPS project, since NuScale was actively seeking more subscriptions to reach the 80% target?
Still, Standard Power is touted by NuScale as a credible partner because its investors comprise “Ultra high net worth family offices and financial institutions” that have “access to capital in excess of $10bn”. Even if this is true (which we doubt because of Standard Power’s size and the lack of identification around its investors), who cares?
- Have these financiers directly committed to the project? No.
- Will these family offices invest all of their $10bn capital in a $37bn contract? This makes no sense.
- Is it realistic to expect banks to finance crypto-related projects when the banking industry has cracked down on crypto financial flows? Good luck. It’s unlikely to even pass the compliance department.
During the 3Q23 conference call, TD Cowen analyst Marc Bianchi questioned Standard Power’s credibility as a counterparty. All he got from CFO Robert Ramsey Hamady was a smoke screen (see below).
Source: NuScale 3Q23 earnings call transcript
Whenever we encounter a manager saying something along the lines of “We vetted the client. We are so good at it that you can trust us, and you don’t need to know more”, it’s a cue for us to run. Notably, Hamady was the CFO of Western Magnesium Corp from March 2022 to September 2022. The company was a Vancouver promote that presented itself as a producer of “clean magnesium”. Eventually, the stock crashed to zero after the company failed to live up to its grand promises.
Management confidently states that NuScale has a “solid balance sheet” with $197m of cash at the end of September, and no debt. This perspective overlooks NuScale’s rapid cash burn of $153.9m over the last 12 months and ignores the impact of the UAMPS contract termination, which adds ~$63.3m in liabilities. On this basis, we estimate that NuScale has an 11-19 month cash runway depending on whether they draw on the ATM, which will dilute existing stockholders.
As detailed in our first report, the DOE committed substantial funding towards the project, contingent on matching private money. However, the termination of the UAMPS contract implies any further support will be re-evaluated.
The company’s trajectory bears striking similarities to the B&W mPower project, a joint venture formed in 2010 between Babcock & Wilcox and Bechtel. Like NuScale, mPower was developing a small modular reactor and enjoyed DOE backing. Babcock & Wilcox, mPower’s 90%-shareholder, attempted but failed to sell a majority stake in the project. In a similar vein, NuScale’s largest shareholder Fluor is actively trying to sell around 30% of its equity interest in NuScale. There was eventually a significant reduction in funding for mPower. In March 2017, Bechtel withdrew from the joint venture, pointing to the challenges of securing a site and an investor for the first reactor. This led to the termination of the mPower project and Babcock & Wilcox paid Bechtel $30m as settlement.
NuScale is now staring at the likelihood of bankruptcy. It will not see any significant cash inflows with the UAMPS commercial setback. The company’s only way to stay alive, albeit for a short time, is to massively dilute its shareholders.