Can Areva salvage future amid JAPANESE crisis?
As the world watches Japan wrestle with the worst nuclear incident since Chernobyl, French nuclear-reactor maker Areva faces the delicate, yet vital, task of convincing investors it still has a bright future.
During the Japanese nuclear crisis at the Fukushima Daiichi nuclear plant, Areva took Namibian and international press for a site visit to its Trekkopje Mine, in Namibia’s Erongo region.
This as fears mounted that many countries could turn their back on nuclear energy in the aftermath of the crisis, imperilling the future of the world’s top maker of nuclear reactors.
The stakes are high, for 90 percent state-owned Areva is one of France’s national champions and most successful exports. Its technology is installed in 103 reactors globally and, before the incident in Japan, it was at the forefront of the race to build many more in countries ranging from India to Italy.
On top of building and servicing reactors, the group has two other lines of business: a mining division that sources, enriches and sells the uranium used for fuel in nuclear plants, and a recycling unit that focuses on re-using or storing spent fuel. Areva’s Namibian interests are in the former.
Areva’s Trekkopje mine in Namibia is the world first uranium alkaline leach mining, with an estimated mineral reserve of 12 years and annual production of 3000 tons.
Financially, Areva’s performance has been solid of late, with revenue rising 7 percent to 9.1 billion euros (US$12.9 billion) last year.
A backlog of €44.2 billion has also allowed it to predict sales would top €12 billion in 2012.
As plant workers continued to struggle to cool the damaged reactors at Fukushima and thus avert a massive leak of radioactive materials, the question on many investors’ minds is simple: will the incident deal a fatal blow to the industry in general and to Areva in particular?
Said Areva Namibia Country Manager He added “ It is too soon to say what the economic impacts of this accident will have on Areva’s operations. This accident does not call into question our position on the energy mix and the promotion of low-carbon energies, for the problems of climate change remain unchanged. Low-carbon energies such as nuclear power are key components of that mix.”
Although Mbako says assessing the potential impact of the disaster on Areva’s business is too early, it may also be extremely difficult to assess the situation currently while the situation remains out of control.
But broadly, the answer is no.
“The short-term reaction is fear,” said Ben Elias, analyst at Sterne Agee. “There has been a lot of emotion around the nuclear crisis, to the point where we’re forgetting thousands of people have actually died in the earthquake and tsunami while the nuclear incident has yet to make one victim.”
He believes that Areva’s mining business will likely be misvalued for a while, until people realise that “we’re actually in a supply shortfall, with 65 new reactors being built around the world.”
As for the eventual repercussions of the crisis on Areva’s new build-and-services business, they will take much longer to emerge.
“The thing with nuclear is that it’s such a long-cycle industry,” said Jefferies analyst Alex Barnett. “The real impact of this crisis will actually be felt in five to 10 years.”
He estimated that in a worst-case scenario — where plans for new plants are scrapped and existing reactors slowly moth-balled — Areva’s value could fall to €6 a share, down from around €30 last month.
At the moment, most analysts assume the incident will result in fewer plants being built than would otherwise have been the case.
Several countries are already wavering in their commitment to nuclear, with Germany reviewing its decision to extend the lifetimes of nuclear reactors and temporarily closing seven of its oldest plants. Many other nations, including France, have announced safety tests on their reactors.
France, however, has the second-highest number of nuclear plants after the U.S. and derives more than 80 percent of its electricity from this source, making it unlikely to turn its back on the technology.
As the crisis rages on in Japan and politicians backtrack on nuclear power in the face of a U-turn in public opinion, Areva is acutely aware it must tread very carefully.
Areva is currently building four of its next-generation, flagship European Pressurised Reactors (EPR): one in Finland, one in France and two in China. It also signed a memorandum of understanding to sell two EPRs to India and is in talks with other countries including the U.K. and Italy.
Unfortunately, as television screens play images of Japan’s smoking plant around the clock, public worries over the technology keep mounting and there is little Areva can do beyond damage control.
Quizzed whether Areva is not faced with the task of convincing Governments not only in Namibia that the future is still bright, Mbako responded;
“Areva is open to dialogue and debate. We have been proactively carrying out a policy of transparency and information on our operations towards every segment of the public for several years now, including the Government, media, local elected representatives, and so on. We must listen and hear what is being said to continue the discussions based on trust that we have put in place with all of our stakeholders.
“Transparency and the safety of people and facilities have always been our core values. In fact this week (week when Japan nuclear crisis emerged) we brought in nuclear experts to appraise President Hifikepunye Pohamba of the current situation and to discuss the country’s future plans. I was very impressed with the President’s prior knowledge of the nuclear energy industry, and the manner in which he proposed to pursue the matter.”
So perhaps for now Chief Executive of Areva, Anne Lauvergeon, who has been at the helm for a decade and was voted Europe’s second-most powerful woman by Forbes earlier this month, will be focusing on stressing the higher safety standards of the EPR reactor, which is built to sustain shocks like earthquakes and plane crashes.
She recently told reporters that there would have been no leaks into the environment at the Fukushima plant had the reactors been designed using the EPR technology.
In the long term, some analysts actually believe that the incident in Japan could make Areva’s EPR proposition more attractive.
When faced with the decision of spending US$1 billion to US$2 billion to update an existing reactor’s safety features and that of buying the EPR for around $5 billion, some firms could choose to make the bigger investment, which would benefit Areva.
Global analysts believe that despite the catastrophe in Japan, the nuclear industry, and Areva, will recover, and even thrive.
The Areva Trekkopje mine has completed 70 percent of the Maxi project design vital for the operations of the mine which is expected to rake in the much needed foreign currency upon completion as well as boost uranium production.
Upon completion Areva Trekkopje mine will be one of the country largest exporters of uranium producing 36 million tonnes a year corroborating efforts by other current producers like Rössing uranium which has an annual output of 4.5 million tonnes a year and Langer Henrich mine.
Therefore, although the company maintains that it is too early to assess the impact of the incident, noting that no client has so far signalled a change of mind, Areva’s actions brings out the undertone of safety in the nuclear and uranium world, and in the not so distant future, the company might be asked to convince the world.
Concludes Mbako, “As part of the global Areva family of companies we in Namibia are doing everything we can to support Japan. Areva is mobilizing its forces to provide support to residents of the affected area and to the rescue workers and personnel working near the Fukushima nuclear plant. Areva has chartered a plane that delivered 3,000 activated charcoal protective masks, 10,000 overalls and 20,000 gloves. The aircraft also carried 100 tons of boric acid, a neutron absorber, made available by EDF, the French electricity regulatory authority. French rescue workers left for Japan with radioactivity detection equipment provided by Areva’s subsidiary, Canberra, specializing in the manufacture of nuclear detection and measurement equipment. Equipment in AREVA’s Tokyo offices has already been made available to the Japanese security teams. Areva has also made a donation of one million euros to the Japanese Red Cross”. PF