Questions about Areva's committment to Eagle Rock Enrichment

A wire service report suggests the new CEO plans to freeze investment

Luc Oursel, Areva CEO

A report by the Bloomberg wire service that ran about noon Monday September 12 cites a French financial newsletter published in Paris that Areva may freeze capital investment spending including the planned Eagle Rock Enrichment Plant in Idaho.

According to Bloomberg, Areva CEO Luc Oursel will make sweeping across-the-board cuts at its headquarters including marketing, communications and finances, La Lettre de l’Expansion said, without citing anyone.

Most significantly for U.S. projects, he is reported considering freezing some investments including the construction of an uranium enrichment plant in Idaho. 

The action makes no sense in terms of its progress to date nor in terms of its competitive position.

• The Department of Energy awarded the project a conditional commitment of a $2 billion loan guarantee in Spring 2010.
• An NRC license for the project is expected to be issued this Fall.
• Areva has reportedly sold contracts for more than 70% of its future capacity to customers

This blog asked Areva spokesman Jarret Adams, based on Bethesda, MD, for some answers.  Here's what he said,

"It is normal for a new management team to review the company's major planned investments around the world. However, Eagle Rock is but one of many such investments. We do not know why this article chose to focus on this project. From our perspective, the Eagle Rock project is moving forward as planned."

While Areva is a heavily top down organization in terms of its management processes, it is unlikely the U.S. enrichment team would be left in the dark on such a significant decision. This leads me to believe that Adams knows what he's talking about and that the French financial newsletter is trading in gossip.

Update 09/15/11: DowJones Newswires reported that CEO Oursel gave an interview to the French Daily Les Echos.  In it he reportedly said, "All of our investments are being reviewed to decide whether they should be maintained, dropped, or adjusted."

He added that Areva is planning asset sales to raise cash. Mining interests are said to be candidates to be placed on the auction block or the firm may seek new investors to lower the risk and provide much needed cash.  Overall, Oursel said the firm needed to improve its performance in addition to addressing capital requirements.

The wire service report was silent on the issue of the Eagle Rock Enrichment Plant.

Big stakes in the decision

According to Bloomberg, Oursel is a competent executive. His previous jobs include posts in government and at Schneider Electric SA and logistics company Geodis. He joined Areva in 2007.   He headed up its nuclear operations in 2010 before becoming chief operating officer in charge of marketing, projects and the international business in early 2011.  So it stands to reason he should know the stakes.
 

If Areva CEO Oursel thinks he is making his decisions in a vacuum, he needs to take another look at the information his organization is serving up.   Surely he must know you cannot walk away from a commitment to build a $2.4 billion uranium enrichment plant the way Taco Bell or KFC close under-performing fast food joints.

On the other hand, he's new in the chair, and could unsure of his support from government stakeholders. So he may be running the idea up the flagpole, so to speak, to see who salutes.  Oursel is part bureaucrat and part businessman, but he's not nearly as entrepreneurial as his predecessor Anne Lauvergeon.

Feedback from the U.S., including Areva's customers, will likely be arriving in Paris soon.  A key message is likely to be once that market share is lost, it is gone forever.  Freezing construction of the plant is tantamount to cancelling it.

Will the Russians step in if Areva crashes through the ice?

From a competitive point of view, if Areva does not build the plant, it loses market share to Urenco's operational enrichment plan in New Mexico. This could put U.S. supplies of enriched uranium on thin ice.

The reasons is the aggressive marketing efforts of TENEX which is the Russian commercial arm that sells enrichment services to U.S. utilities.  Russia is not a government as we understand it.  The country is in reality an energy combine with an overlay of government functions.


There are also national security implications for the U.S.  Does this country want to be dependent for up to 25% of its enriched uranium for its 104 commercial nuclear reactors from the Russians?  Remember, this is the same country that turned off the natural gas supplies to the Ukraine in the dead of winter over a political dispute.

What about Urenco?

There are wire service reports in Europe that the German power companies RWE and Eon want to sell their stakes in Urenco, which has German, Dutch and British owners. The British government is also said to be thinking about selling its shares and reportedly the Dutch don’t look like wanting to increase theirs. No one in western Europe is going to sell their shares to the Russians.

If Areva is suffering from cash flow problems, then it isn't a potential buyer either.  Urenco could wind up simply shutting down its operations in Holland, the U.K., and Germany while increasing capacity in New Mexico.

It's a complex world.

# # #