kgb: greg cochrane

Namibia-focused uranium miner Deep Yellow's managing director and chief executive Greg Cochrane tells Business Spectator?s Alan Kohler and Robert Gottliebsen:

The situation in Japan is not comparable to the Chernobyl incident
The uranium industry faces a tough task of rebuilding the public's trust in nuclear energy
Deep Yellow doesn't need to tap the market for capital just yet
Uranium juniors with no advanced projects will face significant challenges in the short to medium term
BHP Billiton's Olympic Dam project will be a game changer for the uranium sector


Alan Kohler: Well Greg, your share price is now a half what it was a month ago and it?s a $200 million loss of value, so how much of that do you think is a rational risk adjustment to what?s going on in Japan?

Greg Cochran: I think there is certainly a significant element of what has been effectively a huge negative market sentiment driven by the unfolding events in Japan, certainly not driven by the remotest of fundamentals.

AK: Yes, but you?ve been kicking around the uranium business a long time. I mean when was the last time you saw people in Tokyo taking iodine tablets and companies sending expats home from Tokyo?

GC: Correct. There is no doubt that the whole situation in Japan is a deep concern and, you know, we are watching the events as they unfold very carefully. I think the fact is that there has been an enormous amount of sensationalist reporting and it is really difficult to get to a genuine understanding of the real situation.

Robert Gottliebsen: What do you understand is the real situation?

GC: Well, I must acknowledge that the information coming out of Japan is difficult to understand, for the average person in the street, however, the fact is that what we are facing here is certainly not another Chernobyl like situation.

AK: Well, what are we facing?

GC: The explosions that have happened within the reactor at Fukushima are all related to pressure steam releases as a result of the efforts that have been ongoing to cool the core of the reactors. Now, that has resulted in very limited releases of shorter life radioactive elements, such as cesium and iodine. Those elements dissipate very rapidly, in fact within a matter of minutes.

So when you?re comparing that to the likelihood of a Chernobyl, a massive meltdown with a type of reactor that was never built in the West, purely in the former Soviet states, then the whole safety situation is completely different.

RG: What happens unfortunately in Western societies and perhaps around the world is that once the public gets a deep fear of a particular situation, it takes years to change that and I?m not sure that what we?re dealing with is something that will suddenly go away.

GC: That is a valid point and I think the industry recognises that. The industry has been working hard over the last, you know, many, many years to be both fully transparent in the way it approaches its business, and also working hard to try and educate the general public as to what are the real risks and dangers around nuclear power. And, in essence, when one looks at the statistics, one can see that it still remains one of the safest, and if not the safest, source of base load energy generation in the world.

RG:But that?s not the public perception and most of that work has now been destroyed by this event.

GC: I definitely think that we will have to work hard to readdress that situation. However, just to put things into context, what we need to recognise is the actual fundamental achievements of what this particular reactor building or nuclear site has actually withstood. For example, it was designed to withstand an 8.2 magnitude level earthquake and has actually been hit by an 8.9 magnitude earthquake. Now that point 7 may sound like a relatively small difference but the Richter scale is a log scale and so, in energy terms, what the Fukushima site has actually withstood is an earthquake that is some five times larger, in terms of magnitude and more like fifteen times larger in terms of energy. So, the average person, you know, can assimilate the experience of a car accident at a hundred kilometres an hour which we would expect that most of us would survive from depending on the nature of the accident, and cars are designed to withstand that sort of impact. What has happened here is that it?s like being in a car accident where the car is travelling at fifteen hundred kilometres per hour and the fact is that that nuclear power reactor and building has withstood that sort of impact. That is an absolutely amazing event. It really is testimony to the fundamental design and the construction engineering of the sites in Japan.

AK: So, you?d argue that the events in Japan last week actually reinforce the safety of nuclear power would you?

GC: I think seen in the cold light of day, it?s difficult to speculate on the ultimate outcome, but there is every possibility that that could occur once the situation has been resolved and everything is back to normal again. Then we will be able to fully assess the impact of what has transpired and then obviously learn the lessons there are to be learned from this particular situation. I think once people sit back they will realise the enormity of what has happened and what that region has withstood.

RG: The Chinese are the leaders in building nuclear plants and they have an enormous programme of plant building.

GC: Correct.

RG: Are they building plants that can withstand these sorts of earthquakes? How do the modern Chinese plants differ from the sort of plant that we?re now looking at in Japan?

GC: With every single design of a nuclear plant what is taken into account is the local environment, the potential for larger earthquakes, tsunamis, etc, etc, and they are built fundamentally into the design. So the Chinese are using designs which would stack up and in fact they are using internationally based designs from people like the French or the Americans. So, there is no difference in quality or standards, be it building a nuclear power station in China or in France for that matter.

AK: Greg, have you started marketing the uranium from your Omahola project in Namibia yet?

GC: No. It?s still premature, bearing in mind that we are still in the late stages of completing a pre feasibility study on Omahola. That pre feasibility study is due to be completed and released before the end of the second quarter of this year and before the middle of the year.

RG: But you?re going to need massive amounts of Chinese capital, aren?t you? Because right now I think the company has got about twenty million dollars in cash or it did have a month or two back, and that?s roughly what you spend in exploration in a year, so there is substantial capital to be raised.

GC: Look, within a year or so we would certainly be looking for more capital in the absence of other strategic issues. We will look in our overall portfolio and see what is absolutely core to our business and what is not, potentially then investigating an opportunity to sell off some of our assets to fund our core, or our best assets. So, we have no immediate need to actually go to the market to raise money. In addition to that, the timeframe for the actual development of a project at Omahola would be significant spend from say the end of next year, so you know we?re talking eighteen months to two years out before the sort of capital we?re talking about to develop a uranium mine will actually be required. We would not be focusing on one particular source of capital, be it the equity markets, be it China, Japan or Korea for that matter. We will source our capital based on the nature of the project, look at its inherent risk of the project and its fundability. Obviously, project finance comes into that equation as well.

RG: But in practical terms with the current share prices, you simply couldn?t do it. You?re going to rely on a rise in the share price or a recovery in the share price in the next eighteen months or so.

GC: Correct. I mean we have two options that we can consider. The one is obviously we sit tight and wait and we ride out the storm so to speak and I think the fundamentals of the industry remain more or less the same given that countries such as China are still very much committed to a full nuclear build. That is driving much of the global demand now and will do so in the future and that will lead us to see a recovery in the price. Secondly, we are in the fortunate situation that we have within our portfolio somewhat of a diversification story. Our exploration efforts in Namibia have actually identified a magnetite iron deposit thirty-five kilometres from a deep water port of Walvis Bay. We recently completed a drill out programme on two deposits on what is effectively a twenty kilometre strike length, aeromagnetic anomaly, and we have two significant flagship projects in our portfolio; one of which is Omahola and the other is our magnetite iron project, a project we call Shiyela.

RG: There must be a large number of smaller uranium companies that are in a similar situation to yourself, that their share price has fallen and they really can?t do anything like you can. I understand you?ve got the two projects, but there must be a lot of companies around that are just basically frozen by this fall in their share price.

GC: Yes. Those companies that do not have well advanced projects I think will be facing significant challenges in the short to medium term. Those that are still in the very early stages of exploration will, I have no doubt, have difficulty to raise capital within the next six months.

RG: There are a lot of nuclear reactors due to be built. I think around sixty are on the drawing boards at the moment. Do you think that number is going to come back?

GC: It may come back. It might be pared slightly in the West, but you know China alone, depending on your source of statistics, is planning fifty new plants while twenty-seven are already under construction and that?s just China alone. You know, our figures globally could be well in excess of that, something like a hundred and fifty odd planned while there are currently some sixty power stations currently under construction. Build in Europe or the US may be somewhat delayed, but in other major growth areas ? China, Russia, India, South Korea and even Japan - we anticipate growth would continue.

RG: What percentage of those nuclear power stations is in China and India?

GC: Between China and India alone we are talking about almost fifty per cent in terms of construction and also fifty per cent in terms of the planned build.

AK:You?re in the interesting position of having Paladin as a twenty per cent shareholder. Have they told you what their intentions are?

GC: No, not at all. I obviously treat Paladin with great respect seeing they are an almost twenty per cent shareholder. They do not impose a strategy and adopt a very hands off approach to our business and we have a good relationship with them within our operating environment within Namibia. We benefit from their experience, not only because of the path that they?ve, you know, mapped out with Langer Heinrich, but of course our local managing director in Namibia was instrumental in the licensing of Langer Heinrich and to this day remains on the board of the Langer Heinrich operating company. So, we learn a lot from the Langer Heinrich?s experience and we value that relationship.

AK:Yes but obviously they?re not a portfolio investor, they?re obviously waiting until Omahola is ready and they?ll scoop it up.

GC: Well, you know, there is always the potential for that. As we all know if you?re listed, you are in effect for sale. I guess for me our focus as a company is on making sure that we get the best returns for all our shareholders. So, if Paladin or any other shareholder for that matter was to launch a bid, we would do what the market would have expected from us, to make sure that we get an acceptable value for all our shareholders for our really exciting range of projects, not just Omahola but also our Shiyela magnetite iron project.

RG: Around the world, how many major uranium development projects do you see? Is there a possibility of a glut of uranium?

GC: Frankly, I think that's unlikely. We often forget the fact that uranium is a relatively difficult and challenging mineral to process and so, you have the situation where so many mines have fairly unique processing circuitry. For example, you know, the three and almost four operations we have in Australia all have different processing circuits and Langer Heinrich in Namibia is vastly different from Rossing. While there are many projects on the drawing board, the potential that even seventy or sixty per cent of them will come to fruition and reach their production targets within the timeframe and the budget is unlikely. There are challenges and it takes time and effort to get these operations up and running. We only have to look to the recent experience of Paladin who has been the most successful at the juniors in getting, you know, two operations up and running. They themselves have had enormous challenges in getting Langer Heinrich up and running successfully and more recently Kayelekera in Malawi.

RG: Where does Olympic Dam stand in this? Just how big globally is that development in terms of what it will do to the world uranium industry?

GC: Olympic Dam, if it were to go ahead, would no doubt have a huge impact on the overall supply and demand balance of the industry, however, you know, I think we need to recognise that BHP faces significant challenges in making that investment decision because it is such a big investment. You know, when you?re talking in excess of twenty billion dollars to build a project, that?s shall we say not for the faint hearted, not even for BHP.

RG: So, to some extent are all these projects in Africa and around the world, these smaller projects, they?re all looking at BHP and saying if they go ahead, the scope for the multitude of projects is considerably reduced?

GC: Yes, in one respect, but secondly, you know, most nuclear power plants and in fact in any market people look to diversify their sources of supply. So, whether it?s the coal fired power station of Europe or Japan for that matter or China or whether it?s the nuclear power stations, the supply strategy or the sourcing strategy for them remains the same. They must diversify their sources of supply to ensure that they can have their reactors full when they need them and so no one power company would look to just Olympic Dam or just Rio Tinto through Rossing and ERA for their source of supply. I mean we?ve just seen more recently what has happened both to Ranger and Rossing having production issues which means that they are struggling to supply in to their contracts.

RG: What would you think that BHP would be thinking right now?

GC: I think like us they would be deeply concerned about the situation in Japan and they would be watching it and monitoring it very closely. Fundamentally, though, it probably will not change their strategy. There are bigger challenges that I think that they face around the decision making of Olympic Dam that go beyond, you know, the short term situation at Fukushima.

AK: That?s great. Well look, thanks very much, Greg.

GC: Ok.

RG: Thank you, Greg.