Areva puts projects on hold as profits collapse

14 December 2011

France's state-controlled nuclear giant Areva has suspended trading in its shares and warned of a dramatic collapse in its profits. The suspension "is to ensure that comprehensive, accurate and precise information is communicated to the market and to all Areva's shareholders in an equal manner," a company statement said.

The suspension immediately preceded the announcement of plans (on Tuesday 13 December) to cut jobs and suspend projects around the world as part of a five-year turnaround plan, aimed at returning to profit after posting a huge financial loss in 2011.

Areva's new chief executive Luc Oursel told a meeting of financial analysts that Areva plans to cut up to 1500 jobs in Germany and has suspended a number of projects around the world in a bid to offset losses this year that are likely to reach EUR 1.6 billion ($2.12 billion).

M. Oursel said that the German job cuts were necessary following the German government's decision to shut down eight nuclear reactors and progressively phase out the remaining nine reactors between 2015 and 2022. German projects had represented 6% of Areva's order book of Euros 44 billion. The French government will not allow mass layoffs in France, but Areva will stop hiring in support areas such as information technology. Areva employs 8000 people in support functions, including 6000 in France.

At the same time the company is suspending a number of other projects around the world, including the Eagle Rock Enrichment Facility near Idaho Falls. Areva won a US licence to build and operate the planned $3 billion gas centrifuge uranium enrichment plant in October, a key step in the company's plans to expand production of nuclear fuel in the United States. Among other projects suspended are proposed capacity expansions at French fuel cycle facilities (Georges Besse II, Comerhex II, Melox, La Hague) and uranium projects (Trekkopje, Bakouma, Ryst Kuil).

According to the Financial Times Areva’s operating losses are largely the consequence of a ruinous bet on uranium prices with the 2007 acquisition of a small mining company. Areva paid EUR 1.8bn for UraMin, a Canada-based company with assets in Namibia, the Central African Republic and South Africa, when uranium was trading at around $138 a pound. Today the commodity is trading at about $50 after demand slumped following the March 11 nuclear disaster in Japan.

Areva has in fact stated that deposits at UraMin’s mines were far smaller than expected. The company is taking a EUR 1.46bn writedown on UraMin, on top of a EUR 426m provision last year. The size of the charge is embarrassing for the French government, which sanctioned the purchase, and Anne Lauvergeon, Areva’s long-serving former chief executive.

Areva said it would take a further EUR 900m in charges related to its nuclear activities, including cost overruns on its delayed third-generation plant in Finland. The result would be operating losses this year between EUR 1.4bn and EUR 1.6bn, the first loss for the 10-year-old group. M. Oursel said he would cut yearly costs by at least EUR 1bn by 2015 and sell at least EUR 1.2bn of (as yet unidentified) assets by 2016 to restore profits and reduce debt. But he was, he said, confident about the industry’s future because of the world's need to cut reliance on carbon-producing energy sources.

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