Transcription of Finance News Network Interview with Toro Energy Limited (ASX:TOE) Managing Director, Dr Vanessa GuthrieClive Tompkins: Hello Clive Tompkins reporting for the Finance News Network. Joining me from Toro Energy Limited
(ASX:TOE) is Managing Director, Dr Vanessa Guthrie. Vanessa welcome to FNN.
Dr Vanessa Guthrie: Thank you very much, glad to be here.
Clive Tompkins: Toro Energy is a uranium developer, which this week won final Federal Government environmental approval to develop the $269 million, wholly-owned uranium project in Western Australia. What process occurred to get to this point?
Dr Vanessa Guthrie: Look Toro is very pleased and welcomes the Minister’s decision- the Federal Government Minister’s decision- this week, to allow Wiluna uranium project to now proceed. It comes after a 3.5 year environmental assessment process, which included four opportunities for the public to comment and follows on from the State Government in Western Australia’s approval, which was received last October. It really now paves the way for the Wiluna project to become the first uranium mine in Western Australia, and the sixth uranium producer across Australia.
Clive Tompkins: Thanks. And what’s the significance of the announcement for the Wiluna uranium project itself?
Dr Vanessa Guthrie: Well this means that Toro can now with our potential investment partners- our strategic partners- actually progress forwards on commercial terms to take Wiluna into project funding status. And then with a view to achieving final Board approval for decision to construct, by the end of the year.
Clive Tompkins: And which deposit will drive Toro’s output, and when are you forecasting maiden production will occur?
Dr Vanessa Guthrie: Well the Wiluna project that is now approved is two deposits, the Centipede and Lake Way deposit. The first deposit to be developed will be the Centipede and that is adjacent to the processing plant. And it is where we will put the mine tailings back in ground. So Centipede is first, we anticipate our first production by the end of 2015.
Clive Tompkins: Thanks Vanessa. So what’s your timeline for reaching production by the end of 2015, and what’s next on Toro’s priority list?
Dr Vanessa Guthrie: Well the first priority now for Toro is to secure a funding partner. And we’ve had very encouraging discussions over the last 18 months with potential partners, mainly from Asian utilities and Asian trading houses out of Japan, Korea and China, but also with some partners in the US. So our key priority now is to fund the project. We have some infrastructure engineering and cost estimate work to complete, and that will take us really to bankable stage by the end of this year. So we can achieve that first production target by the end of 2015.
Clive Tompkins: Now to financing. Can you talk us through your economic modelling for Wiluna and your plans for commercial financing arrangements?
Dr Vanessa Guthrie: Well the project has really been the waiting for the Federal approval, so that we can secure with certainty an investment partner. What we would like to do and propose to do with that strategic partner, is a mixture of debt and equity. The strategic partner is really motivated more by security of supply into the nuclear power facilities, rather than a direct economic return. Of course it’s a combination of both. Those partners look to have a combination of equity and a long term offtake contract, which secures the product to them.
So our economic model looks at Toro Equity, a joint venture partner equity with an offtake contract arranged and then debt facility, to fund the project as well. We would expect to retain some offtake contract for ourselves and most of that will be in long term contracts, with a long term secured price. That means we will have some exposure to the stock price but of course, not a significant amount.
Clive Tompkins: Good, so how strong has interest from Asian utilities been in partnering?
Dr Vanessa Guthrie: We’ve had significant interest over the last 18 months to two years from partners, potential partners in China, in Korea and in Japan. And interestingly, even in - this is post the events in Fukushima and the closure, progressive closure of the Japanese reactors. So while the sentiment on the broader global market is around spot price, has been driven by the events in Japan, in reality the long term contract prices have been very stable. And these partners have been very interested in securing that reliability of supply from Australia, which is considered to be a Tier One supply country.
Clive Tompkins: Now Vanessa, there’s been a lot of equity market focus on the short term uranium spot price. How does that relate to longer term prices and your joint venture negotiations?
Dr Vanessa Guthrie: Well the short term spot price, which is really a contract within a 12 month period at $42 today or thereabouts, is really just driven by the sentiment out of Japan. And the current arrangements regarding inventory overhang that has happened in Japan. But in reality, this is not connected to the long term contract price, which has been very stable since post Fukushima. And our joint venture agreements are really focused on securing a long term contract price that – and the pricing point we look for, is actually in the second half of this decade. So it’s really a 2016 and onwards price and these contracts are 10 years long.
So our joint venture partners and ourselves are really looking for that 2016 and onwards price point. The current predictions by independent analysts around the world, so that that price and the new incentive price for mines like ours, is really in the $70 per pound range - US$70 per pound range. So we believe that the spot price today, is not really reflective of what a long term contract and a joint venture partner will be interested in, with the Wiluna project.
Clive Tompkins: So what sort of global uranium market will Wiluna’s output be coming into in what is basically, the second half of this decade?
Dr Vanessa Guthrie: Well the current projections by China is that they will increase their nuclear power capacity to 70 gigawatts by 2020. And India currently has 20 new reactors under construction. So the real - the economies of China and India will really start to drive an upswing in demand in the next five to eight years, which is really the second half of this decade. That is coupled with a shortage of supply that is starting to emerge, as the very large projects such as those in Namibia, the Olympic Dam expansion here in Australia, not progressing as fast as they were first predicted.
And also the secondary supply which is coming out of Russia, the highly enriched uranium agreement which comes to an end, at the end of this year. So we see a supply demand in balance starting to emerge from 2015 onwards. And that’s where Wiluna is perfectly positioned which has always been our strategy, to be able to take advantage of a supply gap and at the right time, in the right regulatory environment.
Clive Tompkins: Last question Vanessa. Having secured the green light to progress to production, what would you like to see Toro Energy achieve by the end of this year?
Dr Vanessa Guthrie: Look I think we’re very excited and very focused now on securing that project funding partner, and being able to take our project through to final investment decision, so that we can get on and into production and really nail that supply window.
Clive Tompkins: Vanessa Guthrie, thanks for the introduction to Toro Energy.
Dr Vanessa Guthrie: You’re very welcome.
Ends
