Paladin Resources CEO John Borshoff
- He has learned to be thankful for the financial meltdown, which he says gave him options he wouldn't have otherwise had
- The uranium producer's capital raising will enable it to sit at the high stakes table when pursuing M&A, without an empty wallet
- He expects to have an operating project in Australia by late 2013
- He is only interested in engaging with Chinese and other foreign companies in terms of joint ventures and is determined to maintain an independent register
- He sees potential upside at the Langer Heinrich mine in Namibia beyond stage three.
Stephen Bartholomeusz: John, you just announced an institutional placement. It looks like it’s going to be a very substantial amount of money. What are you going to do with it?
John Borshoff: Well, basically it’s part of our long term strategy that we want to establish a global footprint as an independent, tier one uranium supplier, of which there are few in the world, and now that we’ve got our Langer Heinrich and Kayelekera plants in ramp-up or operating we’re ready to embark on the second phase of our evolution.
Alan Kohler: Have you got the deposits to do it organically or do you have to make takeover offers?
JB: Essentially our organic growth is there, clearly identified in our pipeline. We think that the nuclear or uranium supply world is going to change. It needs to consolidate. We think this will happen fairly quickly, within a 12 to 15 month period, and Paladin is ideally positioned to take advantage of that.
Robert Gottliebsen: Why wouldn’t it be more likely that the Chinese will simply make a takeover bid for you? They’re very active in Africa at present.
JB: I seriously believe that if anything happens with Paladin, it has to be under friendly terms. We're the keepers of any remarkable amount of uranium IP, in terms of technology, in terms of understanding the space, in terms of coming from an historical reference point of view and understanding some of the limitations and positives of that period and where the space is going. So, especially in mining – I mean this not a gold mining operation – there are controls and regulations, stakeholder interests, government interests that go far beyond just somebody coming and taking over. The expertise in the Chinese companies is not mining, it is in making electricity from reactors.
SB: John, have you been approached by Chinese though about strategic alliances or joint ventures?
JB: Well, we’ve been approached, naturally like all, and we’ve deflected the interest or rejected the interest in our corporate register. We don’t want to be taken as a Trojan horse for other motives. We believe that the biggest positive is to engage with Chinese, Indians, Koreans, Japanese and the French at the joint venture level and that way we maintain our independence, which we figure is an immensely important position to maintain.
SB: Given the Chinese need to secure supply – I think they’re in the process of trebling their generation capacity from nuclear – will it be inevitable that you will have to do some joint ventures or create some sort of more formal relationships with them?
JB: Yes and I think we’re on the path to doing that with groups and the relationship part we’re taking a longer time, than just going to bed with anyone like a tart.
SB: You’re going to end up in partnership unless you do something with them in the Bigrlyi.
JB: Well, no, Bigrlyi is just very small in the pond. We’re comfortable with the position we hold there. We’ve got a unanimity in budgeting. Our recent raising has nothing to do with that.
SB: Are you not concerned with China Guangdong Nuclear coming into that arrangement?
JB: No. No.
AK: Nobody would accuse you of being a tart, John, but is your situation that you’ve got a number of suitors that you have to choose from or are you looking around yourselves on the front foot looking for the right partner in China?
JB: No. Look, we’re not looking for a right partner in our corporate register. We are aiming to be an independent, tier one uranium company and the only engagement will be at the JV level.
AK: That’s what I was talking about really. You made it clear that you don’t want to be taken over and you want to stay independent, but I guess I got the sense that some sort of partnership at JV level would be a good idea.
JB: Yes. Yeah, I believe it would. I believe it would be a good idea with several of these sorts of global customers and we obviously want to do a certain percentage of our business in China, which is a growing region. We want to maintain a healthy position with the US utilities, European and the Asian rim, but China, India are the new deltas and we think that there is an opportunity and this is engaging on projects that we may not have already necessarily acquired.
RG: John, what’s the state of play in the global uranium supply market? Who are the big players and where do you rank?
JB: That’s a very good question actually. The players, when you look at them on face value, are a very deceptive group. You have to divide them up into Areva and the Russians, who have aspirations and capabilities way beyond just supplies of the fleets, who want to go into building the new growing nuclear fleets. So you find corporately their actions have been totally different than the ones that are sitting there existing and just supplying on traditional grounds.
You’ve got Rio and BHP, which are diversified, a very small part of their balance sheet is uranium. That has a different way in which those groups respond to need.
You have then the Uranium One and Denison who are effectively now being metamorphosed into whatever their Trojan horse owners want them to be and Cameco and Paladin. That’s it.
SB: John, you’ve in an interesting position, aren’t you? You’re on the verge of getting into operational profitability. You’ve got producing mines in Africa. You’ve got exploration projects in Australia. Are you on the cusp of something really significant in terms of stepping up in size?
JB: Yes, we believe so. You mustn’t forget that we’ve established two mining operations with flow sheets and technologies which aren’t common in the world. They’re actually pro-formas and that’s given us a certain amount of IP. We’re the only ones that have built conventional mines in the last 20 odd years. We’ve demonstrated that we can do this and operate in other countries – there are very few operators that are able to nimbly move and develop these projects.
So, we believe we have a competitive advantage and we believe that even these deposits that are all over the world with not necessarily uranium expertise backing them, they’re just other commodity miners who happen to have uranium deposits. Uranium is peculiar and particular thing requiring discipline way beyond normal mining. Essentially, you’re in the nuclear business on the mining side of it. You’re not in the gold mining business going to expand into the uranium business. We could easily give comfort to any incoming party that not only do they have access to some product, but they also have access to some people that have the ability to get these projects going within the worldwide regulatory environment exists.
RG: John, are you looking up towards those companies you mentioned, led by BHP and the uranium mining of those groups, or are you looking down into the myriad of smaller explorers? Which way are you looking?
JB: Well, there’s not a myriad actually...but both ways.
RG: Ah. So, you’re interested in buying one of the majors?
JB: No. No. What I’m saying is that we discuss what’s going on. I believe Paladin has a unique understanding of the uranium space. I think a lot of the CEOs of other companies aren’t necessarily coming from that background. I’m saying in terms of sort of strategising, talking, chewing the fat, yes, we talk to the larger groups, but in terms of our sort of immediate outlook it's consolidating in the sort of lower end in different parts of the globe.
AK: Could you give us a sense of the potential of the Langer Heinrich mine in Namibia and how far that could go and also what it’s like operating in Namibia – are there issues there that cause you any concern?
JB: No. Look, apart from the necessary regimen that you have to work within. Namibia is a good country. It has a lack of water, but that problem will be resolved with desalination plants. We've proven to be a good corporate citizen. We’re doing what we say. We don’t just sort of hike up pricing – the country almost becomes irrelevant to the value of whatever the deposit is and I think in that sense Namibia is very good for us. We see some upside potential beyond stage three. I won’t go into that, but certainly our resource is growing to accommodate that.
RG: What about Malawi?
JB: Yeah, Malawi is at 3.3 million pounds. Once we bed that down there might be some tweaking up, dependent a bit on exploration success and getting some extra pounds – currently it’s a 13 year project life. We’d like for the sake of ourselves and Malawi to get it to a 15 to 20 year mine life, so we’re fairly intensively exploring in that area and we believe it’s a prospective and we could hope to add pounds on that under that resource base.
SB: John, in Australia with the change in the federal Labor position on new mines how long will it be before you actually have an operating project here?
JB: We’re aiming for about 2012, 2013, let’s say, late 2013.
SB: Which one will it be?
JB: I think it’ll be a Queensland operation.
SB: Queensland’s the one government which hasn’t given a tick yet, yet are you going to be able to change their minds?
JB: I think the world is changing everybody’s mind. There’s a sort of an inevitability that anybody is starting to realise is difficult to oppose. When you see how Europe has completely bent over and Germany about to do the same, when you see the chaotic state of the Australian uranium policy that existed four years ago and now there’s cohesion in all uranium states and Canberra and the Lone Ranger in Queensland and I think the pressure will become supreme. So, I think 18 months or so, within our schedule, things will be happening there. You you can’t be selling coal and saying your fuel mix is decided by some sort of ideology that was borne in the ‘70s.
SB: In a broad sense, if you did get a tick in Queensland, how big could that project be?
JB: Oh look, between 5 million pounds to 6 million pounds a year we’re aiming for. We want a resource base there that’s in the sort of 150 million to 200 million pounds. I think the region is capable of that and thought it’d be a substantial cornerstone project with the Ranger, Olympic Dam and Mount Isa and with long life.
RG: John, just a bit of history. How did the company acquire this knowledge and technology about uranium? What was the background that gave you this edge over your competitors?
JB: I guess initially, modesty aside, the edge is me. I’ve been in the uranium business since 1973 and one of the few people that have been consistently understanding it and when the West German group that I worked for and was CEO of left Australia because of political reasons in ’91, I acquired most of the uranium databases that existed of an international company and formed Paladin on that.
I had a view on what nuclear is, and what I find remarkable is not what we have achieved, but the company and the capacity that was built in Paladin – and that quality was necessary in start up, that quality that was necessary in establishment and that quality that was necessary in sustaining and growing. I built a group around it and it’s virtually the vision in which I see where nuclear is going.
RG: What did you learn from the losses in Queensland, those big write downs?
JB: I learned to be very thankful for the financial meltdown. I’m thankful for that because that gave us options which would not have been available to us otherwise.
RG: But what do you mean by that?
JB: What I mean by that is everybody was writing down everything. Nobody was valuing Mount Isa, zero value, and for prudent long-term balance sheet uses, we could write that down at the appropriate time without leaving any detriment in the quality of the project result.
AK: So, the financial crisis gave you cover?
JB: Yes. And many other companies know that path. So, we believe it was a good way and I think it was also an advantage to the shareholders and it could be justified on both reasonings; maintain it or take advantage, in the nicest way.
AK: Was it the Australian policies that drove you to looking in Africa?
JB: Yes. Yes. We initiated that in ’96. I gave my board a bit of a history lesson and said that Australia represents some sovereign risk in terms of our policies and we should actually go to Africa and then I saw that Africa was the country that had the appetite of what Australia had in the ‘60s and Canada had in the ‘60s and ‘70s. I think that’s proven correct. Without diminishing the regulatory regime in which you operate, the uranium operations, we’ve done these with banks and the banks have assured them and been insured, but we’ve done it to all the standards, but it leaves the people there. We were looking at an early stage to advance their sort of economies and we’ve become part of that.
RG: That stance of Africa, is that why the Chinese are buying so many mineral projects in Africa?
JB: Look, I just think that Africa couldn’t achieve its objective, because in the ‘70s it was going through political, ideological recalibration, while Australia and Canada were were relatively stable. There was activity in Africa, but nowhere near that what it is now and I think in this current environment it offers a completely different set of opportunities and is largely unexploited. Whereas you’re looking at first and second order opportunities in Africa, you’re looking at third and fourth order opportunities in Australia and Canada. So, it’s a question of just balance and I think Africa has to be in all resource companies. It has to be on their target. That’s why there’re over 120 resource companies operating in Africa today.
SB: John , you referred much earlier on to the aspiration to make Paladin a global company. Given what you’ve got in Africa, given what you’ve got in Australia are there other jurisdictions that you’re targeting?
JB: Look, we want our footprint global in the sense that you’ve got to be looking at things in North America, you’ve got to be looking at things in the Asian region and to get that, there are various opportunities that we would explore. Whether they come off or not is another mystery.
SB: Nothing on the go at the moment?
JB: We’ve been on active M&A since 2007. We’ve rejected most of the ones that have now gone and we have teams. Yes, there are projects. They’re all on different levels of cooking and developing and this raising gives us the ability to take them seriously. We’ve got some cash. We can go out there – the high stakes poker table without an empty wallet.
AK: That might be a good note on which to end. Thanks John.
Link To Paladin Company Web Site
Parliament of Australia
Australian Uranium Supply Research Paper
Friday 11th Sept 2009
Reference source aph.gov.au/Library