Tuesday, 3 April, 2007

by Jamie Freed
Sydney Morning Herald

THE uranium price, already at $US95 a pound, could be set for further gains this week after Energy Resources of Australia said production from its Ranger mine in the Northern Territory would be flat this year and 25 to 35 per cent lower next year.

ERA, which is controlled by Rio Tinto, said it had already lost 300 tonnes of uranium production when it was forced to shut down its processing plant for two weeks last month after heavy rains.

It will be forced to process stockpiles for most of this year, and the high water levels in the Ranger mine will restrict access to deeper, high grade ore in the second half of the year and into next year.

Based on analyst projections of ERA's 2008 revenues, the flooding could cost the company close to $200 million in lost sales. Ranger produced 4700 tonnes of uranium last year and had been expected to produce about 5000 tonnes next year.

ABN Amro analyst Rob Clifford said ERA's lost production would probably provide positive support for the uranium price, which some analysts already expected to reach $US140 a pound this year before yesterday's announcement.

"Cyclone season is still not over. If they get more rain, they will defer [production] even more," he said. "The irony is, it may even help ERA's share price."

With the world already experiencing a shortage of uranium, Perth's Paladin Resources downgraded its 2007 financial year production forecasts from the Langer Heinrich mine in Namibia slightly on Friday, although it maintained its 2008 target.

Paladin managing director John Borshoff said he was not surprised ERA had issued a steep production downgrade.

"You've got all these companies," he said. "Every one of them is being squeezed by supply and delivery issues."

Mr Borshoff said he expected the disappointing production from Ranger would "put more froth" on the bubbling uranium price.

Paladin has made a $1 billion scrip offer for Queensland uranium explorer Summit Resources in a bid to gain full control over its half-owned Valhalla and Skal projects. And last week it increased its stake in another Australian uranium hopeful, Deep Yellow, through the off-market purchase of 10 million shares, bringing its stake in the company to 10.64 per cent.

"I very much like what Deep Yellow are doing," he said "They are developing resources and building up a strong exploration team, which few other juniors are doing."