Thursday, 8 March, 2007

by Andrew Trounson
The Australian

SHARES in uranium miner Energy Resources of Australia are set to come under pressure today, as analysts downgrade their profit forecasts in the wake of heavy rains that have flooded the open pit at the Ranger mine in the Northern Territory.
With little in the way of available stocks on hand in a strong uranium market, ERA has been forced to declare force majeure on sales contracts, temporarily freeing it of obligations to deliver.

ERA yesterday said that first quarter production was set to be down 20-30 per cent, which, at last year's realised price, represents a loss of about $US20 million ($25.76 million).

But, more worryingly, ERA warned that production would be affected into the second half of 2007, as water in the pit hampers access to high grade ore. But production in the second quarter may not be so badly affected, as the company can process stockpiled ore. "The impact of the water level in the operating pit is still being assessed, but production will be impacted in the second half of 2007," ERA said.

ERA is 68 per cent owned by mining giant Rio Tinto.

Ranger was forced to shut down operations on February 27, but yesterday the company was able to restart mining. The processing plant is expected to restart in coming days.

ERA's assessment of the damage came out after the share market closed, on a day when its shares had recovered strongly from news of the initial shutdown, rising yesterday by almost 5 per cent to $24.60. Before the shutdown, ERA shares had been trading above $26.00.

Last year, cyclone Monica similarly flooded the Ranger pit, resulting in full-year production falling 20 per cent. This time the flooding has been caused by cyclone George, with 750mm of rain falling on the site in just 72 hours.

So far this year a massive 1.6m of rain has been dumped on the mine - more than the average annual rainfall.

The heavy rains will concern environmental groups worried that contaminated water may run offsite, but ERA yesterday said there had never been any prospect of that happening. "In spite of the high rainfall, water inventories at the mine site have been managed effectively and there has been no adverse environmental impact," ERA said.

Access to and from Ranger and the nearby township of Jabiru remains restricted because of highway closures and load limitations due to the widespread flooding in the region.