RIO'S SHARE OF URANIUM MINER COULD TEMPT ENERGY GIANTS

RIO Tinto is talking to several Japanese energy companies on a potential sale of its 68 per cent stake in Energy Resources Australia.

Sources close to the company told BusinessDaily that Rio was considering a sale of its controlling interest as part of its group-wide effort to slash debt.

ERA's Ranger mine in the Northern Territory is the second largest uranium operation in Australia and accounts for around 11 per cent of global output of the sought-after nuclear feedstock.

"Rio has received several expressions of interest from Japanese companies involved in power generation,'' the source told BusinessDaily.

"It's at an early stage, but Rio is now testing that interest.''

Rio is open to selling the ERA stake because it's likely to attract a premium price whereas it may be forced to sell other types of assets at lower earnings multiples.

ERA enjoyed one of its strongest years on record in the 12 months to the end of December, after boosting profit almost 200 per cent to $221.7 million.

With emerging economies such as India and China embracing nuclear power, Rio will have little difficulty inducing competitive interest in the Ranger asset.

ERA's listed stock closed at $19 yesterday, which values Rio's majority stake at more than $3 billion.

A consortium of Japanese power utilities previously held equity in the Ranger mine but sold out in 2005. But with energy security re-emerging as a priority for the Japanese government, several Japanese conglomerates last year scooped up stakes in two major Australian uranium developments.

Mitsui paid $104 million to Canada's Uranium One for a 49 per cent stake in the Honeymoon project in South Australia in October.

And Mitsubishi teamed up with another Canadian uranium producer, Cameco, to acquire the Kintyre uranium deposit in Western Australia from Rio for $US495 million ($A740 million) in July.

The potential sale of ERA to Japanese interests runs the risk of angering China, which started receiving shipments of uranium from Ranger in the second half of last year.

But Japan's membership of the Nuclear Non-Proliferation Treaty, democratic government and history of investment in Australia's resources sector would make it hard for the Federal Government to oppose Mitsubishi or Mitsui getting control of ERA.