URANIUM miner Energy Resources of Australia has downgraded its annual production guidance for the second time this year.

ERA said the shortfall means it will have to cover some supply requirements with purchases, eroding its profits.

The Rio Tinto subsidiary and owner of the world's second biggest uranium mine by production in 2009, Ranger, said the fall in output was caused by disappointing ore grades.

Ranger is located in Australia's Northern Territory where mining operations can be subdued by heavy rains during the traditional wet season.

ERA downgraded its output guidance on July 13 after it gained access to the main ore body at Ranger when seasonal rains dried up and it overcame stability problems with the south wall of the pit. Chief executive Rob Atkinson said at the time that the company was starting to see better grades.

Output for the three months to September 30, however, was only 911 tonnes, up 10 per cent from the June quarter but down 35 per cent from a year earlier. "Mill head grade has improved compared with the June 2010 quarter but remains significantly below 2009 levels," ERA said in a statement.

The Darwin-based company, 68 per cent-owned by Rio Tinto, cut its annual production forecast to 3900 tonnes, from previous guidance of 4300-4700 tonnes, meaning it will fall well short of its 5000 tonne supply requirement. At the start of the year, ERA was forecasting about 5240 tonnes of annual production.

Selling purchased product is expected to adversely impact ERA's earnings because the small margin earned from selling external material is more than offset by the company's ongoing costs of operation, it said.

Persistent lower grades have prompted the company to launch an extra drilling program in the current pit to improve its confidence about the quality and volume of ore for the remainder of the mine's life. ERA said exploration spending in the September quarter was $2.8 million, compared with $1m in the June quarter.

Ranger produced 9 per cent of the world's uranium in 2009, according to the World Nuclear Association.

ERA has extended the life of the mine to at least 2012, after which it plans to sell stockpiled ore until 2020.

The company is considering an expansion of the mine in which it would plunder an untapped 30,000-40,000 tonne resource in the Ranger 3 Deeps mineral deposit. It reiterated today that it is finalising studies on whether to build a 'decline'- a tunnel bored through the resource to facilitate closely spaced drilling and a geotechnical assessment - and expects to make a final decision on the decline "in the coming months".

ERA also said today that it continues to prepare a draft environmental impact statement for its proposed heap leach facility, adding that the formal assessment process by regulators is likely to be completed in the 2011 first half. Heap leaching uses acid filtration to extract minerals from poor quality ore.

ERA shares fell on the release of the third quarter report and were down 6.2 per cent at $13.56 in an overall market up 0.6 per cent.