-- Energy Resources CEO say Ranger 3 Deeps would cost at least
A$175M
-- Plans to make final investment decision in mid-2014
-- CEO expects uranium prices will bounce due to supply
shortfalls
(Recasts to add details on Ranger mine throughout; analyst
comment in tenth paragraph)
By Ross Kelly
SYDNEY--Energy Resources of Australia Ltd. (ERA.AU), battling to
secure a new source of uranium after its flagship Ranger mine ran
out of ore last year, said the development of an adjacent deposit
could cost at least 175 million Australian dollars (US$182.3
million).
In an interview with The Wall Street Journal, Chief Executive
Rob Atkinson said the cost of building the Ranger 3 Deeps pit in
the Northern Territory is well below what rivals would need to
spend on new mines. That's significant because low uranium prices
are stifling investment across the industry, paving the way for a
potential supply shortfall in future as China expands its
nuclear-reactor fleet and more Japanese plants come back
online.
ERA--majority owned by Rio Tinto PLC (RIO)--stopped mining at
Ranger in November and has been whittling down stockpiles to meet
existing sales commitments. Although it has enough inventories to
last almost a decade, it will need to build a new mine to revive a
share price that has fallen more than 90% over the past
three-and-a-half years.
The Darwin-based company wants to decide whether to tap the
Ranger 3 Deeps deposit by mid-2014, in time to start producing
uranium oxide by late 2015.
"Certainly the cost is nowhere near the amount people that are
starting from greenfield have to pay because it's right smack in
the middle of our operation," Mr. Atkinson said.
Building a new underground mine would be cheaper than starting
from scratch because there is already infrastructure in place,
including a processing plant, power stations and worker
accommodation.
Mr. Atkinson said annual output from a new mine at Ranger could
be between 3,000 and 3,500 metric tons. At the top end, that would
rank it as the world's second-biggest uranium mine by production in
2011 behind Cameco's McArthur river pit in Canada, according to the
World Nuclear Association.
Ranger borders the World Heritage-listed Kakadu National Park so
developments come with the stringent water-treatment conditions.
ERA has already committed A$220 million to acquiring a brine
concentrator.
That helped the company this month forge a new mining agreement
with the area's traditional landowners. It has also committed A$120
million to studying the quality of the Ranger 3 Deeps resource.
UBS resources analyst Glyn Lawcock said improving relations with
the traditional owners raises the prospect that Ranger 3 Deeps will
go ahead. He rates the stock a buy.
Miners including ERA, France's Areva SA and Canada's Cameco
Corp. have been writing down the value of mines and shelving new
developments since Japan's Fukushima atomic crisis in early 2011
sent prices for nuclear fuel into a tailspin.
ERA said Thursday its net loss widened to 218.8 million
Australian dollars (US$227.4 million) last year due to the weak
uranium prices, a high Australian dollar and the cost of
rehabilitating the recently depleted Ranger pit.
It achieved an average uranium sales price of US$58.33 per pound
last year. Mr. Atkinson said prices need to rise to between US$70
and US$80 per pound to drive construction of new mines.
The uranium market will be "in a different place" by the end of
2015, partly because current mine closures will leave it short of
supply, he says.
"Many of the nuclear power companies are uncovered beyond 2016
and that gives an opportunity for very established producers like
ourselves with a proven track record to lock in long-term contracts
with good prices," Mr. Atkinson said.
Write to Ross Kelly at ross.kelly@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires