2nd UPDATE: Energy Resources 1st Half Profit Triples, Prices Rise
July 31 2009 - 3:05AM
Dow Jones News
Uranium miner Energy Resources of Australia Ltd. (ERA.AU) has
tripled its first half profit with its realized uranium prices
jumping as old contracts struck at lower prices rolled out of its
sales portfolio.
The Darwin-based miner posted first half net profit of A$127.6
million, up from A$38.9 million last year and in line with guidance
the company gave earlier this month.
The Rio Tinto Ltd. (RTP) subsidiary said its sales for the half
to June 30 rose to 2,280 metric tons of uranium from 1,746 tons
last year and production for the half rose to 2,695 tons from 2,357
tons in the previous corresponding period.
But the biggest positive in the result was a significant jump in
the prices ERA is receiving for its uranium, as old legacy
contracts roll out of its portfolio to be replaced with contracts
struck when uranium prices were on the rise.
The average realized sales price for the half climbed to
US$48.02 a pound from US$35.69 in the previous corresponding
period.
A steady increase in the realized price has been a feature of
ERA's results in recent years, but ABN Amro mining analyst Lyndon
Fagan said the size of the increase at the half year was larger
than expected.
"It's definitely positive and I think it would have been above
the market's expectations," he said.
With many of ERA's contracts struck two to four years in
advance, the miner's realized prices could be set to continue
rising as they track the price surge seen in 2006 and 2007.
"You only have to look back then to see that the uranium market
was really starting to pick up," Chief Executive Rob Atkinson told
Dow Jones Newswires.
Atkinson said the newer contracts the company is putting into
place are taking advantage of a stronger uranium market, and that
some of these contracts contain a component of spot-related
pricing.
If there are to be further increases in the prices ERA is
receiving for its uranium it seems they are unlikely to come in the
second half, with the miner signaling its realized price is
expected to remain at similar levels to the first half, subject to
the timing of sales deliveries.
ERA said full year production is expected to be in line with
levels achieved in recent years, that is between 5,300 and 5,900
tons, while sales tons in 2009 are expected to be slightly higher
than in 2008 as sales volumes rise in the second half.
Atkinson said he does not expect global uranium prices to rise
much in the short term, this could change in the medium to long
term as developing nations build large numbers of nuclear reactors
while new sources of supply remain constrained.
"Given the nuclear build which is going on and looking at the
existing uranium mines, it is not too difficult to paint a picture
in a few years time that there's a bit of an imbalance," he
said.
ERA exported a shipment of uranium to China last year and, while
the U.S., Japan and Europe remain its biggest customers, Atkinson
said there is scope for Chinese sales to grow. "It's still a very
early relationship, but it's one which we are very confident will
grow over time," he said.
"We view the Chinese as being very important and as being a very
important growth market and we will continue to develop that
relationship."
Capital expenditure in the first half was A$18.5 million and
Atkinson said he expects the capital spend in the second half to be
a similar amount.
ERA is continuing to work toward a decision on the construction
of a decline for its Ranger 3 Deeps project in early 2010 and the
miner said preliminary work is also continuing on its planned heap
leach facility.
"Current projections remain that ERA has sufficient cash on hand
to take these studies and projects at least to bankable feasibility
level without the need for further funding," ERA said.
Revenue for the half more than doubled to A$336.1 million from
A$143.5 million last year and the miner posted an interim dividend
of 14 cents, up from 8 cents last year.
-By Alex Wilson, Dow Jones Newswires; 61-3-9292-2094;
alex.wilson@dowjones.com
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