ERA Expects to Win Higher Prices for Uranium in 2009

By Angela Macdonald-Smith

Jan. 30 (Bloomberg) -- Energy Resources of Australia Ltd., producer of more than a 10th of the world’s mined uranium, predicted higher average prices for its output this year as spot-price gains through 2007 are reflected in contract rates.

Increased construction of nuclear power plants and efforts to reduce pollution from greenhouse gases contribute to a “strong outlook” for uranium prices over the next two years, Chief Executive Officer Rob Atkinson said today in an interview. Government stimulus packages will also ensure infrastructure is built to meet energy demand, he said.

Energy Resources, controlled by Rio Tinto Group and based in Darwin, today said full-year profit almost tripled to a record, boosted by an insurance settlement for damage and business interruptions caused by storms. Uranium spot prices, down more than 60 percent since surging to a record $138 a pound in June 2007, remain above levels of two years ago.

“We’re certainly confident that given uranium’s uses and domestic electricity needs, the demand is going to be there,” Atkinson said by telephone. Spot prices will probably trend closer toward long-term prices, which are about $70 a pound, said Chief Financial Officer Chris Bateman.

Energy Resources gained 35 cents, or 1.8 percent, to A$19.35 in Sydney trading, its highest close for more than three weeks. The advanced outpaced a 0.4 percent advance in the exchange’s benchmark index.

Beating Consensus

Net income rose to A$221.8 million ($144 million) in the year ended Dec. 31, from A$76.1 million a year earlier, Energy Resources said in a statement to the Australian stock exchange. The result included a gain of A$131.4 million on the insurance settlement and a A$28.6 million loss on U.S. dollar debt. Profit before one-time items rose 56 percent to A$119 million, beating the market consensus of about A$102 million, according to Macquarie Group Ltd.

Sales jumped 91 percent to A$691.7 million on production that was little changed at 5,339 metric tons.

“It was a solid result,” said Brendan Harris, a Sydney- based analyst at Macquarie. “We expect earnings to go much higher again this year as uranium prices slowly ratchet higher as legacy contracts roll off.”

Profit before one-time items may double to A$237.5 million this year, according to the median of 10 analyst estimates compiled by Bloomberg.

The company earned an average price of $32.53 a pound for its uranium oxide last year, 30 percent higher than in 2007. The spot price was $50 on Jan. 23, Denver-based pricing service TradeTech LLC said on its Web site.

Increasing Trend

“What you’ll see in our average realized selling prices is an increasing trend, albeit the numbers are still below the current spot price,” Bateman said. “We’ll continue to see that trend because we’ve been putting contracts in place throughout the rising market.”

Sales volumes sold this year should be “slightly higher” than the 5,272 tons of last year, the company said.

ERA is studying two expansion projects at its only producing site at Ranger in the Northern Territory, Atkinson said. A decision will be made in the second half on the development of a plant to enable the extraction of uranium oxide contained in lower-grade material, while feasibility studies are yet to start on a potential underground mine to produce from the Ranger Deeps 3 area, he said.

Neither project will be in full production sooner than three years, Atkinson said.

Resources at Ranger more than doubled to 115,000 tons of contained uranium oxide after the discovery at Ranger 3 Deeps. Reserves at Ranger fell 11 percent to 43,966 tons, while those at the undeveloped Jabiluka deposit rose 15 percent to 67,700 tons.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net