Uranium producer and partly-owned Rio Tinto subsidiary, Energy Resources of Australia (ERA) did everything wanted of it on Friday in its interim report.
It reported a strong rise in first half profit, after the price of uranium rose and revealed a first, small sale of uranium to China later in the year.
But the profit could have been higher as the strong Australian dollar again clipped returns.
And the result once again exposed ERA’s lack of ability to take full advantage of the higher world uranium prices because of its extensive suite of forward sales contracts. First half earnings were boosted by a number of deliveries under more recent contracts, with prices linked to the spot price.
ERA warned that the current second half will see more deliveries under the older, lower priced contracts, so there could be an impact on earnings.
The different mix in pricing in the first half saw the company’s average price top the $US35 a pound level, more than double the $US16 or so a pound in the first half of 2007.
As a result, the shares, which had strengthened in recent days since the half year production report, dropped 55c in Friday’s near rout and finished at $22.65.
But the overall tone of the interim report was in keeping with the ‘good news’ Rio has been pushing out in its defence against BHP Billiton, especially the news of the small Chinese deal.
ERA said output for the six months ended June was lower than for the same period last year. The company highlighted the lower output and production in its first half production report 10 days ago.
Net profit rose to $38.95 million, from $5.67 million in the same period of last year, while earnings before interest and tax (EBIT) totalled $54.4 million, up from $12.4 million a year ago.
Uranium oxide production fell 6% to 2,357 tonnes while uranium oxide sold fell 21% to 1,746 tonnes.
ERA said that uranium prices remain strong with the average long term market price for the June half rising to $US90.83 per pound, up from $US86.67 last year.
Sales for the period were 1,746 tonnes, down from 2,200 tonnes while revenue jumped to $167.4 million, from $114.3 million.
Revenue was trimmed by $26.2 million by the stronger Australian dollar exchange rate.
The company said it settled $US32 million in forward exchange contracts during the half, at an average exchange rate of 66 USc resulting in a pre-tax gain of $14.5 million.
ERA declared an interim dividend of eight cents.
ERA reminded the market that while the higher uranium price is helpful, it is not the big profit driver that it seems.
"ERA’s average contractual sales price is only partially influenced by the spot market due to the portfolio of contracts containing a range of pricing mechanisms entered into when the uranium oxide market was considerably weaker.
"The average realised sales price of uranium oxide for the six months to June 2008 was US$35.69 per pound (June 2007: US$16.90 per pound).
"Unlike recent years, overall sales pricing benefited in the first half from a higher proportion of deliveries for more recent sales contracts at higher prices, as well as deferral into the second half of 2008 of deliveries for lower priced commitments.
"The likely average price in the second half of 2008 will therefore be somewhat lower than in the first half of the year."
The planned shipment to China is believed to be the first deal to export Australian uranium to that country.
"Following the bilateral safeguards agreement signed between the Australian and Chinese governments last year, ERA has reached in principle agreement for a contract to supply uranium oxide to an electric utility in China beginning in the second half of 2008," the company said in the last paragraph of a three page press release and commentary.
And recruitment group, Talent2 said on Friday that it will be reporting a record result for the 2008 financial year next month.
In a preliminary earnings statement to the market, it said revenue for the financial year to 30 June 2008 was up 49% to $229.0m, gross profit up 45% to $142.4m and EBITDA up 29% to $20.3m.
"In line with the Group’s previously stated dividend policy, and strong cash flows ($17.5m cash on hand as at 30 June 2008) a partially franked dividend of 4.5 cents a share is expected to be declared, payable in September,’ the company told the ASX.
The market reacted accordingly, making up the shares 6c to $1.26 in Friday’s big bank and resource-driven sell-down.
“It’s just 4.5 years since T2 started, and we are now in 16 countries, with over 40 offices, and 1,100 people” Mr Andrew Banks, Managing Director said in the statement.
“These record results are particularly satisfying given the state of world financial markets over the past six months, and more specifically the fact that the company carried losses from our investment in organic growth initiatives in the start up or expansion of new geographies as well as increased short term costs through investing in two new HRO Service Centres and implementing a new staff Retention Program.
"This investment resulted in new Recruitment Operations in Manchester, Birmingham, Tokyo, Taipei, and Beijing, and new Outsourcing Centres for all 3 service lines (Payroll/Learning/Talent Acquisition) in Malaysia and Australia.”
“All our new offices are now running close to breakeven.The investment phase is over and most of them expect to trade profitably in the first half of this year”.
“The third quarter of the 2008 financial year saw increased caution in decision making and a slowdown in activity that rebounded somewhat in quarter four” CEO John Rawlinson said in the statement. “In spi
