Updates: ERA Shares Trashed On Loss, Grim 2011 Warning

Shares in the uranium miner ERA fell to a 16 year low yesterday in the wake of an earnings warning late Tuesday night and then gloomy comments from yesterday’s AGM.

News of the downgrade must have been trickling out because the shares lost 4.2% on Tuesday ahead of the release after 6 pm.

In it the company warned that because of continuing very heavy rain and flooding, the suspension period for operations at its Ranger uranium mine near Darwin, was being extended.

As a result a first-half loss of $30-50 million is now expected, compared with a first-half net profit of $22.7 million for the six months to June 30 last year.

When trading opened yesterday, the shares lost more ground and at one stage were down close to 11% at $6.83. They ended down 10.8%, or 84c, at $6.88.

That was the lowest the shares have been since January 1995.

The upshot of the warning and the comments at the AGM yesterday means ERA is facing a very tough year, after one in 2010 which looked tough enough with earnings down 82%, the impact of bad weather, lower ore grades, higher mining costs and of course the stronger dollar.

Yesterday’s annual meeting was told that earnings in 2011 will be lower than the prior year, along with lower production and sales.

The lower forecasts follow record rainfall at the company’s Ranger mine in the Northern Territory, which has stopped production since January.

ERA chairman David Klingner provided the outlook at the miner’s annual general meeting in Darwin.

"The record rains experienced at the beginning of 2011 means that profitability will be further reduced" from the underlying earnings of $53 million in calendar 2010, Dr Klingner told the meeting.

"Sales of uranium oxide in 2011 are expected to be around 4500 tonnes. Production of uranium oxide from Ranger is expected to be around 2400 tonnes," he said.

This follows drummed uranium oxide production of 3793 tonnes in 2010 and 5240 tonnes in 2009, and sales of 5026 tonnes, down from 5497 tonnes in 2009.

"2011 has not started well," Dr Klingner told the meeting.

"In keeping with the unprecedented rainfall and extensive flooding experienced in Queensland and Victoria, the 2010-2011 wet season in the Northern Territory also started at record breaking levels.

"In anticipation of what may happen if the wet season continued as it had started, the difficult but sensible decision was made in January to halt ore processing so that the tailings dam did not exceed the statutory limits."

Dr Klingner repeated advice by the company on Tuesday, that "the suspension of the plant processing operations will be extended and this will mean that production will be significantly lower than originally planned.

"Depending on future rainfall, processing operations will start again in late July. Through the purchase of material on the spot market, the shortfall will be covered and our customers’ requirements met.

"Depending on future rainfall, processing operations will start again in late July. Through the purchase of material on the spot market, the shortfall will be covered and our customer’s requirements met, thus maintaining ERA’s reputation of quality and reliability built up over the many years of its operations.

"Sales of uranium oxide in 2011 are expected to be around 4,500 tonnes. Production of uranium oxide from Ranger is expected to be around 2,400 tonnes.

"ERA remained debt free in the course of 2010. Should the major projects ERA presently has under study proceed we will need to arrange a substantial loan facility or take other steps to provide funding.

"In short, 2011 will be a very challenging year on all fronts, particularly as it follows on from the difficulties experienced in 2010.

"As the long standing Ranger Pit 3 mine nears the end of its life, ERA needs to successfully develop a new project if present production levels are to be maintained.

"It is fortunate that the mineral endowment of our leases is outstanding and that we have a number of potential projects that may be developed with benefits to our shareholders and other stakeholders.

"Due to the large volume of pond water currently in the Ranger mine, which is a direct result of the near record rainfall received, mining operations in the pit have recently ceased and will resume on the upper benches when the water level recedes.

"ERA does not expect to obtain access to the high grade ore at the bottom of the mine until at least late 2011.

"As previously announced, mining operations at the current Ranger open pit mine will cease by the end of 2012," Dr Klingner said yesterday.

But the most important comment in the two statements about the future for the company came in the Tuesday one when the company said:

"In light of this continued suspension, which has occurred immediately after a very challenging 2010, a comprehensive business review of ERA’s current operations and future projects is well underway. The review will assess priorities, processes and future expenditure."

Mining will continue, but in what form: an underground operation as well as the planned heap leaching treatment operation now almost approved?

Footnote: the meeting heard of the impact of the quake, tsunami and the Fukushima nuclear power station crisis.

Dr Kilngner said, "As it has turned out the reduction in price was temporary lasting only a matter of weeks and is now rapidly recovering".

 


Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

View more articles by Glenn Dyer →