Era Won't Have Bar Of Rio's Talk Of Doubling Up

Sydney Morning Herald

Saturday July 26, 2008

Jamie Freed

RIO TINTO'S chief executive, Tom Albanese, may want to revisit his assertion last November that his company has a reputation for "underpromising, but overdelivering".

Rio's newfound promotional skills came back to bite it yesterday when Rio subsidiary Energy Resources of Australia attempted to distance itself from the parent company's promise it would double uranium production by 2012.

"I can't comment on Rio Tinto's statements," ERA's chief executive, Chris Salisbury, said in response to analyst queries over why the uranium miner had no plans to add production anytime soon. "We never put out guidance on the size of the prize we were pursuing."

Instead, when reporting its half-year earnings of $38.9 million yesterday - up from $5.7 million in the same period last year - ERA said its main focus was extending the life of the operation.

ERA is expected to produce 5400 to 5900 tonnes of uranium at Ranger this year and to sell the yellowcake at an average price above $US30 a pound.

Rio's chief executive of energy and minerals, Preston Chiaro, had revealed his company's ambitious production target at a briefing last May. It said the target included "current and new production" from Rossing and Ranger, along with potential production from Kintyre, Sweetwater and Jabiluka.

Rio recently sold Kintyre and has placed Sweetwater for sale. And ERA's Jabiluka project remains mothballed until it can strike an agreement with the site's traditional owners.

In a recent report, UBS analyst Glyn Lawcock modelled a near-doubling of production to 10,000 tonnes a year from an underground operation starting in 2013. He said that could add $2.8 billion, or $14.59 a share, to his valuation of ERA.

Mr Salisbury said an underground expansion remained an option following an extension to the open pit but it could require selective mining of higher-grade zones. ERA's mining lease expires in 2021, but it has not ruled out the possibility of an extension.

Mr Chiaro yesterday told media the economics of an expansion at Ranger had been hampered by rising costs and softening uranium prices.

During a later investor briefing, Mr Chiaro insisted Rio had not committed to doubling production from ERA and Rossing - although it does plan to double Rossing's production within the prescribed time. "We are looking at opportunities beyond ERA and Rossing," he said.

Mr Chiaro said Kazakhstan was a particularly attractive area due to the low costs of its leaching operations. ERA shares closed 55c lower at $22.65.

© 2008 Sydney Morning Herald

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