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Uranium miner Energy Resources of Australia Ltd. (ERA.AU) on Wednesday downgraded its annual production guidance for the second time this year, and said a strong Australian dollar is hurting its bottom line.

The production shortfall means ERA will have to cover some supply requirements with purchases, further eroding its earnings and combining with the currency exposure to set it up for a sharp fall in 2010 full year profit.

The Rio Tinto Ltd. (RIO.AU) subsidiary and owner of the world's second biggest uranium mine by production in 2009, Ranger, said the fall in output was caused by disappointing ore grades.

Without expansions, Ranger's ore body is due to run out by 2012 so ERA is getting close to the bottom of the pit.

Ranger, which produced 9% of the world's uranium oxide in 2009, is located in Australia's Northern Territory, where operations can be subdued by heavy rains during the traditional wet season.

ERA downgraded its output guidance on July 13 after encountering lower-grade yellow cake when seasonal rains dried up and it overcame stability problems with the south wall of the pit. Chief Executive Rob Atkinson said at the time that the company was just beginning to see better grades and forecast a stronger second half for the group.

Output for the three months to Sept. 30, however, was only 911 metric tons, up 10% from the June quarter but down 35% from a year earlier.

The Darwin-based company, 68%-owned by Rio Tinto, cut its annual production forecast to 3,900 tons from 4,300-4,700 tons, meaning it will fall well short of its 5,000 ton supply requirement. At the start of the year, ERA was forecasting about 5,240 tons of annual production.

Selling purchased product is expected to adversely impact ERA's earnings because the small margin earned from selling external material is more than offset by the company's ongoing costs of operation.

Atkinson told Dow Jones Newswires that ERA still expects to spend more money in 2010 than in 2009, partly on examining expansion options for Ranger, and that the strong Australian dollar "will undoubtedly hurt us".

"With it coming close to U.S. dollar parity, it has a very significant effect on our business," he said.

On the positive side, Atkinson said ERA still expects to achieve similar prices for its products this year to what it got in 2009 despite subdued uranium spot prices.

"ERA sells is material on long term contracts so we have locked in those prices well in advance," he said, adding that some old contracts struck at lower prices have recently expired.

Persistent lower grades have prompted ERA to launch an extra drilling program in the current pit to improve its confidence about the quality and volume of ore for the remainder of the mine's life.

ERA has extended its life to at least 2012, after which it plans to sell stockpiled ore until 2020.

The company is considering an expansion in which it would plunder an untapped 30,000-40,000 metric ton resource in the Ranger 3 Deeps mineral deposit. It reiterated Wednesday that it is finalizing studies on whether to build a 'decline'--a tunnel bored through the resource to facilitate closely spaced drilling and a geotechnical assessment--and expects to make a final decision on the decline "in the coming months".

ERA also said Wednesday that it continues to prepare a draft environmental impact statement for its proposed heap leach facility, adding that the formal assessment process by regulators is likely to be completed in the 2011 first half. Heap leaching uses acid filtration to extract minerals from poor quality ore.

ERA in July reported an 82% plunge in first half net profit to A$22.7 million, largely thanks to the lower ore grades. Its shares fell 6.4% on Wednesday compared with a flat broader market.

-By Ross Kelly, Dow Jones Newswires; 61-2-8272-4692; Ross.Kelly@dowjones.com