2nd UPDATE: Energy Resources 1st Half Profit Triples, Prices Rise

Uranium miner Energy Resources of Australia Ltd. (ERA.AU) has tripled its first half profit with its realized uranium prices jumping as old contracts struck at lower prices rolled out of its sales portfolio.

The Darwin-based miner posted first half net profit of A$127.6 million, up from A$38.9 million last year and in line with guidance the company gave earlier this month.

The Rio Tinto Ltd. (RTP) subsidiary said its sales for the half to June 30 rose to 2,280 metric tons of uranium from 1,746 tons last year and production for the half rose to 2,695 tons from 2,357 tons in the previous corresponding period.

But the biggest positive in the result was a significant jump in the prices ERA is receiving for its uranium, as old legacy contracts roll out of its portfolio to be replaced with contracts struck when uranium prices were on the rise.

The average realized sales price for the half climbed to US$48.02 a pound from US$35.69 in the previous corresponding period.

A steady increase in the realized price has been a feature of ERA's results in recent years, but ABN Amro mining analyst Lyndon Fagan said the size of the increase at the half year was larger than expected.

"It's definitely positive and I think it would have been above the market's expectations," he said.

With many of ERA's contracts struck two to four years in advance, the miner's realized prices could be set to continue rising as they track the price surge seen in 2006 and 2007.

"You only have to look back then to see that the uranium market was really starting to pick up," Chief Executive Rob Atkinson told Dow Jones Newswires.

Atkinson said the newer contracts the company is putting into place are taking advantage of a stronger uranium market, and that some of these contracts contain a component of spot-related pricing.

If there are to be further increases in the prices ERA is receiving for its uranium it seems they are unlikely to come in the second half, with the miner signaling its realized price is expected to remain at similar levels to the first half, subject to the timing of sales deliveries.

ERA said full year production is expected to be in line with levels achieved in recent years, that is between 5,300 and 5,900 tons, while sales tons in 2009 are expected to be slightly higher than in 2008 as sales volumes rise in the second half.

Atkinson said he does not expect global uranium prices to rise much in the short term, this could change in the medium to long term as developing nations build large numbers of nuclear reactors while new sources of supply remain constrained.

"Given the nuclear build which is going on and looking at the existing uranium mines, it is not too difficult to paint a picture in a few years time that there's a bit of an imbalance," he said.

ERA exported a shipment of uranium to China last year and, while the U.S., Japan and Europe remain its biggest customers, Atkinson said there is scope for Chinese sales to grow. "It's still a very early relationship, but it's one which we are very confident will grow over time," he said.

"We view the Chinese as being very important and as being a very important growth market and we will continue to develop that relationship."

Capital expenditure in the first half was A$18.5 million and Atkinson said he expects the capital spend in the second half to be a similar amount.

ERA is continuing to work toward a decision on the construction of a decline for its Ranger 3 Deeps project in early 2010 and the miner said preliminary work is also continuing on its planned heap leach facility.

"Current projections remain that ERA has sufficient cash on hand to take these studies and projects at least to bankable feasibility level without the need for further funding," ERA said.

Revenue for the half more than doubled to A$336.1 million from A$143.5 million last year and the miner posted an interim dividend of 14 cents, up from 8 cents last year.

-By Alex Wilson, Dow Jones Newswires; 61-3-9292-2094; [e-mail]