3rd UPDATE: Energy Resources Of Australia 1st Half Profit Tumbles 82%

Energy Resources of Australia Ltd. (ERA.AU) said Friday that its first half profit plunged 82% after the Rio Tinto Ltd. (RIO.AU) subsidiary, and one of the world's biggest uranium producers, encountered poor ore grades at the resumption of dry season mining in Australia's Northern Territory.

A big fall in profits was largely expected by the market after ERA on July 13 adjusted for the lower grades by sharply downgrading its 2010 full year production guidance by 18% to 4,300-4,700 metric tons of uranium ore. It reiterated that guidance Friday.

But the owner of the world's second biggest uranium mine by output, Ranger, on Friday also said that it's getting less money for its uranium oxide as high global stockpiles and lower demand caused by a global economic slowdown keep prices subdued. A stronger Australian dollar also wiped about A$50 million off the group's top line.

Net profit for the six months to June 30 fell to A$22.7 million, from A$127.6 million in the previous corresponding period, missing UBS and J.P. Morgan forecasts of A$28 million and A$39.6 million, respectively.

Revenue slid 37% to A$217.7 million from A$347.0 million.

"It's definitely a year of two halves," Chief Executive Rob Atkinson told Dow Jones Newswires. "It was a challenging first half, but we appear to be well set up for the second half and I'm certainly looking forward to a stronger performance," he said.

ERA, 68%-owned by Rio Tinto, negotiates prices in long-term sales contracts, although some contracts can be partially influenced by movements in the spot price.

Higher uranium stockpiles, particularly in Kazakhstan, and delays in the construction of some nuclear reactors in China are expected to keep uranium oxide, or yellow cake, prices suppressed in the short term, ERA said.

"My sense is it's going to remain reasonably flat for the next year or so," Atkinson said when asked when the world's yellow cake supply and demand balance might swing in ERA's favour.

The Darwin-based company stuck to its forecast of achieving an average realized uranium oxide price in 2010 broadly similar to the US$50.84 it got in 2009. In the 2010 first half, it realized a price of US$44.79 per pound, down from US$48.02 in the 2009 first half.

Credit Suisse analyst Matthew Hope noted that by sticking to its full year guidance, ERA must be expecting better second half prices.

Hope said that management in an analysts' call Friday said lower-cost contracts negotiated some time ago ended in the first half. "I expect they'll get US$54-US$55 per pound in the second half," Hope said.

ERA downgraded its output guidance on July 13 after it gained access to the main ore body at Ranger when seasonal rains dried up and it overcame stability problems with the south wall of the pit.

The ore it encountered, however, was of a much lower grade than it expected. "We see good grades in front of us now and we're hoping to exploit that," Atkinson said July 13.

Ranger produced 9% of the world's uranium in 2009, according to the World Nuclear Association.

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

The company is considering an expansion of the mine in which it would plunder an untapped 30,000-40,000 metric ton resource in the Ranger 3 Deeps mineral deposit. It is currently 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 by Sept. 30.

ERA also said Friday it expects to submit a draft environmental impact statement for its proposed heap leach facility in the second half of 2010 following a "minor delay". Heap leaching uses acid filtration to extract minerals from poor quality ore.

The company warned in February that work on the growth projects will combine with maintenance costs to push up its expenses in 2010, without providing specific numbers. Atkinson said he expects costs in 2010 may be "slightly weighted" to the second half.

ERA declared an eight cents a share interim dividend, above UBS' seven cents forecast but well below a 19 cents tip by J.P. Morgan, which was hoping ERA would tap its large cash position to fatten the payout.

ERA shares are down 4.5% at A$13.69 at 0555 GMT.

-By Ross Kelly, Dow Jones Newswires; 61-2-8272-4692; [e-mail]