UPDATE: Energy Resources 2010 Production Expected Down 18%

Production from Energy Resources of Australia Ltd.'s (ERA.AU) Ranger uranium mine is expected to be down as much as 18% in 2010 due to increased rainfall and hitting a patch of less productive ore, the company said Tuesday.

Forecast full-year production was downgraded from a previous view in line with 2009's level of 5,240 metric tons of uranium ore to 4,300-4,700 tons, ERA said.

The company blamed the fall on working through low ore grades, higher-than-expected rainfall that prevented access to the lowest levels of the mine and stability problems with the south wall of the mine.

ERA shares fell on the news, losing 60 cents, or 4.1%, to A$14.13 at 0209 GMT.

The production downgrade was "well below what they've stated before", said Neil Goodwill, a mining analyst at Goldman Sachs JBWere.

ERA's Ranger mine is the world's third-biggest producer of the heavy metal used in nuclear reactors and by the military, after BHP Billiton Ltd.'s (BHP.AU) Olympic Dam in South Australia state and Rio Tinto Ltd.'s (RIO.AU) Rossing mine in Namibia.

Rio owns 68% of both ERA and Rossing.

ERA reported that uranium oxide production over the past three months at the site was down 7% on the first quarter and 44% on the second quarter last year, although the volume of material was up 40% on the previous quarter and down 54% on year as the open-pit mine worked through lower ore grades.

Sales will remain "somewhat in excess of 5,000 tons" during 2010 due to inventory management, shipment flexibility, and secondary purchases, the company said, and July will see a return to the lower levels of the mine previously blocked by rainwater.

RBS analyst Lyndon Fagan said that two-thirds of the company's 2010 production was already expected to be skewed towards the second half of the calendar year and added that while RBS would downgrade ERA's full-year production figures, sales still looked in line.

Even so, "we see no reason to be in uranium stocks at the moment", he said, joining Goldman Sachs JBWere in putting a 'hold' rating on the stock.

-By David Fickling, Dow Jones Newswires; [phone]; [e-mail]