UPDATE: Energy Resources 4Q Output Falls On Lower Grades

Energy Resources of Australia Ltd. (ERA.AU) said Wednesday its fourth quarter uranium output fell 30% from a year earlier due to lower grades at its Ranger mine in Australia's Northern Territory.

Analysts said the fourth quarter output was below expectations and guidance for lower grades in the first half of 2010 would prompt downgrades to production forecasts, but that ERA's realized uranium prices had been strong and the performance of its processing plant impressive.

The Rio Tinto Ltd. (RTP) subsidiary produced 1,140 metric tons of ore in the quarter, down 30% on year and 19% on the third quarter.

This was largely due to the lower average ore grade processed during the quarter, which fell to 0.20% uranium from 0.29% in the third quarter and 0.37% in the fourth quarter of 2008.

ERA said it expects lower average head grades to continue in the first half of 2010 before an improvement in grades in the second half.

Chief Financial Officer Steeve Thibeault said it was normal for grades to fluctuate and that the company was very pleased with the strong milling rates and improved plant recoveries seen during the quarter.

Full year production fell 2% on year to 5,240 tons but sales rose 4% to 5,497 tons as the company drew on stockpiled ore.

RBS analyst Lyndon Fagan said fourth quarter production was disappointing and that the company had given no indication it was experiencing lower grades.

Fagan has lowered his production forecast for the company in 2010 based on the prospect of lower grades in the first half but said the fourth quarter release did contain some positive news.

"It's a mixed bag. There is the grade issue but then the plant utilization was good and the achieved price was good as well," he said.

ERA's average realized sale price for 2009 climbed to US$50.84 a pound, up 56% on the US$32.53 a pound achieved in 2008.

Analysts said they expect the miner to continue to see its average realized price rise as lower priced contracts roll out of its sales portfolio and are replaced with contracts struck in the boom time, which saw the spot price race to an all time high of US$138 a pound in 2007.

The global financial crisis has brought the price crashing back down to earth and spot prices in December were US$44.50 a pound on average.

Thibeault would not be drawn on the short term outlook for uranium prices but said the longer term trend was positive.

"With the nuclear renaissance we are seeing at the moment, we see the outlook for the market to be very positive," he said.

ERA shipped its first uranium to China in 2008 and the company said Wednesday it is continuing to sell ore to China.

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