UPDATE: Energy Resources Uranium Output Damped By Heavy Rain

Uranium miner Energy Resources of Australia Ltd. (ERA.AU) warned Thursday that the highest December rainfall on record has flooded its Ranger pit in Australia's Northern Territory, impeding access to high-grade ore and potentially lowering production volumes this year.

The bad news was largely anticipated though and ERA slightly beat its own 2011 output forecast, helping to nudge its beaten-down shares up 4.7% early in a flat wider market.

The subsidiary of mining giant Rio Tinto Ltd. (RIO.AU) said it hasn't been able to fully dewater the Ranger pit, and that access depends on the extent of rainfall over the rest of the wet season.

Ranger in 2010 was the second-biggest uranium mine in the world by production. But its uranium resource is just about spent and ERA is encountering lower-grade ore at the bottom of the pit, triggering a spate of production downgrades last year. Adding to its problems is the mine's location in a tropical climate prone to intense seasonal rain. Ranger borders the heritage listed Kakadu National Park and has to meet stringent water management conditions.

For the 12 months to Dec. 31 it reported a 30% drop in output to 2,641 metric tons, ahead of guidance of around 2,600 tons, after severe rain last year forced a closure of the mine. Production in 2010 was 3,793 tons. In 2009 it was 5,240 tons.

"The delay in obtaining access to the high-grade ore located towards the bottom of Pit 3 may impact production of uranium oxide in 2012, however, the extent of this impact is presently uncertain," ERA said in a statement.

The company recently ditched plans to build a heap leach facility to process poorer quality ore in favor of pursuing a possible expansion of Ranger through development of the adjacent Ranger 3 Deeps deposit.

Its board last year approved drilling of a large tunnel, technically called an exploration decline, through the deposit to allow for testing and closely spaced drilling. ERA said Thursday that clearing work for the decline is continuing and that it expects to start the box-cut, a small open cut to provide access to the decline, in May.

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