Antinuclear

Energy Resources of Australia (ERA) poor uranium investment future

The Sell argument is summed up by RBS Australia, which suggests there remains downside valuation and earnings risk from any further significant rainfall events. As well, a strategic review is likely to conclude the heap leach and Ranger 3 Deeps projects are not viable, which would further impact on valuation and sentiment in RBS’s view.    BA-ML takes a similar view and has stripped both projects from its model.

No Joy For Energy Resources Of Australia, FNArena News – May 04 2011 – ERA proposes increased capex to deal with water issues – Valuations and earnings estimates adjusted lower – Broker opinions and targets remain divided, By Chris Shaw

With production being impacted by abnormally heavy rain in recent years, uranium producer Energy Resources of Australia (ERA) is looking at alternatives for dealing with the problem of unmanageable water inventory levels.

As part of this, management has unveiled plans to invest $80 million in a feasibility study on the installation of a brine concentrator, with capacity to treat up to 1.8GL/year of process water. Assuming the concentrator is approved, total capex would be in the order of $220 million, with commissioning in the second half of 2013……..ERA management also revealed an increase in rehabilitation costs. To date the increase is unspecified, the exact amount unknown until work is completed.

Factoring in the higher capex forecasts sees JP Morgan lower valuation estimates for ERA by 9-10% through FY13. Others have followed suit, with the likes of RBS Australia and Macquarie lowering earnings forecasts to reflect higher capex assumptions.

…….The Sell argument is summed up by RBS Australia, which suggests there remains downside valuation and earnings risk from any further significant rainfall events. As well, a strategic review is likely to conclude the heap leach and Ranger 3 Deeps projects are not viable, which would further impact on valuation and sentiment in RBS’s view.

BA-ML takes a similar view and has stripped both projects from its model. The result is a revised valuation and price target of $4.20, down from $6.25 previously. With little exploration likely prior to water management issues being settled, BA-ML sees little scope for the share price to outperform medium-term.

May 6, 2011 - Posted by Christina Macpherson | business, Northern Territory