Antinuclear

Australian news, and some related international items

Doubts about the future of ERA’s Ranger uranium mine

Any attempt to extend the lease will be controversial.

As colleague Peter Ker reported in February, the traditional owners seem pretty wedded to the idea that mining stops in 2021 and rehab is completed by 2026.

kakaduRanger’s community issues stretch well beyond its sometimes fractured relationships with its local hosts, the Mirarr people. An extension will become an issue of serious contest across a sweep of the environmental movement both because of what it mines (uranium) and where it is (inside the Kakadu National Park).  

Rio Tinto worried about ERA’s Ranger uranium mine http://www.afr.com/business/mining/uranium/rio-tinto-worried-about-eras-ranger-uranium-mine-20150402-1mctl1  bMatthew Stevens

The fate of Energy Resources Australia hangs in precarious balance with majority-owner Rio Tinto growing increasingly uncertain about the competitive economics and investment risk of a life-sustaining underground expansion at Australia’s most productive uranium project, the Ranger mine.

Rio owns 68 per cent of ERA and the Australian-listed uranium miner’s only operating asset is Ranger, a 30-year-old mine of occasionally extreme controversy.

Mining at Ranger’s open pit stopped more than two years ago and production is currently sustained by legacy stockpiles.

The longer future of ERA swings on an underground project called Ranger 3 Deeps, which has been the subject of $200 million in pre-feasibility investment over the past two years alone and requires up to $60 million more before a final investment decision might be secured.

The ERA board recently sent a finished pre-feasibility study on Ranger 3 Deeps back to management with a request for further technical work aimed at refining and improving the project’s investment case. A final version of the study is expected to be with Rio for assessment imminently.

At that point the Rio executive newly responsible for the Anglo-Australian’s uranium assets, diamonds and minerals boss Alan Davies, will deliver the document with some form of recommendation to the global miner’s investment committee.

The permanent members of that committee are chief executive Sam Walsh, CFO Chris Lynch and technology and investment boss, Chris Lilleyman. Given ERA’s own recently-expressed view that it will need to raise new equity to finance its only growth project, then the Rio committee’s view will be defining of the Northern Territory’s miners’ future.

The options are stark.

Either Ranger 3 Deeps hits Rio’s investment criteria or ERA’s board will be left to decide whether or not it can sustain the project without the active financial support of its controlling shareholder. If progress is not sustainable then ERA will have no option but to work its way through its stockpiles and run the business for cash while it completes a remediation that would likely be accelerated and is currently expected to cost $513 million.

In the past ERA has indicated that it would need a capital injection to fund its remediation commitments if Ranger 3 Deeps does not proceed. The numbers make this dilemma plain. It is sitting on $293 million of cash and has, quite obviously, not been able to generate additional cash through a period of low uranium pricing that shows little sign of ending.

Over recent times, both Walsh and Lynch have emphasised that Rio’s growth capital pool will be constrained over the medium term and that funding will be allocated only to the most competitive options.

Sources say that ERA’s expansion project could fall at any or all of four key hurdles that will likely be set by its major owner’s investment committee.

We are told Rio management has concerns, first and foremost, about the stand-alone economics of Ranger 3 Deeps. Those concerns are informed and amplified by the continuing softness of the post-Fukushima uranium market and by worries about the tenure of the Ranger mining licence and the time that might be required to secure the extension necessary to justify the level of capital required. Then, finally, Ranger 3 Deeps will be assessed through the prism of Rio’s other options: it might be viable but is it the best use of the parent’s funding?

An obvious and shaping backdrop to this discussion will be the immediate past performance of ERA. The business has not made a profit since 2010, when it made a comparatively paltry $47 million. Over the past four years ERA has generated serious pre-tax losses that total $981 million.

Unhappily, the biggest of those annual losses was recorded in 2014, with the company making an EBIT loss of $284 million as a result of depressed uranium pricing and an operational setback that left Ranger inoperable for six months and running at less than capacity for another three.

In December 2013 the wall of a Ranger leach tank were breached, spilling 1400 cubic feet of slurry containing uranium and sulphuric acid into a containment site around the tank. Subsequent investigation and site analysis demonstrated that, outside of those within the tank, the systems worked as they should and the accident caused no measurable harm to the either workplace or external environment.

But it took nearly seven months for the handful of regulators that watch over Ranger to be convinced that this was the case and the suspension of ERA’s plant could barely come at a worse time for a company attempting to justify a new future.

What ERA could do with most, of course, is a substantially stronger uranium price and considerably greater certainty over the term of its operating licence.

The post-Fukushima world has been tough for ERA. Japan’s re-embrace of its nuclear options has been far more tepid than the uranium producers expected and China’s nuclear rollout is nowhere near the rate anticipated by suppliers. The result is a uranium surplus that is not going away. It is estimated, for example, that China is sitting on stockpiles enough to sustain 10 years of its annual domestic consumption.

Over the past two years the uranium price has consistently run at levels below $US40 a pound. Just this week JP Morgan trimmed its uranium outlook, predicting that prices would ranging between $US42 and $US50 a pound over the next three years. And the firm does not reckon the industry will see anything like incentive pricing until 2020.

Again, that timing looks like it could not be worse for ERA. The prospect that surplus pricing will persist into the next decade says only that the investment pay-back for Ranger 3 Deeps will be long-dated.

But the Ranger’s Commonwealth licence to operate runs out in 2021. Which means the economic case has to be built on a lease extension and the talk inside Rio is that this process, which is already under discussion with a community of regulators, could take as long as eight years.

Any attempt to extend the lease will be controversial.

As colleague Peter Ker reported in February, the traditional owners seem pretty wedded to the idea that mining stops in 2021 and rehab is completed by 2026. The Gundjeihmi Aboriginal Corporation speaks for the Ranger Country and its chief executive Justine O’Brien told Ker that any change to the current schedule is “entirely new, unknown, foreign and uncertain”.

The fact that ERA pays a 5.5 per cent royalty to Northern Territory Aboriginal organisations and a further 1.25 per cent Commonwealth royalty that is returned to the Territory suggests this resistance might be more malleable than it looks. But Ranger’s community issues stretch well beyond its sometimes fractured relationships with its local hosts, the Mirarr people. An extension will become an issue of serious contest across a sweep of the environmental movement both because of what it mines (uranium) and where it is (inside the Kakadu National Park).

In ERA’s most recent annual report, chairman Peter McMahon observed: “We are at a critical juncture in ERA’s 30 year history.” On this view, at least, ERA and Rio Tinto management are firmly agreed.

 

 

April 3, 2015 - Posted by | business, Northern Territory, uranium

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