And December 2013 was when I exited - I had seen enough by then. Stuff up after stuff up after stuff up. Years of stuff ups led by that previous goose CEO and now they put a lady in charge. How it is possible that it has been trading above $1 since then is astonishing. The key reason it has is that obviously some of the people in the market thought that it was an explorer and therefore not affected by low uranium prices. Now they use that as an excuse!!! It's no longer an explorer - it is nothing. Should be trading at no more then 1 cent. Be very careful.
Rio Tinto signs Ranger uranium mine death warrant
The massive yellow excavators and trucks stopped rolling around the big pit at the Ranger uranium mine two years ago. Now, if Rio Tinto has its way, mining at Ranger will never start again.
Rio has signalled the end for Australia's most productive uranium mine by telling ERA that it will not invest in the 35-year-old operation's proposed lifesaver, the Ranger 3 Deeps underground project.
The Rio view on R3D matters excessively to Ranger and its owner-operator, the ASX-listed Energy Resources Australia. Since the millennial deal that saw Rio so irritate its Japanese iron ore customers by taking out North Limited, the dual-listed giant has been the 68 per cent controlling owner of ERA. The 15 years since that takeover en passant have seen Rio a thoroughly supportive owner of ERA. But that support is over.
On the face of it, of course, ERA is not yet prepared to accept Rio's rejection represents finality of its mission to extend Ranger's productive life. On Thursday evening, ERA noted that a recovery of uranium prices "would allow ERA to revisit the project's economics over time".
Given this is absolutely not Rio's view, then ERA's statement plainly implies a pursuit of options other than funding from its mining mothership. This positioning reflects the quite odd governance situation that the ERA board finds itself in rather than any realistic chance that R3D has a future. Private investors
Just under a third of ERA is owned by private investors and the uranium miner's board has an obligation to actively and aggressively represent their interests. Closing Ranger would leave ERA managing a rehabilitation program and a horizon asset in the contentious form of the Jabiluka uranium deposit. So the best interests of ERA's minorities might well be served by securing alternative financing or even new owners prepared to support the project.
The issue there, of course, is that uranium is a uniquely sensitive product and that all reputation roads from any future management of Ranger will always lead directly back to Rio. By allowing Ranger a future, Rio would deliver itself exposure to risk that it might have little or no say in managing.
As things stand then, I cannot imagine Rio would be a seller of ERA. And, given that, it is hard to believe ERA could successfully secure alternative funding options without Rio's explicit support. But, either way, the ERA board must work through any and all options and it must make that review obvious to its minority owners.
This is, of course, all pretty exciting news for those who have fought the long fight against Ranger's occasionally accident-prone operation in the world heritage-listed Kakadu. Rio's rejection of ERA's expensively wrought growth option all but guarantees that the site will be rehabilitated and surrendered on a timetable long baked into the mining approvals.
That timetable requires that mining and processing cease by 2021 and that rehabilitation be completed by 2026 when mining and exploration permits that cover Ranger and a sweep of its surrounds, including the local centre of Jabiru, are returned to the state. Proposal caveat
One great caveat to the R3D proposal was that ERA would need to earn the approval of traditional owners, regulators and governments territory and national for an extension of its right to mine. ERA people reckon that was achievable and that it would require as little as 18 months of concentration to get done.
But Rio's internal counter-view was that it could take up to eight years to get certainty, yet it was being asked to invest in a mine that would need to run well beyond 2021 to generate anything like an acceptable return from further investment.
All I would say is that ERA has been working actively on R3D for maybe four years and has still not got around to securing the support of the traditional owners. And, at the very least, having some sort of consensus in the bag would make the marketing of a project rejected by Rio just that little bit less complicated.
Having stopped mining in 2013, ERA currently almost earns a living by processing stockpiled ore. There is ore enough piled up around the Ranger site to keep that going until 2020. But, according to one Rio insider, beyond that, the Ranger story will be reduced to "remediation, remediation and remediation".
Clean-up obligations
Through recent annual general meetings in London and Perth, Rio chairman Jan du Plessis was unequivocal in committing to the fulfilment of Ranger's clean-up obligations.
That pudding has been put to proof with Rio offering ERA a "conditional credit facility" should existing or future cash reserves fail to cover the required rehabilitation effort. The condition is telling. The credit will come only if ERA does no more work on R3D.
Importantly, given current low uranium prices persist, it looks like that support will be needed. ERA is presently sitting on $293 million in cash and has $63.9 million invested in the Ranger rehabilitation trust. ERA's most recent annual report puts the future rehab liability at $525 million and its potential unfunded liability at $461 million.
The equity market's very obvious, and quite expensive, shock at this confirmation of Rio's Ranger ambivalence is something of a surprise given that AFRWeekendreported the real and imminent potential for just this outcome back in early April.
As we flagged, a complex matrix of issues within and without ERA's control has converged to shape the Rio decision to let this investment cup pass. Longer recovery
Uranium prices have tanked and the market is taking far longer to recover from the Fukushima shock than either Rio or ERA anticipated when they signed-off on a $300 million pre-feasibility study on R3D.
More broadly, the mining boom has come to a predictably brutal close and the pressure on capital allocation inside companies like Rio has become a far more competitive affair.
The dismemberment of Rio's energy group is indicative of a shift in investment priorities. Coal has been punted to the London-based copper group while uranium has ended up with the industrial minerals run by good old Alan Davies.
Davies also speaks for diamond and for the blighted Simandou iron ore project. He is, by his own admission, a bloke who doesn't mind making hard calls. His call is that a brownfields development in the Kakadu National Park that faces legacy issues with its social and regulatory licence and whose numbers do not currently stack up is pretty easily trumped by greenfields options in Canada.
The most obvious of the issues inside ERA's tent of control was the ill-timed collapse of a leach tank that resulted in 1400 cubic feet of slurry containing uranium and sulphuric spilling into the containment area around the Ranger processing site. December 2013 spill
The accident happened in December 2013 and we predicted then that, no matter how faultless management was or how benign and well managed the spill might prove to be, it would be the end of Ranger.
While the infrastructure was promptly repaired, processing at Ranger was suspended for seven months while the five regulators that oversee the operation worked their way to a point of comfort over turning the machinery back on.
The result was that, through this period of intense project review by an owner suddenly short of an investment dollar, ERA was unable to generate any sort of earnings at all. Such is life and death in the uranium mining business.
Mind you, things were not going that well even before the spill. Ranger has not made a profit since 2010 when it sat just $47 million to the good. Since then it has generated $981 million in pre-tax losses. That is about to stop.
ERA Price at posting:
67.0¢ Sentiment: Sell Disclosure: Not Held