The Australian Financial Review Street Talk Print Edition 19 Nov 2010
Edited by Nabita Ahmed and Sarah Thompson
That international majors' stakes in Australian resources companies are now something of a theme begs the question whether Rio Tinto may be tempted by the ailing share price of uranium company Energy Resources of Australia to beef up its 68 per cent stake.
Some disappointing performances from ERA's only mine, Ranger, in the Northern Territory, combined with concerns due to the impending wet season and uncertainty about expansion projects, has pushed the stock to its lowest in more than two years.
At slightly more than $11 it is close to half the price compared with when Rio last looked at buying it, before deciding that, at $20-plus, it was too expensive.
Plus there are no obvious shareholders with a big enough stake to block any move in that direction.
But the word is Rio is far more focused on expansion possibilities in Namibia, where its mature Rossing mine and Extract Resources' huge undeveloped Rossing South project, now renamed Husab, sit cheek-by-jowl.
Rio holds a direct stake of almost 15 per cent in Extract which, as a junior explorer, has a tough job to pull off development of the $1 billion-plus project. Takeover speculation has buoyed Extract's share price, adding 37 per cent in little more than a month, but with Rio the most obvious partner for Husab, there is little incentive for the mining giant to make a move.
In Australia, with the weightier presence of the Greens heightening sensitivity about uranium, Rio may be keen not to raise the profile of ERA, which is poised to seek environmental approval for its $200 million to $300 million heap leach project and which also owns the undeveloped Jabiluka project.
With the Ranger pit set to be exhausted by 2012, ERA is depending on the heap leach and Ranger Deeps underground projects for future value, but approval is far from guaranteed. Credit Suisse rates the probability of either going ahead at 55 per cent.
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