The market really appreciated the fourth quarter production report from uranium miner Energy Resources of Australia yesterday.
With heavy rain about in the Northern Territory since Christmas, some investors had been fearful that the company's Ranger mine could be impacted for the second time in less than a year after flooding from cyclonic rains hit hard last February and March.
Of course we are still not anywhere near the end of the northern wet season and it is still very possible that the mine could be once again affected by bad weather, but so far so good.
The shares jumped by more than 5% yesterday in the upbeat market sentiment caused by firmer commodity prices. ERA shares rose $1.63 to $19.73, the day's high.
The shares rose strongly as the market turned lower yesterday afternoon.
Despite mining operations being reduced by the rains of the February/March period last year, ERA drew on ore stockpiles to lift annual production by 14% in 2007.
The company said this was also due to better operational performance and higher grades which went a long way to offsetting the impact of the wet..
The company, which is controlled by Rio Tinto produced 5,412 tonnes of uranium oxide in calendar 2007, 14% higher than the 2006 performance.
(Rio is due to report its fourth quarter and 2007 production figures today).
"The 2007 annual production is the second highest annual production on record for the Ranger mine," it said.
ERA said the result was pleasing given rain-related problems at the mine last March.
"The exceptionally heavy rainfall at the Ranger mine in the March quarter of 2007 resulted in an elevated water level in the operational pit, preventing access to higher grade ore," it said.
"ERA successfully deployed a number of strategies to increase the rate of water removal from the operational pit.
"This resulted in an increase in the grade of ore, as the higher grade was located towards the bottom the pit."
During the fourth quarter of 2007, production totalled 1,553 tonnes, up 14% from the third quarter but down 7% from the same period in 2006.
This was due "largely to the higher mill head grade", ERA added.
Ore milled in the fourth quarter, at 484,333 tonnes, was 1% higher than the third quarter.
Ore mined in the quarter, at 764,372 tonnes, was 9% higher than in the third quarter, due to improved access after the lowering of water levels in the pit.
The pit was emptied of water in November.
"Mining is now focused on stockpiling sufficient ore to lessen the impact on future production should the wet season be unusually heavy," ERA said.
The company said it met all of its delivery commitments by the end of 2007, resulting in sales of 5,324 tonnes, down from 5,760 tonnes in 2006.
"Force majeure, declared after the February/March weather event, has now been lifted," it said." Subject to experiencing a normal wet season, production should be restored to more normal levels in 2008."
The spot market price of uranium at the end of December was $US89.50 per pound, up from $US72 in 2006. This was much lower though than the peak of $US130 a pound reached around April-May of last year
ERA's average realised sales price of uranium oxide for the year was $US25.06 per pound, up from $US18.36 in 2006, which should go a long way to offsetting the higher costs associated with the dewatering.
In fact some investors now expect a very solid result from ERA given the recovery in operations in the second half, good sales and that higher average price for the year.
In exploration ERA said that during the quarter, the exploration and evaluation program focused on infill drilling to support the previously announced pre-feasibility study (PFS).
"Expenditure on exploration and evaluation for 2007 was $14.1 million (2006: $7.2 million), including $4.6 million in the fourth quarter.
"Exploration during the fourth quarter focused on the evaluation of the uranium resource contained within the carbonate hosted Lower Mine Sequence (LMS) below the current Ranger Pit 3 final pit shell. This drilling will form the basis of ongoing studies into the first quarter of 2008.
"Ranger 3 mineralisation is known to extend ‘down dip' to the east of the current pit and has been the focus of exploration efforts in previous quarters. In the fourth quarter, the emphasis of the drilling program shifted to the location of current pit operations in order to test the LMS hosted uranium mineralisation. Both areas of mineralisation have potential to be exploited with further expansions to mining operations.
"At Ranger 3, extensive reinterpretation of the deposit geology has highlighted the potential for significant mineralisation to occur at depth, north of the previously drilled Ranger 3 Deeps holes. Several historic holes drilled in this area returned intercepts of up to 13m with grades to 0.55% U308."
