Media banned from Rio Tinto's ERA AGM after concerns about uranium mine rehabilitationPublished by MAC on 2015-04-14
Source: ABS News, Australian Financial Review (2015-04-14)
Just before Rio Tinto's London Annual General Meeting comes the news that media are banned from the company's Australian uranium producing subsidiary ERA.
Will the parent now commit to support its troubled junior, or will it - having made its money - quite and run? (See: Uranium mine leaks dominate Australian Rio Tinto AGM).
The Environment Centre Northern Territories and Australian Conservation Foundation produced a statement for shareholders and media Energy Resources of Australia AGM, which highlights why Rio should be ultimately responsible for environmental rehabilitation costs at Ranger mine in the increasingly likely event that ERA will run out of capital before achieving it: http://ecnt.org.au/rio-tinto-and-energy-resources-of-australia-uranium-uncertainty-and-radioactive-responsibility/
Media banned from Rio Tinto's ERA AGM after concerns about uranium mine rehabilitation
By Joanna Crother
14 April 2015
Media outlets have been banned from the annual general meeting of a Rio Tinto-owned company that operates the Ranger Uranium Mine in the Northern Territory amid concerns the company does not have enough money to rehabilitate the site once it finishes production.
The mine, near Jabiru which is surrounded by Kakadu National Park, 230 kilometres east of Darwin, is run by Energy Resources of Australia (ERA).
ERA is majority-owned by mining giant Rio Tinto.
Ranger Uranium Mine is one of Australia's three operating uranium mines.
On Monday, the NT Environment Centre said it had "major concerns" ERA would no longer be able to afford the full cost of rehabilitation, estimated at $512 million, due to suffering substantial losses over the past few years.
The company reported a $136 million loss for the 2013-14 financial year which was an $83 million improvement on the previous year.
ERA has said rehabilitation is funded under its current business plan, but if a proposed underground mine known as Three Deeps is not developed it may require another source of funding to pay for all of the rehabilitation works.
Environment Centre spokeswoman Lauren Mellor said she would raise these concerns at ERA's AGM being held in Darwin today.
Media have been told they cannot attend the meeting, even without recording devices, despite journalists having been able to attend previous ERA AGMs.
Speeches from the AGM have been published on the ERA website.
On Monday, Ms Mellor said she wanted to know whether parent company Rio Tinto would cover costs of rehabilitation should ERA be unable to pay.
"We'll be asking the board of ERA whether they believe that the parent company, who does have the financial capacity to achieve rehabilitation, should be held responsible in the event that ERA no longer has the money to achieve this huge cyclical challenge of rehabilitating Kakadu National Park.
"What we've been seeing is Rio Tinto as a major shareholder, which is certainly not short of cash in the way that ERA is, trying to deflect criticism and attention and its corporate ties to this particular project and sidestep that responsibility."
Lots of questions about rehab at AGM: CEO
After the AGM, ERA chief executive Andrea Sutton told the ABC there had been "lots of questions and commentary with regards to rehabilitation".
She said "based on the current business plan" the company would be able to meet rehabilitation provisions of around $512 million, and the company had already spent about $378 million on rehabilitation at the mine site, including $57 million last year.
Asked how the company could afford this amount, given its substantial annual losses, she said some of the money would come from a $500 million rights issue a few years ago.
"We've been spending those funds effectively," she said.
"We're investing the money in understanding Three Deeps but also investing money for rehabilitation.
"[Also] each year we're generating cash as a result of uranium oxide production."
Ms Sutton also said the media were not excluded from the AGM because of the Environment Centre's concerns about the rehabilitation of the site.
She said the company had also upgraded its safety procedures after the failure of a leach tank in 2013 and it was now "comfortable and confident" such an event would not happen again.
Last year public health experts, traditional owners and environmentalists called for the ERA to focus on land rehabilitation rather than expansion.
Rio Tinto worried about ERA's Ranger uranium mine
by Matthew Stevens
Australian Financial Review
2 April 2015
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.