This morning shares of uranium producer Energy Resources of Australia Limited (ASX: ERA) have been absolutely hammered…
Down 47% before midday, shares of the $667 million company (based on yesterday's price!) have been rocked by a decision to cancel a study aimed at developing its Ranger 3 Deeps uranium project in the Northern Territory's iconic Kakadu National Park.
Started more than three decade ago, Ranger is one of Australia's longest operating uranium mines and one of only three mines in the world to produce more than 110,000 tonnes of uranium oxide.
Energy Resources of Australia, or ERA, is 68% owned by Rio Tinto Limited (ASX: RIO).
In a statement to the ASX, ERA said there were two key factors driving the decision not to proceed.
"First, the Board's view is that the uranium market has not improved as ERA previously expected and there is uncertainty regarding the uranium market's direction in the immediate future," the company said. "Secondly, having finalised and considered the Prefeasibility Study, the economics of the project require operations beyond the current Ranger Authority, which expires in 2021."
The Ranger operations have been somewhat controversial in recent times following a radioactive tank spill in late 2013.
ERA said it is in discussions with Rio Tinto regarding ongoing support for rehabilitation works should the company's current cash reserves be insufficient to fund the clean-up.
Rio Tinto is expected to take a $300 million non-cash impairment relating to its majority holding in ERA.
ERA said it is also in discussions with the government and traditional owners to possibly extend the Ranger Authority.
Is it time to get out of uranium?
Since peaking at around $US136 per pound in 2007, uranium prices have remained depressed for some time. Currently trading around $US38 per pound, many budding sharemarket investors have incorrectly tried to time a turnaround in the uranium market only to be disappointed.
Indeed, some official bodies are now suggesting uranium prices will appreciate over the next five years. However, no one really knows for sure.
Should you risk your money on a speculative uranium producer?
I don't think so.
Forget uranium! Here's our 2 favourite small-cap stock picks!
