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Rio Tinto uranium unit to suspend mine expansion until price rebound

Rio Tintounit Energy Resources of AustraliaLtd. said May 4 that a strategic review of its operations concludedthat the company should retain the option to progress its Ranger 3 Deeps undergroundexpansion, despite shelving the project last year due to low uranium prices.

ERA frozethe project, an expansion of its existing open-cut Ranger uranium mine in the Northern Territory,due to weak uranium prices in June 2015.

But the company's latest strategic review has recommended ERAkeep the project as a possible future option by placing the exploration declineand its associated infrastructure on care and maintenance.

ERA first commissioned a feasibility study of Ranger's undergroundpotential after open-pit mining operations at the site stopped in 2012. Since then,ERA has been processing stockpiled ore for sale.

As of Dec. 31 2015, the Ranger ore stockpile contained 10,383tonnes of uranium, which would sustain the company's current processing operationsuntil late 2020.

According to the strategic review, the expansion plan can onlybe activated if ERA's existing mining and processing permit, which expires in January2021, is extended. That would require the government to enact federal legislationallowing the expansion.

Another problem for ERA is the local Mirarr Aboriginal community,which has said it does not support an extension of the Ranger mine's permissionsbeyond January 2021.

But despite these barriers, ERA's review highlighted the potentialbenefits of completing the underground project and bringing it into production whenuranium prices are projected to rise.

"Ifdeveloped, Ranger 3 Deeps would be expected to provide around ten years of additionalproduction at Ranger, in a period where forecast consensus prices are expected tohave recovered from the current historical lows," the review read.

It added that the government would need to grant an extensionof the mine by mid-2018 in order to avoid a production gap between the expecteddepletion of stockpiled ores and the startup of underground operations at Ranger3 Deeps.

Exploration spending on the potential underground operation hasbeen suspended, but the company may initiate further targeted studies at the siteif it can optimize the project's value, according to the release.

The price of uranium oxide fell to a historical low of aboutUS$25.50 per pound in mid-April, according to Platts.

Subdued buying by utilities as well as the continuing flow ofsecondary supply from national nuclear stockpiles has pushed the world uranium marketto its current low ebb, according to Scott Melbye, executive vice president at a Texas-focusedminer using in-situ recovery methods.

Speaking to SNL Metals & Mining on May 3, Melbye blamed a"thin uranium market with low volumes" for the metal's current weakness,but added that he expects uranium demand to exceed supply within five years.

He noted that high-cost supply was still coming into the market.

China General NuclearPower Corp.'s Husabmine is due to begin production this year, and will have production cash costs ofover US$70 per pound, according to Platts.

Melbye also blamed the structure of some deregulated U.S. powermarkets that stacked the deck against inflexible baseload generators, such as nuclearpower companies.

"Nuclear generation is competitive with coal and gas, butin nighttime [off-peak] hours when demand is low, nuclear plants can't just shutdown, they have to keep on producing," he said. Supplying during off-peak hoursmeant lower realized power prices and reduced competitiveness, he added, and thisin turn reduced incentives for investment in nuclear power.

Platts and SNL Metals &Mining are owned by S&P Global Inc.