Energy Resources Australia has scotched the Ranger 3 Deeps project, announcing last night it would not proceed to the final feasibility study.
The decision was influenced by uncertainty in the future of the uranium market, as well as requirements that would span beyond the 2021 mining licence.
However, ERA said it had commenced discussions with traditional land owners and federal government to negotiate the possibility of an extension to the lease.
ERA currently pays a 5.5 per cent royalty to traditional landowner organisations, and a 1.25 per cent Commonwealth royalty.
Current stockpiles continue to be processed as the business attempts to conserve cash in the interim.
Rio Tinto said it agreed with the decision, and that it did not support any further study or future development of Ranger 3 Deeps due to “the project’s economic challenges”.
“Rio Tinto recognises the importance of ongoing rehabilitation work at the Ranger mine site, which is surrounded by the World Heritage-listed Kakadu National Park,” a statement said.
“Rio Tinto is engaged with ERA on a conditional credit facility to assist ERA to fund its rehabilitation program, should additional funding be required beyond ERA’s existing cash reserves and the future earnings from processing ore stockpiles.”
Rehabilitation works at the Ranger site are expected to cost $513 million, while the company sits on approximately $300 million in cash.
The announcement which highlighted that ERA had approached parent company Rio Tinto for funding support for the rehabilitations works was met with warm reception by Australian Conservation Fund coordinator Dave Sweeney.
“We welcome the fact that ERA has sought an assurance from its parent company Rio Tinto that the required clean-up costs will come at the expense of the company and not the public,” he said.
“ERA has lost around $1 billion on the under-performing Ranger project and has left its run too late in developing the Ranger 3 Deeps proposal – with the continuing low post-Fukushima commodity price the window for uranium mining at Ranger is closing and the operation has moved from dig up to clean up.”
In 2014 ERA made an EBIT loss of $284 million as a result of the post-Fukushima uranium market conditions, as well as a significant processing plant failure in December 2013 which made the mine inoperable for six months.
Rio Tinto, which owns 68 per cent of ERA, has also said it will assess a noncash impairment in relation to ERA.
At close of trade yesterday ERA shares were trading at $1.295, however this morning the market price opened at $0.95, and by 10:10am the price had plummeted to $0.69, a loss of 46 per cent in a matter of minutes from start of trade, and a new 52 week low.