Rio glowing about uranium upside

RIO TINTO chief financial officer Guy Elliott said uranium offered one of the company's "most exciting near-term growth stories" due to the nuclear fuel's rising price amid increased demand.
"Short-term market movements can open opportunities which may not be enduring but which offer substantial value as long as you are able to capture them," he told an investor seminar in London last night. "Rising long-term price trends also increase options."
Rio energy chief executive Preston Chiaro said record uranium prices of $US122 a pound had not deterred demand because the cost of uranium was a relatively small portion of the operating costs of nuclear power plants compared to coal-fired and gas-fired plants.
"Most major producers have had some production difficulties," he said. "The uranium market is expected to be tight until at least 2012 in part due to production shortfalls at existing operations."
Mr Chiaro said the uranium market was unlikely to return to surplus until BHP Billiton's expansion of Olympic Dam production to 15,000 tonnes a year from 4500 tonnes was completed in the middle of the next decade.
Rio wants to double production by 2010 and triple to about 20,000 tonnes a year by 2020.
The company is capitalising on the uranium boom by extending the life of its two operating mines, the Rossing operation in Namibia and the Ranger mine in the Northern Territory. Rio is examining plans to move to underground mining at Ranger as part of a push to extend the mine's life, which even with a pit extension under evaluation would otherwise cease in 2011. It is also in discussions with the local Mirarr people in an attempt to gain permission to develop the Jabiluka deposit.
In the US, Rio last year backed out of plans to sell its mothballed Sweetwater processing mill to Canada's sxr Uranium One. Rio could decide as early as next year to reopen the Wyoming mill, which could produce about 3000 tonnes of uranium a year. But Mr Chiaro said the company would likely require outside ore sources since it could only fill about a third to half of the mill's capacity from its deposits in the region.
Rio's fourth uranium asset is its Kintyre project in Western Australia. Despite a state ban on uranium mining, Rio is spending millions studying the deposits in the area, which have thin, vein-like seams requiring selective mining. Mr Chiaro said Rio was looking to produce about 1000 to 1500 tonnes a year at Kintyre.
Although Rio's uranium business only accounted for 1 per cent of earnings last year, Mr Chiaro said the number would grow in the future, particularly as low-priced legacy sales contracts ran out. UBS estimates Rossing and Sweetwater alone could account for 12 per cent of earnings in 2010 under a base case scenario, assuming a tripling of production at Rossing