Uranium miner Energy Resources of Australia Ltd. (ERA.AU) approved Thursday the exploration of an untapped deposit that could extend the life of one of the world's biggest uranium mines.

Bordering Australia's pristine Kadadu National Park, the Ranger mine was the world's second biggest by output in 2010 behind Cameco's McArthur River pit in Canada.

Ranger, however, is close to running out of ore and ERA, majority owned by Rio Tinto Ltd. (RIO), has been mulling expansion options, partly because development of the nearby Jabiluka deposit hasn't received the blessing of the land's traditional owners.

ERA's decision to work on an expansion of the mine shows it's confident the economics could stack up despite Japan's ongoing nuclear power crisis sparking a global re-think of the controversial energy source.

In a historically important day for the company's development, ERA also said Thursday that it has decided not to proceed with construction of a heap leach facility, which would have used acid filtration to process lower-grade ore, because of its high cost. Construction of the facility was one of two options ERA was mulling to keep Ranger alive. It has instead decided to proceed only with the Ranger 3 Deeps project.

Construction of a A$120 million exploration 'decline'--a tunnel bored through the resource to facilitate closely spaced drilling and a geotechnical assessment--at Ranger 3 Deeps is expected to commence in May next year, subject to regulatory approvals. The deposit is estimated to contain 34,000 metric tons of uranium oxide.

ERA on Thursday also reported a A$121.7 million first-half loss after heavy rains shut down Ranger for months, and the shelving of the heap leach facility triggered a reserves downgrade and associated A$99 million writedown. An underlying loss of A$22 million was in-line with recent guidance of A$20 million-A$30 million.

Analysts at Macquarie weren't even including a heap leach facility in their ERA valuation. Still, the broker said ERA remains a "structural avoid" due to its uncertain outlook and may have to issue new shares to fund its growth. "The shape of the future ERA remains opaque and the broader value proposition continues to be challenging, in our view," Macquarie said.

The company on Thursday also upped the expected cost for the looming closure and rehabilitation of Ranger. At 0245 GMT, its shares were down 6.5% at A$4.06.

-By Ross Kelly, Dow Jones Newswires; 61-2-8272-4692; Ross.Kelly@dowjones.com

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