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3 reasons to add Berkeley Energia #BKY to your Watchlist..

The content of this blog (or content associated with it) is not intended as investment advice. The author holds an interest in the company mentioned. Please do your own research.

Berkeley Energia (BKY)
Share Price: 45.25p
Market Capitalisation: £115m

What Do They Do?


Berkeley Energia is to become Europe’s biggest uranium mine, supplying 10% of the continents needs. Construction of the mine has already started and once in production, their Salamanca mine in Spain, will be one of the world’s biggest producers supplying over four million pounds of uranium concentrate a year.

 

3 reasons to add Berkeley Energia #BKY to your Watchlist..

1. THE FUTURE FUNDAMENTALS – Big Profits and Low Capital Expenditure.

A definitive feasability study has reported that over an initial ten year period the project is capable of producing an average of 4.4 million pounds of uranium per year at a total cash cost of US$15.06 per pound, which compares with the current spot price of US$18 per pound and term contract price of US$41 per pound.

During this ten year steady state production period, based on the most recent UxC forward curve of uranium prices, the project is expected to generate an average annual net profit after tax of US$116 million.

If we put this on a P/E of 10, the market cap of Berkeley Energia would be $1.16bn or £890m, which is 7.7 times the current market cap at £115m.

This is not taking into account success from further exploration, going on at the moment, which could result in expanding their resources / reserves and evenutally increasing the life of the mine.

Meanwhile it will only take only €82.3m to build the mine. This makes it one of the world’s lowest cost uranium mines to develop.

 

2. THE URANIUM MARKET

The Supply Side
The uranium price, at $18 per pound is at a 12 year low. You may think this doesn’t seem like much of a positive. You’re right but this means that many mines currently producing are either losing money, struggling or shutting down. Meanwhile new mines are not coming online due to the low price.

Why is this good for Berkeley Energia?

1. Berkeley is one of the world’s lowest-cost producers at a total cash cost of US$15.06 per pound of uranium. This means they’re even economic at the current uranium spot price.

2. In 2016 the uranium market was oversupplied by 10Mlb but this will due to become a shortfall of some 30Mlb by 2030.

 

The Demand Side


China is spending US$570 billion targeting 10% of its electricity generation from nuclear. They are set to double their nuclear capacity by 2020 and then double again by 2035.

After the Fukushima disaster in 2011, Japan’s nuclear powerstation program was halted but in March of this year a Japanese court overturned a ruling that barred the operation of two nuclear reactors, a win for the nation’s atomic operators.

There’s now 25 restart applications in the pipeline, 5 have been approved, 3 operational and 4-5 more expected each year.

Over a five year period both US and EU utility coverage will fall to around 20% of annual requirements and there’s strong interest from US and other utilities for a new OECD producer located in the heart of the EU.

The company is of the view that whilst uranium prices will remain soft in the near term, from 2018, when Salamanca is scheduled to come on line, the market is expected to be dominated by US utilities looking to re-contract. These utilities will also be competing with Chinese new reactor demand, which may lead to higher prices.

As you can see from the chart above, when the price of uranium moves, it really moves. It went from $10 per pound in 2003 to $136 per pound in just 3 years. I’d say Berkeley Energia will be coming into production at the right time.

 

3. THE SHARE PRICE

(Click to enlarge)

At 45.25p Berkeley Energia has lost around a third of its value since the start of the year and it’s share price is nearing a 12 month low.

Why?

Well firstly the share price has increased by over 400% in the last 2 years so it’s due a period of consolidation but I think the recent pull back maybe down to the lack of news on funding. If this is the case, then I think the sell off is overdone.

Berkeley Energia, recently announced that the capital cost required, for the construction of the Salamanca mine, is €82.3 million (US$ 93.8 million). This is not big by any stretch of the imagination, especially when you consider that this mine will, on average, be generating $116m net profit per year. Which means, when production is at peak, it will take less than a year to pay the capital costs of $93.8m off.

Also worth noting is the recent interview I conducted with MD Paul Atherley, in which he said they have, “some annoucements around some of these keys catalysts”. Scroll into 9mins to hear that, which is one of Paul’s 3 reasons why you should add Berkeley Energia to your Watchlist.

To add Berkeley Energia #BKY to your Vox Markets Watchlist, click here and tap the, “Follow”, button.

The content of this blog (or content associated with it) is not intended as investment advice. The author holds an interest in the company mentioned. Please do your own research.

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The content of this blog (or content associated with it) is not intended as investment advice. The author holds an interest in the company mentioned. Please do your own research.

July 16, 2017