Uranium miners in hot demand after financial breakthrough
Berkeley Energia and Aura Energy move step closer to both start production in 2019
Two important developments among junior uranium miners are worth closer inspection as they put the companies in a stronger position to bring their respective mines into production. However, a weak uranium price may weigh on market sentiment towards their share prices near-term.
Berkeley Energia (BKY:AIM) has secured the necessary funding to build its Salamanca mine in Spain. Aura Energy (AURA:AIM) has reduced the expected operating costs for its Tiris mine in Mauritania, meaning the project could make a profit at today’s very low uranium price.
Both events reduce the risks involved with owning the shares although they are by no means risk-free investments. Mining shares can be extremely volatile even when companies are generating revenue, profit and cash. As such, we only believe stocks in this sector are suitable for people who already have a diversified portfolio and have money they can afford to lose. spot price fell from a high of $136 per pound in June 2007 to a low of $18 per pound in December 2016, according to data from Thomson Reuters. It now trades at $20.5 per pound.
Most utility companies buy uranium on a contract basis which is typically priced higher than the spot price. We’re told $35 per pound is the typical level at present.
Paul Atherley, managing director of Berkeley Energia, attributes the current price weakness to utility companies having huge stockpiles of uranium, thus depressing demand from miners. He believes these supplies will be run down over the next five years which should push the uranium price back up as utilities re-engage with miners and sign new longterm supply contracts.
That’s why Atherley says decided Berkeley won’t seek new offtake deals until at least late 2018, in the hope that prices will have started to move up by then. Salamanca is scheduled to start production in 2019.
Berkeley’s $120m financing deal with Oman’s sovereign wealth fund provides enough money to start the Retortillo section of the project. The higher-quality part of the mine is called Zona 7 and which is due to start production a year after Retortillo. However, it hasn’t yet got the permit for this section.
Stockbroker Numis flags Zona 7’s location as a key risk to the investment case as the deposit is next door to a village which may prove problematic in terms of getting the mining permit.
Aura Energy believes it can produce uranium for $19.40 per pound which is below the current market price. Chairman Peter Reeve believes the Tiris mine could be operational by early 2019, costing $45m to build. (DC)