Spanish treasure... uranium mine on track to grow
THE King and Queen of Spain have just finished the first Spanish royal state visit to Britain in more than 30 years. Amid all the pomp, there are serious issues to discuss, not least the social and commercial ties that bind our two countries. In its own small way, Berkeley Energia is one of those ties – an AIM-traded company developing a uranium mine in Salamanca, just a couple of hours from the King and Queen’s royal residence in Madrid.
Midas tipped the stock in October 2016 at 47p. Since then, the group has raised $30million (£24million) by placing 54million new shares with investors at 45p.
Chief executive Paul Hatherley has beefed up the board, adding Nigel Jones, the highly experienced former director of mining giant Rio Tinto, and veteran fund manager Adam Parker, co-founder of investment firm Majedie Asset Management.
Berkeley revealed this month that construction costs at Salamanca would be lower than expected, and last week a 45ft-high crushing unit arrived – proof that the mine is on track.
Yet the shares have barely moved, ending the week at 45¼p as investors wait to hear how the firm will raise enough money to bring the mine into production. About $60 million is needed and it is likely that it will come from three sources.
First, Berkeley wants a strategic investor – a company or investment firm with deep pockets and a long-term time horizon. There are names in the hat but nothing has been confirmed.
Then the group is keen to sign ‘offtake’ agreements, receiving money upfront for future uranium delivery. One has been signed but talks are ongoing with other potential clients.
Berkeley is still likely to be short of cash, so a limited fundraising is anticipated via the issue of more shares.
The uncertainty places constraints on the stock price and the uranium price is stubbornly low, at about $20 a pound, down from nearly $50 four years ago. But this is not a stock for the short-term investor. The uranium price is widely expected to rise over the next few years. Production costs at Salamanca will also be among the world’s lowest, at around $15 a pound.
Midas verdict: Uranium is crucial in the creation of nuclear energy.
Three-quarters of the world’s uranium is produced by poorer countries such as Niger and Kazakhstan but twothirds of demand comes from developed nations, including most of Europe. Berkeley Energia, based in Spain, should therefore see strong demand once it moves into production.
Investing in early-stage mining projects is always risky but Hatherley is determined to pull it off and is an investor.
Existing shareholders should hold. New ones should keep an eye on the financing arrangements – expected within weeks – and buy on any weakness.