Berkeley Energia floored by reports of Salamanca block – but will mine cancellation lift long-term uranium prices? (BKY)

By Richard Mason


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Shares in Berkeley Energia (LSE:BKY) were down by 51pc in midday trading today to 12.9p following reports that the Spanish government has moved to block its flagship Salamanca uranium mine in the country.

Reuters reported yesterday that sources have confirmed that the Spanish government has decided not to deliver the necessary permits to open the open-case uranium mine. The project was granted preliminary approval in early 2013 but has faced intense local opposition ever since.

Berkeley collapsed as soon as London markets opened today as it revealed it had requested the suspension of its shares on the Australian Securities Exchange. The trading halt will remain until the earlier of it making an announcement to the market regarding the situation at the mine or the opening of ASX trading on 19 October.

Berkeley then released a subsequent update to the market in which it claimed it has received no official notice from the Nuclear Safety Council or any other government department to suggest the mine was being blocked. It added that the parties had declined to comment on the article and said it would release another announcement once it had received clarification around the reports. But the company’s efforts failed to recover any lost ground, and around £27m had been wiped off its market cap throughout the day’s trading, as at writing.

Despite Berkeley’s shares being in decline since August as protests continue to rock Salamanca, the firm has displayed unwavering confidence in the project’s future. Indeed, according to Reuters, the business said last week that it was confident it would obtain the final two majorpermits needed– a local building licence and an authorisation to handle radioactive waste.

However, Reuters said yesterday that one anonymous government source had told it: ‘The government will wait for the ongoing proceedings to go through but it will say no.’ Meanwhile, another source directly involved in proceedings reportedly said Berkeley was “living in a parallel universe” adding that he did not believe the mine would ever see the light of day. He said: ‘The authorization to build the mine is only possible when the nuclear authority has handed over its report, which is still a long way.’

If the rumours are true, then it will be devastating news for Berkeley, which operates no other projects and has set its sights on beginning full construction of Salamanca this year before continuing throughout 2019.

It believes the mine will run for 14 years, generate investment of over €250m and create more than 2,500 direct and indirect jobs. As broker Liberum put it: ‘If correct this would clearlybe an existential crisis for the company.’

What’s more, more downside could be on the way, with the company’s market value still sitting at £33.6m. It’s not just investors that will be floored either, with the news also appearing to trip up senior management. Indeed, in July, £300,000 worth of options in the company held by chief executive Paul Atherley reached their expiration date and were exercised.

However, while the news has been brutal for Berkeley, there is an argument to be made that the mine’s failure will be bullish for long-term uranium prices.

Uranium was severely hit in 2011 when an earthquake and tsunami triggered the worst nuclear accident since Chernobyl at the Fukushima Daiichi nuclear power station in Japan. Three of the six reactors at the plant sustained severe core damage and released hydrogen and radioactive materials.  Despite no workers dying from radiation positioning, the disaster was enough to significantly damage global attitudes towards uranium and nuclear power, and prices fell off a cliff.

Although prices have failed to recover from the disaster, they bottomed around the $20/lb mark, where they more or less remained for some time before beginning to creep up this year to settle at their current $27.50. With nuclear power capacity ‘increasingly steadily’ worldwide, according to the World Nuclear Authority, and uranium supplies running thin thanks to low prices, many believe that a re-rate is on the cards for the metal.

This dynamic is helped along by the fact that it takes a very long time to get a uranium mine into production. Indeed, once the stockpiles that have built up since the Fukushima disaster start to run low, it may be hard to quickly replace them. With this in mind, the potential blocking of Salamanca will wipe out a substantial potential future source of the metal. Could the move put further pressure on the supply side and lead to an increase in prices?

Author: Daniel Flynn

The author of this piece does not hold a position in the company covered in this article


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Author: Richard Mason

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

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