BKY starts next phase of exploration to identify additional deposits

Emerging uranium producer, Berkeley Energia (ASX:BKY) announced on Tuesday that it had commenced the next phase of its exploration program focused on delivering additional deposits with similar characteristics to the Zona 7 deposit, which is located close to the surface and without a strong radiometric anomaly present.

In tandem with this initiative will be the ongoing development of the Salamanca project (also located in Spain), which once in production will be one of the world’s biggest producers supplying over 4 million pounds of uranium concentrate per year, equivalent to approximately 10% of Europe’s total requirement.

An independent study published in July 2016 reported that the project has an NPV of more than US$530 million and will produce 4.4 million pounds of uranium per annum at a cash cost of US$15.39 per pound, making it one of the lowest cost uranium producers and a top 10 global producer.

With an initial mine life of 14 years and steady-state production expected to generate an average annual net profit after tax of US$116 million with EBITDA peaking at US$226.3 million, Salamanca is a world-class project.

However, the company appears to have slipped off the radar in 2017 with a lull in news flow as it progresses with early stage mine construction.

This could present a buying opportunity with Tuesday morning’s opening share price of 83 cents representing a significant discount to broker price targets which reflect a consensus of $1.29.

It should be noted here that share trading patterns should not be used as the basis for an investment as they may or may not be replicated and the broker projections and price targets within this article are only estimates and may not be met. Those considering this stock should seek independent financial advice.

While news flow from exploration initiatives is unlikely to have a significant immediate share price impact, one would expect that the gap of more than 50% between its current trading range and consensus forecasts is likely to be bridged sooner rather than later if analysts are on the mark.

In his latest update on BKY, WH Ireland analyst Paul Smith said, “This (Salamanca) is the standout uranium project development globally, benefiting from low capital and operating costs and all of the opportunities of being located in a stable democracy in a region of high uranium demand and low domestic production”.

Smith said that 2017 should be a year of positive news flow for the project against a backdrop of improving sentiment in the uranium market.

Of course, commodity prices do fluctuate and caution should be applied to any investment decision and not be based on spot prices alone.

Smith also referred to developments such as drilling in a 10 kilometre radius around the plant and the readiness of the Zona 7 area to begin stripping as providing positive share price momentum.

He noted the potential to benefit from further offtake agreements, a factor that tended to provide share price support in late 2016/early 2017 when the company’s shares traded as high as $1.20.

The completion of an offtake agreement with Interalloys occurred on November 28 when the company’s share price was trading in the vicinity of 75 cents. In the ensuing two months, the company’s shares hit a six-year high of $1.20.