Company: Berkeley Resources Ltd
ASX Code: BKY
Share Price: $1.20
Market cap: $148m
Recommendation: ‘Speculative Buy’
The turn of the millennium heralded a ‘renaissance’ in uranium demand. From 2003-2007 spot prices rose more than 10 fold to highs of US$135/lb and shares in the world’s newest emerging producer, Paladin Energy (ASX: PDN) surged from 5c to their peak above $10 – igniting investor sentiment towards the sector. Shifting focus towards yellow cake exploration became a common ‘sea change’ for junior resource companies, and a flurry of uranium hopefuls sprang up vying for a slice of the speculative money flows. But as the financial crisis took hold, uranium spot prices halved from their highs, and sentiment towards the sector cooled dramatically. Share price falls in the order of 80-90% were not uncommon amongst these one time hopefuls.
Over the last eighteen months we’ve seen a firm separation of the ‘contenders from the pretenders’, but the truths underlying the sector’s ‘renaissance’ remain steadfast. Like it or not, uranium is set to become a more prominent part of our future energy landscape. As a result, uranium stocks have been at the forefront of the broader market recovery in 2009 with local sector leaders Paladin Energy (PDN) and Energy Resources of Australia (ERA) more than doubling from their lows. Smaller players with real production prospects have also rebounded strongly, including the likes of Berkeley Resources.
After establishing itself as the premier uranium explorer in the Iberian peninsular, straddling Spain’s western border, Berkeley Resources now has its sights set on production. Its project portfolio has been extensively explored by the likes of Areva NC – one of the world’s largest uranium producers, and ENUSA – the Spanish national uranium company
An agreement recently inked with the Spanish Government has the potential to fast track Berkeley into production over the next two years. Access has been granted to an existing but unused state owned uranium processing plant located right near Berkeley’s most advanced project – Salamanca I.
‘Salamanca I’ hosts a JORC compliant uranium resource of 16.9million lbs. A scoping study completed in early 2008 confirmed the economic viability of the project, forecasting operating costs of $US25/lb. With uranium currently trading at US$52/lb on the spot market, the potential operating margins are quite attractive.
Berkeley will spend the next 18 months conducting a final feasibility study on the project, funded from existing cash reserves. A recent capital raising which boosted cash reserves to $13m, was significant in the class of investors it attracted.
The placement saw Polo Resources enter the share register with a 12% stake. Polo is an AIM listed energy resources investor chaired by Mr Stephen Dattels (see www.poloresources.com). Mr Dattels was previously a founder and Director of Uramin Inc, which was sold for approximately US$2.5 billion to Areva – one of the world’s largest uranium producers – in mid 2007. He is now set to join Berkeley board of directors.
Ironically Polo’s emergence on Berkeley’s share register places Dattels alongside his former suitor. Areva holds an option to acquire a stake in Berkeley of more than 10%, acquired after entering a strategic exploration and stgelopment agreement with the then uranium junior in 2006. Although Berkeley has the ‘management nous’ on board to go it alone as an independent producer – we would not be surprised to see tensions emerge on the share register. Given the inherent value in Berkeley’s potential future earnings, and the possibility for ‘corporate activity’ to transpire, we are following the ‘smart money’, recommending the stock as a ‘speculative buy’ to our clients.
Tim Morris is an analyst at wise-owl.com. Please note that TheBull.com.au simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of TheBull.com.au. You should seek professional advice before making any investment decisions.
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