Apologies for not posting last week, it was a hectic week for me! However, I am writing to you with some very exciting news. Last week was busy, but I managed to squeeze in time to chat to Paul Atherley, Managing Director of Berkeley Energia. Berkeley Energia are high-impact, low-cost energy company with a market cap of roughly £60 million. A really exciting, young stock that look a great investment opportunity. My full conversation with Paul is available here, which is well worth listening to.
Berkeley Energia is a company that you look at and the more you research it, the more you like it. Obviously, it is a smallcap stock operating in exploration, so the usual due diligence should always be applied, but things certainly look promising for Berkeley Energia. The company has one exploration Uranium asset in Western Spain, which they’re working to bring into development.
One thing that I often go on about with smallcap stocks is management. Berkeley Energia seem to have right people in the right places. Their operational team has a proven track record in the sector and experience on the ground in Western Spain, where the company operates. Paul Atherley humbly passes off credit to the operational team that they have in place. However, he has a fantastic track record himself. With previous experience including HSBC’s Investment division, management roles at a host of companies and even time as Chairman of the British Chamber of Commerce in China, Atherly has the wealth of experience required to take the company forward. Since joining the ranks of Berkeley Energia less than 12 months ago, the company has seen a 200% rise in its share price. The company currently trades at £0.35 a share. With 4 brokers covering the stock and forecasting a valuation of £1 per share, there is still potential for growth to be unlocked.
“This asset is worth at least a £1 [per share] … we will set out the way in which we will unlock that value over the next 12 months and we’ve been doing that since last June”
One of the most impressive things that struck me about Berkeley is their ability to raise capital. Of course, raising capital is not uncommon among smallcap stocks – they need more funds to accelerate growth of the business. Berkeley Energia are no exception to this having already spent $60 million bringing their one uranium resource into development. A strong track record of fundraising is something that is paramount for a pennystock in my opinion. They are going to have to raise funds several times during the early phases, so if management cannot maintain investor confidence while doing so then the company’s share price will struggle to succeed. Some of the biggest and most prestigious institutional investors in the mining world seem to be very keen to own Berkeley’s shares including institutions such as BlackRock, Anglo Pacific Capital and Resource Capital Fund.
“We did our capital raising at a premium from one of our existing shareholders, who is one of the largest and met experience mining funds in the world, Resource Capital Fund.”
Recently, Resource Capital Fund increased their stake in the company at a 15% premium to the 30 day average share price at the time to increase its existing equity stake by $5m. Typically, institutions with the large amount of cash they can inject into a business will demand investment at a discount.
“We are being quite literally heavily courted by the broker firms evidenced by the fact that they come to us, they want to write on us, they write very good research and they put these big numbers on it because they see us as the good value opportunity and they put their clients in.”
As a commodity, uranium has struggled in the last few years. In fact, it is at a 10-year low, which may make you think about Berkeley Energia as a risky play. However, even accounting for the struggles in the uranium price, Berkeley Energia’s economics look mightily impressive. As one of the cheapest uranium producers in the world, Atherley is still confident the business can turn a healthy profit. The uranium spot price is presently $28 per lb, Berkeley’s pre-feasibility studies to date have indicated that production costs could be as low as $15.60 per lb, which represents a 45% margin. If uranium is coming to the bottom of the cycle, then Berkeley Energia has set up an operation primed to capitalise magnificently.
“We are very strongly positioned to get this asset going at the very lowest point in the cycle, once in production we’ll look to capitalise on the very large demand from Chinese and others building new reactors that will transform the uranium price”
The company has measures in place to protect it against the volatility of the uranium price – aiming to build up a network of partnerships. The off-take partners would be groups looking to buy uranium either those who supply it to energy companies or the energy companies themselves. As Paul Atherley confirms in the interview, discussions are already “underway” with this side of the business. This is essentially a secondary market involving the contractual buying and selling of uranium at an agreed price. This is beneficial to Berkeley as it protects them against the commodity price of uranium. It also would provide a degree of certainty and visibility on revenues and profits. Two important points here. Firstly, the off-take agreements typically are dealt at a higher price than spot commodity price of uranium. Given Berkeley’s low operating cost, this higher sale price suggests that the company turn a superb profit here – the commercials begin look even more interesting. Secondly, the vast majority of the market is looking to buy uranium through contracted buying and selling, so as the only uranium mine in Europe Berkeley could potentially have a significant customer base with no competition. Looking beyond Europe, with demands for nuclear energy and uranium increasing in countries like Russia and China there appears to be huge potential demand line for the company once it is able to supply the goods.
“[We have] the only uranium asset of any size in Europe … Europe has 160 nuclear reactors in total and they currently have one very small uranium mine feeding them”
Berkeley Energia appears a company in the right place at the right time. The uranium price perhaps at the bottom of the cycle and with an experienced team in place, the company are well positioned to capitalise on the growing global demand. The Definitive Feasibility Study due in “a few weeks” is the first of a number of exciting announcements the company are hoping to make in “a number of weeks”.
“Investors certainly don’t have to wait 12-18 months, the milestones are right in front of us”
That’s all for now! A few posts planned for later in the week, so stay tuned and I will be in touch soon!
The post Berkeley Energia: Talking to Paul Atherley #BKY appeared first on Trader Tim.