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After Russia declared a full-fledged war on Ukraine, commodity prices including crude oil have been on a tear. Currently, crude oil prices, per barrel, are trading above triple digit mark which has caused a major inflation concern for many countries. The US recently recorded a 40-year high inflation in February 2022, while UK’s inflation surged past a 30-year high.
As countries are struggling to curb this cost-push inflation, replacing crude oil with clean energy resources seems a viable solution. In the recent NATO meeting in Brussels, European countries also discussed possible ways in which they can cut their dependence on Russian oil, and this has opened lot of opportunities for those players involved in sustainable and yet greener source of energy production.
Recently shares of a uranium player, Berkeley Energia Limited (ASX:BKY), have been trending and hot and have doubled in value in the past few months alone.
Berkeley’s stock more than doubled in a month!
Since the war started between Russia and Ukraine, the BKY shares price has been witnessing a buying frenzy. Investors are buying BKY shares even after a 100% rally as they try to price in the potential unlock of value after the completion of Salamanca project.
Image Description: BKY daily price chart (YTD)
On 23 February 2022 (a day before the war), BKR shares closed the session at AU$0.215. During the 1-month period the shares rallied all the way to a high of AU$0.58 and closed at AU$0.55 on 25 March 2022, delivering a massive return of 155.8%. The rally also saw a lot of volume action in March 2022, depicting higher investors’ participation.
Why has Berkeley Energia become a key player for Europe?
Berkeley Energia is a high-impact clean energy company and is currently focusing on its wholly owned Salamanca project in Spain. This initiative will help Spain and other European nations to secure an internal supply of uranium, as the company would be able to deliver more than four million pounds of uranium per year.
Uranium is a zero-emission nuclear and clean source of energy that generates power through a process called fission. As nuclear fuel is extremely dense, it produces minimal waste.
The Salamanca project, once into production could be a major boost for the company as it will specifically target the European Uranium supply needs as Western countries start to cut their ties with Russia, which is also a significant producer of Uranium. The company has already received more than 120 European Union and National level approvals for the preliminary development of the project.
The uranium market - The real catalyst!
The sudden demand for the company’s shares was witnessed due to a spike in price of energy prices in Europe and particularly in Spain which has seen spot electricity prices increase significantly to record highs in March 2022. Investors are now seeing nuclear power being assessed as a viable alternative to decrease Europe’s dependence on Russian energy.
In fact, the French government has already ordered its state energy company, EDF, to establish new reactors as part of plan to support the country’s energy requirement via uranium.
The Uranium spot price has seen major price action in the past few months. The spot prices were trading around US$42.10 per pound at the end of December 2021 and since then the prices have surged 41.9% and gone past US$59.75 a pound on 10 March 2022.
Staggering performance in the first half of FY22
The net profit of the company for the half year ended 31 December 2021 came in at AU$3.01 million, a staggering performance as compared to the loss of AU$32.57 million reported in previous corresponding period. This also included the foreign exchange gain of AU$1.64 million largely attributable to the US$53 million held in cash by the company following the weakening of the AUD against the USD.
During the reported period, the company also serviced some of its trade payables, reducing it to AU$1.57 million, from AU$1.76 million in 2H FY21.
At the end of the reporting period, the company had a cash balance of AU$78.62 million, slightly down from AU$79.06 million in 2H FY21.
The price of uranium has fluctuated widely since the Fukushima nuclear power plant disaster in March 2011 and the market participants have recently seen a wild swing due to geo-political tensions. The production (if any) from the company’s Salamanca mine will largely be dependent upon the price of uranium being adequate to make production economically viable.
The company currently does not hedge or engage in any derivative transaction to manage commodity price risk. Commodity stocks are highly cyclical and thus a good understanding of the underlying commodity is essential.
