The popularity of last year’s television drama Chernobyl powerfully illustrated nuclear energy’s troubled place in the public imagination, but nuclear is here to stay. It currently provides 11pc of the world’s power, and its stability, efficiency, unobtrusiveness, and well-established infrastructure guarantee its future in a world in which the demand for low-carbon energy is increasingly urgent.
AIM-listed Berkeley Energia (BKY) is seemingly well-positioned to help serve that need. Berkeley is at an advanced stage of securing permission to open Europe’s only opencast uranium mine at Salamanca, a three hours drive west of Madrid.
The fully-funded project is backed by a $120m investment agreement with Oman’s sovereign wealth fund. An off-take agreement is in place to sell 2m pounds of future production at $42 per pound (lb), well above the current uranium price of around £33/lb. And according to Berkeley’s feasibility study, the mine is capable of producing about 4.4m pounds of uranium a year at a production cost of $15.06/lb. Work on the site’s essential infrastructure began in 2016.
The project has been subject to disagreement, which has enhanced the complexity of any proposal to open a uranium mine. Environmental and local groups have disputed the licences and permits so far granted to the company. There have been robust debates in local and national assemblies and parliaments.
But the permits granted to Berkeley so far have been upheld, and there is local support. As well as providing Europe with a new source for low-carbon energy the project would create hundreds of good jobs in a region suffering from long-term unemployment.
Getting the final go-ahead though, is proving tough. Berkeley’s vulnerability to Spain’s delicate political climate, in which repeated general elections have failed to establish a stable governing coalition, was exposed in late 2018 when a Reuters report suggested the project was too controversial for any government to endorse at the time.
As media speculated, Spain’s Nuclear Safety Council and Energy and Environment Ministry were quick to deny any official (final) decision had been made, But £25m was knocked off the company’s market capitalisation as its shares plunged from 45p to less than 10p in a matter of weeks. The price is currently around 14p and has scarcely risen above 20p since.
The rumours have consigned Berkeley to investor purgatory until the final decision is made. Its market updates, such as the Quarterly Report published in April, come with the stoic qualifier that the company’s ‘focus continues to be on progressing the approvals required to commence construction of the Salamanca mine and bring it into production’. While it has ‘received all the European Union and national level approvals’ it continues to await local licences.
In the difficult months that followed the Reuters report long-time CEO Paul Atherley stepped down. The company has relocated its headquarters to Madrid and continues to look for ‘a suitably qualified Spanish National’ to take over.
Uranium’s slow recovery
If Berkeley can get the final green light Salamanca looks an enticing prospect. The market for uranium has been recovering over the past couple of years after prices collapsed in the wake of the meltdowns at the Fukushima plant caused by the 2011 tsunami off Japan’s Pacific coast. The price of uranium fell from $70/lb to $20/lb as Japan and other nuclear producers, notably Germany, closed reactors and canceled plans to build new ones.
Prices were pushed down further when, Kazatomprom, the Kazakh nuclear energy giant, and uranium’s answer to Saudi Aramco, stepped up production in the years following the disaster. Prices only began to pick up in 2018 when global output at last began to fall. It should be said that the nature of the uranium market makes it difficult for supply to respond to depressed demand. Miners sell the metal to utilities on the basis of long-term contracts, obliging them to keep producing even as its price falls.
Since 2018 the price of uranium has begun to rise from levels of around $20/lb to more than $30/lb. And political attitudes are softening as policymakers realise that nuclear must be a significant element of any energy mix able to power a low-carbon world. Solar and wind are becoming ever more competitive, but are by their nature intermittent, requiring back-up power. Uranium, like gas, is poised to serve as a critical bridging fuel.
In March the World Nuclear Association reported that 54 new reactors are being built with significant construction programmes in China and India. Most of Japan’s nuclear stations have come back on stream and there is unease in Germany that the closure of its nuclear programme was premature. There are also signs of recovery in the US, which still operates 96 of the world’s existing 441 reactors. Though their motives are different, Trump’s Republicans and Green New Deal Democrats both see a place for nuclear, for the former, on the grounds of national energy security, for the latter, as an element in a future low-carbon world. And technology is making it possible to produce reactors more cheaply. New modular designs have allowed China to rapidly scale its nuclear programme.
A future for nuclear – and Berkeley?
The energy still faces its traditional challenges. It has dark associations for the public imagination – failures are rare but potentially catastrophic. And there is the abiding problem of disposing of nuclear waste, which remains toxic for thousands of years.
But nuclear is an established energy source certain to be part of some future low-carbon world. Berkeley has positioned itself to serve a uranium market for which new mines will be needed.
Though demand for the metal is highly distributed, its supply is concentrated, with just six mines meeting two-thirds of global supply. Europe, Berkeley’s target market, is vulnerable to supply shocks. And as the current Covid-19 crisis has demonstrated, demand for uranium is less exposed than commodities like oil.
As the energy transition gathers momentum demand for cobalt, lithium, graphic, nickel and other minerals essential for electric cars and battery storage has soared. The world will need uranium too.
Berkeley has a sideline interest in rare earth metals, and has begun probing its assets for their presence. But it’s the Salamanca mine that will make or break the company. And until the necessary permits are granted Berkeley will have further bumps in the road. However with a substantial amount of cash in the bank (approx $100m AUS) and currently trading at a hefty discount, one has to consider the argument of risk/reward.
Justin Huhn, writer of the Uranium Insider newsletter speaks to Crux here
The author was remunerated but holds no shares in the company