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Berkeley Energy hails study at Salamanca as 'outstanding'

Last updated: 11:10 04 Nov 2015 GMT, First published: 08:10 04 Nov 2015 GMT

Mining3_opt
Upfront capital expenditure for the first phase of production has also been reduced to US$81.4mln from US$95.1mln.

-- adds broker comment, share price --

Berkeley Energy (LON:BKY) hailed an updated pre-feasibility study for its Salamanca uranium project that included the Zona 7 deposit as an 'outstanding' result.

The new report assumed an integrated development of three deposits at the Spanish site: Retortillo; Zona 7 and Alameda.

Paul Atherley, managing director, said: "These outstanding results very much support the board's decision to rapidly push ahead with the development of the project.

“With the major approvals in place and discussions with potential financiers underway we are expecting to commence site works in mid-2016."

The inclusion of Zona 7 increased the mine life from eleven to eighteen years and reduced operating costs to US$15.60 per pound from US$24.60, he said, making it one of the lowest cost producers anywhere.

Up-front capital expenditure for the first phase of production has also been reduced to US$81.4mln from US$95.1mln due to Zona 7’s lower costs and the weak euro against the dollar.

The study was based the extraction of 69.6mln tonnes of ore at an average grade of 396 ppm (parts per million) U3O8 (uranium) to produce 51.6mln pounds of U3O8.

Over a mine life of 17.5 years that averages 3mln pounds of uranium per year and 4.3mln at steady state production.

Salamanca has a resource of 89.5mln pounds purely based on measured and indicated minerals and leaving out inferred resources.

Zona 7 is shallow at depths between 4m and 75m, which is why it will be so cheap to mine, said Atherley, who expects to find similar type of deposits nearby.

We believe that the potential exists for further discoveries of Zona 7 style deposits.”

An exploration programme in the New Year will follow up a number of near surface, high grade drill intersections within 10km of the plant, he added.

Total capital costs to develop and commence production for the three deposits are estimated at just over US$200mln, a US$30mln increase, while ongoing production costs are forecast at US$17.5/lb of uranium.

House broker Numis said the results were impressive and it bumped up its target price to 100p from 40p.

“Stock now trading at a nonsensical 0.1x P/NAV [share price/naet asset value per share] for one of the only uranium projects likely to be developed in the next few years”

The net present value (NPV) in the study was estimated at 322p per share, though this used an “aggressive” estimate of the uranium price of US$65lb, said Investec. That compares with a current spot price of US$36/lb. At a uranium price of US$44/lb, the NPV drops to US$421mln from US$871mln.

Work on a definitive feasibility study is expected to start this month and complete by next May.

Shares jumped 27% to 28.9p.

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