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London Markets: Rolls-Royce leads London gainers on Australian nuclear submarine deal

Shares of Rolls-Royce were climbing in London on Thursday, following news of its involvement in a deal to provide nuclear powered submarines, while power station group Drax also surged.

The FTSE 100 index

rose just 0.2% to 7,028.52, while the FTSE 250 index

was stronger with a 0.5% gain. The pound

was flat at $1.3933.

Mining stocks were leading the way south and weighing on the main index, with shares of Anglo American

dropping 4.5%, while Rio Tinto

BHP Group


and Fresnillo

shares fell more than 2% each.

Climbing nearly 4%, Rolls-Royce

was mentioned in an announcement by the U.K. government about an Indo-Pacific security alliance between the U.S., Britain and Australia that will allow for defense capability sharing. Part of that includes equipping Australia with nuclear-powered submarines.

“The U.K. has built and operated world-class nuclear-powered submarines for over 60 years. We will therefore bring deep expertise and experience to the project through, for example, the work carried out by Rolls Royce near Derby and BAE Systems in Barrow,” said a Wednesday statement from No. 10 Downing Street.

Shares of BAE Systems

rose 1%.

Elsewhere, shares of power station operator Drax

jumped 8% to 662 pence after a team of Barclays analysts led by Dominic Nash said they see “significant share price upside potential,” boosting their price target by 75% to 960 pence, implying 120% upside.

“We see Drax becoming a global leader in developing and operating these complex BECCS projects both in the UK and globally, and we estimate a long-term
upside scenario valuation of 3800p, or 8.8x the current share price,” said Barclays analysts.

BECCS, or bioenergy with carbon capture and storage, is when bioenergy is extracted from biomass, capturing and storing the carbon before it reaches the atmosphere.

The U.K., like Europe, remains in the grips of a natural gas shortage that has sent electricity and other power prices soaring. A fire at a major U.K. power cable in Kent that sends power to France may be out of comission for months.

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