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

Mining stocks were leading the way south and weighing on the main index, with shares of Anglo American
AAL,
-4.59%
dropping 4.5%, while Rio Tinto
RIO,
-4.08%

RIO,
-2.82%,
BHP Group
BHP,
-4.16%

BHP,
-2.69%
and Fresnillo
FRES,
-3.09%
shares fell more than 2% each.

Climbing nearly 4%, Rolls-Royce
RR,
+3.75%
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
BA,
+0.98%
rose 1%.

Elsewhere, shares of power station operator Drax
DRX,
+9.80%
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.