“The unique geology in Kazakhstan allows us to use ISR, which is a major factor in Kazatomprom being one of the lowest-cost producers in the world.”

What is the history of Kazatomprom, and could you provide an overview of the company today?

Kazatomprom was established in 1997 as the national operator for nuclear fuel cycle activities in Kazakhstan, and the mining of uranium is a big part of those activities, with 13 uranium mining subsidiaries. Of those 13 operations, 10 are joint ventures with some of the biggest names in uranium. Many of these JVs were established in the 2000s, at a time when Kazatomprom’s presence in the uranium market was fairly small.

Over time, Kazatomprom grew to become the largest producer of uranium in the world, now controlling 24% of the world’s primary uranium production, while Kazakhstan as a country accounts for over 40% including the share of JV partners.

The company completed an IPO in late 2018 on the London Stock Exchange and the Astana International Exchange. Now, the company’s majority shareholder, sovereign wealth fund Samruk-Kazyna, has reduced its ownership share to 75%. As a result of the listing and the transparency and disclosure obligations that come with it, Kazatomprom has remained focused on building up trust and credibility with all stakeholders – including minority investors and customers – as well as managing our uranium supply with more emphasis on the commercial and economic aspects of our business. Could you develop on the company’s assets?

Our mines are located exclusively in Kazakhstan. Kazatomprom’s attributable ore reserves are just under 300,000 mt of uranium, and our production is in the region of 13,000 mtU/y, so we have decades worth of production in our reserves. Additionally, we have nearly 200,000 mt of attributable resources, and the country still offers vast geological potential. Kazatomprom, as the national company, has priority rights on all the deposits in the country.

Our largest producing operations are JV Inkai, with Cameco Corporation of Canada, and JV Katco where we are partnered with Orano of France. We also have JVs with the Russian nuclear entity Rosatom, two JVs with Japanese consortiums, and a JV with the Chinese. In most of the JVs we have a controlling interest and we are the operator, although we are minority shareholders in a few. Inkai 2 and Inkai 3 deposits (100%-owned by Kazatomprom) are the next advanced exploration and development projects that we expect to come into production, but that will be based on seeing market signals that indicate more uranium is needed.

What are the advantages of in-situ recovery (ISR)?

Low-cost ISR mining can only be applied in specific circumstances, where a deposit occurs in specific geological conditions. Kazatomprom is fortunate in that all of our mines are amenable to in-situ recovery. The unique geology in Kazakhstan allows us to use this method, which is a major factor in Kazatomprom being one of the lowest-cost producers in the world, with significant production flexibility. We can ramp our production up or down and it does not have a material effect on our unit cost, which is in the region of US$13/14 (all-in) per pound (US$/lb), while our C1 cash cost is in the region of US$10-11/lb.

The other notable benefit of ISR is the inherent safety and environmental aspects. We are not blasting, we are not sending people underground, and the operational footprint is very small. It looks a lot like a small-scale oil and gas operation. We are injecting a low-pH solution, which travels through the sandstone to pick up the uranium. Within a period of two to three months, we start to see production out of our withdrawal wells.

2011 marked the start of a difficult period for uranium players. Could you describe the price volatility caused by the Fukushima tsunami?

In 2007, uranium prices had peaked at US$138/lb, while in early 2011, pre-Fukushima, prices were US$70/lb. By the end of 2016 they had plummeted to US$18/lb due to demand contraction – after Fukushima, Japan alone shut down 54 reactors, and Germany stated they would close their nuclear facilities by 2022. By 2017-2018, two thirds of uranium producers would not have been able to produce economically at the spot price, but many remained in operation thanks to those higher prices they continued to receive under their historic contracts. As those contracts rolled off between 2017 and 2019, a number of uranium mines around the world went into administration or into care and maintenance. The result of these cuts in production, along with the gradual recovery of uranium consumption to pre-Fukushima levels, means that today, the market seems to be more balanced (although the global pandemic’s impact may push it into deficit in 2020). However, with spot prices at the US$34/lb level, this is still below many mines’ operating cost.

Keep in mind that Kazatomprom’s operations make up the entire first quartile, and part of the second quartile of the global cost curve. So while the company is still delivering positive returns in the current weak price environment, we are poised to be financially even stronger as market prices recover to a level that supports a healthy, sustainable global fuel supply chain.

How did Kazakhstan respond to these changing trends?

Our peak production was in 2016, when as a country we produced over 24,000 mtU. At Kazatomprom, we understood two fundamental facts: first, we need to be much more market-centric; secondly, we do not have to be a large, vertically integrated producer that is involved in every aspect of the nuclear fuel cycle (from mining to fuel bundles). We should instead be focused on the most profitable part of the value chain, which is uranium mining and within mining, the most attractive method is ISR.

In 2017, Kazatomprom took the decision to cut production over three years. For this year, the pre-COVID guidance was over 13,000 mtU/y (attributable). Post-COVID, our guidance for 2020 is in the 10,500 to 10,800 mtU/y range. This is just an estimate, because with in-situ recovery what you produce today is the result of the work you put into the ground three months prior, so the final impact of Covid is still to be determined. For 2021, we expect to yield around 13,000 mtU/y once again, as previously planned when we extended our 2018-2020 production reduction (against previously subsoil use agreements) into 2021.

On the marketing and sales side of the business, we responded post-Fukushima by working hard to expand the geography of our contract portfolio, and use our market intelligence more strategically. We have relied heavily on just a couple of customers for most of our historical sales, so it was important that we diversify our contract book. That focus has started to bear fruit, having signed contracts in 2019 with six new customers and two new countries.

What is your view of uranium demand for the new decade?

Uranium demand increases by about 1.5% every year, and this trend is expected to continue well beyond 2030, because in nuclear generation you can easily know how much uranium is going to be used over the life of a reactor. 1.5% per year is slow and steady growth, and takes into consideration that there are a number of nuclear plants being shut, particularly in Europe and North America. The main demand growth drivers are therefore China, which accounts for nearly half of the 95 reactors being built between now and 2030, followed by Russia and India. By 2030, the market will need new production equivalent to two additional Kazatomproms to fill the expected gap between supply and demand. Hence, the fundamentals of uranium look certainly bullish.