NYSEAM:UEC - Post by User
Post by
mangoeon Aug 24, 2024 10:16pm
136 Views
Post# 36194964
⚛️⛏ World-leading #Uranium #mining nation ❗
⚛️⛏ World-leading #Uranium #mining nation ❗ 
World-leading #Uranium #mining nation #Kazakhstan
and its publicly-traded company Kazatomprom $KAP: A Primer:
Are U baffled by the conflicting & often confusing bits of information U see about Kazatomprom and Uranium mining in Kazakhstan?
Join the club!
There's nothing straightforward when it comes to unpacking the complex web of data
much of it hidden from view.
Here's my attempt at helping bring some clarity for U.
There are actually 14 separate mining companies in Kazakhstan that together produced 39% of the world's mined uranium (U3O8) in 2023. 2 of them are wholly-owned by the National Atomic Company Kazatomprom JSC (KAP) while the other 12 mining entities are jointly owned by KAP with foreign partner companies in Canada, China, France, Japan and predominantly Russia. In most cases, KAP is the majority owner of the 12 joint venture companies, exercising control over their management and operations.
Each of the 14 separate mining companies is assigned to a specific mine with associated uranium deposits. The companies apply to the government for permits to mine their designated deposits using in-situ recovery methods (ISR). These permits are called Subsoil Use (SSU) Agreements that set the level of production permitted for their mines. The SSU agreement allows the company to vary its annual mine production within +/- 20% of the SSU permitted level. If a company fails to keep its production within the +/-20% limits then their SSU agreement is violated and they must negotiate a new SSU agreement with the government.
KAP doesn't actually produce any uranium itself!
KAP is the 75% state-owned enterprise that oversees the operations of those 14 mining companies on behalf of the Kazakh government, responsible for managing & exporting the uranium mined in Kazakhstan to its joint venture partners and other Nuclear fuel buyers worldwide. Just 25% of KAP's shares are publicly-traded, with 75% of voting shares controlled by the government of Kazakhstan thru 2 national investment funds: 63% by the Samruk-Kazyna Sovereign Wealth Fund and 12% by Kazakhstan's Ministry of Finance. The government calls the shots!
KAP's revenue comes from sales of its share of Kazakhstan's overall uranium production, 20% of global supply, which is sold on to foreign buyers through a trading company THK, based in Switzerland, that negotiates short and long-term supply contracts. KAP also has an office in the US to serve North American customers. Currently, KAP does not sell ANY of its share of Kazakhstan's production into the Spot market.
Now comes the tricky bit.
In general, the 14 separate mining companies in Kazakhstan generate cash flow by selling their mined uranium to KAP and their foreign JV partners at the current global Spot price (adjusted by a % discount that varies between JV's), with each partner allowed to purchase a share of that production according to their ownership stake. For example, in the case of the Ikai JV with Canada's Cameco, KAP purchases 60% of the U3O8 yellow cake produced by the mining company JV Inkai LLP, while Cameco purchases the remaining 40%.
The cash raised by the sale of production to their JV owners is then used to provide the working capital needed to build out the mines, purchase equipment and supplies (like sulphuric acid) and cover all the operating expenses for their JV mine, pay the associated government taxes, wages and other costs borne by the company. At the end of the year they pay whatever profit is left over as a dividend rebate back to their JV owners.
For example, Cameco states in their Financial Results that they pay the prevailing Spot market price, minus a 5% discount, for their share of uranium produced in Kazakhstan by JV Inkai LLP. They call that 'purchased lbs' on their balance sheet. In the following year Cameco will receive a rebate in the form of a cash dividend from JV Inkai LLP for their share of Inkai's after-tax profits from the sale of Inkai's production to its owners. Sounds pretty crazy, right?
As I understand it, this is done to be compliant with Kazakhstan's Uranium pricing laws designed to ensure maximum financial benefit to the government from uranium exports, and facilitate the equity accounting methods used by KAP and its JV partners.
Major point! The JV partner companies in Canada, China, Russia, Japan and France, purchase the uranium produced by the 12 JV owned companies in Kazakhstan, have it shipped to each of their respective storage facilities worldwide, then sell it on to their own customers to be delivered into long-term supply contracts or, in some cases, traded in the Spot market.
Before you even look at KAP's own attributable production and sales figures, remember that all that JV owned production in Kazakhstan has been purchased by those JV partners for export to their home nations!
KAP sales through its own supply contracts to foreign buyers in other countries like the US are for what's left over after all its other JV partner companies have taken their share! KAP's attributable sales data only tell you a small part of the whole story! This is especially true when you look at the large quantities of Kazakh Uranium that go directly to Russia.
Okay, now U have the pieces so let's put the puzzle together!
When KAP publishes its Financial & Operating Results it does 2 things. 1) KAP pulls together all the information from the country's 14 individual mining operations into a combined, consolidated report covering Kazakhstan's total uranium production, SSU levels, inventory, sales, capital expenditures, costs, taxes, etc... which they label as the 'GROUP' total results (100% basis). 2) KAP carve off their share of production, their sales, inventory and other expenses into the 'COMPANY' attributable results reported to KAP's shareholders, used to determine the dividends to be paid to their shareholders - 75% of which go to entities controlled by the government of Kazakhstan and 25% to investors in KAP's publicly-traded shares. Clear?
That's what leads to a lot of confusion for investors.
There are so many different aspects to the financial and operating reports, some which apply to the GROUP and some to the COMPANY. Whenever you see GROUP, or 100% basis, think Kazakhstan, the country. When you see the COMPANY, or attributable basis, think Kazatomprom.
The big downside to this reporting scheme is that it leads to there being a lot of hidden information that never sees the light of day to the public eye. These hidden bits are in the operating terms & conditions and contracts set up within each of the 14 individual mining companies with respect to their joint venture partners. Things like discount pricing adjustments, share of production, SSU agreement specifics, product delivery terms, special arrangements that might be negotiated between JV partners, never make their way into public scrutiny.
A good example of this obfuscation is the recent scandal regarding the JV Budenovskoye LLP. The 49% share of the company owned by Stepnogorsk Mining and Chemical Combine was sold in December 2022 for a reported $1.5 Billion to Russia's state-owned Nuclear company Rosatom. The deal was said to have been forced into acceptance by Kazatomprom by the Kazakh government, which is believed to have led to the long list of subsequent resignations by senior KAP management that were upset by the deal that redirected a significant portion of Kazakhstan's new mine production to Russia. The deal also included a special arrangement whereby Rosatom would be given the right to purchase 100% of JV Budenovskoye's production from 2024 to 2026, which is the largest single mine under development at the moment. KAP will get nothing until 2027.
The fallout from this backroom deal continues to echo thru KAP management resignations, the latest being the CFO who resigned last week. Details regarding other major deals with China are also being hidden from investors, increasing the number of suspicious eyes falling on Kazatomprom these days.
Finally, armed with this new knowledge and (hopefully) understanding of how to better interpret data & information published by Kazatomprom, you should download the latest Investor Handout
and work out the share of Kazakhstan's uranium production that's being skimmed off the top for delivery straight to Russia. Uranium One & SMCP are owned by Russia's Rosatom. 2 of Kazakstan's 3 largest mining operations are 70% and 50% owned by Russia, and 100% of the ramping up Budenovskoye JV LLP production goes straight to Russia until at least the end of 2026. I expect that to be extended to 2027 given the year-long delay in mine development at zones 6 & 7. Folks are just kidding themselves if they think that the expanded Uranium production coming from Kazakhstan will be available to western fuel buyers.
Good luck with your research & investments!
PS. To convert from tU to lbs U3O8, multiply the tU figure by 2600. 21,112 tU x 2600 = 54,891,200 lbs.
Handout: https://kazatomprom.kz/storage/30/kap_investor_handout_1h2024_23082024.pdf…
