URANIUM MONITOR: THIS FRIDAY'S KAZATAMPROM RELEASE AN INDUSTRY FOCAL POINT
THE TD COWEN INSIGHT
With Kazatamprom scheduled to release its H1/24 results on Friday (and most likely its 2025 production guidance along with it), in this edition of our Uranium Monitor, we expand on what we believe could be an equity-moving event across the uranium space.
Setting the goalposts; Kazatomprom's 2025 production guidance—Kazatomprom (KAP-LN, not covered) is set to release its half-year results this Friday, Aug 23. As per tradition, the company is expected to release its 2025 production guidance with its update. Considering that KAP produces close to 40% of global primary uranium production, this update will be a key focus for investors.
For context, KAP increased its 2024 production guidance on August 1 to a range of 22.5-23.5ktU (100% basis) up from 21.0-22.5kt, with the company citing better-than- expected performance through H1/24. While the production update represents only a 6% increase at the mid-point, or ~2% of global primary production, uranium equities under our research coverage and more broadly sold-off ~7-11% on the day, which we believe was unjustified.
It is worth highlighting, in our view, that the increase in production falls well short of
the company's original production parameter of 28.7ktU set forth under its Subsoil Use Agreements (1 tonne of U equals ~2.6Mlbs U3O8). KAP's production issues have been
well documented with the company citing on Aug. 1 that the continuing limited access to sulphuric acid and delays in construction at new deposits could 'unfavourably' influence its production plans for 2025.
In accordance with the company's Subsoil Use Agreements, KAP was originally targeted to produce 31.6ktU in 2025. The Kazakh subsoil code allows producers to deviate within +/- 20% of this parameter, which suggests a production range of 25-to-38ktU. Consensus estimates for KAP's production in 2025 are currently 23ktU, which falls below the subsoil allowance.
Based on our conversations with several industry participants and investors, we believe others are forecasting the production update to be closer to 26ktU, which falls inside the subsoil code allowance. TD Cowen currently assumes 27ktU in our uranium S/D forecasts, where we model a supply deficit of ~12Mlbs next year (~4.6ktU). In our view, should the production guidance come in materially above 26ktU, we would expect a negative reaction from the equities. Similarly, if production falls below this level, we could see a relief rally in the equities.