Mr. Galymzhan Pirmatov, CEO of NAC Kazatomprom, was recently interviewed by UxC. Kazatomprom is by far the world’s largest uranium player, and Pirmatov’s strategies will be massively instrumental in the outlook for uranium in 2020 and beyond. Uranium investors will want to know what conclusions we can draw from this interview so they can make better-informed uranium investment decisions. Let’s get started.
- Kazatomprom will NOT attempt to make up the tonnage from COVID-19 production cuts once they return to full operation.
This might be bad news for uranium bears the world over, but for bulls, this statement cements the tightening in supply we’ve seen in recent weeks. Kazatomprom expects Kazakhstan’s 2020 annual uranium production volume to decrease by up to 4,000 tU from previous expectations. With Pirmatov now confirming this production decline won’t be consolidated, uranium investors can be confident that utility companies will be acutely aware of this. They aren’t getting things all their own way anymore.
- The production impact will affect each partner in different ways, which will vary over time.
KazAtomProm’s disrupted production has created uncertainty in three dimensions: absolute volume, impact of time on volume, and the impact on each partner and the relationship this has with their commitments. An example of the latter would be Cameco VS Orano VS Uranium One. If KazAtomProm’s supply troubles extend beyond 3-months, multiple parties will come under significant pressure.
- The disruption is a force majeure event under their sub-soil use contracts (ie Mining Licence).
What exactly does this mean? It’s significant. This fact removes a pinch point that would push the Kazakh giant back into production. It gives the company licence to further reduce its production levels below the 20% corridor detailed under its mining licence. This enhances Kazatomprom’s ability to tighten the market of its own accord. This also gives the company some commercial flexibility, meaning Kazatomprom can put competitors who have JV assets that tail quickly at a major disadvantage.
Something that is important to remember is that Kazatomprom will continue to receive a portfolio of production from its various assets. This is a huge competitive advantage over uranium producers like Cameco and Uranium One, who rely on the Kazakh production from JVs, e.g. Inkai – Kazakhstan (40% Cameco: 60% Kazatomprom).
- KAP will honour its deliver commitments and will not use this as a force majeure event.
This is exactly what we’ve already heard from Cameco. The reason? This will support short-term stability and will not drive utility companies into depletion within the next 12-months. However, from a long-term standpoint, it should tighten up the market as inventories are depleted, which can only be a positive for uranium bulls.
- KAP holds sufficient inventory to meet “lost tonnage in the short term” but will, if necessary, purchase material in the market to meet deliveries. KAP had already planned to oversell this year (ie work down inventories as ‘its pipeline of forward commitments was expected to exceed its attributable production guidance for 2020″.
This is clearly the leveraged impact of further delays. Things will get very, very interesting if there is any extension to the 3-months.
- Production might be disrupted into 2021 as “ramping up the mines will be a well-planned process over several months”.
This is a little like a game of connect the dots. Connect the comments regarding sub-soil use contracts, the fact that Kazatomprom has made no effort to recover lost production, and the leveraged impact of further delays. What do you get?
- Exploration and development work will be delayed for some time.
For anyone who has been following Kazatomprom for any meaningful period of time, they will already be aware that there has been a serious lack of investment in exploration. Why? To maintain high dividends to the company’s largest shareholder: the Kazakh sovereign wealth fund. With plummeting oil prices, this dividend has suddenly become a lot more important to them. There is a little doubt that this will have a strong impact on Kazatomprom’s production decline curve after 2025.
- The carry trade is looking “increasingly obsolete.”
Grant Isaac endorsed this comment last week in Cameco’s Q1 conference call. This is a clear, hard-hitting message directed at the very heart of utility companies and their procurement practices. The uranium producers aren’t messing around anymore, and it appears the balance of power may finally be starting to tip. This looks like a really big moment.
All in all, there’s some really useful, bullish stuff on display here. Uranium investors need to realise that this could well be the moment to act. If they think it is, it’s time to pick some winners.
Energy Fuels (NYSE: UUUU)
One potential winner that has been discussed repeatedly on social media and investor forums in the last few days is America’s premier uranium producer, Energy Fuels (NYSE: UUUU). There have been several articles on this platform about the value proposition on offer already, but the recent interest in the company is derived from a specific strategic advantage: The White Mesa Mill. It is the only fully-permitted operating conventional uranium mill in America.
Fresh off the back of the NFWG report, American uranium producers have been given a boost, even if the details are yet to be ironed out. One consistent theme over the course of the last week is uranium producers with North American assets coming out and acknowledging the mill as central to their plans. TNT Mines, an ASX-listed developer, recently released a statement citing the White Mesa mill as integral to their operations. What we have all suspected is now becoming increasingly clear: the White Mesa mill gives Energy Fuels a monopoly over the district and the region. They are, quite simply, the only gig in town.
With momentum swelling into the uranium space, the bandwagon-jumping has already begun. Investors should be looking for long-term quality rather than short-term excitement if they want to see real value. As I have said in the past one of my key influences when selecting a uranium company to invest in is a management team that has been through a few uranium cycles with assets. Some investors made a lot of money during that last cycle, but a lot more investors lost money. So pick the right company and get the timing right.
Investors will need to consider their own objectives and risk profiles before jumping in with both feet. Uranium is on the move. Uranium investors can keep up to date with the latest developments at www.CruxInvestor.com.
If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.
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