Kazatomprom reductions continue in market-centric approach

Friday, 1 February 2019

Kazatomprom's 100%-basis production was 7% down on 2017's production of 23,321 tU. Its attributable production, of 11,475 tU for 2018, was 5% down on 2017. The company said this was due to reduction of annual mined volumes against planned levels in 2018 by 20% - a plan it announced in December 2017. "The company fully intends to maintain that 20% reduction against existing licence volumes for 2019 and 2020," it said yesterday.

The company said it expects to produce 13,000-13,500 tU (attributable), with total production of 22,750-22,800 tU (100% basis) in 2019. Year-on-year increases reflect pre-existing increases under certain target volumes established when licences were issued, but have also been stepped down by 20% in line with the overall plan.

"Kazatomprom expects to continue following a market-centric approach to uranium production, rather than the previous production-focused strategy," the company said in its operations and trading update for the final quarter of 2018. "By leveraging the in-situ recovery mining method, the Company can adjust production levels and respond to changes in uranium market conditions far more rapidly and cost-effectively than is possible with conventional mining methods."

Sales guidance for 2019 is between 13,500 tU and 14,500 tU, with sales in excess of planned attributable production expected to be primarily sourced from inventories, and from Kazatomprom subsidiaries under contracts and agreements with joint venture partners and other third parties. Kazatomprom said it expects to maintain an inventory level of about six months of annual attributable production at the 2019 year-end.

Short and long view

In its market overview, the company said 2018 had seen a shift in balance toward undersupply, with the market being in slight deficit. "The shift can be partially attributed to emerging interest in physical uranium from financial institutions throughout the year, although major production cuts from the world’s largest uranium producers played a prominent role in the modest improvement," it said. As well as Kazatomprom's own 20% reduction, Cameco's suspension of production from its McArthur River/Key Lake uranium mine in Canada - announced in November 2017 and made indefinite in July 2018 - "took one of the world’s most significant single sources of uranium out of the near-term supply stack," it said.

These supply side "improvements" were met with mixed demand-side developments, Kazatomprom said, with uncertainty related to the potential introduction of uranium import quotas or tarrifs from the US Department of Commerce's ongoing Section 232 investigation contributing to a "continued lack of significant long-term contracting activity" in the market.

The medium- to long-term perspective was more balanced, it said, with the updated schedule for the United Arab Emirates' Barakah 1 - with a start-up now expected in 2020 rather than 2018 as originally planned - and the slow pace of Japanese reactor restarts countered by positive developments. These include the announcement of a new French energy policy delaying plans to reduce nuclear's share of power generation and improvements in public opinion in favour of nuclear in both Taiwan and South Korea.

Additional uranium spot market demand had begun to materialise in May and had "generally persisted" supporting a gradual improvement of the spot price, with more substantial improvement following the initial public offering (IPO) in July of Yellow Cake plc, which acquired over 800 million pounds U3O8 from the spot market. Kazatomprom's own IPO in November was shortly followed by the year's peak spot price of USD29.15 per pound U3O8. The spot price ended the year at USD28.60 per pound. Long-term market prices "essentially remained within a two-dollar range" above and below the USD30 per pound price at the start of 2018, it said.

Kazatomprom describes itself as the world's largest producer of uranium, representing approximately 20% of total global uranium primary production in 2017. Through its subsidiaries, joint ventures and associates it operates 26 deposits in 13 mining assets in Kazakhstan, all using in-situ leach methods.