Pirmatov highlights shifting market sentiment

Uncertainty in the uranium market persisted through the first-half of 2020, but "the general sense is that there has been a shift in sentiment - from participants wondering 'when' the market will transition to support current and future primary production, to now talking of 'how soon' that transition could take place," Pirmatov said.

A gradual return of staff to Kazatomprom sites began earlier this month and staff levels at operations are now back to normal levels, he said. Exploration drilling and mined well field development work have now resumed. The measures taken against the pandemic - which saw a reduction in staff at mine sites from April to July - did not impact production volumes for the first-half of the year, which at 10,434 tU on a 100% basis (5790 tU on an attributable basis) were similar year onyear.

However, the in-situ mining methods used by Kazatomprom require the constant development of new mining blocks in order to maintain a steady rate of production. The suspension of drilling work for four months means that there will be delays in new planned blocks to replace existing blocks that are gradually becoming depleted.

It can take up to eight months from initial drilling to first production, Pirmatov said. "As a result, the impact of our reduced activities will be seen in the second-half production, while the continuation of that impact into 2021 is not yet known."

The company has said it expects 2020 production to be 19,000-19,500 tU on a 100% basis (10,500-10 800 tU attributable). Last week, it announced that it would continue to flex production down by 20% compared to the original subsoil use contract levels for 2022.

Inventory backup

 
Kazatomprom, which previously said its production decisions and contractual obligations are backed up by inventory, continues to target an ongoing inventory level of about six to seven months of annual attributable production, but inventory levels are expected to fall below these levels in 2020 and 2021, and it will not have the opportunity to "catch up" production losses over that period. As such, it will continue to monitor market conditions for opportunities to optimise its inventory levels and has purchased some volumes in the spot market at the end of the second quarter.

Riaz Rizvi, Kazatomprom's chief commercial officer, said second-quarter purchases made by its trading arm THK had been "fairly modest", but he reiterated that inventory levels by the end of the year are likely to be around half of the company's typical target.

"So we're operating at an inventory level which is manageable but not comfortable, so I think we will certainly be looking for opportunities to buy in the market just to ensure that we have material available at all the locations that we need to deliver against," he said during an analyst call on the financial results.

Addressing supply pressures, "most industry analysts would agree" that at least 20 million pounds of supply have been lost this year alone, Rizvi said. The resulting "tightness" means it is becoming more difficult to acquire "significant volumes" on the spot market, and there is an increase of interest from buyers in medium and long-term contracts, he said.

"So the dynamic is definitely shifting. And we expect that shift to accelerate further through the second-half of the year simply because, I think, utilities have now got the issues around generation, COVID and shift changes under control and well managed; and are starting to turn their attention back to security of supply and the supply chain that they need to keep these baseload units running."