KazAtomProm Shutdown Extension Confirmed - Time To Pile into Uranium?

Why isn't anybody talking about this? Just a few days ago, on 6th July, KazAtomProm made a significant announcement.

Because of concerns surrounding COVID-19 and national guidelines given by the Kazakh government, KazAtomProm reduced its operations massively for a prescribed period of 3 months back in April. It was projected that KazAtomProm's annual production volume would be down by 4,000tU from previous expectations.

This was swiftly followed by a further announcement by KazAtomProm, stating that it would not be making up the tonnage via future production. These pounds are set to be lost from the market forever. The company stated it would continue to deliver on its contractual agreements and would not use the shutdown as a force majeure event. The net effect of this move is that KazAtomProm will contribute to the gentle tightening of uranium inventories in the market.

The Recent Announcement

Kazakhstan has just imposed a strict 2-week lockdown that could well be extended for longer due to rising cases, up from c. 50 cases per day to c. 1,500 per day, and 2 key members of the government testing positive for COVID-19, including several politicians.

In response, Kazatomprom CEO, Galymzhan Pirmatov, released the following statement:

"KazAtomProm main priority is the health and wellbeing of our staff and their families, our partners, and the communities where we operate... In April, we announced measures to protect our people by reducing the number of employees on sites to minimum possible levels, for a period of 3-months. Throughout that time, we have followed government restrictions and health advice, however, we believe that the pandemic-related risks still remain too high for a full return of production employees to our sites. We are therefore extending the period of reduced operational activity for an additional month, with the intention of gradually increasing mine site staff levels at the beginning of August, if it is deemed safe to do so."

So, 1 more month at least. It is important to note that this decision has not been imposed on KazAtomProm; the company itself has made it. Was its hand forced by the public health situation, or is there more to it?

The company's message has remained consistent: 'Today's extension of the protection measures for an additional month is not expected to have a material impact on the Company's 2020 production volume guidance (19,000tU to 19,500tU on a 100% basis - attributable production between 10,500tU and 10,800tU). Kazatomprom's production decisions and contractual obligations are backed by inventory, and the Company will continue to responsibly manage its supply sources, including purchases in the spot market if necessary, in order to meet its sales commitments (unchanged at 13,500tU to 14,500tU).'

So, what do you make of all of this? For me, this is further evidence that KazAtomProm is helping to de-stock the market, as indeed is Cameco. That's got to be good news. The unknown is how long it will take to get to levels that make the utilities nervous. There's a lot of distrust surrounding KazAtomProm in North America, especially because of its reputation for generating a uranium oversupply in the past resulting in overstocking by utilities, reduced U3O8 prices and driving high-cost producers out of the market.

However, everything I'm seeing and hearing indicates that KazAtomProm now wants to see the price of spot and contract rise and the carry-trade made obsolete. We can never be totally sure of the company's strategy, but even they don't have a margin from new production at this price, despite being the lowest-cost producer in the world (other than a few uranium by-product streams). Some uranium investors will always believe that KazAtomProm wants nothing else but to drive other uranium players out of the market by starving them of the ability to get into economic production or to raise capital. Whether this sentiment is fair or not is another discussion, as all side have their own narrative that they need to promote. What is certain though is that the geopolitical nature of this commodity is not in doubt.

There are two possible readings I draw from their latest market statement.

1.) KazAtomProm intends to leverage its existing inventory to satisfy its commitments to utility companies. It will also head back to the spot market, possibly buying up pounds it has already sold. This could well take more pounds out of the market, boosting sentiment and, eventually, the long-term price of uranium.

2.) KazAtomProm is claiming its production guidance will not be further affected by this additional month of lockdown. If this is true, maybe this is the case of a public health situation forcing a company into submission. What are the company's real intentions? How much of this is by design?

We're interviewing KazAtomProm in a few days' time. We can't wait to delve into this situation, with a view to adding some transparency to the company's public statements. The company will obviously keep its cards close to its chest, but you can be sure we're going to try. What questions would you like us to ask?

Company Website: https://www.kazatomprom.kz/en