According to the company’s website press release on October 26, 2022,
Kazatomprom 3Q22 Operations and Trading Update
JSC National Atomic Company "Kazatomprom" ("Kazatomprom", "KAP" or "the Company") announces the following operations and trading update for the third quarter and nine months ended 30 September 2022.
This update provides a summary of recent developments in the uranium and nuclear industries, as well as provisional information related to the Company's key third-quarter and nine-month operating and trading results, and updated 2022 guidance. The information contained in this Operations and Trading Update may be subject to change.
Market Overview
In September, the annual World Nuclear Association Symposium, held in-person in London, UK for the first time in three years, featured industry experts and panels focused on the significance of preserving the current global nuclear fleet, while working to enhance nuclear power's role in achieving the United Nations' climate goals. Social perception of nuclear power and its benefits, and general sentiment within the uranium market have grown increasingly positive, with a significant portion of the Symposium spent discussing opportunities for the sector to play a crucial role in the effort to reduce global carbon emissions. The Symposium sessions also covered the evolving political dynamics in the context of the Russia-Ukraine conflict, which has driven many nations to revise energy security policies and consider or reconsider the use of nuclear energy as a safe, reliable, scalable, and low-carbon energy source.
In September, Japan announced plans to restart seven additional nuclear reactors as soon as possible to ensure a steady supply of power across the country. To prepare for possible electricity supply shortfalls, the ministry indicated that it would like to see a total of 17 nuclear reactors operating and online, including the ten reactors that have already received operating approval. In a related development, Japan's Nuclear Regulation Authority (NRA) stated that it also plans to extend the current maximum 60-year operating life limitation for the nation's reactors. According to current Japanese legislation, reactors can operate for a maximum of 40 years with only one potential 20-year extension following a thorough screening process.
China's State Council officially approved the construction of unit 1 and unit 2 (Phase I) at the Lianjiang nuclear facility in Guangdong Province, and unit 3 and unit 4 (Phase II) at the Zhangzhou plant in Fujian Province, with the new nuclear projects included in China's national energy plans. Lianjiang is a new plant operated by China's State Power Investment Corporation (SPIC) and Phase I will utilize China's domestically designed 1,161 MWe CAP-1000 PWR, an adapted version of the Westinghouse AP-1000. The Phase II project at Zhangzhou will be managed by China National Nuclear Power (CNNP), a division of China National Nuclear Corporation. The new Zhangzhou units are expected to be the HPR-1000 (Hualong One) reactor design.
In the US, the 2022 Inflation Reduction Act (IRA) authorized by the US President in August, includes broad technology-neutral tax credits for carbon-free energy sources, which is expected to benefit future reactors as well as providing tax credits for nuclear power facilities that are currently in operation. The law also allocates $700 million to support the creation of domestic high-assay low-enriched uranium (HALEU) capacity and nearly $400 billion for clean energy and climate change-related initiatives in the United States. The IRA also offers support for the development of small modular reactors and advanced reactors, with incentives for building such nuclear facilities to replace retired coal-fired and other fossil fuel plants or mining operations.
During the third quarter, a number of demand-side highlights emerged:
- In the UK, Hinkley Point B unit 1 and unit 2 were permanently shut down on 06 July and 01 August respectively, after more than 46 years of safe operation in Somerset. Hinkley Point B, which began operation in 1976 and comprises two 660 MWe advanced gas-cooled reactors (AGRs), generated around 311TWh of electricity over its lifetime.
- According to a subsidiary of SPIC, construction of Haiyang unit 3 in Shandong Province, China, began on 07 July. The Haiyang facility comprises two existing operating Westinghouse AP-1000 PWRs (unit 1 and unit 2) while units 3 and unit 4 will be domestically designed CAP-1000 PWRs.
- China General Nuclear (CGN) announced that the Lufeng facility in Guangdong Province, China, saw the official start of construction in September, with the first nuclear safety-related concrete poured for unit 5. The new Lufeng unit 5 reactor uses China's domestic HPR-1000 (Hualong One) PWR design.
- In July, Rosatom announced it had begun construction of a new VVER-1200 PWR at the Akkuyu nuclear plant in Turkey, with the pouring of first nuclear safety-related concrete at unit 4. The Akkuyu facility now comprises four units simultaneously under construction by Rosatom and it is the first nuclear plant under construction in the Republic of Turkey.
- According to Rosatom, first concrete for nuclear safety-related purposes was poured in July for El Dabaa unit 1, signaling the start of construction for the first commercial nuclear plant in Egypt. When completed, the plant will host four 1,200 MWe VVER-1200 PWRs.
- With rising summer temperatures and anticipated energy shortages, lawmakers in California approved legislation giving Pacific Gas & Electric Company, the operator of the state's last operating nuclear power plant, Diablo Canyon, a $1.4 billion loan to extend the plant's life for five more years (until 2030).
- In Mexico, the Laguna Verde nuclear power plant in Veracruz received a 30-year operating extension, according to a report from the Comisión Federal de Electricidad. The license extension, granted in August, is valid until 10 April, 2055.
Subsequent to the end of the third quarter, Emirates Nuclear Energy Corporation reported in early October that unit 3 of the Barakah facility in Abu Dhabi, United Arab Emirates, had been connected to the grid. Barakah unit 3 is one of four 1,400 MWe APR-1400 PWRs reactors constructed at the facility by South Korea's KEPCO.
Market Pricing and Activity
Although uranium spot market activity is usually slower throughout the summer months, contracting interest during the summer of 2022 was particularly quiet due to utility customers shifting their attention to potential bottlenecks in the conversion and enrichment segments, as they seek to reduce reliance on Russian processing services. Uranium spot activity was very limited throughout July and August, with the spot price ranging between US$45.00/lb U3O8 and US$50.00/lb U3O8. Activity in the spot market picked up in September pushing the price to US$52.00/lb U3O8. However, with equity markets under pressure and a sharp decline in purchasing activity by financials entities, the price fell back to about US$48.00/lb U3O8 by the end of the quarter.
According to third-party market data, spot volumes transacted over the first nine months of 2022 were about 40% lower than the same period last year. A total of approximately 41 million pounds U3O8 (15,800 tU) was transacted at an average weekly spot price of US$49.67/lb U3O8, compared to about 71 million pounds U3O8 (27,300 tU) at an average weekly spot price of US$31.96/lb U3O8 during the first nine months of 2021.
In the term market, third-party data indicated that contracted volumes totalled about 80 million pounds U3O8 (30,600 tU) through the first nine months of 2022, compared to about 53 million pounds U3O8 (20,200 tU) in the same period of 2021. The 50% increase in term contracting activity to date in 2022 led to a significant US$8.50/lb U3O8 increase of the long-term price indicator at the end of the third quarter, resulting in an average term price of US$51.50/lb U3O8 (reported on a monthly basis by third-party sources).
Company Developments
Transportation risk
Kazatomprom continues to monitor the growing list of sanctions on Russia and the potential impact they could have on the transportation of products through Russian territory. To date, there are no restrictions on the Company's activities related to the supply of its products to customers worldwide. Kazatomprom shipped its third quarter volumes via St. Petersburg without any disruptions or logistical/insurance-related issues. However, the Trans-Caspian International Transport Route (TITR), which the Company has successfully used as an alternative route since 2018, helps to mitigate the risk of the primary route being unavailable, for any reason.
In order to transport Class 7 nuclear material on the TITR, permits must be issued by the relevant authorities in the jurisdictions through which the material passes. Kazatomprom has an approved quota allowing the Company to ship a total of up to 3,500 tU from its Kazakh mines via the TITR. The Company is working to increase the quota limit and is assisting JV partners if they would prefer not to receive their share of material via the established route that passes through the Port of St. Petersburg.
The TITR requires the use of chartered sea vessels on the Black Sea rather than commercial shipping companies. In order to maximize the cost efficiency of using a chartered vessel, material must be consolidated at the Georgian Port of Poti.
Kazatomprom currently has a shipment to western markets in-progress on the TITR; the KAP-owned portion of the shipment has reached the Port of Poti without issue and it is now waiting for additional material to arrive, prior to being loaded onto a vessel for furtherance to its final destination. Kazatomprom's past and current shipments of KAP-owned material are permitted based on commitments directly between KAP and the end-user taking title of the material at the destination. However, when shipping Kazakh-origin uranium from JV operations to JV partners using the TITR, transit country authorities ask for certain shipment details and associated documents, provided by the Kazakh JV and potentially, from its non-KAP JV partner. As it is the first time the TITR-related jurisdictions are reviewing such arrangements, there is an elevated risk of transportation delays. The shipment that is currently en route to join Kazatomprom's material waiting at the Port of Poti is sourced from JV Inkai and it has been delayed. There is a risk that the Company's 2022 guidance for consolidated sales and consolidated revenue could be impacted if that portion of the shipment and/or if future shipments on the TITR in 2022, are delayed.
Whether shipped by Kazatomprom or its partners sharing Kazakh assets, the product remains of Kazakh origin through to its arrival at a western conversion facility.
Sulfuric acid plant feasibility
Kazatomprom presented its potential investment plan for a new sulfuric acid plant to the Prime Minister of the Republic of Kazakhstan, Alikhan Smailov, during his trip to the Turkestan region in October 2022. Detailed feasibility work is underway to confirm acid requirements and estimate the anticipated construction schedule and capital costs.
The implementation of the project is expected to take place between 2022 to 2026 (including the feasibility work currently underway). The facility is expected to be built in the Sozak district of the Turkestan region in Kazakhstan, which is in close proximity to some of Kazatomprom's mines that do not have railway access and it would therefore significantly shorten acid delivery routes.
2024 Production Plans
As previously disclosed in August, Kazatomprom's Board of Directors approved a strategy to revise the Company's 2024 production volume down by approximately 10% compared to the total Subsoil Use Contract level of 28,691 tU, disclosed in its most recent 2021 Competent Person's Report ("2021 CPR").
The decision to shift production from minus 20% in 2023 to approximately minus 10% in 2024 is based primarily on Kazatomprom's continued success in signing mid- and long-term contracts with new and existing customers. The current contract book provided sufficient confidence that the additional volumes in 2024 will have a secure place in the market and be needed to fulfill future contractual obligations.
The full implementation of this decision could remove approximately 3,500 tU from anticipated global primary supply in 2024. Kazatomprom's 2024 production is therefore expected to be between 25,000 tU and 25,500 tU (100% basis), compared to the total Subsoil Use Contracts level for 2024 of 28,691 tU, disclosed in the 2021 CPR. Although the year-over-year production increase from 2023 to 2024 is modest, the Company may face significant challenges to any increase above current production levels, based on the current state of global supply chains and the availability of key operating materials.
Chief Executive Officer ("CEO") and Management Board
As previously disclosed, the Company's Board of Directors approved the appointment of Mr. Yerzhan Mukanov, acting CEO since July and Chief Operations Officer ("COO") since March 2022, as Kazatomprom's CEO and Chair of the Company's Management Board. With the promotion of Mr. Mukanov to CEO, the Company, with the support of the Board of Directors, has initiated a recruitment process to assess appropriate candidates for the vacant COO position.
In connection with the appointment of Mr. Mukanov as Chairman of Kazatomprom's Management Board, the issue of electing of Mr. Mukanov as a member of Kazatomprom Board of Directors was proposed for approval by Company Shareholders at a virtual EGM on 01 November 2022. The notice of the upcoming EGM, as well as the ballot for absentee voting are available on the Company's website.
Full biographies of Kazatomprom's Management Board members are available on the Company's website, https://www.kazatomprom.kz.
