Kazatomprom - will leading global uranium producer benefit from energy crisis?

Kazatomprom is the world's largest uranium producer, with the Kazakh company accounting for 25% of total raw material production in 2021, surpassing Cameco, Rio Tinto, BHP Billiton and Uranium Energy Corp, which is only at the beginning of its journey toward full-scale mining in the United States:

• Sentiment around the uranium industry is improving as the world's energy crisis begins to hit, which may premium uranium as the most efficient energy source (1 gram of enriched uranium = 3 t of lignite). As a commodity that currently has no substitutes (the primary ingredient in nuclear fuel), uranium has the potential to ultimately become a global critical commodity with a limited supply, which should support pricing per pound of raw material;
• Japanese President Fumio Kishida recently announced the imminent opening of Japan's 17 shut-down nuclear power plants. Japan shut down nuclear in the wake of the Fukushima nuclear power plant accident, which was caused by the tsunami. Now some analysts are questioning the true extent of radiation contamination. Analysts at Bank of Scotland forecast the opening of 21 more nuclear power plants in Japan by 2030, with seven currently open;
• Elon Musk has also spoken positively about nuclear power, calling the closure of non-carbon footprint-emitting nuclear power plants an act to the detriment of the planet. The U.S. Inflation Reduction Act, signed into law by Joe Biden prioritizes nuclear power in the energy sector which could improve demand conditions in the global uranium producer market. The United States is considering extending the operation of nuclear power plants that were originally scheduled for closure;
• The European Union has recognized nuclear power plants as one of the green energy sources. A return to the atom is also being seriously considered by Germany, which is in the midst of an energy crisis and is directly exposed to the halting of gas supplies via Nord Stream;
• Total uranium production in 2021 was 48,000 tons, of which 12,000 were supplied by Kazatom, at an average price of $12.6 per pound versus a market price of $32. The company currently has about 351 thousand tons of in-situ mine reserves alone, which could last for up to 6 more years of global uranium demand which positions it well in case the price of the raw material rises. At the end of 2021, Kazatomprom reported $256 million in debt and cash reserves of $373 million. The company also pays regular dividends.
• The company has natural access to low-cost mining thanks to its in-situ mines (ISR In Situ Recovery Mining), which were made possible by Kazakhstan's easily accessible and abundant uranium ore deposits. Increasing production at conventional mines like Cigar Lake and the entire Saskatchewan Basin region in Canada is more costly and slower than mines operating with ISR technology;

Kazakhstan has 12% of the world's uranium reserves and the largest number of in-situ mines (including Inkai where Cameco CCJ.US owns a 40% stake )which make it possible for Kazatomprom to extract the raw material at competitive prices without incurring 'inflationary mining costs' that can weigh on Western producers. Source: Kazatomprom

According to the company's presentation, the trade route currently bypasses Russian territory, Kazatomprom's products are not exposed to sanctions. The route goes through the Caspian Sea (Aktau), the port of Alat, Porti Poti and the navigable Turkish straits from where it exits to the Mediterranean Sea and the global market. A separate supply chain from Kazakhstan leads to East Asia. On the other hand, another trade chain required passage through the Russian Federation and the port of St. Petersburg because the world's main enrichment entity for uranium ore remains Rosatom. The concern was eventually sanctioned by Canada, which, unlike other countries, is not forced to enrich uranium thanks to its contract with Rosatom. A separate supply chain from Kazakhstan leads to East Asia. Source: Kazatomprom

• Kazatomprom continues to be weighed down by geopolitical risks, which could potentially impact the company's supply chain of raw material and other products (beryllium, tantalum, niobium), as well as lowered sentiment around Kazakh companies exposed to Russia. The company is not listed on any Russian stock exchange, there are no Russians on its board of directors, and Kazakhstan itself has distanced itself from aggression in Ukraine by refusing military aid to the Kremlin. Kazakhstan's geographic location still appears to be the reason why its share price has not seen a significant increase since the previous year, although the uranium price itself has risen by nearly 50% thanks to, among other things, Eric Sprott's aggressive fund purchases;
• Kazatomprom also has some internal risk because only 15% of the stock is admitted to free trading. 85% of the shares are held by Samruk Kazyna JSC, a Kazakhstan state-owned company.

Kazatomprom (KAP.UK) chart, H4 interval. The share price has re-entered above the 200-session average, which runs around $27.5, which could be a bullish signal. Recent declines have slowed down at the 23.6 Fibonacci retracement level. Kazatomprom's share price has not fallen significantly despite the dire sentiment in global markets and is nearly halfway up from the levels of the February panic triggered by Russia's invasion of Ukraine. The recent rally, which coincides with the arrival of the autumn-winter season, may indicate that sentiment around uranium and nuclear power will improve during this period, amid the growing need to diversify efficient energy sources. Source: xStation5