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Kazatomprom extends production slow down at its uranium mines, market could move further into deficit

Uranium supply will be curtailed at least until 2021, and quite possibly for longer

Berkeley Energia Ltd -
There are currently no major new uranium mines in development

Kazatomprom (LON:KAP), the world’s largest uranium producer, has said that it will continue to “flex down” production from its Kazakh mines by around 20% through to 2021.

That extends the timeframe of its previous production curtailment by a further year, and means that overall output is likely to average 59mln pounds of U3O8 per year, including joint ventures.

Put another way, up to 14 million pounds U3O8 will now be removed from supply, which should put the market a further 8% into deficit by 2021.

The move marks a further demonstration on Kazatomprom’s new approach to production, dubbed “value over-volume”, in which the company is finally jettisoning its Soviet-style output targets for a more considered approach to pricing and supply.

“The decision to extend production curtailment reflects the fact that the uranium market is still recovering from a period of oversupply,” Kazatomprom said in a statement issued to the London Stock Exchange.

It might well have added that Kazatomprom itself was the primary driver of that oversupply, and that the consequent prevailing US$25 per pound price is now putting a certain amount of pressure on its own margins.

This is unhelpful at a time when the company is contemplating issuing more shares to raise new funds.

The effect on other miners and companies with exposure to uranium is likely to be salutary though.

In London, investors are able to gain direct exposure to uranium via Yellow Cake PLC (LON:YCA), which holds a significant uranium inventory and which itself has a close relationship with Kazatomprom.

In Canada, Uranium Participation Corporation (TSE:U) fulfils a similar role, and there’s now also ETF run by Global X Funds (NYSEARCA:URA).

And of course there’s also a plethora of uranium explorers and producers that are also likely to benefit from any significant shortfall in supply, from Cameco Corp (TSE:CCO) and Denison Mines (TSE:DML) at the top end, right down to smaller explorers and developers like UEX (TSE:UEX), Bannerman Resources Ltd (ASX:BMN), Peninsula Energy (ASX:PEN), Mega Uranium (TSE:MGA), Fission Uranium (TSE:FCU), Manhattan Corporation Ltd (ASX:MHC), Energy Fuels Inc (TSE:EFR), CanAlaska Uranium Ltd (CVE:CVV) and Berkeley Energia (LON:BKY).

As yet, there has been no real effect on the share prices of uranium companies in general, but it may only be a matter of time.

At present there are no significant new uranium mines in development anywhere in the world, as a long-standing low pricing environment that goes all the way back the Fukushima disaster continues to discourage investment.

Indeed, some companies, like Manhattan Corporation, have found it expedient to diversify and add other metals to their portfolios. But the pace at which new nuclear facilities continue to be built implies that demand will at some point outstrip supply, especially if Kazatomprom continues to hold such a tight leash on its own operations.

In some respects, of course, it’s disadvantageous to other companies to have one player in the market playing such an influential role. The likes of Cameco and Denison can look after themselves, to be sure, but negative sentiment and oversupply have had a stifling effect on the junior sector for years.

On the other hand, with Kazatomprom now recognising that a low pricing environment benefits no-one in the mining industry, things could start to look up.

"Uranium recovered somewhat from the lows of 2016, but the market is still signalling that there is no need to bring back existing production capacity,” said Galymzhan Pirmatov, chief executive officer of Kazatomprom.

“Keeping production levels flat for now supports a return to long-term sustainability in the market, which will benefit all stakeholders.”

Whether that means new money will be any more readily available for early stage uranium projects is a moot point. But there is at least now some assurance going forward that new supply isn’t going to be dumped on the market just for the sake of fulfilling Soviet-style quotas.

“No decision has been taken regarding production levels beyond 2021,” Kazatomprom said. “Kazatomprom does not expect to return to full production until a sustained recovery is evident.”


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