Press Release: KAZATOMPROM – 5 Years Performance

Starting Point Problems

At the moment of establishing in July 1997 NAC Kazatomprom facilities were all in severe financial and economic condition. As of the end of 1998 the company endured the following circumstances:

- loss of traditional markets and consequent decrease in output, which resulted in twice as much production cost;

- moral and physical depreciation of production assets;

- 6-month wages arrears total of to $11.9 mln;

- bank loans and payables to foreign companies exceeded $44 mln;

- extremely high bank interest rates of 25% per annum and pledge of of entire property;

- debt due to state budget other government funds of 3 mln.tenge.

Moreover, an antidumping investigation deferred sales of Kazakh uranium to the US. Sales to Europe were limited by quota. Monetary crisis in Russia jeopardized with decrease of Russian orders for nuclear fuel pellets as payment terms for Kazatomprom services fixed in US Dollars proved to be three times higher compared to Russian entities, who paid in Russian rubles. At the same time in deals with Russia only 25% due to Kazatomprom was paid and the rest was paid by promissory notes with market value of one third of their face value. Beryllium and Tantalum plants practically stood idle. Highly qualified staff considered leaving off and many did.

Finding ways out

Kazatomprom Management had employed specially designed anti-crisis program as a remedy to the above situation. Increase in production up to nominal capacities was given a priority. In fact, that was the only way to substantial savings in conditionally fixed costs. Internal cost allocation system, self-financing and integrated operational schedule were introduced, and procurement put on competitive base. The anti- crisis program also included quality improvement, renewal of former business relations, expansion of sales markets, introduction of new technologies, production units specialization, significant upgrade of production assets, and revision of remuneration and motivation systems encouraging initiative and improvement.

As a result, within three years Kazatomprom has moved from 13th to 6th place in the world uranium producers ranking. The company managed to convince Euroatom representatives to cancel quotas regime for Kazakh imported to Europe. In 1999 the USA antidumping investigation ended in favor of Kazakhstan, which eliminated the last restriction for free global trade of Kazakh origin natural uranium. Kazatomprom’s export geography expanded; several joint ventures were created - 'Inkai', 'Katko', 'Zarechnoe', which partly solved the sales problem since the second parties in the joint ventures are consumers themselves.

Having Erbium and Gadolinium oxides containing fuel pellets production in place allowed for additional order for fuel pellets. A long-term contract for fuel pellets production was concluded with OJSC TVEL (Minatom, Russia) in year 2000, and Ukranian-Kazakh-Russian joint venture established for secure nuclear fuel supply to Ukranian reactors.

Kazatomprom started qualification of uranium products to just recently unreachable Western markets. Nowadays uranium dioxide powders are supplied to General Electric (USA). Technology designed by and introduced at the Ulba Metallurgical Plant for processing of uranium containing materials (scraps) gives Kazatomprom another significant competitive advantage. Under current contract Ulba processes Global Nuclear Fuels’ (a joint venture between General Electric, Hitachi, and Toshiba) material, and in the future scraps processing capacity will be increased up to 200 t per year.

At the Beryllium side the main problem was insufficient sales market - as a result of dramatically reduced orders from military-related enterprises almost all beryllium shops were closed since 1992. Two-years research and development efforts of Kazatomprom adjusted to 100% production for civil needs. Long-term contracts were concluded with US Brush Wellman and Japanese Marubeni. These provide for full production load up to 2010. The new portfolio of orders requires more capacity than originally installed during Soviet era, and that is why a new hydrometallurgical shop with advanced extraction technology is currently under construction. By the end 2003 Kazakhstan will be producing 33% more Beryllium than USSR did at its best times.

Tantalum plant has experienced problems similar to those of Beryllium production. Within two years Kazatomprom succeeded not only restarting the Tantalum production but also eliminating estimated 20-years technological drop behind. The number of potential orders for 2001 exceeded production capacities. In order to ensure stable performance of the Tantalum plant significant investments were made in raw material supply and technological development. The production has been reorganized with the new emphasis on manufacture of high capacitance capacitor grade Tantalum Powders and Niobium products, which will alleviate feed supply and secure an adequate niche for Kazatomprom in this rapidly developing global Tantalum and Niobium market.

Financial indicators:

Consolidated sales income for 5 years, in millions Kazakh tenge:

1997 - 6,414; 1998 - 9,379; 1999 - 15,876; 2000 - 18,362; 2001 - 19,608; 2002 forecast - 26,038.

Taxes and other payments to the state budget, in thousands Kazakh tenge:

1997 - 1 158 399; 1998 - 826 937; 1999 - 1 049 000; 2000 - 2 285 645; 2001 - 2 754 899.

Investments in southern mining groups, in thousands US dollars:

1997 - 3 827, 1998 - 6009, 1999 - 17 704, 2000 - 20506, 2001 - 24 216, 2002 - 22 589.

Investments in Uranium plant, thousands US dollars:

1999 - 1 821, 2000 - 4 257, 2001 - 5 655, 2002 - 4 693.

Investments in Beryllium plant, thousands US dollars:

2000 - 2 738, 2001 - 5055, 2002 - 3900.

Investments in Tantalum plant, thousands US dollars:

2000 - 2 538, 2001 - 5 756, 2002 - 4 172.

In 2000 Kazatomprom was the first national company to issue A-class promissory notes used in settlement with suppliers of goods under a special program of the Central Bank, which has admitted Kazatomprom as A- class issuer.

In the year 2002 registered coupon indexed bonds of Kazatomprom were included by Exchange Council decree into the 'A' category of the official securities listed at the Kazakh Stock Exchange (KASE). Presently Kazatomprom bonds are floated at the minimal rates as compared to others’. This displays the company’s stability, management effectiveness and investors’ trust.

For today all plans have been implemented and objectives met 100%. For the future Kazatomprom sets new targets and prepares its strategy to year 2030.