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Kazatomprom 2021 Financial Results

16 March
Kazatomprom 2021 Financial Results

Conference call 2021 Financial results

JSC National Atomic Company “Kazatomprom” (“Kazatomprom”, “KAP” or “the Company”) announces its consolidated financial results for the year ended 31 December 2021, prepared in accordance with International Financial Reporting Standards (IFRS).

“The first months of 2022 have been volatile and unexepected, to say the least,” said Mazhit Sharipov, Kazatomprom’s Chief Executive Officer. “In January, our country experienced a tragic series of events in the first days of the new year, events that still echo in the hearts of every citizen of our country. As a company, we promptly took all necessary measures to prevent any disruption to our operations and ensured the safety of all personnel. There were no tangible impacts on the Company's activities.

“At the end of February, the escalation of the Russian-Ukrainian conflict led to the military actions we are currently seeing in the territory of Ukraine. Our hearts are with all the victims of this conflict and we are hoping a peaceful resolution comes very soon. While the sanctions imposed by various countries against Russia have not directly affected the uranium and nuclear industry to date, Kazatomprom continues to carefully assess all potential risks. The situation is changing every day and it is therefore difficult to predict the possible impact and consequences on Kazatomprom’s activities. However, the Company remains prepared with mitigation plans under a variety of scenarios and we continue to work diligently to protect the interests of all stakeholders.

“In terms of our 2021 results, I am proud to confirm that we once again delivered on our guidance, achieving and in some cases exceeding our indicators for 2021, with adjusted net income and adjusted EBITDA increasing by 10% and 7%, respectively. In 2022, despite the current volatile and unprecedented environment, we expect to again deliver on our plans and achieve the guidance established under our market-centric strategy, which has not changed, despite the further improvement of market conditions.”

“Amid and beyond the current events, we are seeing growing concern around energy security and diversification, which has brought nuclear power back into focus as an indispensable alternative to carbon-generating sources. As the world's leading producer and supplier of natural uranium, Kazatomprom is best placed to play a significant role in the world’s energy transition efforts and deliver on its value-focused strategy well into the future.”

Key financial metrics

(KZT billion unless noted)

2021

2020

Change

Group’s consolidated revenue

691.0

587.5

18%

Operating profit

238.2

223.9

6%

Net profit

220.0

221.4

(1%)

    Gain from disposal of joint venture (one-time effect)1

-

22.1

(100%)

Adjusted net profit

220.0

199.3

10%

    Earnings per share attributable to owners (basic and diluted), KZT/share2

 543

 708

(23%)

Adjusted EBITDA3

349.6

325.7

7%

Attributable EBITDA4

275.8

295.0

(7%)

Operating cash flow5

118.7

161.6

(27%)

1 Gain from disposal of joint venture Uranium Enrichment Center JSC.
2 Calculated as: Profit for the year attributable to owners of the Company divided by Total share capital, rounded to the nearest KZT.
3 Adjusted EBITDA is calculated by excluding from EBITDA items not related to the main business and having a one-time effect.
4 Attributable EBITDA (previously “Adjusted Attributable EBITDA”) is calculated as Adjusted EBITDA less the share of the results in the net profit in JVs and associates, plus the share of Adjusted EBITDA of JVs and associates engaged in the uranium segment (except JV “Budenovskoye” LLP’s EBITDA due to minor effect it has during each reporting period), less non-controlling share of adjusted EBITDA of “Appak” LLP, JV “Inkai” LLP, “Baiken-U” LLP, “Ortalyk” LLP and JV “Khorasan-U” LLP, less any changes in the unrealized gain in the Group.
5 Includes income tax and interest paid

Operating and Financial Review and Financial Statements

The Operating and Financial Review, and Audited Consolidated Financial Statements provide detailed explanations of Kazatomprom’s results for the year ended 31 December 2021, as compared to the same period in 2020, with guidance for 2022. This press release should be read alongside these documents, all of which are available at www.kazatomprom.kz.

Update on recent geopolitical events

Subsequent to the financial statements reporting date, significant geopolitical events have occurred in Kazakhstan and in Russia/Ukraine. These events have not had a material impact on the Group’s operations to date, although the resulting market uncertainty has caused significant volatility in the tenge exchange rate and traded price of the Company’s securities. Management is unable to predict the consequences or future impacts of these events, if any, on the Group's financial position or operating performance. Management will continue to monitor the potential impact of the above events and will take all necessary steps to mitigate the risks and prevent adverse business impacts.

January 2022 civil unrest in Kazakhstan

On 2 January 2022 protests triggered by a rise in fuel prices began in the Mangistau region of Kazakhstan which spread to other regions in the country. The protestors demanded a number of social, economic and political reforms. Although the Government took measures to respond to these demands, including a decrease in fuel prices, the protests escalated into significant social unrest in Almaty and southern regions of the country.

As a result, on 5 January 2022 a state of emergency was declared until 19 January 2022, and restrictions were imposed on communication and transportation of people and vehicles, including railway and airline carriage. Currently, the situation in all regions of the country has stabilized, and the state of emergency has been cancelled. The functioning of utilities and life support systems have been fully restored, and restrictions on communication and transportation have been removed.

Events in Ukraine

On 24 February 2022, the Russian President announced that Russia would recognize the independence of the Luhansk People’s Republic and Donetsk People’s Republic and the Russian military mobilized its troops over the border of Ukraine. As a response to the Russian actions, the United States, the European Union and a number of other countries imposed sanctions against Russia, including the disconnection of a number of Russian financial institutions from SWIFT.

In connection with the sharp devaluation of the Russian ruble, the tenge exchange rate began to be adjusted. To date, the National Bank of the Republic of Kazakhstan has taken a number of measures to maintain the stability of Kazakhstan’s financial system.

Due to active international sanctions against certain Russian banks, including Sberbank, VTB Bank and other organizations, it is inappropriate for the Group to service or interact with these banks and their subsidiaries. The Group has taken measures to redistribute funds to banks that are not under current sanctions.

The Group has a Uranium Processing Agreement with the Uranium Enrichment Center (UEC) (a resident of the Russian Federation). At the date of these results, the Group anticipates that provision of services under this agreement will continue. There may be a risk of difficulty in making mutual settlements in US dollars with UEC in the event of restrictions and blocking of the UEC's foreign currency accounts or in the event of the withdrawal of Russian banks from the SWIFT system. Potential measures related to the risk of Rosatom being sanctioned are now under consideration.

Some of the Group’s exported products are transported through the Russian Federation and, accordingly, there are risks associated with both transit through the territory of Russia and the delivery of cargo by sea vessels. The Group constantly monitors the situation with sanctions against Russia and the potential impact on the transportation of finished products. At the date of these results, there are no restrictions on the Group's activities related to the supply of the Group's products to end customers.

The Group’s financial position is currently unaffected by the events in Ukraine. The majority of Group revenue is earned in US dollars and funding is also raised in US dollars, creating a natural hedging effect on foreign exchange risk. Accordingly, fluctuations in the exchange rate of the national currency do not have a significant impact on the financial performance of the Group.

Management update

As previously disclosed, Mr. Aslan Bulekbay decided to pursue other opportunities and resigned from his position as Kazatomprom’s Chief Operating Officer (COO), effective 5 March 2022.

Yerzhan Mukanov has been appointed as Kazatomprom’s COO, effective 14 March 2022. Mr. Mukanov has 15 years of industry experience, including his work in the Kazatomprom group of companies, along with additional experience with AREVA Mines (now Orano).

Mr. Mukanov is a graduate of the Satpayev Kazakh National Technical University with a degree in Metallurgy of the Non-Ferrous Metals, and he holds postgraduate degrees from the Institute of Metallurgy and Enrichment of the Academy of Sciences of the Republic of Kazakhstan and Paris School of Mines (I’Ecоle Nationale Superieure des Mines de Paris) in Economic Assessment of Mining Projects.

His professional knowledge, as well as his experience in the nuclear industry will allow Mr. Mukanov to make a strong contribution to the Company’s future development.

Changes in the Group structure

In 2021 and 2020 the Group completed several transactions that had a significant impact on reported results.

In 2021:

  • As previously disclosed, under the terms of several cooperation agreements between Kazatomprom and China General Nuclear Power Corporation (“CGNPC”), the parties agreed to construct a fuel assembly plant (“Ulba-FA”) at the Ulba Metallurgical Plant. CGNPC provided a guarantee that Ulba-FA’s production will be purchased by CGNPC in exchange for Kazatomprom agreeing to sell a 49% interest in the Company’s wholly owned subsidiary, Ortalyk LLP, to a subsidiary of CGNPC (the “Transaction”). In April 2021, a Sale and Purchase agreement was signed and the parties agreed to the valuation determined by one of the four major international advisory and professional services firms, whereby a 49% share of the operation was assessed a value of approximately USD 435 million. As of the end of July 2021, the Transaction has closed, with government approvals in place and all conditions being met. Re-registration of the entity has been completed and CGN Mining UK Limited (a CGNPC subsidiary) is now a full participant in Ortalyk LLP. Kazatomprom retains a controlling 51% interest and CGN Mining UK Limited holds a 49% interest, with each partner purchasing a proportionate share of uranium production from the operation according to its interest.
  • In accordance with Comprehensive Privatization Plan for 2021–2025, approved by the Government of the Republic of Kazakhstan, the Company had planned to divest its interest in a number of non-core assets, as presented in the Company’s 2018 IPO Prospectus. This included entities of the KazPV project: Astana Solar LLP, Kazakhstan Solar Silicon LLP and MK KazSilicon LLP. In 2021, the Group sold its 100% interest in each of Kazakhstan Solar Silicon LLP for KZT 323 million (completed 12 July 2021), Astana Solar LLP for KZT 380 million (completed 23 August 2021) and MK KazSilicon LLP for KZT 652 million (completed 19 November 2021).
  • In accordance with the privatisation plan of non-core assets as presented in the Company’s IPO Prospectus, Kazatomprom and United Chemical Technologies Trading House LLP entered into an Agreement on 30 December 2021, for the sale of the Company’s 40% share in Caustic JSC. On 31 January 2022, partial payment was made for 30% of the Company’s total interest in Caustic JSC, therefore United Chemical Technologies Trading House LLP’s interest in Caustic JSC increased by 12% (30% of the Company’s 40% share). The remaining portion of the Company's shares were transferred to trust management of United Chemical Technologies Trading House LLP until full payment for the Company’s remaining interest is completed, expected not later than 2023. Thus, at the end of 2021, the Company owns a 28% stake in Caustic JSC.

In 2020:

  • on 17 March 2020, the Group completed the sale of its 50% stake (minus one share) in the UEC to its partner in this joint venture, TVEL JSC (TVEL). The Group kept one share in the UEC, which will retain the right to access uranium enrichment services in accordance with the conditions previously agreed with TVEL. The sale price amounted to Russian rubles 6,253 million or Euro 90 million, fixed at an exchange rate as of 31 December 2019. Actual cash consideration of Euro 90 million (KZT 43,858 million equivalent) was received.

In total, the number of the Group’s subsidiaries, JVs, JOs, associates and other equity investments decreased from 39 as at 31 December 2020, to 35 as at 31 December 2021.

ESG at Kazatomprom

Sustainable development practices have been prioritized and reported on by the Company for over a decade, well before its privatization and 2018 initial public offering. For many years, Kazatomprom’s Integrated Annual Reports (IAR) have summarized the key aspects of its sustainability, corporate social responsibility, health and safety, and corporate governance results, highlighting an increasingly proactive and transparent approach to what now falls under the pillars of ESG. In 2019 the Company began reporting results in alignment with the United Nations’ sustainable development goals, improving disclosure for investors interested in ESG factors.

As the world's largest uranium mining company and a nuclear industry leader, Kazatomprom recognizes the impact of its businesses on both local and global social development and works to address some of the key global challenges related to the environment, climate change, clean energy generation, and the social conditions in the regions where it operates. Sustainable development is a fundamental component of the Group's Development Strategy and by extension, ESG-related targets and objectives are therefore integral to the Company’s plans, including:

  • Reducing the environmental impact of subsidiaries, associates and joint ventures;
  • Environmental protection, including effective water and land resources management, ecosystem and biodiversity conservation, and the reduction of emissions;
  • Ensuring resources are extracted in a way and at a rate that minimizes subsoil impact;
  • Increased oversight of energy and resource management;
  • Growth of socio-economic prosperity in the regions where the Company operates; and
  • Facilitation of access to affordable, reliable, sustainable and modern energy sources, and enhancement of energy security.

Throughout 2021, the Company continued taking steps to bolster its ongoing transition to a risk-based approach in sustainability management to meet the demands of transparent ESG reporting, which involves:

  • Identifying and assessing risks that have a direct impact on the Group's long-term financial performance and implementing measures for effective management of those risks;
  • Enhancing sustainability risk management practices and developing a risk culture to identify new opportunities to improve performance and gain significant competitive advantages;
  • Adapting intra-company reporting processes to provide reliable and accurate ESG-related metrics for future disclosure, allowing for improved assessment and evaluation by external parties;
  • Advancing the Company’s ESG reporting and sustainability processes to meet accepted global standards, allowing recognized third-party providers to apply a corporate ESG rating to Kazatomprom.

In 2021, Samruk-Kazyna JSC, Kazatomprom’s majority shareholder, engaged an independent consultant to conduct corporate governance diagnostics in order to assign a corporate governance rating to the Company. According to the results of the diagnostics, the Company demonstrated a high level of corporate governance and was assigned the Corporate Governance Rating “A” (in 2020 “BBB”).

Health, safety and environment (HSE) results

Health, safety, and environmental protection, including nuclear and radiation safety, are priorities for the Company. The Company is continuously improving the management system of its industrial HSE programs as it strives to a goal of zero injuries.

The Company conducts its production activities in compliance with both Kazakh and international requirements for labour protection and industrial safety, implementing comprehensive measures to prevent incidents and accidents. Health and safety management systems that meet international standards (ISO 45001) have been implemented and annually confirmed by external audit, and the Company carries out systematic work to improve the safety culture among employees and managers at all levels.

The measures undertaken in 2021 to enhance the focus on safety awareness helped to prevent major industrial accidents (including uncontrolled explosions, emissions of dangerous substances or destruction of buildings) at Kazatomprom’s enterprises. In 2021, Kazatomprom and it’s enterprises spent more than KZT 8.29 billion (in 2020: KZT 7.63 billion) within its occupational health and safety programs. The table below reflects the safety results of 2021 and 2020:

Indicator

2021

2020

Change

Industrial accidents1

-

-

-

LTIFR (per million man-hours)2

0.55

0.25

120%

Unsafe conditions, unsafe actions, near-miss reporting

44,271

35,529

25%

Number of accidents3

9

8

13%

Fatalities

2

1

100%

1 Defined as uncontrolled explosions, emissions of dangerous substances, or destruction of buildings.
2 Lost-Time Injury Frequency Rate (LTIFR) per million hours.
3 Defined as impact on the employee of a harmful and (or) dangerous production factor in performance of his work (job) duties or tasks of the employer, which resulted in an industrial accident, sudden deterioration of health, or poisoning of the employee that led to temporary or persistent disability, or death.

Notwithstanding the continuing actions taken to improve workplace health and safety, a number of serious accidents occurred in 2021. The accidents included: one case resulting from the impact of moving mechanisms, one case of chemical burns, three cases of falling from a height, one case of falling on a slippery surface and two road accidents. Both fatalities occurred as a result of one road accident.

Following each accident, a thorough investigation was completed, the main causes were identified, preventative measures were developed and procedures were changed to prevent similar incidents in the future. The investigation results were reported to other Group entities to ensure all operations could learn from the event and adjust their processes accordingly. The Company will continue working to increase the involvement and awareness of employees in industrial safety. As an example, specific focus has been committed in 2022 to improving road safety awareness and practices.

In 2021 there were no environmental or radiation-related incidents. Radiation exposure and nuclear safety remained stable in 2021 with no exceedances or radiation accidents. All work was carried out in accordance with the requirements of regulatory legal acts and internal documentation on radiation and nuclear safety.

COVID-19 Update

The Company continues to monitor the situation related to the COVID-19 pandemic, both in the production facilities and corporate offices. Meetings of operational headquarters were held and plans for anti-epidemic measures at production sites were updated at all Group Companies to ensure the relevance and effectiveness of all existing protocols. Preventative measures were taken to prevent further spread of the infection for all detected cases of COVID-19 among the employees of the Group.

The measures taken by the Company have to date been successful in maintaining continuity of operations and production capacity. However, as a result of the introduction of a state of emergency in the Republic of Kazakhstan in 2020, exploration and development activities at production facilities were suspended for a four-month period, which led to a shift in the schedule for commissioning of new wellfields.

The resulting impact was a decrease in not only the production volume in 2020, but in production volumes for 2021 as well (compared to expected volumes). In addition to the delays in the commissioning of new wellfields, the COVID-19 pandemic impacted the entire production supply chain, resulting in shortages of certain materials and equipment, including pipe products, which also impacted production. Supply chain challenges have continued, and as a result, the Group has announced a wider range for its production volume Guidance for 2022. While Kazatomprom will make every effort to meet its uranium production plan, final production volumes for 2022 may still fall short of the target level.

Year-to-date in 2022, the COVID-19 situation in Kazakhstan continues to develop, although as of the date of this press release, it has stabilized, and a number of restrictions have been lifted throughout the country.

Vaccination status is being monitored on a daily basis. Taken as a whole, including the corporate headquarters and all Group entities, as of 14 March 2022, over 94.3% (18,139) of employees have received a first vaccine dose, 93.9% (18 061) now being fully vaccinated with two doses and over 40% (7,230) of all vaccinated personnel now revaccinated with a booster vaccine dose.

Revenue, net profit, EBITDA

The Group’s consolidated revenue was KZT 691,011 million in 2021, an increase of 18% compared to 2020, primarily due to an increase in the average realized price associated with an increase in the spot price for U3O8 and the weakening of KZT against USD in 2021. This revenue increase was also supported by a slight increase in sales volume in 2021 in comparison to 2020.

Operating profit in 2021 was KZT 238,233 million, an increase of 6% compared to 2020. The increase was mainly due to an increase in average realized price.

Net profit in 2021 was KZT 220,026 million, a decrease of 1% compared to 2020. Adjusted net profit for 2021 was KZT 220,026 million, an increase of 10% compared to 2020 and consistent with the increase in the operating profit in 2021. In 2020 the gain from disposal of joint venture UEC was KZT 22,063 million. In 2021, the Company sold 49% of its interest in “Ortalyk” LLP, while Kazatomprom retains a controlling 51% interest, according to which, under IFRS, the financial effect of this transaction is reflected in cash flows and equity in the Financial Statements.

Adjusted EBITDA totalled KZT 349,628 million in 2021, an increase of 7% compared to 2020 due to a higher operating profit, as well as an increase in the EBITDA of JVs and associates. Attributable EBITDA was KZT 275,844 million in 2021, a decrease of 7% compared to 2020 mainly due to the sale of 49% share in “Ortalyk” LLP.

Operating cash flows totalled KZT 118,729 million, a decrease of 27% compared to KZT 161,593 million in 2020 mainly due to:

  • a KZT 96,426 million increase in cash receipts from customers during 2021 compared to 2020, due to growth in the average realized price associated with an increase in the spot price for U3O8 and change in timing of the sales schedules for 2020-2021; and
  • a KZT 122,725 million increase in payments for accounts payable to suppliers during the 2020 due to the weakening of the KZT against the USD and an increase in the spot price for U3O8 purchased from JVs and associates;
  • a KZT 24,233 million increase in 2021 inflows from VAT refunds from the budget in 2021;
  • a KZT 38,592 million increase in 2021 of income tax paid in 2021, of which a one-time effect of KZT 33,466 million is a capital gain tax on sale of 49% share in Ortalyk LLP.

Cost of sales

Cost of sales totalled KZT 402,967 million in 2021, an increase of 26% compared to 2020.

The cost of materials and supplies was KZT 241,695 million in 2021, an increase of 44% compared to 2020 due to a significant increase in the proportion of sales of uranium purchased from JVs and associates, as well as from third parties. When such uranium is sold, the cost of sales is predominantly represented by the cost of purchased uranium (accounted in materials and supplies) at the prevailing spot price with certain applicable discounts. The purchase price of materials and supplies, including U3O8 also increased as a result of the increase in uranium spot prices and the weakening of the KZT against the USD, and increased inflationary pressure.

Selling expenses

Selling expenses totalled KZT 15,706 million in 2021, an increase of 9% compared to 2020. The increase was mainly due to changes in the delivery destination points for uranium products, an increase in transportation tariffs and the weakening of the KZT against the USD, as a significant portion of shipping, transportation and storing expenses are denominated in foreign currency.

General & administrative expenses (G&A)

In comparison to 2020, an increase of G&A expenses was mainly due to a provision for tax fines and penalties for KZT 1,266 million, as well as an increase in wages and salaries and higher depreciation and amortisation. G&A was also lower in 2020 due to the impact of optimisation and cost reduction in relation to the COVID-19 pandemic.

Liquidity

The Group manages its liquidity requirements to ensure the continued availability of cash sufficient to meet its obligations on time, avoid unacceptable losses, and settle its financial obligations without jeopardizing its reputation.

(KZT million)

2021

2020

Change

Cash and cash equivalents

 161,190

 113,347

42%

Current term deposit

 43,220

  - 

  - 

Total cash

 204,410

 113,347

80%

Undrawn borrowing facilities

 177,902

 241,602

(26%)

Total cash at 31 December 2021 comprised KZT 204,410 million, compared to KZT 113,347 million on 31 December 2020.

Undrawn borrowing facilities are the credit lines available to the Group and considered as an additional liquidity source payable within 12 months, primarily used to temporarily cover cash deficits related to uneven receipts of trade receivables. As at 31 December 2021, the Group’s revolving credit lines were fully available and totalled KZT 177,902 million (USD 412 million) (as at 31 December 2020: KZT 241,602 million (USD 574 million), the decrease was primarily due to closure of unclaimed credit lines).

As of 31 December 2021, the Group has no current or long-term bank loans.

The amount of non-bank loans as of 31 December, 2021 totalled KZT 89,308 million and predominantly included long-term USD-indexed Company coupon bonds with a nominal amount of KZT 70 billion and maturity in October 2024, issued in September 2019 on the Kazakhstan Stock Exchange (KASE).

Debt leverage ratios

The following table summarises the key ratios used by the Company’s management to measure financial stability.

(KZT million)

2021

 2020

Change

 Total debt (excluding guarantees)

 89,308

98,572

(9%)

 Total cash balances

 (204,410)

(113,347)

80%

 Net debt 

 (115,102)

(14,775)

>100%

 Adjusted EBITDA*

 349,628

325,734

7%

 Net debt / Adjusted EBITDA (coefficient)

 (0.33)

(0.05)

>100%

* Adjusted EBITDA is calculated as Profit before tax - finance income + finance expense +/- Net FX loss/(gain) + Depreciation and amortisation + Impairment losses - reversal of impairment +/- one-off or unusual transactions.

Uranium segment production and sales metrics

 

 

2021

2020

Change

Production volume of U3O8 (100% basis)

tU

21,819

19,477

12%

Production volume of U3O8 (attributable basis)1

tU

11,858

10,736

10%

U3O8 sales volume (consolidated)

tU

16,526

16,432

1%

    Including KAP U3O8 sales volume2, 3

tU

13,586

14,126

(4%)

Group inventory of finished goods (U3O8)

tU

8,824

7,537

17%

    Including KAP inventory of finished goods (U3O8)4

tU

7,724

6,761

14%

Group average realized price

KZT/kg

36,677

31,743

16%

Group average realized price

USD/lb

 33.11

 29.54

12%

KAP average realized price5

USD/lb

 32.33

 29.63

9%

Average weekly spot price

USD/lb

 35.05

 29.60

18%

Average month-end spot price6

USD/lb

 35.28

 29.96

18%

1 The Production volumes of U3O8 (attributable basis) is not equal to the volumes purchased by Company and THK.
2 KAP U3O8 sales volume (incl. in Group): includes only the total external sales of KAP HQ and THK. Intercompany transactions between KAP HQ and THK are not included.
3 Group sales volume and KAP sales volume (incl. in Group) does not include approximately 225 tU equivalent sold as UF6 in 4Q21 and 100.5 tU equivalent sold as UF6 in 1Q20.
4 KAP inventory of finished goods (incl. in Group): includes the inventories of KAP HQ and THK.
5 KAP average realized price: the weighted average price per pound for the total external sales of KAP and THK. The pricing of intercompany transactions between KAP and THK are not included.
6 Source: UxC, TradeTech. Values provided represent the average of the uranium spot prices quoted at month end, and not the average of each weekly quoted spot price, as contract price terms generally refer to a month-end price.

All annual operational and sales results in the uranium segment were in line with the updated guidance provided for 2021, which was adjusted in the Company’s Third Quarter 2021 Operations and Trading Update.

Production on both a 100% and attributable basis was higher for 2021 compared to 2020. The pandemic-related safety measures that were implemented in 2020 impacted production volumes throughout the second half of that year – production in 2020 should therefore be considered unusually low. The pandemic-related supply chain challenges have continued to result in limited access to certain key operating materials and equipment (production reagents, certain types of pipes and pumps, specialized equipment, drilling rigs), which had a material impact on the Company’s wellfield development and production schedules in 2021, resulting in a decrease of the guidance by approximately 1,000 tU on 100% basis and by almost 540 tU on attributable basis (original 2021 guidance of 22,500 – 22,800 tU on 100% basis, 12,100 – 12,400 tU on attributable basis).

Uranium sales at the Group level in 2021 were in line with 2020. Due to the timing of customer requirements and differences in the timing of deliveries, a larger proportion of both Group and Kazatomprom sales occurred in the fourth quarter, resulting in higher sales in the final quarter of 2021 compared to the same period in 2020. Kazatomprom sales volume was modestly lower in 2021 compared to 2020 due to additional sales by consolidated subsidiaries to JV partners.

Consolidated Group inventory of finished U3O8 products in 2021 amounted to 8,824 tonnes as at 31 December 2021, which was 17% higher than at 31 December 2020. At the Company level, inventory of finished U3O8 products was 7,724 tonnes, an increase of 14% compared to 2020. The increase in inventory was mainly related to a higher 2021 U3O8 production volume on both a 100% and attributable basis, while sales level remained approximately on the same level as in 2020. Consistent with the Company’s value strategy, Kazatomprom’s inventory levels vary based on the timing of customer requirements and the resulting differences in the timing of deliveries and mining and sales volumes, in alignment with changing market conditions.

The Group’s average realized price in KZT in 2021 was KZT 36,677 per kg (33.11 USD/lb), an increase of 16% compared to 2020 due to an increase in the average spot price for uranium products, and the weakening of the KZT against the USD. The average sales prices at the Kazatomprom level were also higher and for the same reasons.

The Company’s current overall contract portfolio price is closely correlated to current uranium spot prices. However, the increase in average realized prices in 2021 was lower than the increase in the spot market price for uranium due to the significant spot price volatility in the uranium market in 2021 (low of 27.35 USD/lb and high of 50.38 USD/lb); during the fourth quarter many deliveries were based on contract price mechanisms that established a contract price for the delivery, set earlier in the year, when the market price was lower and prior to the sharp increase in the market price in September 2021.

Uranium segment costs and capital expenditures

(KZT million unless noted)

2021

2020

Change

C1 Cash cost (attributable basis)

USD/lb

 8.80

 8.67

1%

Capital cost (attributable basis)

USD/lb

 3.83

 3.05

26%

All-in sustaining cash cost (attributable C1 + capital cost)

USD/lb

 12.63

 11.72

8%

Capital expenditures of mining companies (100% basis)1

 

 91,087

 60,947

49%

1 Excludes liquidation funds and closure costs and includes expansion investments, however includes total expansion investments (JV Inkai LLP, Karatau LLP, JV Katco LLP) in amount of KZT 4.4 billion in 2021 and KZT 2.2 billion in 2020.

Compared to 2020, C1 Cash cost (attributable) increased by 1% mainly due to an increase in the payroll of production personnel, whereas All-in-sustaining cash costs (“AISC”) (attributable C1 + capital cost) increased by 8% in USD equivalent in 2021 due to an increase in capital expenditures of mining companies. The Company partially shifted wellfield development activities from 2020 to 2021 due to the four-month suspension of wellfield development activity resulting from the COVID-19 pandemic in 2020, and the shift in schedule resulted in a higher level of capital expenditures in 2021. The results were considerably better than expected and below the guidance ranges provided for 2021 (updated guidance was US$9.50 – 10.50 for attributable C1 cash cost, US$13.50 – 14.50 for AISC) primarily due to the weakening of the KZT against the USD in 2021.

Capital expenditures of mining companies (100% basis) totalled KZT 91,087 million, an increase of 49% compared to 2020, primarily due to a shift in wellfield development activities as described above, as well as higher purchase prices for materials, supplies, equipment and cost of drilling. Capital expenditures in 2020 were lower as a result of measures taken to prevent the spread of the COVID-19 pandemic.

Kazatomprom’s 2022 Guidance

 

2022

Production volume U3O8 (tU) (100% basis)1, 2

21,000 – 22,000

Production volume U3O8 (tU) (attributable basis)3,4

10,900 – 11,500

Group sales volume (tU) (consolidated) 4

16,300 – 16,800

Incl. KAP sales volume (included in Group sales volume) (tU)5

13,400 – 13,900

Revenue - consolidated (KZT billions)6

750-760

     Revenue from Group U3O8 sales, (KZT billions)6

610-630

C1 cash cost (attributable basis) (USD/lb)*

$9.50 – $11.00

All-in sustaining cash cost (attributable C1 + capital cost) (USD/lb) *

$16.00 – $17.50

Total capital expenditures of mining entities (KZT billions) (100% basis)7

160 – 170

   

1 Production volume (100% basis): Amounts represent the entirety of production of an entity in which the Company has an interest; it disregards that some portion of production may be attributable to the Group’s JV partners or other third-party shareholders.
2 The duration and full impact of the COVID-19 pandemic is not yet known. Annual production volumes could therefore vary from our expectations.
3 Production volume (attributable basis): Amounts represent the portion of production of an entity in which the Company has an interest, corresponding only to the size of such interest; it excludes the portion attributable to the JV partners or other third-party shareholders, except for JV “Inkai” LLP, where the annual share of production is determined as per Implementation Agreement as disclosed in IPO Prospectus. Actual drummed production volumes remain subject to converter adjustments and adjustments for in-process material.
4 Group sales volume: includes Kazatomprom’s sales and those of its consolidated subsidiaries.
5 KAP sales volume: includes only the total external sales of KAP HQ and THK. Intercompany transactions between KAP HQ and THK are not included.
6 Revenue expectations are based on uranium prices taken at a single point in time from third-party sources. The prices used do not reflect any internal estimate from Kazatomprom, and 2022 revenue could be materially impacted by how actual uranium prices and exchange rates vary from the third-party estimates.
7 Total capital expenditures (100% basis): includes only capital expenditures of the mining entities, excluding expansion investments.
* Note that the conversion of kgU to pounds U3O8 is 2.5998.

Kazatomprom’s production expectations for 2022 remain consistent with its market-centric strategy and the intention to flex down planned production volumes by 20% for 2018 through 2023 (versus planned production levels under Subsoil Use Agreements). Production volume in 2022 is expected to be between 21,000 tU and 22,000 tU on a 100% basis, which is similar to 2021 at the top end of the range. However, pandemic-related supply chain challenges have continued to result in limited access to certain key operating materials and equipment (production reagents, certain types of pipes and pumps, specialized equipment, drilling rigs), which had a material impact on the Company’s wellfield development and production schedules in 2021, adding additional risk to production in 2022 and resulting in a wider range for the expected production volume. On an attributable basis, 2022 production volume is expected to be between 10,900 tU to 11,500 tU, which is lower than 2021 primarily due to the sale of a 49% share of Ortalyk LLP to CGN Mining UK Limited in mid-2021, as well as the above-mentioned supply chain risks.

Sales volume guidance for 2022 is also aligned with the Company’s market-centric strategy. The Group expects to sell between 16,300 tU and 16,800 tU, which includes Kazatomprom sales of between 13,400 tU and 13,900 tU, in line with sales volumes in 2021.

Revenue, C1 cash cost (attributable basis) and All-in Sustaining cash cost (attributable C1 + capital cost) may vary from the guidance provided if the KZT to USD exchange rate fluctuates significantly during 2022. Ranges for C1 cash cost (attributable basis) and All-in Sustaining cash cost (attributable C1 + capital cost) have been increased to reflect the uncertainty in the current geopolitical situation and widening offsetting effects of current KZT devaluation and potential inflationary impacts. Guidance will be updated if the recent fluctuations and geopolitical uncertainties persist throughout 2022.

Wellfield development, procurement and supply chain issues, including inflationary pressure on production materials and reagents, are expected to continue throughout 2022, impacting the Company’s financial metrics and giving rise to an expectation that C1 cash cost and All-in Sustaining cash cost will be higher in 2022 than in 2021. In addition, the Company’s costs could be impacted by potential changes to the tax code in Kazakhstan and by possible local social funding requests, although these risks cannot be quantified or estimated at this time.

Guidance for total capital expenditures on 100% basis for 2022 increased significantly in comparison to 2021 results to cover the shift in wellfield development activities and increase in purchase prices for materials, supplies, equipment and cost of drilling.

The Company continues to target an ongoing inventory level of approximately six to seven months of annual attributable production. However, inventory could fall below this level in 2022 due to supply chain challenges and production losses.

Conference Call Reminder - 2021 Full-Year Operating and Financial Review

Kazatomprom has scheduled a conference call to discuss the 2021 year operating and financial results later today, 16 March 2022. The call will begin at 17:00 (Nur-Sultan) / 11:00 (GMT) / 07:00 (EDT). Following Management remarks, an interactive English Q&A session will be held with investors (remarks in Russian/English, with a simultaneous Russian translation of the Q&A available on a listen-only line).

For the English live webcast (participants on the webcast can also submit questions during the event), conference call dial-in details and for information on how to participate in the Q&A, please visit:

https://www.lsegissuerservices.com/spark/JSCNationalAtomicCoKazatomprom/events/aed3c8f6-292a-48bd-be60-9861c3914bdc

For the Russian live webcast (listen-only Q&A) and corresponding dial-in details, please visit:

https://www.lsegissuerservices.com/spark/JSCNationalAtomicCoKazatomprom/events/3e7a6b59-d4f4-4f85-8c00-9cf6df5352b1

A recording of the webcast will also be available at www.kazatomprom.kz shortly after it concludes.

For further information, please contact:

Kazatomprom Investor Relations Inquiries

Cory Kos, International Adviser, Investor Relations

Botagoz Muldagaliyeva, Director of Investor Relations

Tel: +7 (8) 7172 45 81 80

Email: ir@kazatomprom.kz

Kazatomprom Public Relations and Media Inquiries

Gazhaiyp Kumisbek, Chief Expert of GR & PR Department

Tel: +7 (8) 7172 45 80 63

Email: pr@kazatomprom.kz

About Kazatomprom

Kazatomprom is the world's largest producer of uranium, with the Company’s attributable production representing approximately 24% of global primary uranium production in 2021. The Group benefits from the largest reserve base in the industry and operates, through its subsidiaries, JVs and Associates, 26 deposits grouped into 14 mining assets. All of the Company’s mining operations are located in Kazakhstan and extract uranium using ISR technology with a focus on maintaining industry-leading health, safety and environment standards.

Kazatomprom securities are listed on the London Stock Exchange, Astana International Exchange, and Kazakhstan Stock Exchange. As the national atomic company in the Republic of Kazakhstan, the Group's primary customers are operators of nuclear generation capacity, and the principal export markets for the Group's products are China, South and Eastern Asia, Europe and North America. The Group sells uranium and uranium products under long-term contracts, short-term contracts, as well as in the spot market, directly from its headquarters in Nur-Sultan, Kazakhstan, and through its Switzerland-based trading subsidiary, Trade House KazakAtom AG (THK).

For more information, please see the Company website at http://www.kazatomprom.kz

Forward-looking statements

All statements other than statements of historical fact included in this communication or document are forward-looking statements. Forward-looking statements give the Company’s current expectations and projections relating to its financial condition, results of operations, plans, objectives, future performance and business. These statements may include, without limitation, any statements preceded by, followed by or including words such as “target,” “believe,” “expect,” “aim,” “intend,” “may,” “anticipate,” “estimate,” “plan,” “project,” “will,” “can have,” “likely,” “should,” “would,” “could” and other words and terms of similar meaning or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the Company’s control that could cause the Company’s actual results, performance or achievements to be materially different from the expected results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company’s present and future business strategies and the environment in which it will operate in the future. THE INFORMATION WITH RESPECT TO ANY PROJECTIONS PRESENTED HEREIN IS BASED ON A NUMBER OF ASSUMPTIONS ABOUT FUTURE EVENTS AND IS SUBJECT TO SIGNIFICANT ECONOMIC AND COMPETITIVE UNCERTAINTY AND OTHER CONTINGENCIES, NONE OF WHICH CAN BE PREDICTED WITH ANY CERTAINTY AND SOME OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY. THERE CAN BE NO ASSURANCES THAT THE PROJECTIONS WILL BE REALISED, AND ACTUAL RESULTS MAY BE HIGHER OR LOWER THAN THOSE INDICATED. NONE OF THE COMPANY NOR ITS SHAREHOLDERS, DIRECTORS, OFFICERS, EMPLOYEES, ADVISORS OR AFFILIATES, OR ANY REPRESENTATIVES OR AFFILIATES OF THE FOREGOING, ASSUMES RESPONSIBILITY FOR THE ACCURACY OF THE PROJECTIONS PRESENTED HEREIN. The information contained in this communication or document, including but not limited to forward-looking statements, applies only as of the date hereof and is not intended to give any assurances as to future results. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to such information, including any financial data or forward-looking statements, and will not publicly release any revisions it may make to the Information that may result from any change in the Company’s expectations, any change in events, conditions or circumstances on which these forward-looking statements are based, or other events or circumstances arising after the date hereof.

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