Rob Chang at Cantor Fitzgerald notes that Kazatomprom, Kazakhstan’s state uranium trader has just announced a 2017 reduction of planned uranium output by 10%/y which should be a game changer for the uranium price which should now increase. Kazatomprom has relentlessly increased production for years into a weak uranium market which has undermined the whole sector with falling uranium and uranium company stock prices. This will hopefully be seen as excellent news for uranium stocks. His comments are below by permission.
Kazatomprom, Kazakhstan’s state-owned uranium company and global production leader, has announced that it will be cutting planned 2017 uranium production by 10% (5.2 Mlb U3O8), which is about 3% of 2015 global output.
Bottom line: very positive – “Kazatomprom’s relentless increases in production over the years was one of the top causes for uranium price weakness as its cheap to produce uranium was flooding a market that had low spot demand due to utilities being well contracted over the past decade. We had given up on expecting Kazakhstan to exercise production restraint as its mines were the lowest cost operators in the world and constant production increases appeared to be a cultural focus for the country. This news is a definite surprise and may be the inflection point for the uranium space to head higher across the board.
Kazatomprom announced that it is planning a 10% reduction in 2017 U3O8 output due to the prolonged recovery in the uranium market
- This will amount to more than 2,000 Mt U or about 5.2 Mlb U3O8
- The reduction represents approximately 3% of 2015 global uranium productionKazatomprom
Chairman Askar Zhumagaliyev noted, “While the outlook for nuclear energy growth continues as strong as it has been in many years, the realities of the near-term uranium market remain in oversupply. Kazatomprom, and its joint venture partners, have had to make responsible decisions in light of these market challenges. These strategic Kazakh mineral assets are far more valuable to our shareholders and stakeholders being left in the ground for the time being, rather than adding to the current oversupply situation. Their greater value will instead be realized when produced into improved markets in the coming years.”
The reduction will occur in mines wholly and jointly owned by Kazatomprom.
- All uranium mines in Kazakhstan are at least partially owned by the state-owned entity
- The exact change in production levels vary by mine and were approved through the respective management boards. This includes joint ventures with Cameco’s Inkai mine that was expected to produce 5.8 Mlb (100% basis) in 2017 prior to this announcement.
“We view this as an inflection point in the uranium space as Kazakhstan has relentlessly increased production from 46.3 Mlb in 2010 to 61.9 Mlb U3O8 in 2015. This decision to reduce production is a notable change in attitude for the world’s largest producer of uranium.“If we were to assume the 5.2 Mlb U3O8 reduction remains in effect for three years, our supply and demand forecast under a $40/lb spot U3O8 price scenario shows increasing deficits from 2017 onward. Note that the spot price is currently $22.00/lb.
Diagram source: Cantor Fitzgerald Canada Research
