Edited Transcript of IDH Finance PLC earnings conference call or presentation 5-Mar-20 11:00am GMT

——————————————————————————–

Thank you, Corey. And good morning, good afternoon, and good evening, everyone. Thank you for joining us today to discuss Kazatomprom’s 2019 Operating and Financial Results. In February, we released our annual operational and sales results, and earlier today, we released our full 2019 financial results. Hopefully, you’ve had the chance to review those documents. But if you didn’t get through them yet, I believe I can effectively summarize 2019 using the themes we have consistently repeated since our IPO.

Kazatomprom delivered on commitments and created value. In 2019, it is clear that we delivered on our guidance. Production was as planned, maintaining a reduction of 20% below the subsoil use agreements for all 13 of our mining operations. We were also, once again, the largest seller of natural uranium in the market, importantly, selling about 1,000 tonnes more than we produced in 2019.

We sold material and delivered responsibly into a growing portfolio of contracts with an increasingly diverse customer base. And as a result of our sales team’s success, we exceeded our uranium segment revenue expectations by about KZT 20 billion. On the cost side, we further secured our place as one of the world’s lowest cost producers and did better than expected, with C1 cash and all-in sustaining costs coming in at USD 9.3 and USD 12, respectively. Those results, which were below the guided ranges and about 20% more than last year, were largely due to a weaker Kazakh Tenge and continued cost optimization efforts.

Taken all together, delivering on those commitments meant that we continued to create value. After adjusting for onetime effect of our 2018 restructuring, adjusted annual net profit increased by 84% to KZT 142 billion, while adjusted EBITDA was up 76% to KZT 249 billion, and adjusted EBITDA attributable to Kazatomprom, increased by 55% to KZT 217 billion. With those same themes in mind, we paid out our first dividend as a public company in June of 2019, meeting our promise to return a minimum of USD 200 million to our shareholders. We expect to maintain that minimum $200 million level for this year’s dividend based on the 2019 results. But the company’s success in 2019 was not by chance, and it certainly wasn’t because of a market recovery, a topic that I will get to in a moment. It would be appropriate to say, consistency played a significant role in ensuring that we delivered on those commitments and expectations. And the area where we have remained most consistent is in the execution of our strategy. We’ve maintained our market discipline and lower-than-planned production levels.

Our restructured marketing function has continued to expand into new markets. This year, adding 6 new customers and 2 new countries that we now do business with. We also sold enriched uranium product for the first time in the company’s history, supplying the IEA fuel bank as well as expanding into Euro-6 sales. You’ve seen us continue with the commitment to our core business of uranium mining with further divestitures, including the exit from the uranium enrichment center joint venture, which will add about USD 100 million to our cash balance in 2020.

And throughout, we’ve maintained a diligent focus on the key areas of our environment, social and governance impact. Our strong environmental record remain intact, and we have continued to emphasize safety. The reporting of near-miss incidents that we started in 2018, increased by nearly 5x. Identification and reporting of near misses is an important tool in improving safety culture and accident prevention. Robust corporate governance also remain top of mind to balance the interest of all our stakeholders. Our former Chairman, Jon Dudas, who played an important role in developing strong governance practices was asked to join the Board of Samruk-Kazyna, the National Welfare Fund of Kazakhstan, our majority shareholder.

This speaks volumes for the quality of policies and programs that have been developed at Kazatomprom. Although he will be missed, the independent representation on our Board remained very strong, with Mr. Longfellow, taking over as Chairman, Mr. Bannon, our second Independent Director, and with a search underway for one or potentially two additional Independent Directors, ahead of our May AGM. So overall, the company achieved excellent 2019 results, and we have stuck to our strategy. But that is not to say it was an easy year as a uranium producer. The fact is, uranium market continues to be challenged. Just over 60 million pounds were transacted in the spot market, down from 19 million pounds in 2018. Concerns around Section 232 investigation in the U.S. was one of the key reasons why spot price declined over the first quarter from around $29 a pound to roughly $25, where it remained for much of 2019.

Although supply and demand were roughly in balance in 2018, and again, in 2019, geopolitical and trade uncertainty, not limited to the 232 petition, but also concerning the Russian suspension agreement and Iran sanction waiver issues continue to be major factors that kept utilities on the sidelines. Long-term market volumes in 2019 were similar to 2018, at about 90 million pounds. But that is still half of what is needed for replacement rate contracting. More spot and long-term prices remained well below where they need to be to incentivize a healthy future supply chain. What is the real concern is how the lack of contracting and price support today will drive medium to long-term uncertainty of supply. The longer it takes for prices to signal the need for a return of existing and new supply, the higher future price volatility is likely to be with significant overshoot in price possible. This was exactly what we saw last year in another part of the nuclear fuel supply chain conversion, where weak price signals led to capacity closure, followed by inventories being absorbed and delays in the return of capacity.

Those conditions led to fivefold increase in conversion prices from $4.50 a kg to $22.5 a kg. As we stated since our IPO, our value-focused, market-centric strategies being applied not only to production but to our sales activities as well. How, where and when to sell, are all considered within the context of a long-term market recovery. At the end of 2016, Kazatomprom stopped selling to traders. And in 2020, we are not intending to offer any material into the spot market. Our pipeline contracts signed and being finalized for 2020 are expected to consume all of our plant production. We believe that our actions to reduce primary supply have brought the market into balance, but we will also continue to manage how we deliver the supply in support of our value strategy.

Looking ahead to 2020, the theme for Kazatomprom is consistency and market leadership.

We continue to focus our attention on preserving financial capacity in an uncertain market. As you’ve seen in our 2020 guidance, the upcoming year is expected to be similar to 2019. We expect to deliver more than we produce. Our production will stay flat against 2019 levels and our minus 20% cut against subsoil use agreements will be extended through 2021. Our guidance range for revenue increased modestly, while cost guidance will be influenced by the Tenge to U.S. dollar exchange rate. As is our practice, we do not provide estimates on future prices. Therefore, our revenue guidance is based on external third-party renting price estimate. And just as we did last year, we advised that to the extent actually renting prices are higher or lower than that estimate, revenue could also be higher or lower. It is important to reiterate that the third-party price used is not necessarily our expectation. With respect to the coronavirus that it’s having a significant global impact on everything from travel to supply chain to the financial market, we are keeping a close eye on the situation, but have seen very little impact to date in 2020. If the situation continues for a considerable amount of time or if it worsens, it could have an impact on our 2020 delivery schedule. We’re confident in the long-term fundamentals for the nuclear industry. It’s widely believed that the next cycle of long-term contracting will drive market recovery. Not a matter of if, but when. Supply cuts have taken hold, and inventories are trending down at each stage of the nuclear fuel cycle.

As the market continues on a path to recovery and long-term sustainable prices, Kazatomprom remains uniquely positioned to continue to generate strong margins for the benefit of all its stakeholders. So with that, we’re happy to take your questions.

================================================================================

Questions and Answers

——————————————————————————–

Operator [1]

——————————————————————————–

(Operator Instructions)

The first question we have is from Alexander Pearce from BMO Capital Markets.

——————————————————————————–

Alexander Robert Peel Pearce, BMO Capital Markets Equity Research – Research Analyst [2]

——————————————————————————–

Perhaps, you could just comment on the cost profile for production this year? So obviously, you reported all-in sustaining costs well below your guidance last year. But they suggested obviously you’ve been going up a little bit more this year. So what’s behind the increase, please?

——————————————————————————–

Galymzhan Olzhayevich Pirmatov, joint stock company “National atomic company “Kazatomprom” – CEO, Chairman of the Management Board & Director [3]

——————————————————————————–

Yes. Thank you, Alex. Definitely, exchange rate played a role in 2019 actuals. So we’re being a little bit cautious and not trying to be too optimistic about our guidance and still, those are good numbers. And if anything changes, we’ll be updating those guidelines. But so far, I think that it’s a fair way to go.

——————————————————————————–

Alexander Robert Peel Pearce, BMO Capital Markets Equity Research – Research Analyst [4]

——————————————————————————–

Okay. And maybe if I can just ask a second question. Most of your guidance — so production and sales you provided previously, is the same, but we did notice that your attributable production guidance has come down a little bit. And I wondered what was behind that change as well. I think it went from 13,000 tonnes to 13,500 tonnes a year to 12.8 tonnes to 13.3 tonnes.

——————————————————————————–

Galymzhan Olzhayevich Pirmatov, joint stock company “National atomic company “Kazatomprom” – CEO, Chairman of the Management Board & Director [5]

——————————————————————————–

Yes. Yes, it’s in a little fine print. You can find all the detail. If you remember, in February, when we did the guidelines, those numbers were different, yes? And you notice the difference now, those are a little bit down. That’s to do with our Inkai joint venture. Our partner, Cameco, will be taking up a little bit more material. Company ownership structure is going to stay the same. It just will be taking up a little less material in 2020.

——————————————————————————–

Operator [6]

——————————————————————————–

Our next question comes from Ildar Davletshin from Wood & Company.

——————————————————————————–

Ildar Davletshin, Wood & Company Financial Services, a.s., Research Division – Equity Analyst [7]

——————————————————————————–

And congratulations on a very good set of results. So 2 questions from my side, please. One, on the dividends. It’s great that you remain committed to the $100 million dividend distribution. But I noticed that your net debt has actually decreased. And the leverage is just at like 25 basis points, quite low. And then we should be potentially expecting proceeds from your sale in this uranium enrichment facility for about $100 million, which you announced earlier. So do you see a capacity to pay a little more dividend in 2020? That will be my first question. And second is on your realized prices. So I noticed last year your — dynamic of your realized prices was better than spot price for uranium. And so I’m wondering whether it’s just a one-off effect in relation to your Yellow Cake, potentially deal in 2018, which could have reduced your realized price? Or whether this is more due to your marketing efforts? And so we should expect also outperformance of your realized price relative to support potentially?

——————————————————————————–

Galymzhan Olzhayevich Pirmatov, joint stock company “National atomic company “Kazatomprom” – CEO, Chairman of the Management Board & Director [8]

——————————————————————————–

Yes. Thank you, Ildar. With respect to dividends, we will basically be following our dividend policy. And if you remember, we committed for 2 years, minimum $200 million. Just to give investors the comfort as we were just adapting to that dividend policy. So this year, as you see, we have a very good result, very good operating cash flows. I think, by even following that dividend policy we’ll be coming up with a number that’s higher than last year’s number. I don’t want to give the number before it’s discussed at the board and approved by shareholders. But I can tell that based on our cash flows, I’m confident that the dividend number will be better than last year. The $100 million from the sale of UEC is yet to come, but likely to be part of the next year’s dividend payout. I’ll get into the next year’s calculation for the dividend payout according to our dividend policy.

With regard to spot price, we are heavily exposed to a spot in our contract. And we feel comfortable as we are as the expectation is price will move. So we’re happy where we are. We’re not looking in any fixed prices in any big way. Hopefully, we’ll get to the point when we will be to lock in those high prices. But as of today, we’re heavily exposed to spot. And as you see in the sensitivity table, our expectation heavily, basically follows the spot price. So yes, team works very hard to get every piece of margin on every trade, every sale. So it’s — we will stick by our guidelines basically that we will be following spot more or less.

——————————————————————————–

Operator [9]

——————————————————————————–

Our next question comes from Conor Rowley from Crédit Suisse.

——————————————————————————–

Conor Peter Rowley, Crédit Suisse AG, Research Division – Research Analyst [10]

——————————————————————————–

Just a couple of questions. One on the market and one on disclosure. Just — so on the market, I mean, you mentioned that you’re still very confident in the long-term fundamentals of the industry, you say supply cuts have happened and inventories are trending down. I’m just trying to understand, this has been the story for the last year. And 6 months ago, it was widely reported that these inventory levels were already at very low levels. And now that we’ve had sort of indications from Trump and the working group in his purchases. So I’m just trying to understand when you say it’s a matter of when rather than if, for the next round of contracting. In your mind, what at this stage is still holding the utilities back? That would be my first question.

——————————————————————————–

Galymzhan Olzhayevich Pirmatov, joint stock company “National atomic company “Kazatomprom” – CEO, Chairman of the Management Board & Director [11]

——————————————————————————–

Yes. Thank you, Conor, for the question. It’s — I guess, the biggest question, when market will move and what will trigger that? Yes, last year, half of the year, we’ve been all watching Petition 232, other sanctioned possibilities. But you have to remember, industry is being oversupplying market for so many years. It’s going to be not 1 or 2 years before it clears out. So only in 2017, we really started making difficult decisions on the supply side. That’s when we decided we’re not going to sell to traders. So staying very disciplined on the supply side. ’18 and ’19, year-on-year, pretty much in balance. But you have to remember, though, all those years of oversupply in the market and secondary supplies. So I guess it’s going to take longer than some people who might have thought, 1 year ago or 0.5 year ago. It’s very difficult to say what’s holding back utilities from coming in a big way. Although, we’re seeing more and more interest to discuss in future rounds of contract. So yes, we believe it’s a matter of when than if. But that’s a big question, when exactly it will happen. We do believe the next round of negotiations between utilities and suppliers will trigger that move. I cannot imagine suppliers taking — locking in the losses in the next long-term contract round.

——————————————————————————–

Conor Peter Rowley, Crédit Suisse AG, Research Division – Research Analyst [12]

——————————————————————————–

Sure. And when you say the next round of negotiations, is that sort of September this year? Or earlier in the year?

——————————————————————————–

Galymzhan Olzhayevich Pirmatov, joint stock company “National atomic company “Kazatomprom” – CEO, Chairman of the Management Board & Director [13]

——————————————————————————–

If I…

——————————————————————————–

Conor Peter Rowley, Crédit Suisse AG, Research Division – Research Analyst [14]

——————————————————————————–

Is there a key seasonality in the market, I’m asking, rather than necessarily what you’re going to do? Or is it…

——————————————————————————–

Galymzhan Olzhayevich Pirmatov, joint stock company “National atomic company “Kazatomprom” – CEO, Chairman of the Management Board & Director [15]

——————————————————————————–

I don’t think it’s going to be a key seasonality. It could be element of behavioral element on the buyer side as well. So very difficult to say. Hopefully, this year, if not next year, but as I said, we are staying very disciplined, committed to our strategy. We are making money in this market. So we are very confident. We have very strong financial standing. We’ll just continue with what we’re doing.

——————————————————————————–

Conor Peter Rowley, Crédit Suisse AG, Research Division – Research Analyst [16]

——————————————————————————–

Okay. Second one, just on disclosure. You obviously had a very good cost performance. But I’m just wondering on your sales volumes, are you — have you given a split anywhere of what constitutes in the sales volumes, your own production? And what if it was third-party because I think this is a big reason why you missed expectations at the half year. And I’m just trying to work out how the second half went in terms of what are the sales volumes as your own production and what is third party?

——————————————————————————–

Galymzhan Olzhayevich Pirmatov, joint stock company “National atomic company “Kazatomprom” – CEO, Chairman of the Management Board & Director [17]

——————————————————————————–

Yes. Thank you, Conor. I guess — I mean, we’ve been discussing this topic for a while. For the time being, no, we’re not disclosing that information. As there are so many moving parts. I know it’s not easy to try and model. Our business structure is quite complicated. But we’re going to stick with current framework for the time being. So that’s where we are, Conor.

——————————————————————————–

Operator [18]

——————————————————————————–

Our next question comes from Oliver Grewcock from Berenberg.

——————————————————————————–

Oliver Grewcock, Joh. Berenberg, Gossler & Co. KG, Research Division – Research Analyst [19]

——————————————————————————–

Just two quick questions. One, could you give us a bit more on the nature of the swap deals made in 2019? And also some color on the spike in unsafe conditions, actions in their initial reporting, please?

——————————————————————————–

Galymzhan Olzhayevich Pirmatov, joint stock company “National atomic company “Kazatomprom” – CEO, Chairman of the Management Board & Director [20]

——————————————————————————–

Thank you, Oliver.

——————————————————————————–

Rizvi Riaz El Hasan Sayed, joint stock company “National atomic company “Kazatomprom” – Chief Strategy & Marketing Officer, Chief Commercial Officer and Member of Management Board [21]

——————————————————————————–

Galymzhan, would you like me to take the first one?

——————————————————————————–

Galymzhan Olzhayevich Pirmatov, joint stock company “National atomic company “Kazatomprom” – CEO, Chairman of the Management Board & Director [22]

——————————————————————————–

Yes, why not. Riaz, please, join the call.

——————————————————————————–

Rizvi Riaz El Hasan Sayed, joint stock company “National atomic company “Kazatomprom” – Chief Strategy & Marketing Officer, Chief Commercial Officer and Member of Management Board [23]

——————————————————————————–

So in terms of the swap deals done in 2019, essentially, they relate to location swaps where we need material in certain locations, namely Western converters. And so we — and this is quite typical for the industry. We enter into transactions where we receive material at listing converters and then we delivered back either at a later date at the same converters or sometimes we deliver physical material into other locations that our counterparties would like such as Russia or China.

That largely, essentially covers the activity of last year, though. It should be pointed out that some of the material that we received in the back end of last year, we’ll only be delivering this year.

——————————————————————————–

Galymzhan Olzhayevich Pirmatov, joint stock company “National atomic company “Kazatomprom” – CEO, Chairman of the Management Board & Director [24]

——————————————————————————–

Yes. Thank you, Riaz. I was just pausing to — because I didn’t really understood your second question. But now with the help of the team, I understand. What’s happening is, Oliver, we really focusing on changing the safety culture at the company. So 2018 was the first year when we actually formally started to register and address near miss — near misses. So formally, defined what it is, working with the team and staff. Did a lot of training. So 2018 was the first year when we started and 2019 was really a second year. So that’s why there is a big spike. So 2017, we really didn’t have that kind of procedure in place.

——————————————————————————–

Operator [25]

——————————————————————————–

Our next question comes from Anna Antonova from JP Morgan.

——————————————————————————–

Anna Antonova, JP Morgan Chase & Co, Research Division – Analyst [26]

——————————————————————————–

So last year, your total CapEx on 100% basis, the mine one was around 20%, I think, below your last year’s guidance. So our question is if current weak market conditions persist, do you see some downside risks to your CapEx for 2020 as well?

——————————————————————————–

Galymzhan Olzhayevich Pirmatov, joint stock company “National atomic company “Kazatomprom” – CEO, Chairman of the Management Board & Director [27]

——————————————————————————–

Thank you, Anna. Not really. As you’ve seen our 2018 and ’19 numbers, it’s clear that staying disciplined, putting more capital into preparing more well field and preparing more plants to be produced wasn’t our priority. We’re quite confident that 2020, 2021, we’ll be producing as we were guiding the market. So — and some of the decisions were basically timing of those CapExs. But make no mistake, we are not saving on a capital that is essential to stay in a good shape and be ready when market move. This is more or less drilling and piping and infrastructure, preparing new well fields for production. So as we’ve been holding back production levels, we’re deferring some of the CapExs, and our guideline is going to be, as you noted.

If there will be some more decisions to be made, we’ll probably make it. But at this stage, we’re planning to follow through with those CapExs as guided.

——————————————————————————–

Operator [28]

——————————————————————————–

Our next question comes from Anton Fedotov from Bank of America.

——————————————————————————–

Anton Fedotov, BofA Merrill Lynch, Research Division – Analyst [29]

——————————————————————————–

If the market conditions continue to be under pressure for the next few months or so, would you be positioned to reduce supply even further from the amount announced previously?

——————————————————————————–

Galymzhan Olzhayevich Pirmatov, joint stock company “National atomic company “Kazatomprom” – CEO, Chairman of the Management Board & Director [30]

——————————————————————————–

Thank you, Anton. Don’t think so. We are the largest and cheapest producer. And we’ve been holding back production quite significantly. If you look at 2018, ’19 and expected ’20 and ’21, those numbers add up to one full year of Kazatomprom’s peak production in 2016. So we’re doing quite a bit, and we’ll continue to do so. As you see, our sales guidance, we’re planning to sell, again, about 1,000 tonnes more than we produced. So if market conditions continue like this, we’ll have to think about inventory levels and maybe some other stuff. But in terms of production, we will be following through with the production volumes as guided.

——————————————————————————–

Operator [31]

——————————————————————————–

Our next question comes from Philip Chaffee. This is Philip from Energy Intelligence.

——————————————————————————–

Philip Chaffee, Energy Intelligence Group, Inc. – Assistant Editor of Uranium Intelligence Weekly [32]

——————————————————————————–

I have two questions for you. One, just in terms of your uranium sales by region. I noticed the introduction of both Russia and Canada. I wonder if there’s a one-off? Or if you expect to be supplying customers in those regions for a while? And secondly, I’m just curious if you could give an update about progress on the fuel fabrication plant that will be the joint project with CGM?

——————————————————————————–

Galymzhan Olzhayevich Pirmatov, joint stock company “National atomic company “Kazatomprom” – CEO, Chairman of the Management Board & Director [33]

——————————————————————————–

Yes. Thank you, Philip. Canada, if you remember, we started consolidating JV Inkai in ’18. So that’s the chemical share of material that they buy from Inkai. So that’s part of our group consolidated sales volumes. And Russia was a one-off transaction last year. Going forward, we don’t really plan, but if there is a good reason to do a deal, we will be prepared to do deals with all our counterparties.

In terms of fuel fabrication plant, it is moving along. We’ve completed the construction part last year. Now what we’re doing is, we’re in the process of installing equipment. And in the installation of the equipment, especially professionals from few countries are involved as we purchased key pieces of equipment in France, in China, some other places. So hopefully, this coronavirus isn’t really going to delay that process very much.

And the plan is as we finish installing equipment, we’ll start the process with our partners in France to certify the plant. And as part of the certification process, we will be starting to make our first fuel bundles. And all along as planned, the goal is, end of 2021, to make our first delivery to China.

——————————————————————————–

Operator [34]

——————————————————————————–

This brings us to the end of the current question queue.

(Operator Instructions)

We have Philip Chaffe from Energy Intelligence with another question.

——————————————————————————–

Philip Chaffee, Energy Intelligence Group, Inc. – Assistant Editor of Uranium Intelligence Weekly [35]

——————————————————————————–

Just one more question. Since no one else is asking. On China, it looks like you — your sales picked up a bit in 2019 over 2018. Do you have any sense in 2020, what’s — what Chinese demand is looking like?

——————————————————————————–

Galymzhan Olzhayevich Pirmatov, joint stock company “National atomic company “Kazatomprom” – CEO, Chairman of the Management Board & Director [36]

——————————————————————————–

Yes. If you look at ’17, it was even in a higher, the number. So China is continue — will continue to be the big part of our deliveries. Riaz, do you have any numbers in terms of what do we expect this year?

——————————————————————————–

Rizvi Riaz El Hasan Sayed, joint stock company “National atomic company “Kazatomprom” – Chief Strategy & Marketing Officer, Chief Commercial Officer and Member of Management Board [37]

——————————————————————————–

I don’t think that we’re going to see much of a change from China this year relative to last year. The Chinese are a little bit behind in terms of their reactor builds. They had a target for this year, which I think they’re going to fall a little bit short of. But we continue to consider the Chinese market to be the probably largest market for our material. Looking out over this year and the next few years as well.

——————————————————————————–

Operator [38]

——————————————————————————–

We have a question from Dale Hessel, who is a private investor.

——————————————————————————–

Unidentified Participant, [39]

——————————————————————————–

Yes. I was just wondering, have you guys considered buying in the spot market to drive up the spot price a little bit? Like Cameco is doing and Peninsula and Ur-Energy and Energy Fuels?

——————————————————————————–

Galymzhan Olzhayevich Pirmatov, joint stock company “National atomic company “Kazatomprom” – CEO, Chairman of the Management Board & Director [40]

——————————————————————————–

Dale, thank you. Not really. We are a long term player. We have a very long-term view. Yes, as the largest producer and as the largest seller, we can make short-term spike or short-term noise, but that’s not what we’re looking for. We’re really looking for a sustainable change in the market. So no, we’re not really doing it to spike-up the spot price in the short term.

——————————————————————————–

Unidentified Participant, [41]

——————————————————————————–

Well, Cameco is a long-term supplier as well. Obviously, they want the new contracts to be signed at a higher price, like a 5 handle instead of a 4 handle, for instance, right? But I don’t know. I’m just wondering what’s the difference between Cameco and Kazatomprom in terms of their long-term vision?

——————————————————————————–

Galymzhan Olzhayevich Pirmatov, joint stock company “National atomic company “Kazatomprom” – CEO, Chairman of the Management Board & Director [42]

——————————————————————————–

I think the vision is the same. We are confident in the long-term prospect of the uranium. I can’t really speak to what Cameco is doing or not doing in a spot market there.

——————————————————————————–

Rizvi Riaz El Hasan Sayed, joint stock company “National atomic company “Kazatomprom” – Chief Strategy & Marketing Officer, Chief Commercial Officer and Member of Management Board [43]

——————————————————————————–

And just to kind of add a little bit more color in terms of our activity in the spot market. What Galymzhan was saying is absolutely right in terms of the motivation. We do have a trading arm sitting in Switzerland. And opportunistically, when they see a distressed seller in the market, they’re very happy to buy incremental volumes for their own trading book. And likewise, when they find buyers who are interested in doing a slightly different structure to those that the headquarter is typically entering to, which are essentially long-term deals, then the trading arm can also execute on those. So I would say, we’ve seen quite a difference in the way that the uranium spot market operates ever since the THK launch with a lot less, let’s say, extreme short-term volatility and really kind of maybe a little bit more disciplined or market-rational behavior in the spot market. So that’s really where THK plays a role in terms of adding a little bit of liquidity to the market and a little bit of price transparency.

——————————————————————————–

Operator [44]

——————————————————————————–

Our next question comes from Andrew Hall from RBC Capital Market.

——————————————————————————–

Andrew Hall, [45]

——————————————————————————–

When do you have to make a decision on 2022 production? And if demand were to come back faster than expected, let’s say, how quickly could you raise production back to your prime mode?

——————————————————————————–

Galymzhan Olzhayevich Pirmatov, joint stock company “National atomic company “Kazatomprom” – CEO, Chairman of the Management Board & Director [46]

——————————————————————————–

Yes. Thank you, Andrew. 2022, sometime this year, we will have to make a decision. If you really want to be diligent, you want to do that, make the decision before your budgeting starts for 2021. That’s when you have to really decide how much drilling and piping, you’re going to be committing to in 2021 to prepare for 2022 production. But that decision also can be taken a little later towards the end of the year as well.

In terms of how quickly we can come back, on existing production, yes, within 12, 18 months, we can be beefing up production in a significant way. If you’re talking about Greenfield, which we also have the capabilities due and have reserved ready to do. We’ll probably need 3 years with a little bit of capital. And Andrew, as you know, how this [P&L market operates in terms of long-term contracting, we can find contracts today for 5 to 10-year deliveries, starting deliveries from 3 to 4 years or 5 years from today. That’s a normal practice in the industry. So when we have those contract portfolio growing, we will know ahead of the time our delivery commitment with enough time to prepare and produce those plants when we need. So we’re not really worried about being ready when market picks up.

——————————————————————————–

Andrew Hall, [47]

——————————————————————————–

Okay. And then just on the 2022 decision, have you talked to any of your JV partners about that yet? Like have those discussions started? And if you have, like, what are the issues? What are the concerns? Or what’s the feedback that you’re getting from them?

——————————————————————————–

Galymzhan Olzhayevich Pirmatov, joint stock company “National atomic company “Kazatomprom” – CEO, Chairman of the Management Board & Director [48]

——————————————————————————–

Look, it’s been — it will be 4 years now when Kazakhstan is producing minus-20%. And I actually have to thank all of my partners for agreeing to do so. As you know, we have different partners with different agendas and different goals. And overall, you can expect that all of them want pounds from Kazakhstan because they are the cheapest. So it’s not an easy discussion with some of my partners. But yet, we haven’t really started specifically to discuss that. But we constantly meet and discuss operational matters with our partners. And when time will come, how we go about it, Andrew, we do not really discuss with them before we make our internal decision. So we first make in-house decision by Kazatomprom from what we think is right and then go out and start negotiating. Because we don’t want to be really, as the largest producer, discussing with our partners what, if kind of scenarios. So we don’t really go and talk to them about 2022 until we made our house decision and announced it, exactly that’s what we did end of 2017. That’s what we did last year in August. And that’s how we’re going to continue in the future, if we end up deciding that, that’s the right way to go about it.

——————————————————————————–

Operator [49]

——————————————————————————–

That was our final question in the question queue. This concludes the question-and-answer session. I will now turn the conference back to Mr. Pirmatov.

——————————————————————————–

Galymzhan Olzhayevich Pirmatov, joint stock company “National atomic company “Kazatomprom” – CEO, Chairman of the Management Board & Director [50]

——————————————————————————–

Thank you. As a market leader, we are committed to continue delivering on our commitments and creating value for all our stakeholders. So thank you all for joining us today, and have a great day.

——————————————————————————–

Operator [51]

——————————————————————————–

Thank you. This now concludes today’s call. We thank you all for joining. You may now disconnect.