Kazatomprom’s nine-year low inventory levels and underperformance in uranium equities remain points of intense frustration for many in the industry. Despite strong fundamentals in both spot and term markets, the equities have not delivered the expected returns, a trend that has perplexed analysts and investors alike.

Ben Finegold, returning to Energy Transition Talks, breaks down Kazatomprom’s latest financial results and provides a sobering analysis. Although the company’s H1 2024 financials were extensively covered in the media, Finegold believes certain crucial elements have not received enough attention. Notably, the company’s inventory levels have fallen to their lowest point in nearly a decade.

Finegold points out that Kazatomprom aims to maintain six to seven months of attributable production in inventory, a figure they’ve now dropped below for the first time since 2016. This drop comes despite a broader consensus within the market expecting production cuts. What wasn’t fully anticipated was the severity of these cuts and the challenges related to infrastructure delays.

One of the key surprises in Kazatomprom’s report is the steep increase in taxes. Finegold notes that the crude taxes are up by 75% year-on-year. This aligns with the broader trend in Kazakhstan, where the government seeks to better monetize its natural resources, an effort that has been primarily focused on the oil sector but has now started to impact uranium as well. The increase in mineral extraction taxes, CIT, and potential export duties are all part of Kazakhstan’s strategy to close the country’s significant deficit.

“Ultimately, the production cuts and the infrastructure delays, coupled with the drop in inventories, have set Kazatomprom on a difficult path to reach even the lower end of their 2024 guidance,” Finegold remarks. He believes that, given the company’s existing contracts and infrastructure challenges, Kazatomprom may struggle to rebuild its inventory levels without going into the spot market to make up for shortfalls.

The equity market response to this otherwise bullish news has been underwhelming. Finegold attributes this to the fact that many uranium equities are still tethered to the spot price, which dropped slightly following reports that a Chinese trader had unloaded a significant volume of uranium. This has raised concerns that China, with its massive 600-million-pound uranium stockpile, could start offloading inventory into the global market, but Finegold dismisses this as an unlikely scenario. He points out that China’s stockpile is necessary to fuel its ambitious nuclear energy expansion plans, and selling off such a strategic reserve would be counterproductive in the long term.

Regarding production cuts at Kazatomprom’s JV with Cameco, Finegold is circumspect. “There’s a lot of political and operational complexity in Kazakhstan’s uranium sector. The acid supply shortages and infrastructure delays have hit Western mines harder than their Russian or Chinese counterparts. But whether this is by design or coincidence is hard to say. Either way, it’s clear that Kazatomprom’s production is increasingly being geared towards meeting demand in China and Russia,” he says.

The broader uranium sector, Finegold explains, remains bullish despite these short-term hiccups. Demand from nuclear power plants, particularly in China and India, is expected to ramp up significantly in the coming decades. Both countries are expanding their nuclear capacities at a pace that will likely outstrip their current uranium supply chains, which could drive the price of uranium higher in the long run.

Finegold’s analysis is grounded in his experience as an analyst in the uranium space, where he has observed firsthand the disconnect between the uranium equities market and the fundamentals of the underlying commodity. “The equities just haven’t responded the way we thought they would. The spot price and the term price have held up well, but the stocks are lagging,” he says, noting that Cameco, a uranium producer that actually makes money, is still down significantly from its 2024 highs.

The lack of supply-side response in the face of rising demand is a critical issue for the uranium market. Finegold points out that many potential new mines are still years away from production, and that some of the largest near-term projects remain unpermitted. The permitting process for uranium mines is notoriously slow and politically fraught, particularly in countries that haven’t licensed new uranium mines in decades. 

Meanwhile, utilities, particularly in the United States, are facing increasing pressure to secure long-term uranium supply. Finegold explains that the utilities that have been in the game the longest, like EDF and Dominion, are generally better prepared to weather the current market conditions. However, the same cannot be said for unregulated utilities in the U.S., which may find themselves scrambling to secure uranium as global inventories continue to decline.

“Uranium prices are unlikely to drop much further from where they are today,” Finegold says. “In fact, the longer-term trend seems to be pointing towards $100 a pound or more. The demand for uranium is only going to increase, and the supply side just isn’t responding fast enough.”

As the uranium market continues to evolve, Finegold believes that investors who remain patient will eventually see the upside they’ve been waiting for. “This sector is 30% off its 2024 highs, but the fundamentals are stronger than ever. We just need to be patient and let the market catch up to the reality of what’s happening on the ground.”

In sum, Finegold’s outlook on the uranium market is cautiously optimistic. While Kazatomprom and other major producers are facing short-term challenges, the longer-term demand for uranium remains robust. For investors willing to wait, the rewards could be significant. However, the road ahead is likely to be bumpy, with geopolitical tensions, infrastructure delays, and supply shortages all playing a role in shaping the future of the uranium market.

Ben Finegold of Oceanwall Interview

This is a very brief summary of what was a lengthy interview. Don’t rely on this summary. Watch the full interview which is linked above.

Please note that this guest has not paid for the creation of this content. The Resource Talks interview rules are simple.
The companies, albeit paying or non-paying, get no questions upfront, no questions off the table, and no editing rights.

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