KAZATOMPROM AND THE FUTURE OF URANIUM

Dividends, a low valuation and a play on uranium.

Have you ever tought about the Uranium market ? Right now 60 Nuclear power plants are under construction even more are in the planing face. But wait, isn’t Nuclear energy dangerous and bad for the environment ? Germany and Japan banned Nuclear power plants after the catastrophe of Fukushima in 2011. Right now Uranium is a very interesting investment opportunity. While western countries are talking abou ESG, they are economically falling behind their emerging neighbors.

1. Supply and Demand for Uranium

After the catastrophe of Fukushima Japan and Germany banned Nuclear Power Plants (Let’s call them NPPˋs) over security concerns.

Since than a lot has happened :

1) Countries realized that the only source of energy that can provide us with enought energy is Nuclear Energy. It is a stable energy source even during times, the sun doesn’t shine and there is no wind (Yes these times exist, even tough in Germany we belief something different).

2) The European Parliament put NPP`s on the list of clean and environmentally good energy sources. Whether you agree with this or not, it is something to keep in mind for investing purposes.

3) The war in Ukraine and the sanctions which followed as a result of it affected the entire energy market. The blowoff of the Nordstream pipelines lead to a total dependency on other energy suppliers (like the US or Qatar).

4) Japan is again using and building Nuclear Power Plants. While the technology has risks, the risk from other energy sources is often way bigger.

Right now the inbalance between supply and demand in the uranium market is bigger then ever before. NPP`s are being built in countries like South Korea, China, Russia, Turkey, Saudi Arabia etc. while the supply of Uranium is going down. As a politician it is not the best thing to be associated with mining projects for uranium. Investments into the mining sector have also been weak. WHY? Because as a company from the west you have to sell the green image. Therefor the inbalance of supply and demand is very high. There is also a lot of supply from secondary markets, like old nuclear bombs that are being used to extract uranium at a low price. But the supply of uranium from secondary markets is expected to go down.

2. The Russia-Ukraine War

After the beginning of the war in Ukraine, energy prices shot up significantly. Oil went to 120$ a barrel, Coal is still at sky high prices and Net gas is more volatile than GameStop (😆). The sanctions are mostly focused on energy, which is the biggest industry for Russian exports. But Uranium is not sanctioned by the west (so much to the anti-war efforts by Europe and the US). If sanctions were imposed it would give the market a huge fundamental reason for a rally in uranium prices.

Even if no sanctions on uranium were announced, the energy market in Europe is weak and will be depended on other countries that are making a killing from the high prices they can charge exclusively for Europe. The EU realized that NPP`s are essential to supply Europe with energy for the next years and decades. In fact, the demand for uranium is forecasted to grow massively over the next years. While supply should continue to go down. Geopolitical conflicts are only the fuel to the fire for this trend.

3. Kazatomprom

Summary: Kazatomprom is a great investment if you want to get exposure to the uranium market:

1. It is the biggest producer of uranium worldwide with a market share of 24%.

2. The company pays a growing dividend of around 7% on todays price (27 USD).

3. Kazatomprom is a leveraged bet on rising uranium prices.

4. With a P/E of 7 the company has a low valuation.

5. Strong Balance sheet with a Net-cash position.

3.1 Overview of Kazatomprom

The company is the largest producer of Uranium worldwide with a market share of 24%. The headquarter is located in Astana; Kazakhstan, which is where the operations of the firm are focused. 75% of Kazatomprom is owned by the Kazakh government, while the remaining 25% are in free float.

3.2 Financials

On March 17th 2023 KAZATOMPROM reported it’s Annual Report for 2022. While we saw a reduction in volume sold, and an increase of 28% in costs (mainly because of inflation), revenues went up 44.7% and Net profit saw an explosive growth of 115%.

It was the first year ever for them to achieve a profit of 1 billion USD (473 billion Tenge). As I wrote prior, KAZATOMPROM has high leverage on uranium prices. They are one of the lowest cost producers of uranium. So an increase in Spot prices of Uranium will increase Net profits for the firm by 3-5 X, the amount uranium went up. With a Net-cash position of 920 million USD the Balance sheet is very strong and protects the downside in case of an investment.

3.3 Valuation and Dividends

The market cap of KAZATOMPROM is around 7 billion USD. With earnings of 1 billion USD in 2022, the P/E is 7. For the biggest and one of the lowest cost producers of uranium in the world, this is a cheap valuation. While we wait that the stock moves higher, we collect a dividend yield of 7%. If we subtract the liabilities from the Assets we get Equity of 3.5 billion USD, which is Price to Book (P/B) of 2.

3.4 Conclusion

Whether you stand on the side that Uranium is green or not. We have to admit that the demand for uranium will, as long as Chernobyl doesn’t repeat only go up. With more and more reactors coming on line. While supply is going down. This is a perfect opportunity for the companies which are producing the rare mineral. KAZATOMPROM is the biggest producer in the world, which has also one of the lowest production costs. With a P/E of 7, a dividend yield of 7% and a Net-cash position the stock looks very undervalued. It is located in Kazakhstan, which is a country that will likely join the BRICS alliance of Brazil, Russia, India, China and South Africa. It is a bet on a changing world order. While western investors are looking at ESG, they miss out on the great investments out there.

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