JSC National Atomic Company “Kazatomprom” (“Kazatomprom”, “KAP” or “the Company”) announces its consolidated financial results for the first half-year ended 30 June 2020, prepared in accordance with International Financial Reporting Standards (IFRS).

“The theme of uncertainty in the uranium market persisted through the first half of 2020,” said Galymzhan Pirmatov, Kazatomprom’s Chief Executive Officer. “However, the general sense is that there has been a shift in sentiment – from participants wondering ‘when’ the market will transition to support current and future primary production, to now talking of ‘how soon’ that transition could take place.

“Uranium spot price rose in response to the initial announcements of COVID-related supply impacts at the beginning of the second quarter, with intermediaries buying in anticipation of a potential supply deficit, and some producers entering the spot market to replace lost production. Until just recently, there has been very little contracting activity by end-user utilities, who have been far more focused on managing their nuclear plants through the pandemic. The absence of those end-users and any serious term contracting, tells us that we have not yet reached a turning point, though the potential pressure on supply for the second half of the year is starting to gain attention.

“Regardless of what is happening in the market, first and foremost, our priority throughout these difficult past few months has been to ensure we are supporting our employees and keeping them safe and healthy, along with their families and local communities. We have spent a great deal of time developing business continuity plans and with those plans in mind, along with the close monitoring of local restrictions, recommendations, and medical system capacities, we began gradually returning staff to sites at the beginning of August. As of today, we have resumed both exploration drilling and mine wellfield development work.

“As we previously advised, when we decreased staff on our sites and all drilling work stopped for four months, it meant that there was going to be a delay in new planned mining blocks coming online, so while there was little impact on the first-half production results, we expect to see a noticeable year-over-year impact on our second-half production volumes, and for the year.

“In the second half of 2020, we will remain steadfast with our strategic focus by maintaining our market discipline in our core business of uranium mining, with continued expansion into new markets with new customers, alongside an unwavering prioritization of ESG and the health and safety of our employees.”

Key financial metrics

¹ Net result from sale of investment in joint venture Uranium Enrichment Center JSC
² Gain from reversal of liability under JOs relates to volumes of uranium that were not purchased from JOs in 2018, and which the Group does not plan to acquire in future, hence this liability, initially recorded in 2018, was derecognised in 2019.
³ Adjusted EBITDA is calculated by excluding from EBITDA items not related to the main business and having a one-time effect.
⁴ Previously disclosed as “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 and JV “Khorasan-U” LLP less any changes in the unrealized gain in the Group.

Operating and Financial Review and Financial Statements

The Operating and Financial Review and Consolidated Financial Statements (unaudited, reviewed) provide detailed explanations of Kazatomprom’s results for the half-year ended 30 June 2020, as compared to the same period in 2019, with guidance for 2020. This press release should be read alongside these documents, all of which are available at www.kazatomprom.kz.

Changes in the Group structure

In the first half of 2020 and first half of 2019, the Group completed several transactions that had a significant impact on reported results.

In the first-half results for 2020:

• on 17 March 2020, the Group completed the sale of its 50% stake (minus one share) in the Uranium Enrichment Centre JSC to its partner in this joint venture, TVEL JSC (TVEL). The Group kept one share in the Uranium Enrichment Centre JSC, 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 the first-half results for 2019:

• the Group’s ownership interest in Baiken-U LLP, Kyzylkum LLP and JV Khorasan-U LLP increased to 52.5%, 50% and 50%, respectively – before the transaction, those ownership interests were 14.45%, 33.98% and 33.98%, respectively.
• as of 31 December 2018 the Group obtained control over Baiken-U LLP through having majority of the voting rights and representation in the Supervisory Board.
• the Group maintained significant influence over Kyzylkum LLP and JV Khorasan-U LLP as at 31 December 2018 and the Group concluded at that date that no control was obtained over JV Khorasan-U LLP pending participants’ approval of changes in the charter of the investee that will enable the Group to exercise the majority of votes.

• in February 2019, the owners of JV Khorasan-U LLP approved changes to the charter documents of that entity, which gave the Group the ability to cast a majority vote at the Supervisory Board. As a result, the Group obtained control over JV Khorasan-U LLP from that date.

The acquisition of Baiken-U LLP as well as the increase in ownership interest in Kyzylkum LLP and Khorasan- U LLP were reflected in the consolidated financial statements for the year ended 31 December 2018 at provisional (carrying) values. The valuations by an independent appraiser were finalised in the first half 2019.  As a result, the statement of financial position as of 31 December 2018 was restated in condensed interim consolidated financial statements.

As at 30 June 2019, the fair value appraisal for the acquired assets and liabilities of JV “Khorassan-U” LLP was completed and the Group recorded a net gain of KZT 54.6 billion in profit and loss for the six months ended 30 June 2019.

In total, the number of the Group’s subsidiaries, JVs, JOs and associates decreased from 42 as at 31 December 2019, to 40 as at 30 June 2020.

• In January 2019, the General Meeting of Participants approved the interim liquidation balance of “ULBA Conversion” LLP. In accordance with the decree of the Ust-Kamenogorsk Department of Registration and Land Cadastre dated August 16, 2019 No. 151, the termination of activity of “ULBA Conversion” LLP was registered.

• In September, 2019, Kazatomprom’s Board of Directors approved the liquidation of Power System International Limited (PSIL) and in December 2019, the liquidation of PSIL was completed.

Revenue, net profit, EBITDA

The Group’s consolidated revenue was KZT 153.1 billion as at 30 June 2020, a decrease of 13% compared to 30 June 2019, due to lower sales volumes related to the timing of deliveries in the year, partially offset by an increase in the average selling price.

The operating profit as at 30 June 2020 was KZT 47.5 billion, an increase of 75% compared to 30 June 2019. It was mainly due to an increase in the share of uranium sold that was produced by the Company’s consolidated subsidiaries and JOs as well as increase in average realized price. For that production, the full mining margin was captured in the consolidated results of the Group including the volume of uranium sold for export, which had a positive impact on profit.

Net profit for the first half of 2020 was KZT 66 billion, a decrease of 37% compared to 30 June 2019. In the first half of 2020 the net result from the sale of the investment in the joint venture Uranium Enrichment Center JSC was KZT 22.1 billion. Adjusting for that one-time effect, adjusted net profit for the 2020 half year was KZT 43.9 billion, an increase of 36% compared to 30 June 2019. During the first half of 2019, there was a KZT 17 billion gain from reversal of a liability under JOs, which was initially recorded in 2018. This gain is related to volumes of uranium that were not purchased from JOs in 2018, and which the Group does not plan to purchase in the future. As a result, this liability was reversed in 2019. Also, during first half of 2019 JV “Khorasan-U” LLP was included in the consolidation. The one-time effect of this transaction was KZT 54.6 billion.

Adjusted EBITDA totalled KZT 81 billion as at 30 June 2020, an increase of 11% compared to 30 June 2019, while attributable EBITDA was KZT 84 billion as at 30 June 2020, an increase of 44% compared to 30 June 2019. The changes were mainly driven by increased operating profit, as well as an increase in the share of EBITDA of joint ventures and associates.

Operating cash flows totalled KZT 38.2 billion, a decrease of 66% compared to 30 June 2019, mainly due to changes in working capital due to seasonality and differences in the timing of deliveries for both periods resulting in uneven receipts of trade receivables.

Cost of sales

Cost of sales totalled KZT 89,338 million as at 30 June 2020, a decrease of 31% compared to 30 June 2019. The decrease was mainly due to a 22% reduction in U₃O₈ sales volumes compared to same period of 2019, as well as an increase in the proportion of sales of uranium produced by consolidated subsidiaries and JOs. When such material is sold, the cost of sales is predominantly represented by the cost of production.

Selling expenses

Selling expenses totalled KZT 4,936 million as at 30 June 2020, an increase of 20% compared to 30 June 2019. The increase was mainly due to changes in the destination points for uranium products.

General & administrative expenses (G&A)

A decrease in G&A expenses was due to optimisation and cost reduction in connection with the COVID-19 pandemic. Also, in the first half of 2019, a reserve on liabilities for uranium products was recognised in the amount of KZT 3,057 million.

Liquidity

The Group’s liquidity requirements primarily relate to funding working capital, capital expenditures, service of debt, and payment of dividends. The Group has historically relied primarily on cash flow from operating activities to fund its working capital and long-term capital requirements, and it expects to continue to do so, though it maintains the option to use external financial resources when required. It is expected that there will be no significant change in the sources of the Group’s liquidity in the foreseeable future.

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.

The Group’s cash and cash equivalents as at 30 June 2020 were KZT 65,041 million decreasing by 34% compared to 31 December 2019. Compared to the first half of 2019 total cash as of 30 June 2020 increased by 8% due to explanations that are presented in the section 8.4 Cash Flows.

As of 30 June, 2020, the Group has no long-term bank loans. Current bank loans mainly include loan disbursements under credit lines, which will be repaid within 12 months. Corporate credit lines are an additional liquidity source for the Group. Under these lines, short-term bank loans (up to 12 months) are primarily used to temporarily cover cash deficits related to uneven receipts of trade receivables. At 30 June 2020, the Group had total available revolving credit lines of USD 615 million. At the end of the first half of 2020, USD 176 million was drawn with USD 439 million still available.

Debt leverage ratios

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

* For the purposes of Net debt/Adjusted EBITDA (coefficient) calculation Adjusted EBITDA for six months of 2020 and 2019 was calculated as for 12 months (the first half of the reporting period and the second half of the previous period). Adjusted EBITDA is calculated as Profit before tax + Net finance expense + Net FX loss + Depreciation and amortisation + Impairment losses +/- one-off or unusual transactions.

The above indicators are in line with expectations previously communicated by Management to investors.

Uranium segment production and sales metrics

¹ Production volumes of U₃O₈ (attributable basis) is not equal to the volumes purchased by Company and THK.
² KAP U₃O₈ sales volume (included in Group): includes only the total external sales of KAP HQ and THK. Intercompany transactions between KAP HQ and THK are not included.
³ KAP inventory of finished goods (included in Group): includes the inventories of KAP HQ and THK.
⁴ 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.
⁵ 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.

On both a 100% and attributable basis, U₃O₈ production volumes for the first half of 2020 were modestly lower, as a result of the initial impact of decreased wellfield development activity, and lower second quarter staff levels, amid the COVID-19 pandemic. There is typically a four to eight month lag between the wellfield development and production phases of the in-situ recovery mining process and as a result, the safety measures implemented during the first half of 2020 to deal with the pandemic are expected to predominantly impact the second half of the year. The difference in percentage decrease in production on a 100% basis and an attributable basis was associated with different levels of production for different assets and a different ownership proportion for each asset.

Consolidated U₃O₈ sales were KZT 123.4 billion as at 30 June 2020, a decrease of 15% compared to 30 June 2019, mainly caused by reduced sales volumes due to the seasonality and differences in the timing of deliveries for 2019 and 2020.

Consolidated Group U₃O₈ sales volumes and KAP sales volumes were lower year-over-year due to seasonality and differences in the timing of deliveries for 2019 and 2020, as well as a marketing strategy that prioritizes creating long-term market value over volume.

Consolidated Group inventory of finished U₃O₈ goods at 30 June 2020 amounted to 11,110 tonnes, which was 7% higher than at 30 June 2019. At the Company level, inventory of finished U₃O₈ products was 9,094 tonnes, an increase of 8% compared to 30 June 2019. The increase in inventory was mainly related to lower sales volumes during the first half of 2020 compared to the same period of 2019, as well as the timing of swap deals made in the first half of 2020, where the transaction to return material will take place in the second half of 2020. In alignment with the Company’s value strategy, Kazatomprom’s inventory levels vary based on seasonality and mining and sales volumes.

The Group average realized price in the first half of 2020 was KZT 29,247 per kg (27.81 USD/lb), an increase of 10% compared to 30 June 2019 due to the weakening of the KZT against the USD and an increase in the average spot price for uranium products. The KAP average realized price was also higher and for the same reasons.

Uranium segment costs and capital expenditures    

¹ Excludes liquidation funds and closure costs and includes expansion investments. Note that in section 6.0 Capital Expenditures Review total results includes liquidation funds and closure cost.

C1 Cash cost (attributable) and All-in-sustaining cash costs (attributable C1 + capital cost) decreased by 1% and 12% respectively (USD equivalent) as at 30 June 2020, compared to 30 June 2019. The results were considerably better than expected and are currently below the annual guidance ranges provided for 2020 (USD 10.00 - 11.00 for attributable C1 cash cost, USD 13.00 - 14.00 for attributable all-in sustaining cash costs). The decreases were primarily due to the weakening of the KZT against the USD in 2020 and continued cost optimization efforts.

Capital expenditures of mining companies (100% basis) totalled KZT 16.1 billion, a decrease of 38% compared to 30 June 2019, primarily due to lower wellfield development as a result of a decrease in the number of personnel throughout the second quarter to prevent the spread COVID-19.

Health, safety and environment results

The Company conducts its production activities in compliance with legal requirements in the field of labour protection and industrial safety. Comprehensive measures to prevent incidents and accidents are carried out on an ongoing basis. The Company conducts systematic work to improve the safety culture across employees and managers at all levels, and to remain in compliance with industrial safety requirements. Occupational health and safety management systems that meet international standards have been implemented and are being constantly monitored and maintained.

The measures taken in the first half of 2020 in the field of industrial safety helped to prevent industrial accidents (absence of uncontrolled explosions, emissions of dangerous substances or destruction of buildings) at the Company's subsidiaries. At the same time, six accidents were registered: six people were injured, one of which resulted in a fatality.

The incidents included: three cases of chemical burns, two cases of falling from a height and one case of falling on a slippery surface. The fatal accident occurred when an employee lost his balance while climbing stairs and fell.

To assess the effectiveness of industrial safety measures, the Company uses the LTIFR indicator (Lost-Time Injury Frequency Rate), which reflects the number of incidents that led to the loss of working time per 1,000,000 hours worked.

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.

The Company uses reliable environmental monitoring and radiation safety systems at all its uranium mines. No environmental or radiation accidents occurred in the first half of 2020. All activities were completed in compliance with environmental legislation, regulatory requirements and guidance on nuclear and radiation safety.

No exceedances of the established limits for waste generation, emissions, or discharges were registered in the first half of 2020.

 Guidance for 2020

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, depending on the actual impact.
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 attributable share is calculated in accordance with the formula described in Kazatomprom’s IPO Prospectus. The Company anticipates that the annual share of production in JV “Inkai” LLP in 2020 will be approximately 1,066 tU. 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 (companies that KAP controls by having (i) the power to direct their relevant activities that significantly affect their returns, (ii) exposure, or rights, to variable returns from its involvement with these entities, and (iii) the ability to use its power over these entities to affect the amount of the Group’s returns. The existence and effect of substantive rights, including substantive potential voting rights, are considered when assessing whether KAP has power to control another entity)
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 2020 revenue could be materially impacted by how actual uranium prices vary from the third-party estimates.
⁷ Total capital expenditures (100% basis): includes only capital expenditures of the mining entities.
* Note that the conversion of kgU to pounds U₃O₈ is 2.5998.

All 2020 guidance remains unchanged at this time. Revenue, C1 cash cost (attributable basis) and All-in Sustaining cash cost (attributable C1 + capital cost) may vary from the ranges shown, to the extent that the KZT-to-USD exchange rate and uranium spot price differ from the assumptions shown in the footnotes.

Note that the Company only expects to update annual guidance in relation to operational factors and internal changes that are within its control. Key assumptions used for external metrics, such as exchange rates and uranium prices, are established from third party sources during the Company’s annual budget process; such assumptions will only be updated on an interim basis in exceptional circumstances.

The Company continues to target an ongoing inventory level of approximately six to seven months of annual attributable production. However, inventory levels are expected to fall below these levels in 2020 and 2021, with no opportunity to catch up production losses in these periods. As such, the Company will continue to monitor market conditions for opportunities to optimise its inventory levels and has purchased some volumes in the spot market at the end of the second quarter.

Conference Call Reminder - 2020 Half-Year Operating and Financial Review

Kazatomprom has scheduled an English language conference call to discuss 2020 half-year operating and financial results, after they are released on Thursday, 27 August 2020. The call will begin at 17:00 (AST) / 12:00 (BST) / 07:00 (EST). Following Management remarks, an interactive English Q&A session will be held with investors.

Interested parties are invited to join the live Q&A session using the following dial-in details:

• Kazakhstan (Listen-only Toll-Free): +7 (8) 717 245 88 12, enter PIN 3715# when prompted
• UK Participant Toll-Free Dial-In Number: +44 (0) 80 0028 8438
• UK Participant Local Dial-In Number: + 44 (0) 20 3107 0289  
• US Participant International US-Toll Dial-In Number: +1 (918) 922-6506
• Russia Participant Toll-Free Dial-In Number: +7 (833) 922-1411

To participate in live Q&A, provide the conference ID number 2950189 when prompted. 

A live webcast of the conference call will be available from a link at www.kazatomprom.kz home page on the day of the call. Participants can also ask questions using the webcast question feature.

A recording of the webcast will also be available at www.kazatomprom.kz shortly after the event, along with a Russian language transcript.

For further information, please contact:

Kazatomprom Investor Relations Inquiries

Cory Kos, Director of Investor and Public Relations

Tel: +7 (8) 7172 45 81 80

Email: irkazatomprom.kz

Kazatomprom Public Relations and Media Inquiries

Torgyn Mukayeva, Deputy Director of Investor and Public Relations

Tel: +7 (8) 7172 45 80 63

Email: prkazatomprom.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 2019. The Group benefits from the largest reserve base in the industry and operates, through its subsidiaries, JVs and Associates, 24 deposits grouped into 13 mining assets. All of the Company’s mining operations are located in Kazakhstan and mined using ISR technology with a focus on maintaining industry-leading health, safety and environment standards.

Kazatomprom securities are listed on the London Stock Exchange and Astana International 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 our newly updated 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.