Kos reported in late August, 2021 that JSC National Atomic Company “Kazatomprom” announces its consolidated financial results for the first half-year ended 30 June 2021, prepared in accordance with International Financial Reporting Standards (IFRS). “Our operational and financial results for the first-half of the year were strong,” said Galymzhan Pirmatov, Kazatomprom’s Chief Executive Officer. “Revenue increased 54% compared to the same time last year, driving a near 30% increase in operating profit and more than a 30% increase in adjusted net profit. Our operations continued to perform well and safely delivered production volumes that were similar to the first half of 2020.
“The impact of COVID continued to be felt across the industry, and though near term supply continued to decrease, market sentiment has remained cautious. Accordingly, after the end of the second quarter, we announced that we are extending the 20% reduction of our production against subsoil use agreements for an additional year, through 2023. This means that for yet another year, global primary production is expected to be over 5,000 tU lower than was previously anticipated. However, in a world that is expanding its use of nuclear power, we would much rather be seeing a market that is demanding more uranium supply.
“The social and environmental issues that have generated much concern and debate, have only become more pronounced, and one of the areas that is perhaps needing the most attention right now, is in relation to climate change. With the deepening impact of detrimental events like droughts, forest fires, floods and hurricanes, it is obvious that the time for idle discussion and counterproductive debate has past, and we must take action. Thankfully, we are starting to hear more thoughtful conversations about nuclear power, with knowledgeable experts being given a voice to increase both formal and informal public discussions about nuclear’s role in addressing the climate challenges.
“Kazatomprom is working to support broader acceptance of nuclear power as a key component of greener international strategies, and while doing so, we remain committed to prioritizing long-term value and continuing to exercise discipline in our market activities. We are confident that as the market transitions, we, as a low-cost producer with substantial long-term reserves, will be well positioned to deliver value to our stakeholders.”
Key Financial Metrics:
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 first half-year ended 30 June 2021, as compared to the same period in 2020, with adjusted guidance for 2021. This press release should be read alongside these documents, all of which are available at www.kazatomprom.kz .
Changes in the Group structure
There were no significant changes in group structure impacting the first half of 2021. In the first half of 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, which had a significant impact on 2020 reported results. The sale price amounted to Russian rubles 6,253 million (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 total, the number of the Group’s subsidiaries, JVs, JOs, associates and other equity investments as at 30 June 2021 was 38 (compared to 39 as at 2020 year-end).
Revenue, Net Profit, EBITDA
During the first half of 2021 the Group’s consolidated revenue was KZT 235,501 million, an increase of 54% compared to the same period of 2020. The increase is mainly due to:
- a significant increase in sales volume in the first half of 2021 in comparison to the same period of 2020 mainly related to the timing of customer requirements and the resulting differences in the timing of deliveries for the first halves of 2021 and 2020;
- growth in the average realized price associated with an increase in the market spot price for U3O8; and
- weakening of the KZT against the USD in the first half of 2021.
Operating profit in the first half of 2021 was KZT 61,315 million, an increase of 29% compared to same period of 2020. The increase was mainly due to higher revenues in 2021 as previously explained. Net profit in the first half of 2021 was KZT 58,086 million, a decrease of 12% compared to the same period of 2020. In the first half of 2020, net profit included the gain from the sale of the investment in the joint venture Uranium Enrichment Center JSC of KZT 22,063 million. Adjusted net profit for the first half of 2021 of KZT 58,086 million represented an increase of 32% compared to the same period of 2020 mainly due to the increase in operating profit in 2021 as described above.
Adjusted EBITDA totaled KZT 99,395 million in the first half of 2021, an increase of 23% compared to the same period of 2020, while attributable EBITDA was KZT 96,694 million in the first half of 2021, an increase of 15% compared to the same period of 2020. The changes were mainly driven by higher operating profit. Operating cash flows for the first half of 2021 totaled KZT 80,833 million, an increase of 111% compared to KZT 38,220 million during the same period of 2020 mainly due to:
- a KZT 24,270 million decrease in payments for accounts payable to suppliers during the first half of 2021 due to change in timing of the purchases schedule for 2020-2021;
- other receipts in the amount KZT 8,683 million in the first half of 2021, which represent the mutual settlements of the parties with the JO remaining after intra-group elimination. In accordance with IFRS 11, each JO party must recognize its share of the cash flows from the joint operations. Since transactions between the JO and each of the parties do not occur simultaneously, the consolidated cash flows may include amounts paid / received from a second JO participant. In subsequent periods, such amounts will be similarly reflected in other receipts / other payments; and
- a KZT 4,665 million increase in cash receipts from customers during the first half of 2021 compared to the same period of 2020, due to differences in the timing of the sales schedule for 2020-2021 and growth in the average realized price associated with an increase in the market spot price for U3O8.
Cost of Sales
Cost of sales totaled KZT 154,045 million in the first half of 2021, an increase of 72% compared to the same period of 2020 mainly due to higher sales volume in the first half of 2021 and an increase in the share of U3O8 purchased from JV and associates and third parties.
Selling Expenses
Selling expenses totaled KZT 3,642 million in the first half of 2021, a decrease of 26% compared to the same period of 2020. The decrease was mainly due to differences in the delivery destination points for uranium products.
General & Administrative Expenses (G&A)
The increase in G&A expenses was partly related to the reserve on liabilities for uranium products for KZT 2,932 million. G&A was also lower during the previous period due to the impact of optimization and cost reduction in connection with the COVID-19 pandemic in the first half of 2020.
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 upon cash flow from operating activities to fund its working capital and long-term capital requirements, and it expects to continue to do so, although it maintains the option to use external financial resources when required. The Company will consider entering into project financing arrangements to fund certain investment projects if deemed to be necessary.
The Group’s cash and cash equivalents at 30 June 2021 were KZT 151,762 million increasing by 34% compared to KZT 113,347 million as of 31 December 2020 and higher in comparison to KZT 65,041 million as of 30 June 2020, mainly due to the accumulation of cash prior to the distribution of the 2020 dividend.
Debt Leverage Ratios
The following table summarizes the key ratios used by the Company’s management to measure financial stability.
Uranium segment production and sales metrics
Six months
Ended 30 June:
Notations:
1 The Production volumes of U3O8 (attributable basis) is not equal to the volumes purchased by Company and THK.
2 KAP U3O8 sales volume (incl. in Group): includes only the total external sales of KAP HQ and THK. Intercompany transactions between KAP HQ and THK are not included.
3 Group sales volume and KAP sales volume (incl. in Group) does not include approximately 100 tU equivalent sold as UF6 in 1Q20.
4 KAP inventory of finished goods (incl. in Group): includes the inventories of KAP HQ and THK.
5 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.
6 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.
In the first half of 2021 U3O8 production on both a 100% and attributable basis remained comparable to the same period of 2020. Both Consolidated and KAP U3O8 sales volumes were significantly higher year-over-year due to the timing of customer requirements and the resulting differences in the timing of deliveries for the first halves 2020 and 2021.
Consolidated Group inventory of finished U3O8 products as at 30 June 2021 amounted to 8,864 tonnes, which was 20% lower than at 30 June 2020. At the Company level, inventory of finished U3O8 products was 6,773 tonnes, a decrease of 26% compared to June 2020. The decrease in inventory was mainly related to a higher sales volume in the first half of 2021, and a lower inventory level at the beginning of 2021. The Company continues to target an ongoing inventory level of approximately six to seven months of annual attributable production. However, inventory could fall below these levels in 2021 and 2022, due to COVID-19 related production shortfalls. As such, during the second quarter 2021, several transactions to purchase material in the spot market were carried out and the Company will continue to monitor market conditions for opportunities to optimize its inventory levels.
The Group’s average realized price in the first half of 2021 was KZT 32,675 per kg (29.63 USD/lb), an increase of 12% compared to the same period of 2020 due to a higher average spot price for uranium products, and the weakening of the KZT against the USD. The average sales prices at the KAP level were also higher and for the same reasons.
The Company’s current overall contract portfolio price is closely correlated to current uranium spot prices. However, in the first half of 2021, the increase in average realized price differed slightly from the increase in the spot market price for uranium, as some deliveries were based upon prices that were fixed prior to the increase in the market price, and some were indexed to spot prices, when the market price was lower.
Uranium segment costs and capital expenditures
Notations:
1 Excludes liquidation funds and closure costs and includes expansion investments.
C1 Cash cost (attributable) decreased by 8% and All-in-sustaining cash costs (“AISC”) (attributable C1 + capital cost) increased by 8% in USD equivalent for the first half of 2021, compared to the same period of 2020. The decrease in C1 Cash cost was primarily due to the weakening of the KZT against the USD in the first half of 2021 as well as a decrease in production costs on an attributable basis. AISC increased due to an overall increase in capital expenditures of mining companies. The Company partially shifted wellfield development activities from 2020 to 2021 due to the four-month suspension of wellfield development activity, as a result of the COVID-19 pandemic in 2020, and that shift resulted in a higher level of capital expenditures in the first half of 2021.
2. In the first half of 2021 capital expenditures of mining companies (100% basis) totalled KZT 33,444 million, a significant increase compared to the same period of 2020, primarily due to a shift in wellfield development activities as described above, as well as higher purchase prices for materials, supplies, equipment and cost of drilling.
ESG at Kazatomprom
The nuclear industry and its supply chain are strongly aligned with the ESG principles that are currently being highlighted by stakeholders. Companies, including Kazatomprom, are now moving to do more in publicizing and reiterating the opportunity for nuclear energy to play a role in addressing climate change, managing pollution and waste in the atmosphere, on land and in waterways, and improving and deploying clean technology. There is an urgent need for a paradigm shift: to achieve the necessary targets set forth by the Paris Agreement, the deployment of safe, baseload, carbon-free sources of energy must be accelerated, including broader acceptance of nuclear power as a key part of a greener international strategy.
With an increasing focus on “green” priorities, Kazatomprom’s ongoing improvement of its sustainable development practices is a dominant factor ensuring the long-term stability and competitiveness of the Company, as well as its ability to create incremental benefits for all stakeholders, resulting in a positive contribution to the development of the country, society in general, and the uranium industry. Throughout 2021, the Company is taking steps to bolster its ongoing transition to a risk-based approach in sustainability management to meet the demands of transparent ESG reporting, which involves:
- Identifying and assessing risks that have a direct impact on the Group's long-term financial performance and implementing measures for effective management of those risks;
- Enhancing sustainability risk management practices and developing a risk culture to identify new opportunities to improve performance and gain significant competitive advantages;
- Adapting intra-company reporting processes to provide reliable and accurate ESG-related metrics for future disclosure, allowing for improved assessment and evaluation by external parties;
- Advancing the Company’s ESG reporting and sustainability processes to meet accepted global standards, allowing recognized third-party providers to apply a corporate ESG rating to Kazatomprom.
Health, Safety and Environment (HSE) results
The Company conducts its production activities in compliance with both Kazakh and international requirements for labor protection and industrial safety, implementing comprehensive measures to prevent incidents and accidents. Health and safety management systems that meet international standards (ISO 45001) have been implemented and the Company carries out systematic work to improve the safety culture among employees and managers at all levels.
The measures undertaken in first half of 2021 to enhance the focus on safety awareness helped to prevent major industrial accidents (including uncontrolled explosions, emissions of dangerous substances or destruction of buildings) at the Company's enterprises. The table below reflects safety results of the first half of 2020-2021:
Notations:
- Defined as uncontrolled explosions, emissions of dangerous substances, or destruction of buildings.
- Lost-Time Injury Frequency Rate (LTIFR) per million hours.
- 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 Group maintains a strong focus on improving workplace health and safety. There were no fatal accidents in the first half of 2021, but while the number of accidents decreased compared to 2020, there was an increase in the number of employees that sustained serious injuries, due to two accidents in which multiple employees were injured (three and five people, respectively). The incidents causing the injuries included: a fall from height, electro thermal burn, mechanical impact of equipment, chemical burn, and road traffic accident.
Following each incident, a thorough investigation was completed, the main causes were identified, preventative measures were developed and procedures were changed to prevent similar incidents in the future. The investigation results were reported to other Group entities to ensure all operations could learn from the event and adjust their processes accordingly.
The company employs reliable systems for monitoring the environment and radiation safety at all of its uranium mines and production facilities (ISO 14001 compliant). In the first half of 2021 there were no environmental or radiation-related incidents. All activities were completed in compliance with environmental legislation, regulatory requirements and guidance on nuclear and radiation safety.
Radiation exposure and nuclear safety remained stable in the first half of 2021 with no abnormal radiation levels recorded, and no nuclear or radiation accidents. All work was carried out in accordance with the requirements of regulatory legal acts and internal documentation on radiation and nuclear safety.
COVID-19 Update
As of the date of the issuance of this press release, the COVID-19 situation is still developing. There has been no significant effect on the Group's revenues and deliveries and the Group met all of its sales commitments in the reporting period. With Delta-variant COVID-19 cases rising in July forcing red-zone canters, including Nur-Sultan, Almaty and Shymkent back into government-mandated lockdowns/restrictions in August, the Company continues to rigorously monitor the COVID-19 situation to ensure current protocols remain effective. When a case of COVID-19 is detected, the Company and its subsidiaries implement preventative measures to contain the spread, with the health of the individuals being constantly monitored and assistance provided as necessary.
Vaccination status is being monitored on a daily basis, with the Company’s vaccination level far exceeding that of the country (about 27% of Kazakhstan’s population has received a first dose as at 23 August 2021). As of 23 August 2021, 87% of employees at the Group’s uranium mining entities have first-dose immunization coverage, with more than 74% being fully vaccinated with two doses. Taken as a whole, including the corporate headquarters and all Group entities, about 81% (15,758) of employees have received a first vaccine dose, with over 69% now being fully vaccinated with two doses.
Kazatomprom’s Adjusted 2021 Guidance:
(exchange rate 430 KZT/1USD)
2021
Production volume U3O8 (tU) (100% basis)1 ..................22,500 – 22,8002
Production volume U3O8 (tU) (attributable basis)3,4 .......12,100 – 12,4002
Group sales volume (tU) (consolidated)5 .............................15,500 – 16,000
Incl. KAP sales volume (incl. in Group) (tU)6.................. 13,500 – 14,000
Revenue - Consolidated (KZT billions)7 .....................................620 – 640
Revenue from Group U3O8 Sales, (KZT billions)7 .......................540 – 560
C1 Cash Cost (Attributable Basis) (USD/lb)4,* ...........................$9.00 – $10.00
All-in sustaining cash cost (attributable C1 + capital cost) (USD/lb)4,*.....$13.00 – $14.00
Total capital expenditures of mining entities (KZT billions) (100% basis)8 .............90 – 100
- 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.
- The duration and full impact of the COVID-19 pandemic is not yet known. Annual production volumes could therefore vary from our expectations.
- 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 the annual share of production is determined as per Implementation Agreement as disclosed in IPO Prospectus. Actual drummed production volumes remain subject to converter adjustments and adjustments for in-process material.
- Includes the change in attributable share of production & all-in sustaining cash cost related to the sale of a 49% share in “Ortalyk” LLP to to CGNM UK Limited (a CGNPC subsidiary).
- Group sales volume: includes Kazatomprom’s sales and those of its consolidated subsidiaries.
- KAP sales volume: includes only the total external sales of KAP HQ and THK. Intercompany transactions between KAP HQ and THK are not included.
- 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 2021 revenue could be materially impacted by how actual uranium prices and exchange rates vary from the third-party estimates.
- 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 2021 guidance remains fundamentally unchanged at this time, except for adjustments in the attributable share of U3O8 production and All-in sustaining cash cost (AISC) to account for the sale of a 49% share in “Ortalyk” LLP to CGNM UK Limited (CGNPC subsidiary) in July 2021. 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.
Kazatomprom’s efforts to prevent the spread of COVID-19 and protect the health and well-being of employees and local communities has been successful in maintaining continuity of operations and production capacity thus far in 2021. However, in 2020, the introduction of a state of emergency in the Republic of Kazakhstan and the Company’s four-month suspension of certain activities at its operations, impacted exploration and development activities, which led to a shift in the commissioning schedule for new wellfields. As a result of the shift, uranium production volumes through the first-half of 2021 fell short of internal expectations. As previously noted, in addition to the delayed exploration and development work, COVID-19 disrupted the overall production supply chain, resulting in a shortage of certain production materials, such as piping, which also had a negative impact on first-half production results. Despite these challenges, the Group is maintaining its 2021 production plan and making every effort to achieve it, though final year-end volumes may fall short if the wellfield development and supply chain issues continue throughout the second-half of the year.
Note that the Company only intends 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 using 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 could fall below these levels in 2021 and 2022, due to COVID related production shortfall. As such, during the second quarter, several transactions to purchase material in the spot market were carried out, and the Company may buy additional material in the spot market during the second half of the year in order to keep its inventories within the targeted range and to meet sales commitments for the rest of 2021.
Conference Call Reminder - 2021 Half-Year Operating and Financial Review
Kazatomprom has scheduled a conference call to discuss the 2021 half-year operating and financial results later today, 26 August 2021. 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.
For the English live webcast (participants on the webcast can also submit questions during the event), conference call dial-in details and for information on how to participate in the Q&A, please visit:
For the Russian live webcast (listen-only, no Q&A) and corresponding dial-in details, please visit:
A recording of the webcast will also be available at www.kazatomprom.kz shortly after it concludes.
Original working URL: https://www.kazatomprom.kz/en/media/view/kazatomprom_1H21_financial_results
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