Concerns in Kazakhstan

JV Budenovskoye LLP Challenges & TQZ Acid Plant Financing Announcement

In the last 48 hours, two pieces of information have come across our desk and we feel that our readers need to be aware of them.

One of the challenges we face at Golden Rock is trying to amalgamate and synthesize our views on a wide number of issues in the uranium and nuclear fuel cycle. The platform we are attempting to build is just 17 days old. But, in our head, we have so many thoughts and ideas we want to share with readers, it is overwhelming at the moment. Nonetheless, our goal is to systematically march forward across subjects that readers need to know and understand: supply, demand, mines, development projects, costs, procurement strategies, the interplay of spot/term (and as a result, the carry trade), and the list goes on.

The topic we want to address today is Kazakhstan. It is well known that they are the largest producer of uranium in the world today. We did our first Deep Dive on Kazakh supply as we feel it is an excellent primer on who operates there, what the JVs are, what the assets are and what we think is a reasonable forecast for production. We encourage readers to take the time to read it if you have not already. You can access it here: Deep Dive #1: Kazakhstan Supply

As an analyst and investor, one of the biggest challenges we face is being open about our own biases. We feel it is perfectly okay to have them, but you better be aware of them too. One of our biases is that we have been wildly unimpressed with Kazatomprom for a number of years and our gut instinct about this company has been correct. Most succinctly, we feel company produces too much uranium and they opted to drain a national resource at the bottom of the uranium cycle. Let us be clear: we believe we remain in the early innings of a uranium market revival that will last many years and be highly volatile.

Source: Kazatomprom Reports, Numerco Markets

Imagine thinking it is a tremendous idea to ramp uranium production after the Fukushima incident where 13% of global reactor consumption was effectively closed overnight in Japan. We recognize that we are from the West and they are not. We recognize that we grew up in a capitalistic system where profit-maximization is the core value over a Soviet system where production-maximization is the core value. With that said, the company’s strategy over the last 15 years has been next level stupid.

We recognize that the company has taken a public “Value of Volume” strategy. They illustrate it graphically below:

Source: Kazatomprom April 2025 Investor Handout

While we commend the company for scaling back its absurd production targets beginning back in 2017, it has been too little, too late. The end result of this horrendous strategy is a primary uranium mining market that has been dominated by Kazakh production and global utilities (ex-China) sitting back believing the world is their oyster and producers exist for one reason, to supply them with their U3O8 feedstock whether the suppliers can produce free cash flow or not. This has devastated western, market-based supply developments. The evidence is clear, as Cameco, the largest western miner remains in supply discipline even in light of cycle high term contracting prices today.

If you are an investor in this industry, you have actually been rooting for this dynamic to play out to date. And it has. Kazakhstan cannot continue to grow its production to 70M-lbs, 80M-lb, 90M-lbs forever. Their production rates and as a result, the comfort they have given global utilities mean that western development projects have been pushed back year after year after year. Now, in 2025, the rubber is meeting the road. The industry is waking up to a brutal reality. For the first time in civilian nuclear power history, the market is shifting from being inventory-led to production-led in uranium, conversion, and enrichment. This will have staggering economic consequences to an industry whose procurement strategy remains too conservative.

Let us be clear: this is the most exciting time for investors in the nuclear fuel cycle in human history. When is the last time you witnessed an industry, that supplies 11% of global electricity, shift from a pricing regime of stockpiles that exist above ground to one where the resource needs to be profitably extracted from below ground? There is no past analog for the dynamics that are unfolding today.

This brings us back to the Kazakhs, who have played a key role in delaying this transition by producing too much, for too long. Had the Kazakhs been more restrained, the industry would have rebalanced post-Fukushima much faster and allowed for production-led economics to begin setting the market price. Instead, a protracted and somewhat painful rebalancing has taken place with utilities believing they can no wrong and prices will remain relatively tame, no matter what happens with market fundamentals. Said differently, utilities have learned the exact wrong lesson at the exact wrong time.

As we wrote at the start, there are two pieces of information we want to highlight today. First, on Monday, May 12th, InBusinessKZ reported that JV Budenovskoye LLP’s Budenovskoye 6 + 7 project is showing a significant delay in field development amid possible disputes among shareholders over the choice of contractor. The JV, owned 51% by Kazatomprom and 49% by Stepnogorsk Mining & Chemical Combine (SMCC which is in turn owned by Uranium One/Rosatom) did not fill the Subsoil Use Agreement production volumes at Budenovskoye 6 & 7.

The article notes that the JV bypassed the traditional pilot testing of the wellfields that is usually practiced at new sites and according to Kazatomprom data, the site produced 617tU or 1.6M-lbs for in 2024 (Golden Rock models the mine to produce 2.0M-lbs in 2025).

Several years ago, Kazatomprom announced plans that in 2024, the JV was expected to produce 2,500tU or 6.5M-lbs followed by a jump to 4,500tU or 11.7M-lbs in 2025. The LoM plan called for an increase to 6,000tU or 15.6M-lbs by 2026. Obviously, production rates are nowhere near these levels.

Last fall, it was reported that the shift in the production schedule was due to continued sulfuric acid shortages and lagging wellfield development. In our first Deep Dive, we covered Kazakhstan supply through 2030 and wrote the following about the JV.

Source: Golden Rock Research, Deep Dive #1: Kazakhstan Supply, May 1, 2025

The InBusinessKZ report goes on to detail the issues surrounding the choice of contractor between Kazatomprom and Rosatom:

“In 2023, the start of drilling operations to prepare wells was disrupted, and the reason is quite banal: the management of Uranium One, representing the interests of the Russian Rosatom in matters of joint venture management, got "bogged down" in discussions about the choice of a contractor. The Budenovskoye production program requires large-scale drilling volumes, which have not yet been carried out in Kazakhstan within the framework of a single project, which means that an experienced, professional contractor is needed. As far as I am familiar with the situation, the work program was initially set and approved for Volkovgeologiya JSC (a 100% subsidiary service company in the structure of Kazatomprom. - Ed.) , which is exclusively engaged in drilling and related work. However, Uranium One literally “pushed through” the decision to involve an unknown and, in fact, new company on the market - Joint Drilling LLP (now Drilling Company, a subsidiary of Uranium One Group, part of Rosatom), in the project, the amount of tax deductions for 2024 – 2.9 billion tenge. – Ed.) Industry practice shows that such situations are often explained by the personal interests of those who make such decisions; here you can also look for the root of the problems of the joint venture,” an expert source told the media.”

This update on JV Budenovskoye is another pearl in a long string of “odd” things that happen in the world of Kazakhstan uranium and reiterates to Western investors that business in Kazakhstan remains a world apart from the West. While the uranium market has been aware of development issues at the JV, we are unsure how many knew (including us) that one of the key reasons for the wellfield delay was a dispute over a contracting firm. Given the lengthy timeline to conduct and complete wellfield development, coupled with the continuing shortage of sulfuric acid, it is not clear to us how quickly the JV can get moving. As we stated in our Kazakh supply piece released on May 1st, we do not feel that we have unique insight at a project, but the context of the issues is apparent and concerning.

We will closely monitor developments as we learn about them.

The second piece of information came across our desk in the form of a press release (PR) from Kazatomprom yesterday morning, May 13th, where the company announced, “Kazatomprom Updates on the Sulphuric Acid Plant Project”.

In it, they state, “National Atomic Company “Kazatomprom” JSC announces that Development Bank of Kazakhstan JSC and Taiqonyr Qyshqyl Zauyty LLP (TQZ) concluded an agreement on opening a credit line to finance the construction of the sulphuric acid plant with a capacity of 800 thousand tons per year in Taikonur, Turkestan region.”

The PR goes on, “The total cost of the investment project is about 113 [billion] tenge, the amount of loan financing from the Development Bank of Kazakhstan is expected at 85 [billion] tenge. The participants of TQZ are Ballestra's Kazakh partner, the licensor and supplier of technology and equipment, with a 60% ownership interest and Kazatomprom-SaUran LLP with a 40% ownership interest.

The project will make a significant contribution to the economic and social development of the region, attract additional investments, contribute tax revenues to the local budget, create new jobs – up to 500 people will be involved in the construction of the facility, and about 270 specialists will be involved in operation.

The plant is scheduled for completion in the first quarter of 2027.”

By now, it is well known that Kazakhstan has faced a shortage of sulphuric acid, a key ingredient in ISR (in-situ recovery) mining. To the company’s credit, they lay out the dynamics in their latest corporate presentation. We also understand that EuroChem, the Russian fertilizer company, is constructing an 800Ktpa plant in Kazakhstan where about half of its output would be allotted to KAP with the intent of being online by the end of 2025. We will continue to monitor this development.

Source: Kazatomprom April 2025 Investor Handout

On a standalone basis, the PR on the financing of TQZ seems rather innocuous. However, on May 1st, during Cameco’s Q1 2025 conference call, a question was asked about the TQZ plant with the Vice President of Investor Relations, Cory Kos, responding.

Source: Cameco Q1 2025 Conference Call Transcript, May 1, 2025

So, Cameco publicly discusses that “we haven’t seen any indication that an agreement’s been signed to go ahead and build an acid plant” and miraculously, 13 days later, Kazatomprom announces that a credit line financing the construction has been signed?

Could we be reading far too much into the timing? Absolutely. But, given the history and context, we cannot give the benefit of the doubt to Kazatomprom. This looks and feels like the company was publicly called out and they felt they needed to do something as soon as possible to address it. Again, we have no proprietary insight into any of these dealings and it could simply be a giant coincidence, but the set up and timing makes us wonder, why are seeing this now? It is not as if the sulphuric acid issue is new. This has been an ongoing problem for the better part of two plus years.

In many ways, we feel that Kazatomprom is now the ‘Ghost of Christmas Future’ for global utilities. For those whose reference this passes over, the GoCF is a fictional character is Charles Dickens’ “A Christmas Carol” who represents the potential consequences of Scrooge’s (the protagonist’s) current behavior.

The concern for utilities should be, has Kazatomprom given us a false sense of production security? Will their production decisions, which has greatly impacted western market-based miner and developer plans, come home to roost in the future via structural deficits just as the market is shifting from an inventory to production led market? Obviously, we think readers can deduce our view.

Even if their production on a 100% basis works its way towards or above 80M-lbs in the early 2030s, the uranium market will still be woefully undersupplied. Meanwhile, our reactor demand estimates remain conservative, especially in China, where we model only four new reactor builds (~4GWe’s) per year while China is now running at ten new builds per year for the last four years. We will see if they decide to slow down or not. On top of all this, western countries are waking up from the multi-decade slumber in nuclear reactor construction. Who wants to be Germany and deindustrialize at a time when the world is deglobalizing and reindustrializing? Absolutely nobody, except for Germany apparently.

With all this said, we are not forecasting a major slump in production from current levels. We encourage readers to review our forecast in “Deep Dive #1: Kazakhstan Supply”. But we are concerned about the decision-making process within the ranks of Kazatomprom management, who is making them and how fast can they be made? If we are directionally accurate that the company is somewhat rudderless in its decision-making process from management, the impact on future market developments remain underpriced.