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Art Hyde Profile picture
@JekyllCapital
Nov 12, 2021 • 7 tweets • 4 min read • Read on X
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1/ Some quick takeaways from this morning's @NAC_Kazatomprom management call with new CEO Mr. Mazhit Sharipov. Note that due to the Russian to English translation, some of the transcript is choppy.

#uranium #nuclear #nuclearpower

kazatomprom.kz/en/media/view/…
2/ First, the Sharipov opens by clearly stating that their strategy of value over volume will not change and cuts will continue as planned. They are also seeing supply chain impacts to their production and cost base. Also seeing tightening supply and increased customer interest.
3/ While not many details were disclosed on today's China term contract news, they remain comfortable with market related pricing today (i.e., remain bullish price). Will consider hybrid fixed / market contracts in future but need higher prices to make them comfortable
4/ Re: Anu physical fund - opportunity driven by investor interest outside the U.S. and Europe. Listing and buying strategy will be driven by manager - they are a passive investor. Storage will begin at existing converters (so doesn't seem connected to Alashankou at this stage)
5/ In response to repeated questions on bringing production back faster, management is clear that the ship has already sailed from a budgeting and operations standpoint. Currently focused on opportunities 2024+ and no decision made on that production yet.
6/ No plans to increase free float above 25%. Government views their investment as a strategic asset of the state. Does seem like they have worked on a western listing but are balancing cost and operational complexity of quarterly reporting. Seems like this is a work in progress.
7/ Overall a solid call from the new management team - continue to stay disciplined, focus on customers and execution. They understand supply and demand and remain leveraged to a improving market. They have a good handle on the macro and are focused on investor value creation.

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More from @JekyllCapital

Art Hyde Profile picture
Jul 10
My 2c on $KAP this am… #uranium

(1) effective MET tax rate jumps from 6% in 2024, to 9% in 2025 and ~10.5% in 2026 on a blended basis - all things equal will hurt EBITDA but less significant when you net against corporate level taxes

(2) bad for JV partners - if you look at KAP's asset base, all of the largest assets are JVs.  This means that KAP's majority owned assets won't see a huge shift in taxation but JVs with Cameco, Orano and Rosatom / Uranium One are going to get hit pretty hard (Russia's new Bud #6 mine will be an 18% tax when ramped - pretty punitive to the Russians). 

(3) This is another sign to U.S. and European utilities that the cost curve is moving higher globally and that non-western partners can shift the state of play in unpredictable ways.  Think western production continues to be viewed as a premium product for this reason. 

(4) would not be surprised to see production rebalanced across KAP assets to minimize the impact - i.e., where possible assets will produce just below the threshold which would trigger an increase in taxes - they have two years to do this and any flexibility in subsoil agreements will be exercised. 

Net-net does make them less likely to greenlight / invest in larger projects in the future and incentivizes them to slow their ramp up in 2026 / 2027.  High level conclusion is that this is good for western producers and developers broadly with the caveat that Cameco's cost of production from Inkai just increased and so could be viewed negatively as Inkai have historically been their lowest cost pounds - will be interesting to see how Cameco reacts to the change on their upcoming earnings call…
Some further thoughts after speaking with $KAP this morning.

First - the change in tax code actually brings the #Uranium tax regime in line with the oil and gas sector whereas uranium extraction had a significantly preferential treatment previously. It does not feel like the government is targeting the uranium space specifically, but rather thinging it in line with other extractive industries.

See article 743 in the tax code: adilet-zan-kz.translate.goog/rus/docs/K1700…Image
Second, there is a chance the new #uranium tax regime will be applied at the subsoil use agreement or block level rather than the JV level. This could have a significant impact on the average MET tax rate for $KAP and will impact each JV differently.

If you look at a worst case scenario using 2023 numbers, you get to a ~10.5% tax rate across the company (picture 1 below) but if you actually apply the tax thresholds at the subsoil use agreement level, you will get substantially lower tax rates for JVs which operate under multiple subsoil use agreements (breakdown in picture 2).

For example, SaUran produced 1,070 tons in 2023 which would put it in the 9% tax rate at the JV level, but they have two subsoil use agreements meaning, if applied at that level the tax rate could be much lower than 9% (a 4% and 6% split for example yielding a net decrease in taxes for the asset vs. 6% today).

The company is seeking clarification on this from the tax authority and hopes to have updated disclosure and guidance by the August earnings call. If applied at the subsoil use level this looks all the more punitive for large assets with a single agreement like Budenovskoye 6 & 7 which will have an 18% tax rate when ramped.

kazatomprom.kz/storage/98/uk3…Image
Image
Read 4 tweets
Art Hyde Profile picture
Apr 27, 2022
London has been beautiful for this week’s @WorldNuclear Working Group meetings - learned a lot as always.

World #Nuclear Fuel Cycle meeting kicking off now with Treva from @U3O8TradeTech discussing #uranium fundamentals with @cameconews @Oranogroup @NAC_Kazatomprom
Jason Murphy from @ConstellationEG giving a great talk on the company’s #nuclear fleet - very impressive stats all around. Emphasized that the company intends to pursue life extensions to 80 years for the whole fleet. Also- contracting strategy starts 6 years before any reload!
Favorite quote of the day so far: “we don’t live in the spot market like some others do. I’m not sure how those guys sleep at night”… long term contracts with reliable partners is the name of the game. Also strategic inventories are clearly important for a fleet of their size.
Read 7 tweets
Art Hyde Profile picture
Mar 1, 2022
1/ Lots of folks asking about @NAC_Kazatomprom $KAP today given it's relative underperformance vs. the broader #uranium sector - a few short thoughts.
2/ First, today's sharp drop and brief halt was triggered by a shift in GDR treatment by a number of major western banks. Goldman Sachs told us they could no longer accept London GDR orders due to uncertainty with respect to ongoing settlement of Clearstream and Euroclear.
3/ Several other banks told us the same. It was triggered b/c many Russian GDR orders were at risk of not clearing due to market closure in Russia. Despite $KAP not trading in Russia, it (& many other London GDRs) were suddenly prohibited from trading in cash (swaps unwind only)
Read 6 tweets
Art Hyde Profile picture
Nov 7, 2021
Just touched down in Savannah, GA for the @NEI International #Uranium Fuel Seminar, the #nuclear industry’s first in person conference in almost two years. Should be an interesting few days… stay tuned for updates!
Pretty direct messaging from Kazatomprom $KAP to kick things off. Major focus on security of supply and the need for committed long term contracts to drive #uranium production decisions. ImageImage
$CCJ follows with a similar theme - where are the pounds going to come from? Talking about long term market health, incentive structures, risk adjusting future supply assumptions and issues with prod cost comparisons. Know @FootnotesFirst is going to like the title… ImageImage
Read 9 tweets
Art Hyde Profile picture
Sep 14, 2021
1/ Some brief thoughts on $SPUT / $U-U and why it trading lower on today's open is a good thing for #uranium -- Yesterday's daily update showed that #Sprott did not purchase material or issue units.
2/ This confounded some investors, given the close to 30% premium of the vehicle...

There is a simple explanation: While updating an ATM, it is common to have limitations on market activities.
3/ While the new base shelf prospectus hit Friday, the company did not file an updated sales agreement and confirm the ATM until post close yesterday (see attached).
Read 8 tweets
Art Hyde Profile picture
Jan 22, 2021
1/ A thread on Nexgen’s Arrow & the #uranium cycle ($NXE)
2/ Given the scale and cost structure of Arrow, it makes sense that investors are intensely focused on its delivery timeline. This thread will discuss possible timelines, current market expectations (i.e., what’s “priced in”) & how different Arrow scenarios will impact the mkt.
3/ As you can see from the litany of responses to Michael’s tweet, there is great skepticism in the market regarding Arrow’s timeline. This is largely due to a bearish narrative conveyed by competing CEO’s whose assets only hold value if Arrow is substantially delayed.
Read 28 tweets

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