OPEC Teaches Biggest Uranium Miner How to Handle Price Crash

OPEC Teaches Biggest Uranium Miner How to Handle Price Crash

Kazakhstan, which mines almost 40 percent of the world’s uranium, thinks it has the market heft to function as a one-nation OPEC for the nuclear fuel, Bloomberg writes.

The Organization of Petroleum Exporting Countries, whose 13 members also pump about 40 percent of global output, is an “example” in the way it’s used its size to pursue higher pricing, according to Kazakhstan’s sovereign wealth fund Samruk-Kazyna, which owns the state’s 100 percent stake in uranium producer Kazatomprom.

Already enjoying the advantage of being the lowest-cost producer in the world, Kazatomprom was able to turn a profit last year even after prices collapsed, said Berik Beisengaliyev, the fund’s management board member. It also plans to build its own trading arm to assert greater sway in the market, he said in an interview in Almaty. A decision on an initial public offering of shares in the company is due in the first half of next year.

“Kazatomprom will be actively involved in uranium trading,” said Beisengaliyev, who’s also managing director of asset optimization at Samruk-Kazyna. “It’s possible to gain more influence” over prices, but “it’s not a matter of one day. It’s a lengthy process.”

Kazakhstan, the world’s largest uranium producer, already flexed its might this year, sending prices up 10 percent when it announced plans to reduce 2017 output after a slump last year amid a global inventory glut. OPEC, together with 11 other partners, has also sought to eliminate an oversupply that depressed oil prices, clinching an agreement to pare production during the first half of this year that has helped stabilize crude.

For uranium miners, however, the challenge goes beyond the global surplus that made the fuel the world’s worst commodity in 2016 with a drop of 41 percent. The market has suffered since the 2011 earthquake and tsunami that crippled Tokyo Electric Power Co.’s Fukushima Daiichi power station, shutting Japanese reactors and forcing other countries to rethink nuclear power. Utilities have also shifted to cheaper natural gas for new generators.

Nuclear power will make up an estimated 8.2 percent of global electricity generation by 2026, down from 11 percent in 2017, according to BMI Research. The difficult environment will require uranium miners to secure profit by cutting costs, curbing capacity and divesting non-core assets, BMI said in a report.

Spot uranium has recouped some losses after dropping below $18 a pound last November for the first time in 12 years. It’s traded around $23 last month. Prices are forecast to peak this year at $32.50 in the third quarter, according to the median of analyst estimates compiled by Bloomberg.

Fitch Ratings predicts spot prices will remain “under pressure” until the next decade, failing to recover to $50 for several years. Such a “low-price environment” will only cement Kazakhstan’s status as the biggest miner, it said in a report. The Central Asian country accounted for 39 percent of the world’s output in 2015, with Kazatomprom alone producing 21 percent of the global total, according to the World Nuclear Association.

Kazakhstan first emerged as a major uranium-producing area when it was part of the Soviet Union. All of its uranium is produced by mining operations that are either wholly owned by Kazatomprom or are managed through joint ventures with international partners.

Kazakhstan, which gave up its nuclear weapons voluntarily after the Soviet collapse, also has no atomic power station. Samruk-Kazyna’s Beisengaliyev said “it’s not ruled out” that it will make a decision to build one. President Nursultan Nazarbayev laid out plans for the country’s first nuclear plant three years ago.

But Kazakhstan’s ability to play the role of a uranium OPEC will hinge on developing its own trading operations, Beisengaliyev said.

In Saudi Arabia, the dominant OPEC power, its state oil company is also considering an IPO. Aramco, as Saudi Arabian Oil Co. is known, started operating a trading arm in 2012.

“It’s one thing when we simply sell uranium in the market through some wholesalers, and another thing when you sell yourself,” Beisengaliyev said. “There are prospects in that regard.”

Kazatomprom will be part of the first wave of “strategic assets” that the government plans to offer up for privatization. While details are still lacking, and no decision has yet been made, the authorities are confident about finding the right buyer, according to Beisengaliyev.

“It’s a unique company — it doesn’t matter where it will be placed,” he said. If needed, “investors will fly even to the moon.”

by Nariman Gizitdinov