Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Kazatomprom, the world’s biggest uranium miner, will extend its current 20% output cut through 2022 in order to help the market for the metal recover, it said on Wednesday.
The company implemented the 20% cut in 2018 to help address an 86% slide in prices since 2007, the result of a market surplus that reached 3,300 tonnes in 2018 and held at 1,800 tonnes last year.
The cut amounts to “a solid 12% of global uranium mine supply”, according to VTB Capital, which reiterated a “buy” recommendation on the stock after the announcement.
The remaining key factor for uranium supply remains a final decision on the restarting of Cameco’s Cigar Lake mine, slated for September
“The decision to keep production similar year-over-year, and extend production curtailment into 2022, is indicative of a global uranium market that is still recovering from a long period of oversupply,” Chief Executive Galymzhan Pirmatov said in a statement.
“We are simply not seeing the market signals and fundamental support needed to ramp up mine development in 2021 and take our low-cost, tier one production centres back to full capacity in 2022.”
The full implementation of the decision would remove up to 5,500 tonnes of uranium from anticipated global primary supply in 2022, with production in Kazakhstan staying similar to the level expected in 2021, the company said.
VTB Capital said in a note that Kazatomprom was sticking to its strategy amid a stagnant demand outlook, “which might help maintain the uranium market balance or a slight deficit from 2020F onwards, compared with the massive surplus prior to 2019”.
The remaining key factor for uranium supply remains a final decision on the restarting of Cameco’s Cigar Lake mine, slated for September, VTB Capital said.
In the base scenario, where the Cameco mine remains idle, the Russian brokerage forecasts Kazatomprom’s free cash flow to equity ratio at 16% next year. A restart would cut it to 14%.
(By Olzhas Auyezov; Editing by Jason Neely and Jan Harvey)
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