Making money on uranium: what investors need to consider when buying Kazatomprom shares

The global uranium industry in 2025 is showing signs of recovery after a protracted crisis of nearly a year and a half. The spot price of uranium has risen 20% from its March lows, and is now around $75 per pound. 

Uranium prices are being pushed up by geopolitical factors - in May 2024, the U.S. banned imports of Russian low-enriched uranium. The current escalation of conflict between Iran and Israel has also caused uranium prices to rise due to supply concerns and rising oil prices;

Meanwhile, demand for nuclear fuel is also on the rise. Energy consulting firm Thunder Said Energy predicts it will increase from 165 million pounds in 2023 to 230 million pounds in 2030. 

One of the root causes is the AI revolution. Data centers need stable energy sources - nuclear plants are benefiting from this. In addition, we can talk about a «political turn» towards low-carbon nuclear power  governments and development banks have started to more actively encourage its development. A January report by the International Energy Agency said that some 63 reactors with a capacity of more than 70 gigawatts are under construction, one of the highest levels since 1990;

Investor interest in physical uranium is also increasing. For example, asset management company Sprott plans to buy 2.67 million pounds of uranium for $200 million for its SPUT trust - that's 1.33% of projected global demand in 2025. For the uranium spot market, this is a significant amount of volume, especially from a non-energy player. Such purchases have a tangible impact on the price and exacerbate the supply shortage.

This year, the uranium supply shortfall will be about 7%, and by 2030, demand will exceed supply by an average of 5%, and that's in the absence of any supply disruptions, predicts Thunder Said Energy.

The supply is limited by years of underinvestment in the industry and the deliberate creation of a «deficit» by leading miners, as they tried to balance supply and demand in the market. For example, Canadian mining company Cameco in January 2018 suspended production at the world's largest uranium deposit McArthur River and the Key Lake processing plant until 2022, citing weak market conditions and oversupply. 

One of the main players in this market is Kazakhstan's national nuclear company Kazatomprom. Since 2009, the country has held the first place in the world in natural uranium mining, and the company as a national operator is the world's largest uranium producer;

It will account for about a fifth of the world's uranium production in 2024. The company develops all deposits using the in-situ leaching method, which provides it with a low cash cost of production (C1, includes only operating costs) of $16.59 per pound by the end of 2024;

According to TradeTech, the average cost of uranium mining (C3, reflecting the full cost of production) in the global industry is approximately $58.4 per pound based on data through the end of 2024. 

Interestingly, Kazatomprom's securities combine the qualities of value and growth stocks. On the one hand, it has a stable business with low costs and high cash flow, and pays large dividends. On the other hand, it has significant upside potential in production and earnings as the uranium market strengthens;

At the end of Q1 2025, the company's uranium production rose about 9% year-on-year to 2.96 thousand tons, 22% of the annual plan. But sales for the same period amounted to 17-18% of the annual plan, they lagged behind due to the schedule of shipments under contracts;

The company generated 214 bln KZT ($419.3 mln) of revenue in the first quarter, 21% higher than a year earlier. Kazatomprom's average selling price for the reporting period was about $55 per pound, 20% below the average spot prices for the first quarter - the company continues to ship products under long-term contracts tied to the spot price of uranium and concluded back in the period of low prices. However, according to its materials, it expects that the sales situation will level out in the next quarters, and long-term contract prices, considering spot market dynamics, will remain at $80 per pound;

For 2024, the company almost doubled its net profit to KZT1.13 trillion ($2.4 billion). This was due to an increase in operating margin, as well as consolidation of a new asset - Budenovskoye (a subsidiary of Kazatomprom and Rosatom's Stepnogorsk Mining and Chemical Combine). The company's profitability is at a high level: net profit is more than 30% of revenue, and ROE is approximately 35%.  

Traditionally, the company allocates at least 75% of free cash flow to dividends. At the end of 2024, its board of directors recommended to pay about KZT328 bln of dividends, or KZT1.26 per share.

Such performance puts Kazatomprom among the most profitable companies in Central Asia. In addition, it operates only in the uranium market, giving investors a rare opportunity to get direct exposure to the growth of nuclear energy.

Its securities closed at $43.55 on the London Stock Exchange on June 18, trading near yearly highs. They have added more than 15% since the beginning of the year.

But the potential for further growth in Kazatomprom's capitalization will largely depend on whether the positive expectations for the uranium market in the coming years come true.

Evaluation by multiples of the company does not give an unambiguous picture. On the one hand, its market capitalization is almost 3.8 times higher than the book value of assets. This indicates that investors have already put a significant premium in the share price for Kazatomprom's unique resources and profitability.

On the other hand, JPMorgan values it with a forward-looking EV/EBITDA multiple of 5-5.5x. This multiple shows how the market values the company relative to its expected earnings before interest, taxes and depreciation. For comparison, the average EV/EBITDA multiplier for the uranium industry (based on 12 companies, excluding Kazatomprom), according to LSEG, is 20.7.   

Such discount is partly explained by country specifics - it is Kazakhstan issuer, which has lower liquidity than its western counterparts, as well as by investors' concerns about risks;

Like any commodity enterprise, Kazatomprom faces a number of risks that investors need to consider:

- The company's profitability depends entirely on uranium market conditions. If uranium prices decline, its revenues and cash flows will be significantly reduced. Even at the lowest costs, a prolonged price downturn could limit the ability to generate profits and dividends.

- About 80% of the group's revenue is denominated in dollars, and over 70% of expenses are denominated in tenge. The strengthening of the tenge or sharp fluctuations in exchange rates may negatively affect margins and financial results (although the company has some insurance against currency fluctuations through dollar-denominated revenues and borrowings).

- The controlling stake (63%) in Kazatomprom is owned by Kazakhstan's sovereign fund Samruk-Kazyna. The state as a majority shareholder can influence the strategy and profit distribution of the company in the interests of the national economy. There is a risk that the interests of the state shareholder (for example, it may need money for social projects) will not always coincide with the goals of minority investors to maximize profits and capitalization.

- Kazatomprom has several joint ventures with Rosatom, which provide more than 30% of the company's attributed production. As a result, the company's activities may indirectly affect the intensification of geopolitical tensions between the U.S. and Russia, JPMorgan warned. In addition, a significant portion of exports have traditionally transited through Russian territory. However, the company is already diversifying routes (for example through the Caspian Sea), and both routes are currently in use. In 2021, 14% of shipments were going by the alternative route, while in 2023 it will be already 64%. 

- The company needs a stable supply of sulfuric acid due to in-situ leaching. Interruptions in the supply of reagents can slow down the production process. This has already occurred in 2021-2022.

Nevertheless, if Kazatomprom continues to demonstrate operational efficiency and keep minority shareholders as a priority, the market may re-evaluate its discount. There are not many public companies giving net exposure to uranium on the world exchanges. Apart from Kazatomprom, these include Canada's Cameco, China's CGN, several smaller players and project companies;