Kazatomprom: An Undervalued Leader in a Resurgent Uranium Market

Joint Stock Company Kazatomprom (KAP) presents a compelling investment opportunity, positioned as the world's largest and lowest-cost producer of uranium. Our mid-case scenario projects a target price of 37,783.14 KZT by the end of 2029, representing a potential total return of 61.1% from the last close of 23,456.08 KZT. This translates to an attractive annualized return of 11.5%. This thesis is underpinned by a positive outlook for global uranium consumption, even when factoring in the current business risks.

Our analysis considers a range of outcomes:

• High Case: A price target of 51,780.41 KZT, yielding a 120.8% total return and a 19.9% annualized return.
• Mid Case: A price target of 37,783.14 KZT, for a 61.1% total return and an 11.5% annualized return.
• Low Case: A more conservative target of 25,290.25 KZT, with a 7.8% total return and a 1.7% annualized return.

Historically, Kazatomprom has demonstrated robust growth, with a 5-year revenue CAGR of 29.3% and an impressive EPS growth of 43.7% over the same period. While past performance is not indicative of future results, it highlights the company's operational excellence and ability to capitalize on market dynamics.

Global Uranium Outlook: A Rising Tide

The long-term outlook for uranium is overwhelmingly positive, driven by a global renaissance in nuclear energy. Key factors supporting this trend include:

• Decarbonization Efforts: As nations strive to meet climate goals, nuclear power is increasingly recognized as a reliable, carbon-free energy source. Major economies are extending the lives of existing reactors and planning new builds.
• Supply Deficit: A structural supply deficit is emerging in the uranium market. Years of underinvestment in new mines, coupled with production discipline from major players like Kazatomprom, have tightened supply. This imbalance is expected to widen as demand grows, putting upward pressure on uranium prices.
• Geopolitical Realignment: Western utilities are actively seeking to reduce their reliance on Russian nuclear fuel, creating opportunities for producers in other jurisdictions. Kazatomprom, with its vast reserves and established infrastructure, is a primary beneficiary of this shift.

Current Business Risks

Despite the positive outlook, it is crucial to consider the risks associated with an investment in Kazatomprom:

• Geopolitical and Transportation Risk: A significant portion of Kazatomprom's uranium exports transit through Russia. While the company has been successful in utilizing the Trans-Caspian International Transport Route as an alternative, any disruption to its primary route could impact deliveries and increase costs.
• Supply Chain Constraints: The company has faced challenges in procuring sufficient quantities of sulfuric acid, a key component in the in-situ recovery (ISR) mining process. This has the potential to constrain production growth if not adequately addressed.
• Operational Challenges: Delays in the development of new deposits could impact future production volumes. While the company has a strong track record of execution, these projects are not without risk.
• Sanctions Risk: While Kazatomprom itself is not currently subject to sanctions, the complex geopolitical landscape presents a persistent risk. Any future sanctions impacting the company, its partners, or its transportation routes could have a material adverse effect.

In conclusion, Kazatomprom offers a unique opportunity to invest in a world-class uranium producer at an attractive valuation. The strong fundamentals of the uranium market provide a powerful tailwind, while the company's low-cost production and market leadership position it for continued success. While the identified risks require careful monitoring, we believe the potential rewards, as outlined in our mid-case scenario, offer a compelling risk-reward proposition for long-term investors.