The initial public offering (IPO) of the world’s largest oil producer Saudi Aramco may be on the back burner, but the IPO of its uranium-market equivalent is full steam ahead.
Kazatomprom, the world’s No. 1 producer of the nuclear fuel, on Monday said it would list as much as 25 percent of its equity in London and the Kazakh capital Astana.
The potential listing of a company that accounts for a fifth of global supplies of uranium offers a rare glimpse into a sector dominated by state-owned behemoths, from France’s Orano to Russia’s Rosatom. Kazatomprom, owned by the Kazakh government, is listing as the first major IPO of a wave of planned privatisations.
The company, whose assets date back to the dawn of the Soviet nuclear power industry in the 1950s, offered unprecedented insight into its business in a 689-page registration document ahead of the potential float.
“It’s hugely meaningful for the industry,” said Rob Crayfourd, a portfolio manager for uranium-focused fund Geiger Counter. “It makes the industry more transparent.”
The picture isn’t always a pretty one: the global uranium industry has been under intense pressure since the Fukushima disaster in 2011, which triggered a shift away from nuclear power around the world and a multi-year slump in uranium prices.
A key measure of Kazatomprom’s earnings -- adjusted attributable earnings before interest, taxes, depreciation and amortization -- dropped 30 percent in 2017 and another 30% in the first half of this year.
What’s more, uranium is the focus of a Trump administration probe that could see the tariffs already imposed on aluminum and steel imports extended to the nuclear fuel. Investor sentiment toward companies in the former Soviet Union is shaky amid expectations of further US sanctions on Russia. Kazatomprom highlighted its relationship with Russia’s Rosatom, which is not under sanctions, as a risk factor in its registration document.
“Even if tariffs are coming we do not expect any significant effects to our company,” Kazatomprom CEO Galymzhan Pirmatov said in a Bloomberg Television interview on Monday. “Depending on what steps the government may take in the US, it obviously will affect the market.”
Kazakhstan is a “strategic ally” of Washington, the CEO said, adding that less than 10% of the company’s production is sold to the US.
Kazatomprom announced production cuts at the beginning and end of 2017 in an attempt to stop the rot. This summer, the company also agreed to sell more than a quarter of its 2018 output to a newly formed uranium investment vehicle, Yellow Cake.
"In recent years we have pursued a much more market-centric strategy, shifting our focus from volume to value," said Pirmatov, a former head of Cameco Corp. in Kazakhstan.
The approach has helped spur a rally of more than 30% in uranium prices since a low point in April. Kazakhstan accounts for two-fifths of global uranium output.
The company has amassed more than 11,000 tons of uranium inventories, the equivalent to about half of its annual output. That level reflects Kazatomprom’s policy, the CEO said in the television interview, adding that there is a market misconception that the producer is building huge stockpiles.
Should Kazatomprom sell shares at a similar valuation to Cameco -- the Canadian group that’s the only other major listed uranium miner -- it would be worth about $4-billion to $5-billion. That would value a 25% stake at about $1-billion. Still, while Kazatomprom produces more uranium than Cameco, it may be a struggle to achieve that valuation given concerns over emerging markets.
“This is a rare opportunity to buy into an unparalleled asset," said Kate Mallinson, a partner at Prism Political Risk Management in London. Still, she noted there was "a chance that the listing will be moved to next year" amid lackluster appetite for investment in Russia and Kazakhstan and global equity market weakness.
Kazakhstan President Nursultan Nazarbayev urged IPOs for some of the Central Asian nation’s largest state-owned companies in 2015 in what would be the biggest wave of privatizations since the 1990s.
“This offering could be viewed as a good opportunity to remind external partners that Kazakhstan still has sound and sustainable businesses operating within country,” Pavel Afanasyev, director of the research and analysis center at the Association of Financiers of Kazakhstan, said by email.
Kazatomprom will become the first major state company to sell a stake to investors with fixed-line phone monopoly Kazakhtelecom and airline Air Astana due to follow. The second wave of large assets sales is expected to include oil producer KazMunayGas National Co. and Samruk-Energo, followed by railway monopoly Kazakhstan Temir Zholy and Kazpost.