Nuclear Fuel Market: CGN Secures More Kazakh Supply

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Kazatomprom will collect $435 million from a China General Nuclear (CGN) Power Corp. mining subsidiary in exchange for a 49% stake and equivalent offtake in the Ortalyk uranium mines in southern Kazakhstan. This marks a big notch in China's effort to own more primary uranium production, to the tune of an additional 20,000 tons of contained uranium, contingent on a fuel assembly supply certification from the two companies' Ulba joint venture. The deal marks a key step in CGN Mining's "strategy of exploring and acquiring high-quality resources," the company said in a statement announcing the deal. "Based on the mining schedule" of the Ortalyk mines, the agreement is expected to increase "the estimated attributable resources" of CGN Mining "by 85%" from about 23,000 tU, largely from its Husab mine in Namibia, to 43,000 tU (NIW Sep.11'20). Kazatomprom and CGN have since 2014 cooperated on a plan to establish a fabrication plant to supply 200 tons of nuclear fuel assemblies per year to CGN for 20 years (NIW Jan.8'21). The joint venture, Ulba-FA, located at the Ulba Metallurgical Plant in eastern Kazakhstan, last year completed commissioning and licensing of the facility, with the first fuel assemblies expected to be delivered to CGN in 2022. CGN signed a five-year supply agreement in December, but is still completing its certification of Ulba as a supplier, expected by the end of May. Based on that contingency, CGN Mining on Apr. 22 signed a deal for the 49% equity stake in Kazatomprom's Ortalyk subsidiary, which includes one operational mine with 2,000 tU per year capacity and another smaller deposit scheduled to ramp up by 2025. Together, the Zhalpak deposit and the already-operational Central Mynkuduk mine, both in the Shu-Sarysu Basin, are estimated to have about 40,400 tU in total mineral resources including reserves, according to Kazatomprom's estimates. The deal, subject to regulatory approvals, is expected to be completed by Jun. 30. CGN Mining's Ortalyk acquisition and offtake agreement are based on a "market terms" valuation of roughly $9/lb. for roughly 20,000 tU in mineral resources. CGN's offtake of 1,350 tU (3.5 million lbs.) per year would be linked to the spot market price at the time of delivery with a 2% discount. Kazatomprom will retain a 51% interest in Ortalyk (NIW Oct.26'18; NIW Oct.19'18). In 2020, Central Mynkuduk produced 1,305 tU, down by 23% from the prior year in part due to the impact from the Covid-19 pandemic and low uranium prices, according to Kazatomprom's 2020 operational results. CGN said it expects Zhalpak to go into wellfield development next year with a ramp-up to full production from 2023-25, depending on market conditions. Kazatomprom expects to operate Zhalpak for 25 years. Zhalpak has an estimated 31,000 tU indicated mineral resources although the parties are still finalizing measured resources and obtaining a subsoil use agreement with the Kazakh government. Citing a long-term "consensus forecast" of prices at $30/lb. U3O8, "the Zhalpak Deposit scoping study presents positive cash flow," CGN said. "In addition, the per-unit production cost of Ortalyk is lower than" the Semizbay-U joint venture with Kazatomprom, in which CGN also owns a 49% stake. Semizbay-U produced 753 tU last year, a 22% drop from 2019, according to the Kazakh miner's filings. Kazakh output typically enjoys all-in sustaining cash costs around $13-$14/lb. In the spot uranium market, prices continued to tip lower for the third consecutive week (NIW Apr.9'21). One seller that has been on the offer side since last week recently dropped its price from $29.90/lb. to $28.75/lb. The lack of robust buying activity pushed the price delivered by Energy Intelligence's Uranium Price Panel down to $28.79/lb U3O8 on Apr. 22, down from $29.36/lb. on Apr. 15. As prices continued to tick lower, one US utility took advantage of the situation this week with a request to purchase 200,000 lbs. U3O8 for delivery in 2023 and 2024. Awards on that request are said to be at under $30/lb. for the 2023 material and below $31.50/lb. for 2024. Another European utility is also heard to be quietly seeking more than 600,000 lbs. for term delivery. Jessica Sondgeroth, Washington Uranium Price Panel Chg. 4/22 4/15 4/8 4/1 3/25 3/18 3/11 3/4 2/25 2/18 2/11 2/4 1/28 Price ($/lb U3O8) -0.57 28.79 29.36 30.50 31.13 29.90 29.75 27.36 27.50 28.14 28.64 29.33 29.38 29.73 Total Assessments 1.00 11.00 10.00 9.00 8.00 10.00 11.00 9.00 11.00 11.00 11.00 12.00 11.00 10.00 % within 1 StDev 2.73 72.73 70.00 66.67 62.50 80.00 63.64 66.67 54.55 72.73 81.82 83.33 72.73 80.00 Low ($/lb U3O8) -0.70 28.30 29.00 30.00 31.00 29.80 29.45 27.25 27.15 27.80 28.45 29.20 29.00 29.25 High ($/lb U3O8) -0.20 29.30 29.50 31.00 31.35 30.25 30.20 27.75 27.85 28.50 28.75 29.45 29.70 30.00 Variability* -0.02 0.03 0.05 0.15 0.17 0.11 0.07 0.11 0.13 0.07 0.06 0.04 0.06 0.00 *This represents the value of the potential range of conceivable final averages that might

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