Interview: Kazatomprom's Batyrbayev on the Trans-Caspian Route and Alashankou

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The world's largest uranium producer has since 2018 worked to secure an alternative transportation route to the west from its primary route through Russia and the Port of St. Petersburg. But since Russia's invasion of Ukraine in February and the ongoing threat of sanctions on Rosatom and its subsidiaries, Kazatomprom has felt mounting pressure to secure a comparable pathway for Class 7 material across the Caspian and Black Seas. Last week on the sidelines of the World Nuclear Association's annual symposium in London Energy Intelligence's Jessica Sondgeroth sat down with Kazatomprom's Chief Commercial Officer Askar Batyrbayev to discuss the company's efforts to not only secure the new export route but to bring down costs as they compare to the well-established St. Peterburg route. (After fighting broke out earlier this week between Azerbaijan and Armenia, Batyrbayev answered one further question via email.) Batyrbayev also provided an update on China National Uranium Corp.'s (CNUC's) Alashankou Uranium Bonded Warehouse and the prospects for Kazatomprom's interest in taking part in a mooted trading hub there.

Q: The big thing is, of course, transport. Everybody wants to know everything about Kazatomprom’s exploration of an alternative route to St. Petersburg due to the ongoing Russian invasion of Ukraine. Could you walk us through the route, where it goes from truck to ship, what kind of approvals are required, and costs, insurance, those kinds of things?

A: It starts like our usual transportation: from the mines using trucks to the closest railway station, where it's trans-loaded to the rail cars to Aktau, the Kazakh seaport at Caspian Sea, where we use ferries that actually load the railway cars. Then the ferry goes from Aktau to Baku, the capital of Azerbaijan. Then it's offloaded from the ferry at Baku and then goes by railway to Poti, a Georgian seaport at the Black Sea. We have to clear customs in Baku and at the border between Georgia and Azerbaijan before it goes to the Poti seaport.

Currently, containers with uranium are in Poti waiting for the vessel, which we charter. There are no shipping lines like we have in St. Petersburg, so we charter the vessel. The vessel comes, picks up the goods and sails very close to Turkish territory to the Bosphorus Strait and on to the final destination, which is either Orano, Cameco or ConverDyn.

Q: So this shipment is currently waiting for the charter vessel?

A: Yes, waiting for the vessel while we will send another batch to make it bigger.

Q: And what is the volume of each batch?

A: We don’t disclose, but one container holds about 13.5 tons and each batch could be up to 150 containers.

Q: So with the next batch, will you double the number of containers?

A: It's always different. It sometimes could be 120-110 containers. Part of it is already at Poti and we are going to send the second half. Once they are combined, the vessel will come at the end of September to pick up the full batch.

Q: And given the brewing conflict between Azerbaijan and Armenia, is there some concern over how that might or might not affect this alternative route?

A: We’re closely monitoring the situation. Currently, the Trans-Caspian International Transport Route (TITR) is not affected, but the situation continues to evolve and potential future risks could limit the availability of the TITR. Although the specific risks are difficult to evaluate at this time, mitigation measures have been developed and are in place. Regardless, we’d like to again confirm that our primary route through the port of St. Petersburg is available and operating. Kazatomprom also has swap deals opportunities, discussions with China regarding the transit of material moving east, and even air shipment options in case both primary and TITR routes were at risk for a period of time. As always, the underlying message is that Kazatomprom is a reliable supplier committed to its contractual obligations and we will put in every effort required to ensure the timely delivery of material to our clients around the globe.

Q: How does the TITR route compare cost-wise to St. Petersburg?

A: It's hard to compare with St. Petersburg because St. Pete is a commercial route. Shipping lines have a fixed cost per container. With this route, we are chartering two vessels. One is a ferry at the Caspian Sea and the second is at Poti, and the bigger the batch, the cheaper the container. It's always a different number of containers, so the cost varies a lot.

We are working hard with all the ports and all the people to see if we can have some kind of shipping line there, but at the moment the Black Sea is not that popular. We can imagine that there could be transport to France, but I mean, transport to Canada or the US is a little bit difficult.

We are considering, at the moment, involving Turkey in the process. If we can get approval from Turkey, we can use a railway from Georgia to Turkey. If we can use that railway, then we can get the shipment to one of the Mediterranean ports in Turkey, and it would be much, much easier to get a shipping line from there.

Q: What is required to secure access to the Turkish ports?

A: We'll have to see if the railway can accept the Class 7 cargo, if it is in good condition, and if they have everything to accommodate our needs, including the security requirements for transportation of Class 7. And how large of batches they can receive.

The next challenge is to verify that any of the seaports in Turkey can handle and store Class 7 cargoes. But as long as Turkey is going to build nuclear power plants, sooner or later, they will come to that.

Q: So you hope to expedite that process for them?

A: We would like to discuss with them. It would put them at an advantage to develop all the documentation, put the legislation in place earlier than they need. That's a future transit for them and additional income that they could be earning.

For us, we would not need to go through the Bosphorus Strait. And access to the Mediterranean Sea is much better than access at the Black Sea. It would also make access to the US and Canada much easier, and everywhere, France, US, Canada. The Mediterranean Sea would also give us much better access to the Suez Canal if we deliver to India.

Q: How would the rates compare to St. Petersburg if you could get Turkish approval?

A: That would have a predictable cost for us. It's hard to compare the cost with the commercial route in St. Pete, but even in St. Pete, because of the increases in fuel costs, we cannot actually get a fixed rate for at least a year. The shipping lines cannot provide a fixed rate for more than three months because the cost of fuel is changing dramatically. It goes up, down, up, down. Very roughly speaking, mine to market cost through St. Petersburg was $1.50 per pound before and now has gone up to $2 per pound.

Q: How does the cost of insurance compare between the routes?

A: Before, we had a fixed rate on the insurance, but now if we deliver through Russia, every single delivery is separately considered, and the rate is given only for the exact shipment. So it also can vary a lot. It depends on the current situation with insurers. They are giving a separate insurance rate for every delivery. In terms of Black Sea it's more or less okay.

There's a lot of speculation that insurance companies will not cover the Black Sea route, but actually we received a letter from our insurance syndicate just after the [Ukraine] conflict broke out. From Poti, where the vessel picks up the shipment and brings it to the entrance of the Bosphorus Strait, very close to the Turkish territory, there are no issues and problems with transportation here and the insurance rate is predictable. We can contract the insurance and they don't change the rate, unlike for the Russian territory where they consider it every time as a different contract.

Q: And you mentioned approvals required from the Trans-Caspian transit countries.

A: Every transit country approves your transportation. We apply in every country to get this transit approval. We get similar approvals from Russia as well. It’s a common thing, for example, whenever you deliver to Cameco, but your discharging port is in let's say Philadelphia, the shipping company gets transit approval to deliver to Canada through US territory. What makes it all a bit complicated is that countries like Azerbaijan and Georgia have little experience in dealing with Class 7 cargo. That’s why we started this work much earlier.

Everyone is already aware that we started to develop these routes after the World Cup in 2018, when St. Pete was temporarily unavailable to Class 7 material. So we went to Azerbaijan and Georgia and we showed them all the relevant documents: that this is natural uranium, it has nothing to do with enriched or weapons-grade uranium, what kind of radiation levels it has, and all the specifications to make them comfortable with transit through their countries and the safety and security protocols that are in place.

We are doing the seventh delivery since 2018, all in smaller quantities. But in April we discussed with the authorities in Azerbaijan and Georgia whether we can move bigger volumes. If we were to divert all shipments from Russia to this alternative route, it still wouldn't be that many containers. We ship about 1,200 containers maximum per year through that route. Altogether that is the size of one ship, so it is not creating a lot of issues for them to ship 1,200 containers total throughout the year.

Q: I hadn’t realized this was the seventh shipment.

A: This is to keep institutional memory alive in these countries. We have been shipping in small batches and the route’s current limit is 3,500 tons and we've probably never used anywhere near that on an annual basis. But the route is capable of millions of tons because it was developed as a part of an intergovernmental project called the Trans-Caspian International Transport Route or TITR, which we will start to refer to it as. The Class 7 cargo is just a fraction of the overall volume of cargo moving on the route, including oil, coal, grain, etcetera, between Europe and China. And because it is an alternative route from the one between Russia and Europe, it is getting more traffic now.

We will still be using St. Petersburg, as long as there are no restrictions and it’s open. We would like to keep all options available to us.

Q: On that subject, what is the contingency plan if sanctions are imposed on Russia, what does Kazatomprom do with its joint venture partnerships with Russian entities?

A: With Rosatom we have five joint ventures. As far as how the sanctions work, the secondary sanctions would hit companies where the sanctioned company has 50 percent or more of the ownership share. So two of those JV companies would not be affected and three could be potentially affected. For these three companies, we would be discussing with JV partners in Rosatom how we can change the structure. Because it's not in our best interest, nor in their best interest to disadvantage both parties.

Q: Are those talks active?

A: Generally speaking, we'll be as proactive as we can but we're not getting governments together until there’s something material to discuss.

Q: Thank you. And then on Alashankou, do you have a status update on the progress there? I’m curious whether there might be an interest available to Kazatomprom if a trading hub is developed.

A. Our interest is obvious, it's on the border between China and Kazakhstan and if we just compare how much cargo is passing through that single railway station, the amount of uranium cargo is much bigger than anywhere in the world. The Chinese companies are starting to create infrastructure and additional storage areas for themselves. They have completed the first stage. You'll have to confirm with CNUC, but I believe they've already completed 3,500-4,000 tons of storage for their internal use and that I think they've already filled.

Next year they will increase it almost four times; the second stage is 13,000 tons storage to be constructed in 2023. Then we will see if they will use it as a trading hub and how it'll work. What will the taxes and customs look like? We are not yet sure. But once we can travel to China and meet our partners, that's something we would be looking into. Because of the huge turnover of the material, having a trading hub there makes a lot of sense. But again, we will have to see how it'll work within Chinese legislation. That's still not yet clear, but having a fourth location, beyond ConverDyn, Orano and Cameco – of course it's not a conversion plant – if it could be used as a trading hub, that would be very interesting to see.

Q: And regarding supply chain issues, like sulfuric acid supply that had impacted not just Kazakh production but uranium production generally, how are you mitigating those?

A. I think all these issues started with the Covid-19 pandemic and whenever China closes any borders or provinces, the internal transport in China stops and it affects the rest of the world. In terms of sulfuric acid, there was a shortage at one time, but it wasn't very big and we have inventories of sulfuric acid and we have our own sulfuric acid plant that meets roughly half our needs, so that helped us to overcome that period. And the company is evaluating increasing capacity at that plant or building another.

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