Kazatomprom: World’s Largest and Lowest-Cost Uranium Producer

Will Thomson of Massif Capital presented his in-depth investment thesis on Kazatomprom (UK: KAP) at Best Ideas 2019.

Thesis Summary:

Kazatomprom is the largest uranium producer in the world (~23% of global primary supply in 2018) and the lowest-cost producer in the industry. The firm operates or has an equity interest in nine of the eleven lowest-cost mines in the world.

Due to the firm’s complex structure, which includes ten asset-level partnerships with equity interests of 30-65%, significant balance sheet value is obscured by IFRS equity method accounting rules for JVs.

At Uranium spot prices and a 10% discount rate, the mines the firm operates or has an interest in trade at a 22% discount to intrinsic value. This valuation ignores industry tailwinds, the firm’s dominant position within the industry and a dividend of up to 75% of FCF going forward.

A more realistic valuation may be $22-24 per share, suggesting the firm trades at a discount to intrinsic value of 38-43%. Kazatomprom is one of a handful of well-established publicly traded uranium firms that have a combination of producing assets, FCF, and a solid balance sheet. Most firms in the industry are either pre-production or exploration firms, creating a situation in which there is not only a potential supply crunch in uranium in the future but also limited supply of investable assets.

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About the instructor:

Will Thomson is currently a Managing Partner at Massif Capital, a value-oriented investment partnership focused on global opportunities in energy, basic materials and industrials. We invest principally in businesses with long lived assets that generate predictable cash flows and require not only capital allocation acumen from management but also a keen focus on operational excellence. Our investment practice is primarily concerned with the nature of risk and value as it relates to protecting, enhancing and deploying the irreplaceable capital of our investors into a concentrated portfolio of economically productive assets.