National Atomic Company Kazatomprom JSC (KZAP) Earnings Call Transcript & Summary

Good afternoon, and welcome to Kazatomprom's conference call to discuss the company's first half 2020 operating and financial results. My name is Corey Kos, Director of Investor and Public Relations and thank you for joining us today. [Operator Instructions] And this call is being recorded. Our call today will begin with a presentation, followed by an opportunity for investors to ask questions. Due to the challenges of remote access related to the COVID-19 pandemic, the technical side of today's call is a little different than our previous calls. The remarks and the Q&A will be in English only, with a Russian translated transcript posted to the Kazatomprom website in the -- in coming days. If you joined through the Kazatomprom website or through our company page on the London Stock Exchange website, note that there will be slides displayed during the remarks. These slides are also available for download in the PDFs referred to as 2020 first half conference call slides. Webcast also now allows participants to ask questions at any time by typing into the chat box in the top left corner of the screen. Those questions will be asked and addressed following the live Q&A on the line. Upon completion of the remarks, an operator will provide those who called in to the Russian, European and North American numbers with instructions for joining the live audio question queue. Stakeholders who called in to the local Kazakhstan bridge are in listen-only mode, so if questions arise, we ask that you either type your question into the webcast chat box or follow up directly with the Kazatomprom investor relations team following the call. Note that our press release, full version of the operating and financial review, along with our reviewed unaudited first half 2020 financial statements, are now available on Kazatomprom's website. Participating in today's call, we have Galymzhan Pirmatov, Chairman and Chief Executive Officer; Meirzhan Yussupov, Chief Financial Officer; and Riaz Rizvi, Chief Commercial Officer. This call is open to all stakeholders, with the question-and-answer portion being intended as an opportunity for members of the investment community to ask their questions. The conference call may include forward-looking statements. These statements include all matters that are not historical facts. By their nature, forward-looking statements involve risk and uncertainty, and they are not guarantees of future performance. The company does not make any representation, warranty or prediction that the results anticipated by such forward-looking statements will be achieved. I will now turn the call over to Galymzhan.

Thank you, Corey. And good morning, good afternoon and good evening, everyone. Thank you for joining us today to discuss Kazatomprom's 2020 half year operating and financial results. On today's call, I will be touching on the current uranium market environment and briefly discussing the key areas of interest from our first half results. However, the most important first half development that is on everyone's mind is undoubtedly the global COVID-19 pandemic and its impacts on Kazatomprom's operations. First and foremost, our company's priority throughout these difficult past few months has been to ensure we're doing everything we can to support our employees and keep them safe and healthy, along with their families and the communities where we all live. In April, as the virus began to spread in Kazakhstan, we took early action by sending corporate employees to work from home and reducing the number of staff on site at our operations. Initially planned to be for 3 months, we extended the measures by a month through July to ensure employees were protected. At the same time, we began implementing standardized disinfection processes and social distancing at our sites, with minimal shift changes and testing of employees prior to allowing them to work. We also spent a great deal of time developing business continuity plans to guide how the company would react in a variety of scenarios. These included plans and training or working with local health authorities if outbreaks occurred in the communities near our operations and for dealing with COVID-19 cases if they were to occur at our operating sites or offices. With those plans in mind, along with the close monitoring of local restrictions, recommendations and medical system capacities, we began gradually returning staff to sites at the beginning of August. As of today, we have resumed both exploration drilling and mined well field development work, with staff levels at the operations back to normal levels. As we previously advised, these measures did not impact the production volumes for the first half 2020 results, which as you can see were similar to the first half of 2019. This was as expected due to the nature of the in situ recovery mining method, which is how all of Kazakhstan's uranium is mined. In the past, we have spoken of the various advantages of ISR mining, including its inherent environmental and safety benefits, but it's worth taking a few minutes to explain how ISR works from a technical perspective: An ISR mine starts with the drilling of injection and withdrawal wells, in which a low-PH solution, referred to as production solution, begins circulating through the underground mining blocks in a closed loop. The solution dissolves the uranium in the blocks and carries it to the surface for extraction. The fluid is then pumped back down into the ground to develop more uranium. However, as uranium is produced and less and less uranium is therefore available to dissolve in the ground, the uranium content in the solution falls over time. In order to maintain a steady rate of production, new mining blocks must be constantly developed to maintain the head grade. There is a lag between development activity for a new mining block and uranium production from that block. When we decreased staff on our sites and all drilling work stopped for 4 months, it meant that there will be delays in new planned blocks coming on to replace gradual depletion. In other words, the planned well field drilling that was to take place in April through July is only now being drilled and tied together prior to having the production solution being circulated prior to beginning of active mining. As shown on the slide, the time from initial drilling to first production varies, depending on a number of factors, but the lag is in some cases up to 8 months. As a result, the impact of our reduced activities will be seen in the second half production, while the continuation of that impact into 2021 is not yet known. As per previous guidance, all of which remains unchanged from our recent trading update, we now expect on a 100% basis to produce about 19,000 to 19,500 tonnes of uranium. That is down from the original 2020 plan of 22,750 with 22,800 tonnes of uranium, which was already a 20% reduction against 2020 subsoil use contract levels. With the additional reduction in 2020 stemming from our actions to protect our people, we expect to be more than 30% lower than the expected levels originally set forth in our subsoil use contracts for this year. Moving on to the market picture. The theme of uncertainty continues to dominate. However, the general sense is that there has been a shift in sentiment from participants wondering when the market will transition to uranium prices that support current and future productions to now talking of how soon the transition will take place. The uranium market saw prices rise following the initial announcement of COVID-related supply impact, with intermediaries and some producers entering the spot market, creating demand, which resulted in prices increasing to $34 a pound. This reflected the need for producers and some of their customers to replace lost production resulting from COVID-19. The activity has a record for quarterly volume transacted with about 10,500 tonnes of uranium in the second quarter, nearly 3x the volume in quarter 2 of 2019. Notably, there has been very little buying activity from end user utilities who are far more focused on maintaining, managing their nuclear plants for the pandemic. The market is only now starting to see some buying interest from utility customers, with many on both the supply and demand sides recognizing the supply-side disruptions in the first half of the year has had a very real impact on the supply-demand picture, but with the uranium spot price settling back down to about $31 due to inactivity over the summer months and term price having barely moved at all, the market is still far from what we believe to be a long-term sustainable price. Following our value-over-volume strategy, we took the decision announced last week to continue flexing production down by 20% compared to the original subsoil use contract levels for 2022. Turning to our business and achievements so far in 2020. As is always the case, we are focused on the year and not the interim period, but we did see some key first half highlights. In addition to sticking to our strategy and delivering improved cost metrics, in June, we paid to shareholders our second dividend as a public company. Based on our dividend policy, the payment was for over KZT 99 billion, which well exceeded our IPO commitment to pay out a minimum of USD 200 million equivalent in 2020. Going forward, the dividend will continue to be calculated based on our dividend policy. In March, we sold all but 1 share in our enrichment center joint venture to our Russian partner TVEL for EUR 90 million. With the 1 share that we retained, we maintain access to enrichment services according to the original agreement, which is expected to be a benefit to Kazatomprom and our customers in the future. Also of note, in June, our majority shareholder, sovereign wealth fund Samruk-Kazyna, undertook a secondary offering of shares, increasing Kazatomprom's free float with the full 25% intended under the privatization plan. The transaction was well supported by the investment community and it adds to the trading liquidity of Kazatomprom's shares. Moving to our operational and financial results. The mixed results in the first half were largely driven by seasonality in our delivery schedules. We know what we expect to sell in a given year, but customers determine the timing for delivery, which typically has a significant impact on interim results. For the first half of 2020, consolidated revenue decreased by 13% to KZT 153 billion, and cash from operations was 66% lower than in 2019 at KZT 38 billion. This was primarily related to the timing of customer delivery requests. Kazatomprom's sales volumes were 19% lower than the first half of 2019, but as per our unchanged guidance and similar to last year, we expect sales to be more heavily weighted to the second half of the year. Even amid the pandemic, our sales expectations have not changed, and we have remained committed to our customer contracts. Lower half year deliveries, along with swaps extending into the second half, means that during the first half of 2020 our inventory increased to just over 9,000 tonnes of uranium from about 8,500 tonnes of uranium at December 31. Although higher at end of June, between the mined production shortfall and the high proportion of deliveries expected in the second half, that inventory will likely fall below our target levels. We will continue to monitor the market for opportunities to restock as required. Our first half C1 cash cost decreased slightly, while all-in sustaining costs were 12% lower than last year. In both cases, the weakening of Kazakh tenge versus the U.S. dollar played a beneficial role in addition to Kazatomprom's continued cost optimization efforts. Additionally, in the case of all-in sustaining costs, cost reduction was due to the decrease in well field development costs throughout the second quarter amid COVID-19 pandemic. Despite the lower first half deliveries, profitability was generally higher with operating profit up 75% to KZT 48 billion, adjusted net profit up 36% to KZT 44 billion and attributable EBITDA up 44% to KZT 84 billion. This was all primarily because more of the uranium we delivered was sourced from our subsidiaries and joint operations than in 2019, and that uranium brings a full mining margin into the IFRS results. I won't go further into the financial details, other than to reiterate that our guidance is unchanged from the beginning of August and we remain fully confident that we can deliver on expectations. The uncertainty around the COVID-19 pandemic obviously introduces a certain element of uncertainty and risk to those numbers, but that's really the case for every company and industry around the globe today and we are no exception. If you have questions related to details from our financial statements, please follow up with the IR team after the call. In the second half of 2020, you can expect us to consistently work in alignment with our clearly laid-out strategy focusing on maintaining our market discipline and lower-than-planned production levels in our core business of uranium mining, continued work to expand into new markets with new customers and an unwavering prioritization of ESG and the health and safety of our employees. So with that, we're happy to take your questions.

[Operator Instructions] Your first question comes from the line of Philip Chaffee with Energy Intelligence.

I just had 2 topics to ask about. One, you talk about some sort of purchasing at the end of the second quarter. Could you give a bit of color on how much in terms of volumes that was or even just orders of magnitude? And then also I'm curious what sort of purchasing you might intend in the second half of this year and in 2021. And then separately, I was just wondering if you could give a bit more color on the process now that you've started restarting exploration drilling and mined well field development. Just how is that going? Have you encountered any difficulties anticipated or otherwise?

Thank you, Philip. Riaz, do you want to take the inventory and purchasing question first? And then I can go into the how we're doing so far with the restarting. Thank you.

Of course, absolutely. Purchasing in the second quarter has been fairly modest. I don't think we're going to give out any numbers, but I think market participants have seen us dip into the market opportunistically using our trading arm THK. But they've been fairly insignificant. But as Galymzhan pointed out a minute ago, our inventory levels by the end of the year will be probably something like half of what we would typically target. And as we've previously communicated, it's going to be very difficult, if not impossible, for us to catch up any volumes this year or next year, where we're still down 20% against the subsoil license agreements. So we're operating at an inventory level which is manageable but not comfortable, so I think we will certainly be looking for opportunities to buy in the market just to ensure that we have material available at all the locations that we need to deliver against. Thanks for your question.

Thank you, Riaz. And on the operation, Philip, literally, this week is second week of us kind of steadily reaching full-fledged drilling and well field development operations. So tomorrow, we'll be having our first meeting to review how we're doing so far, but so far, so good. We'll just have to make sure that the pace is where we expect, but as I said, it's only first 2 weeks of steadily going back to all operations. So far, the feedback is that we haven't encountered any unexpected situations and everything is according to the plan.

Your next question comes from the line of Alexander Pearce with BMO.

Great. So I just wanted to drill down a little bit into costs. And obviously the H1 costs were significantly lower than guidance. There's a bit of a tailwind from FX, it seems. If we assumed no change in FX and where we are [ and all the ] exchange rate right now, would you expect costs to still go higher through Q3 and Q4 as we see the impacts, obviously, of the lower production rates? And I guess what I'm getting to is, if FX stays where it is, could you expect the cost to be below that guidance range by the end of the year?

Thank you, Alex. As you know, the all-in costs, obviously result is driven not only by FX but the fact that we were not doing drilling and building well fields. So second half, that will pick up. And you are right, that the actual volumes produced will be lower. So we still maintained the guideline, but I think it's very early to say if it's going to be outside the lower end of the guidelines. Many things could happen, but so far, we feel comfortable that we stick with the guidelines that we kind of confirmed beginning of August, Alex. But we'll be very much watching how things develop. Few things might happen. If and what -- I mean if and how the second wave of the COVID may affect things. Towards end of the year, weather may play in a little bit in terms of our ability to continue to construct well fields, so -- but we're quite comfortable to stick by the guidelines we've confirmed in August, in the beginning of August.

Your next question comes from the line of Yuriy Vlasov with SOV Capital (sic) [ Sova Capital ].

Two questions from my side. One is on your guidance for this year on attributable sales. Could you please just reconfirm that you're planning to sell 13,500, at least 13,500 tonnes? The reason I'm asking that means there's going to be a huge swing in the sales in the second half. And the second question, your delays in drilling, in general investment production, the [ lack ] of production. How long do you see that catching up? How long will it take to catch up with your operations?

Thank you, Yuriy. In terms of guidance, yes, confirmed. Riaz, do you want to give any details? As we said, we know what we expect to sell for the year. We are actually going to be delivering a lot more second half of the year. We're actually already in the middle of quite sizable deliveries as we speak. So we stick by the guidance. Riaz, if you want to add, please. In terms of operations, Yuriy, if I understand correctly, you want to understand how this 4 months delay will affect our plans for future in terms of production.

Yes.

Yes.

For second half, we will see sizable impact and for the year, as we changed our guidance. For 2021, it's yet to be seen, Yuriy. We do not expect right now any significant impact. And we keep our plans to produce in 2021 20% less than license numbers, but again depending on how situation with pandemic develops and some other technical questions that may arise from weather conditions end of the year, we could see some impacts even to the 2021 number. But as of today, we still continue to guide that 20% less than the contractual numbers in 2021.

Your next question comes from the line of Anna Antonova with JPMorgan.

Just 2 follow-up questions from our side. First, on COVID, could you please comment? What are your current staffing levels at production sites versus normal levels? And how would you expect this to progress into year-end? That's the first question. And the second question, could you please elaborate more and shed some light into your comments in the press release about seeing that participants are wondering not when but how soon the market will transition to support future production? And so any color on that would be much appreciated as well as on your comment that the potential pressure on supply in the second half is starting to gain attention. Could you please just provide more color on this? What are you seeing from your end buyers given that there is still not a lot of long-term contracting going over and obviously COVID risks are still lingering?

Thank you, Anna. In terms of COVID and staffing levels, just to give you a little bit of background. What we've done late March, early April was we decided to minimize as much as possible staff levels on our operation on sites because, at the time, we didn't have testing capabilities. And social distancing and all disinfection measures were the only practical steps that we have in our hands, so what we've done was we minimized number of people. We stopped all nonessential operations and continued with production, and we prolonged shift timing. So we knew that, employees we had on sites, they were not infected. And we asked them to stay longer. And we only started changing shifts when we had capabilities to test our employees before we allowed them to production sites. So that basically was from April to end of July. Starting August, we gradually brought back staffing levels back to normal. And as of today, we're back to normal operation -- operating levels in terms of staffing. Every shift change, everyone coming to site goes through quarantine and testing; and only after confirming a negative results from tests were allowed. Obviously, that doesn't guarantee 100% that -- some employees may still have one, but so far, knock on the wood, we have no cases of outbreak in any of our offices or operation. And in the offices, we still continue to keep maximum possible number of employees, working from distance. In our head offices in Nur-Sultan, starting August 17, we brought back just a little over 20% of our employees on a rotating basis. So that's what's happening. In terms of market sentiment, Riaz, do you want to start on that?

Of course. Thank you, Anna, for the question. Yes, I think the industry has long acknowledged that uranium prices were unsustainably low and did not incentivize any new production coming into the markets and at the same time, recognizes the fact that new production does need to come into the market. So it's one of those quandaries. And for a while now, we've had questions from investors in particular asking about the spot price, the long-term price and how the two relate to one another. And our view has been that, as long as the spot market is balanced, there is -- or oversupplied, there is an opportunity for those long-term contracting discussions to be postponed by utilities primarily buying into the mid-term market, which is sort of 3 to 5 years out. And the bulk of that supply are coming from traders who buy in the spot market where they find lower prices and plenty of availability and deliver into that mid-term market. So the discussions around long-term contracts, which would underpin the capital investment necessary to produce material needed in the second half of the decade, have effectively been postponed for a number of years. Our expectation prior to COVID was that 2020, 2021 would be roughly in line with what we've seen prior to that, but obviously the dynamics of supply and demand have fundamentally shifted as a result of the disruptions to the supply without any kind of corresponding impact on demand that we've seen as a result of COVID. So I think most industry analysts would agree that at least 20 million pounds of supply have been lost this year alone, which makes the spot market a lot tighter. And the tightness has obviously been reflected in the appreciation in the spot price that we've seen pre COVID, when prices were lingering around $24 per pound, to now where we see the price around $31 per pound, but it has been as high as $34 per pound. At that price, I think most experts would tell you it's still not a price at which there is an incentive to reinvest the CapEx. So these are not long-term prices yet, but what they are is a reflection that the market in the short term is much tighter, and therefore to acquire significant volumes in the spot market is far more difficult than it used to be, which in turn makes the mid-term market much less awkward. In other words, there are fewer players who can actually offer 3 to 5 years out, all of which accelerates really the need for producers and utilities to meet and have those discussions about the types of contracts that will underpin the next round of investments. And we're starting to see that already. The spot market has weakened a little bit because there are very few utilities buying in the spot market. It's not really how utilities operate. They tend to look 1 to 3 years out at a very minimum in terms of material that they need, but we are starting to see more interest in medium- and long-term contracts. So the dynamic is definitely shifting. And we expect that shift to accelerate further through the second half of the year simply because, I think, utilities have now gotten the issues around generation, COVID and shift changes under control and well managed; and are starting to turn their attention back to security of supply and the supply chain that they need to keep these baseload units running.

Your next question comes from the line of Oliver Adelman with Platts.

I firstly wanted to ask if you could repeat the figures because I had missed it, about where you saw the -- where you saw inventory levels or where you expected inventory levels at the end of this year. The figure you've described is significantly lower. And I also wanted to ask if there was any particular region where you -- where it might be particularly lower and you will be looking to acquire material.

Thank you, Oliver. In terms of inventory, our policy is to carry around 6 months of our attributable production levels for a year. We -- as of June 30, our inventory levels are just slightly over 9,000 tonnes, which is higher than we would normally like to carry, but as I said, we're already heavily delivering as we speak. And bearing in mind lower production numbers for the second half of the year and heavy deliveries in the second half of the year, we would probably -- if not buying anything in the market, we would probably finish the year around just a little over 4,000 tonnes of inventory. Bearing in mind we need inventory in different geographies, to -- as Riaz put it, to feel comfortable, we would like to have it higher than what we expect end of the year. That's why we would be looking at replenishing our stocks. It also will be driven by visibility we will start to get in terms of deliveries early in 2021. So if we see January, February deliveries that would require higher levels of inventory, that volume may vary in terms of being higher than otherwise, if we see lower number of deliveries in January, February. So in general, if we do nothing, we would expect to end the year a little over 4,000 tonnes. That's lower than comfort level we see in terms of being able to deliver to our customers in different jurisdictions and geographies. So that's the reason we would be looking at replenishing our stocks if and when we need to. Riaz...

And just to provide a little bit -- yes. Just to provide a little bit more color on the geographical split. We -- our business out of Kazakhstan direct shipments to some of our larger customers like India and China are fairly bulky. So usually there are significant volumes delivered in one go, which requires us to keep inventory to meet those obligations in-country. And so where we're really going to see very low inventories potentially by the end of the year is at the Western converters, where to elaborate on an earlier question, we had a very clear line of sight in terms of sales for 2020 already by the end of Q1, which is why we had indicated that we're not expecting to make any sales into the spot market itself. So in order to meet those sales obligations that we have, the fall in inventory levels will be predominantly at the Western converters. And obviously that's logical as well if you think that's where we can much more easily acquire material from the market than in Kazakhstan itself.

You have a follow-up question from Philip Chaffee.

I have a couple of things to follow up on. One is on this thing about inventory levels at Western converters. I'm curious how the current bifurcation on the spot price but particularly a much higher price at Cameco's Port Hope might impact that strategy and just impacts you in general. Separately from that, I wonder about logistics, if you've had any problems, particularly with bulk shipments and particularly to China, logistically over the period. And then finally, I wanted to ask about the Ulba fuel fabrication plant. You now mentioned that it will -- you talk about commissioning in the first half of next year, I think, but what is the situation on the ground? What is the exact capital cost at this point? And do you anticipate starting to get revenues from that plant next year?

Thank you, Philip. I will ask Riaz to elaborate on the bifurcation and the location, but let me -- second and third question. In terms of logistics, no, we haven't encountered any difficulties. There were -- at the beginning of the year, when China was in the midst of a Wuhan outbreak, obviously they weren't taking any deliveries but nothing of in terms of difficulties. So as of now, we're shipping and everything is working fine, same for all our shipments out of Kazakhstan. In terms of fuel fabrication plant: Situation on the ground, Philip, is we have all the equipment already inside the plant. Everything is installed, except one piece of equipment which we purchased from Framatome. The only reason it's not -- we haven't been able to finish installment is situation with the global pandemic. Basically, professionals from Framatome from different parts of the world were not able to travel to Kazakhstan to complete the installment and commissioning of that equipment. So we're waiting for completing installment of and commissioning of all the equipment as soon as situation with the pandemic allows us to do so, then we will start a long and very detailed process of certification of the plant. And only then we will start having first deliveries. So as of now, we see a 1-quarter delay. Instead of first deliveries we were expecting to happen end of '21, we now see that first delivery likely to happen end of first quarter 2022. So we will only start seeing revenues in 2022, assuming everything will go as planned. In terms of capital expenditures, most is taken care of. It's not very expensive project for us and for our partners, so -- and we all along entered this project with understanding offtake is from our Chinese partners and financing is jointly by us and our partners. So it's not going to really impact our financial situation. So that, situation on the ground. I'm planning to be there, hopefully, Tuesday next week, for a day, just to visit once again to make sure that we're on top of the things. In terms of inventories and locations, Riaz, can you please give a bit more color?

Of course, yes. So you're absolutely right, Philip, that we have seen a bifurcation in the market, which I think is fairly understandable when you consider that essentially [indiscernible] is not in operation. [ Comrex ] is still ramping up. So Cameco is really where our customers who are buying at Western converters are asking to receive their materials. So our decisions around where to ship obviously are driven by those 3 locations' ability to receive material, first of all, and also where we see the demand. And obviously that's not something that is going to change. And we send the material to where our customers want it, and we don't have any real issues or limitations around logistics in that respect.

Your next question comes from the line of Boris Sinitsyn with VTB Capital.

Actually, congratulations with quite good results; despite all the negative factors, intact. We have a few questions. I will start with specific ones. Firstly, could you please explain why the gap between your realized uranium price versus spot expanded in the second quarter? i.e., we have like a realized price of roughly just below $29 per pound versus spot roughly of $33. That's the first question.

Okay, sure...

Thank you, Boris. Yes, Riaz, if you could. Thank you.

Yes. That's mostly due to the fact that the spot price really ran up right at the back of the end of the first quarter. And so the time when you commit to a sales price and a sales obligation relative to the lag or the time when that material is delivered means that some of our deliveries in Q2 were effectively priced in Q1, which is why our realized price is essentially catching up with the spot price.

That's clear. And do you expect -- what premium or discount do you expect to be realized going forward, like in the second half of this year, for example?

Yes, we don't really give guidance around that, but for the second half of the year, we expect that our realized price will be much closer to the spot price that we saw in Q2.

Okay. That's clear...

Obviously, that's -- it's going to be a function of how fast and in which direction the spot price moves in the coming months as well.

Yes, fair enough. So this is another question, on your CapEx guidance for 2021. As far as we understand, you're already committing for a slightly lower -- or not slightly but lower production versus the plan, but previously, as far as we know, you have the plans to ramp up CapEx exactly for this higher production. So is it fair to assume that your CapEx for 2021 and onwards would be -- might be reduced accordingly? That's the question.

Yes, Boris, you're right. If you remember, initial guidance was -- we were '18, '19, '20 and then '21 to be 20% less than the contract volumes. We haven't -- at the time, we haven't made a decision, but the assumption was, if 2022 we will go back to contract volumes, '21 CapEx should have been sizably higher. With the current decision to continue with the same level of production in 2022, yes, 2021 CapEx budget would be similar to 2020 budget as preparing to produce in 2021.

And the last question from us would be on your financial guidance for this year. As far as the kind of the key parameters like price and Kazakh tenge rate are changing so far, and assume -- I assume that they are kind of different from your initial assumptions, do you plan at some time in the second half to update your financial guidance for 2020?

No, Boris. As of today, we have no intention to update our guidance for the year. We're quite comfortable. Again depending how situation with the pandemic develops in the second half of the year, maybe, but as of today, we have no intentions of updating those numbers.

I think, if I can just pick up on that question, Boris. The one point which is useful to keep in mind when you're looking at our guidance is that we have not updated the guidance on the assumption around realized price. For those of you who have been following us, you'll know that our price assumption is set typically towards the end of Q3 or beginning of Q4 of the year prior to the year in question, and the guidance then basically is locked in on that price. And that price is essentially obtained from independent third-party research reports, so it's not our forecast of the price and it's not updated. What we have seen is a fairly significant move in uranium spot prices, which as you mentioned earlier, I mean, fairly well correlates to our revenue numbers. And that's something to keep in mind when thinking about running your models and making assumptions about what our captured price will be. It's unlike the tenge, for example, which we did update in our last financial update; price, we don't. That's our policy.

Yes. And Boris, so you can model the realized price, but then you also keep in mind what was the updated exchange rate assumption. And you know where tenge is today. So it kind of mitigates one another if. So that's one of the reasons why we still stick by with our financial guidance for the year.

Okay. And maybe the last question from us is on your dividend outlook for 2020. It looks like your net debt is gradually -- kind of is low, compared to EBITDA anyway, right? Leverage is quite low. Of -- comfort will be below what is normal for materials and mining industry of around 1x net debt-to-EBITDA. In this respect, do you see any upside to your minimum of 75% payout ratio for dividends for 2020?

As of today, we will strictly follow the dividend policy. And obviously, the Board may propose to shareholders a different number, but I think it's too early to talk about that.

Your next question comes from the line of Conor Rowley with Crédit Suisse.

Just one question on contract versus spot pricing, again just to follow up from Riaz. If we see a scenario now that spot market is tight and we see utilities entering that mid- to long-term contract market, do you think that naturally just pulls the spot price up to those terms? And in that context, has your thinking around your own portfolio changed at all in terms of being predominantly spot price today? Do -- has your thinking on that changed at all?

Thanks, Conor. No, you're absolutely right. The question is always asked in reverse, which is when will the spot price go up and drive up the long-term price, when I think what we will probably see is essentially a convergence between the long-term price which essentially will be driving the contracts that underpin future production and the spot price which maybe supports the mid-term purchases. But it seems more likely that the long-term price will be a more important factor than the spot price in this decade, whereas if you look at 2010 to 2020, the market was very heavily driven by the spot price. And that's absolutely logical when you consider that in an oversupplied market. It makes sense to defer purchases for as long as possible, hoping that the commodity price continues to weaken, whereas in a tight market, as this decade undoubtedly will be, you're more concerned about ensuring that you're going to get the material and therefore there is a desire to sign longer-term contracts. Those contracts have to underpin capital expenditure and in some cases very significant investments and therefore cannot really be entered into at the sort of price levels that we're seeing today; I suspect, for most mining companies, not even at the long-term price that we're seeing today. So as the shift in procurement patterns moves from spot to long term, I think we will need to see a repricing of that long-term price, which in turn should drag up the spot price. In terms of our strategy. Our strategy is still absolutely the same. We are very focused on our analysis of fundamentals, supply and demand. And we drive both our production decisions as well as our contracting decisions on really the analysis and our expectations of what future prices will do. So as I've said before, if you -- if price reaches a certain level but our expectation is that that's still not a level which is sustainable in the market, there would be no real incentive for us to lock in at those prices. So rather than a price level per se, I think the question is very much where is future supply-demand turning out. And absolutely, we will be happy to lock in long-term fixed-price contracts in the future if we start to see the price level that makes the industry sustainable, not just our company sustainable because that would be the right level at which to contract.

I would now like to turn the call back to Corey Kos, Director of Investor Relations, for further questions.

Thank you, operator. We had reserved this final portion of the call for your questions from the webcast by hitting the conversation bubble in the top left of the webcast window. However, at this time, we have no questions entered, so I would like to ask that, if any questions do arise following the call or if you happen to rewatch the presentation, please do send them to the Kazatomprom investor inbox at [email protected], and the IR team will promptly reply. With that, I would like to hand it back to Galymzhan to close our call today.

Thank you, Corey. As the market leader, we will continue delivering on our commitments and creating value for all our stakeholders. So thank you all for joining us today. Please stay safe and healthy, and have a great day. Thank you.

Thank you.