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

So first of all, good afternoon, everyone, and welcome to Kazatomprom's first video conference call. My name is Cory Kos. I'm the Director of Investor Relations, and I will be the moderator for today's call. Over the recent months, you've seen our company's succession planning in action with several changes made to the senior management team. Most notably, there's been a change at the senior executive -- Chief Executive Officer level, following the departure of Mr. Galymzhan Pirmatov and the appointment of Mazhit Sharipov to lead Kazatomprom, the world's largest uranium producer, through what is shaping up to be an interesting time in uranium markets and in the broader nuclear industry. Before we get started, just as a technical note, we wanted to say that this self-managed Zoom webinar platform is new to us, and there are some functions and controls that are actually being limited by Zoom in our part of the world. So we do ask for your patience and forgiveness if there happens to be any glitches or hiccups throughout this process. [Operator Instructions] If you have joined this Zoom call through the link on your computer or mobile device, the call will be available in English and in Russian. We have translation available depending on the language being spoken at different times during the call. In your Zoom controls at the bottom of your screen, there is a button that says interpretation. At this time, you can click and select between English or Russian to ensure that, as the call proceeds, you are hearing your preferred language. Unfortunately, as noted in the call notification, the Zoom options choose interpretation is not available if you join through dial-in number. So apologies it'll only be available in the audio language that is being spoken. This interim call may include forward-looking statements, and 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. Our discussion today will begin with remarks in Russian from Mr. Sharipov with simultaneous English translation, followed by an opportunity for the members of the investment community to ask some questions. Please note that Kazatomprom does not report on a quarterly basis. Therefore, outside of the update provided in our Q3 operations and trading update released on November 1, we will be unable to answer any specific questions related to third quarter financial results at this time. Participating in today's call alongside me and Mr. Sharipov, we have our Chief Operations Officer, Mr. Aslan Bulekbay; as well as Ms. Kamila Syzdykova, Chief Financial Officer; and Mr. Askar Batyrbayev, chief Commercial Officer. So with that, we will just pause for a moment to ensure the translations are aligned, and I will then pass to Mr. Sharipov to begin.

[Interpreted] Thank you, Cory. Hello, everyone. I'm very pleased you can all join us today for a special conference call. First of all, I would like to thank Mr. Galymzhan Pirmatov for his contributions to the development of the nuclear industry of Kazakhstan. Under his leadership, the company has strengthened and improved its position and reputation and has become widely recognized for its transparency and credibility in the global market. Both prior to and after the IPO, significant effort was made to improve and transform key business functions within the company, focusing on areas considered to be the most important to both local and international stakeholders. Health, safety and environmental management system have been aligned with the highest international standards. A unified strategy was established to guide the production team based on the market conditions, with the marketing group focused on building long-term value in the company's contracting activity. Investor Relations and effective compliance services continue to enhance transparency and importing consistency across the company and our subsidiaries. The company has established robust system governance system guided by experience and independent Board members. First, I'd like to confirm that we will continue to be committed to our value strategy with a responsible approach in managing our production and sales volumes. As the largest uranium producer in the world with the flexible lowest-cost mines, we remain focused on this strategy of building long-term value to return to a healthier future balance of supply and demand. Today, that means that our plans in production to remain 20% below subsoil user agreement levels through 2023 have not changed. We are seeing customer interest in security of supply beyond 2025 with growing questions around sources of supply out to 2030 and beyond. We will continue to expand the geography of our sales through entering new uranium markets, which is a commitment to customers and partners and long-life mining assets that are underpinned by improving low capital and operating costs. Our stakeholders can be confident that Kazatomprom will remain a key part of the nuclear industry for decades to come. Second, we will remain focused on the most attractive elements of the overall market, which is uranium mining. Kazatomprom has an undeniable competitive advantage. Being Kazakhstan's national operator, we have priority access to the country's significant high-class, low-cost uranium resource base. I'm certain that our new Chief Operations Officer, Mr. Aslan Bulekbay, who is also on the call today, brings a wealth of international experience from the extractive industries. As our operational leader, he will play a key role in maximizing value at all our mining operations. Third, we intend to continue implementing best environment, safety and governance practices. We understand the importance and necessity of sustainable development in accordance with ESG standards in order to remain effective. And with respect to supply, I hope that Mr. Bulekbay will provide a due attention on issues of ecology, environmental and corporate governance issues. Fourth, we will gladly take credit for being the largest supplier of the fuel needed to make a transition to clean energy with an increasing focus on carbon-free nuclear power being an important contributor, which is the global energy challenges that are emerging today. Those questions only get more significant in the context of climate change and net-zero carbon target with the potential for demand developments like small modular reactors and electric vehicles, creating even deeper concerns about supply profile. But I mean, those concerns is significant opportunities since Kazatomprom is well positioned to benefit from the growth in various parts of the fuel cycle. Although we do not normally host a call in third quarter to talk about the markets, we also decided to say a few words on current conditions in uranium industry. The global pandemic and the related effect on supply chain has continued into the second half of the year 2021, including an impact on our ability to obtain certain key operating materials. In our third quarter trading update, you saw us point to an expected increase in 2021 production cash costs due to inflationary pressure and a slight decrease in production expectations related to slow well field development work. The timing for an improvement of the situation is not yet known, so we cannot assume what impact, if any, there could be on 2022 or 2023. For now, the target remains at minus 20% below subsoil user agreements for the year 2022 and 2023. We have seen notable spot and term price improvements in the market to start the second half of the year with tightening near-term supply, increased price transparency and an increase in the level of long-term interest from customers. This indicates progress in the transition toward healthier conditions, although uncontracted requirements in the longer term continue to grow. At the same time, there is mounting pressure for utilities to support producers to invest in assets and ensure future production is available when it is needed. We are confident that as support continues to emerge with an ongoing renewal of long-term contracting interest, Kazatomprom as a low-cost producer with substantial long-term reserves will be well positioned to benefit and deliver value to our stakeholders. Thank you for your attention. And now I will pass the floor to the Chief Operations Officer, Mr. Bulekbay, for a short introduction. And after that, we will be happy to take questions from stakeholders on the call. Aslan, please, the floor is yours.

I apologize, can you hear me? Well, thank you. Thank you, Mr. Sharipov. I'm pleased to have joined the management team here at Kazatomprom during an exciting time in the nuclear industry. I believe I bring strong background that will be value to the company in operational efficiency, international perspective for standards and fit-for-purpose processes that will ensure value creation for our shareholders. As Mr. Sharipov noted, I will see that -- I will oversee the production aspects of the company in alignment with the strategy, and we will continue to build our production plans closely with Mr. Batyrbayev and the marketing sales team in order to respond appropriately to the conditions and developments that Kazatomprom sees in near, mid- and long-term demand. It's also a very interesting time for an ESG perspective where our sustainable development team has a number of projects underway for 2021 and 2022. We are establishing our long-term targets and continue building up our strong reputation in other key areas of environmental protection, safety at all our operations. I look forward to future discussions with you, our investors, and thank you for -- all for joining today. I can hand it back to Mr. Kos for Q&A session.

Perfect. Thank you, Mr. Bulekbay. We would now like to some questions from the investment communities. So I'm going to attempt to manage the queue through Zoom. [Operator Instructions] So I'm not -- do see a couple here to start. So I will start with the first question from Ildar.

I would like to speak in Russian, if possible. [Interpreted] Definitely quite interesting times at the market, and your position is unique in many ways. You've proven during several years and your steps, you expressed your commitment and the balance -- to the balanced price -- market price, and there was an interesting news regarding long-term contracts with the Chinese customers. Would you please talk about those Chinese contracts in a more detailed way? What pricing principles were used? And my question about pricing improvement on dynamics -- of the prices improving on dynamics, how are you trying to use in your market strategy the share of the fixed prices, share of the long term? Are you plan -- would you like to increase them? How are you going to use this situation? Or are you just so far starting the negotiation process, and that might take some time? Or do you have certain very best initial results on this price rally? That's my question.

[Interpreted] Thank you, Ildar, for your high evaluation and for your question. I'd like to ask the Chief Commercial Officer, Mr. Batyrbayev Askar, to take the floor.

[Interpreted] Let me answer in Russian as well. Indeed, the second part of your question relates more to the first. For a long time, we have negotiations, and our main task was to focus on the work with the end users, with the utilities. And 2 contracts have been signed with Chinese utilities is the result of our endeavors around land work. And except that, as you have lately noticed, [indiscernible] has visited, the official opening ceremony of the FA plant, fuel assembly plant, that is also a project involves Chinese party. We have 3 long-term cooperation projects with Chinese companies. With CGN, this is a 20-years-long offtake on FA, fuel assembly, which is the end-product of the nuclear fuel cycle and 2 contracts with CNNC and SNURDC. So regarding the long-term contracting, changing the price, as we have earlier mentioned, changing the price and increasing for us is not the main trigger. What was important for us was to conclude the long-term agreement with the end users, with utilities. We continue our endeavors in this direction, and the results, we have recently published. The pricing parameters, unfortunately, that refer to a commercial secret, which we cannot disclose. We -- but we feel very comfortable in contracts that reflect the prices spot at the moment of or delivery. But you were right, stating that the price is changing, and we are getting more and more into discussions about high -- probably hybrid contracts where you can use the fixed price in the market pricing. At the moment, we do not see the opportunity to use fully price -- fixed price because it is not at the level which we consider comfortable. So we are not discussing the level of prices at the moment because we are the lowest-cost production -- producer. Thank you.

Thank you, Askar. Thank you, Ildar. Maybe next, we will go to Phil Chaffee.

Hi, can you hear me?

Yes.

Two questions following up on the same issue. One, on those Chinese contracts, do you also envision setting a long-term contract with CGN at some point? And with the start-up of the FA plant at Ulba, can you give any color on where those fuel assemblies are going? Do you know what reactors are actually going to be fueled with that fuel?

Thanks, Phil, I think I will take that one now. So we're in a constant discussion for signing long-term deals with all the customers that we have. CGN is not an exclusion. But obviously, I mean, we've just recently announced the big Ortalyk deal and FA plant deal. That's also the part of our long-term strategy. I mean other than that, I'm not very sure that we can give any color to you about our commercial negotiations with the customers.

Thanks, Askar. Thank you, Phil. And I can just add, I think as far as the destination for those, it is French design specific type of fuel bundle, so they will obviously be destined for those. But obviously, the Chinese customer will do what they will with their product. Next, I believe we have one here from Chintan Khamar.

[Interpreted] May I also add a quick remark regarding cooperation with CGN company. Indeed, with CGN-URC, we've been in cooperation for quite a while now. We were working on 3 directions. Those I have already mentioned concerning the long-term contracts. We also have LX delivery contracts to URC. We also have concluded a contract for the delivery of FA, assemblies -- fuel assemblies. Regarding the use for which reactors are those used, as you know, we've created -- we produce based on French technology up at our 3G type, which will be delivered for the reactors of French design. That's my small comment. Thank you.

Excellent. Thank you. Chintan, you can go ahead.

I'd like to congratulate Mr. Sharipov and Bulekbay on the new appointments. My question is regarding the cash strategy going forward. Given that you plan to maintain your market-focused strategy, you ended H1 in a net cash position. And at current prices, you're very likely to continue to build cash. What do you see as the best use for this cash going forward?

Thank you very much. Hello, everyone. I might take this one. So I would say that, first of all, the dividend policy that was approved and just recently adjusted guides our capital allocation decisions. So we will look on streamlining and distributing our company's free cash flows according to the distribution ratios we have. At the same time, we are very cautious about looking at the dividend yield. We don't really want -- like I wouldn't think about going to double-digit dividend yield, so we don't want to be perceived just the cash flow. And also, the third aspect of this decision is based on the fact that we are constantly looking into different investment opportunities. And in the presence of the compelling opportunity to generate decent returns to the shareholders, we know that we have a cash or ability to raise the cash necessary to fund the project. Other than that, in the absence of that, you're quite secure just to think that it is a dividend policy that would guide the capital allocation decisions.

Thank you, Kamila. I'm just going to jump to -- there's a few questions coming that have been tied in and they really center around new energy. So just to combine them all somewhat. When do you expect a new energy, the funds that will be invested in to begin operating? Where will they store their product? Do you expect that the Chinese storage facility at Alashankou to be a location for this? And will you be involved in that storage facility?

Yes. Cory, if you don't mind, I'll take this one. But on energy, we have recently told to the community that we'll be investing into the fund. I mean we're finalizing the deal of the last settlements. So as soon as we can make an official announcement, we'll do it. It will be very -- in some very near future. Other than that, I'm not very sure that we can give any details. I'm reading the questions as well. I mean that's not in opposed to Yellow Cake or Sprott. I mean we've been always telling that there is much more investment interest in the uranium sector than just kind of listing at London or U.S.A. or North America. There are a lot of investors in Middle East, in Asia that would like to invest into the similar vehicles. So kind of that's the part of the strategy to establish this one. And this one would be established in Kazakhstan at AIFC, so Astana International Financial Centre. About the storage, the storage would be at the first stage of the running of that fund would be in kind of conversion facilities based on what the manager of fund will decide. It will be either, Orano, ConverDyn or Cameco, depends on the conditions they could get from those converters.

Excellent. Okay, thank you, Askar. That covers a few of them. Another one we have maybe is to talk about more specifically about the inflationary pressures and what kind of cost expectations you may see for 2022, maybe just a little bit more specific on where those pressures are coming from.

[Interpreted] Yes. Yes. Sure. Thank you, Cory. We do understand that question. We are getting more and more often recently. I would say that, regularly, we would say that we're expecting to stay in line just the -- with the regular inflation rate. However, next year, we expect that the pace of the inflation to increase slightly, probably up to 15% growth in [ change-based ] cost. It is mostly driven, again, by the shocks created by the supply chain disruptions, and we've noticed in the trading update recently that we still experience a shift with the supply of the piping production. And all of that has its own inflationary pressures on the prices that we are now being charged with. So all of that we expect for the next year, the [ change-based ] cost to increase up to 15%. And so, again, in dollar terms, so if devaluation happens, then the impact will be lower. But again, still based on current price, the cost structure is still very competitive. But we do admit that those challenges create a higher pressure than we would have experienced historically, and the historical base would be just in line with the efficient inflation rate up to 7%. So this time, we expect something in the range of 12% to 15% growth.

Thanks again. Maybe next, jump to a little bit more background on the call here, which is somebody just looking for a little bit more on the experience and background specific to the new CEO and the new COO. So can you provide maybe a little bit just about your own history and such? We can maybe start with Mr. Sharipov.

[Interpreted] Okay. Thank you for the question. Regarding my education and experience, I graduated from Institute of Nuclear Energy, the major on nuclear power plants. I started my work after graduation at the Institute of Nuclear Physics at research reactor in Almaty CG. And in 1992, after we gained independence and the state authorities were established, I was invited to work at our regulatory authority, the agency on nuclear energy, which was established in 1992. During almost 18 -- 17 years, I worked in the energy -- nuclear energy agency at different positions as a senior specialist of the Nuclear Safety Department, Head of Inspection and Analysis Department, Head of Management and Monitor in the nuclear field. In 2008, I was invited for the position of the Head of Energy Department where I supervised the development of nuclear energy development in the Republic of Kazakhstan. In the meanwhile, a lot of interesting projects and tasks I had to face. I recall that during that period, we had a unique work regarding decommission on the reactor, BN-350, and the management -- the transportation of this waste from Aktau City where the reactor BN-350 was operating. It was transported for the field of long-term storage at the previous [ licensed nuclear polygon ]. We also had a chance to conclude a range of intergovernmental agreements in the field of peaceful use of nuclear energy with such countries as Japan, China, France, Canada, India. Between 2013 and 2014, I was Head of Committee on nuclear energy where functions involved those nuclear field management and like supervision and management functions, providing security and safety in nuclear field. Starting from 2015, I started my work at the Kazatomprom system. I was the Head of NFC Department. I'm managing department on NFC and nuclear energy. In the beginning of this year, I have been appointed as Head of the NFC. And starting from September, I have been appointed to the position of the CEO of Kazatomprom. Of course, various types of projects I had to face was to implement working in the NFC direction, various interesting projects we're implementing. I'd like to tell you shortly about the project, which we launched lately that the construction and commission of the fuel assembly plant in Ust-Kamenogorsk City. This project is a joint project between Kazakhstan and China. French technologies were used. During this year, we achieved certification procedure from Framatome company. And now Ulba-FA plant is a recognized, certified supplier of FA. In October, we have also achieved education from Chinese CGN-URC as a certified supplier. In general, I've been working in this field for more than 30 years. The industry is quite interesting, their perspective, taking into account the latest trends throughout the [ world ] and taking into account the transition new energy. That's in brief.

So my background come mainly in production operations. After graduating in my university in 2004, I joined oil and gas industry, mainly dealing with production enhancement. And I worked in several parts of the world for about 8 years for an international service company. Then I came back to Kazakhstan. I joined as a Deputy Chairman for national exploration company, Kazgeology; as well as advisor to minister. About what the year I did that, then I joined the company called OMV Exploration & Production in Vienna in the head office. I was a production technologist. And then I worked in several projects across the globe for different assets for that company about 3 years or so. Then I joined the company called Saudi Aramco where my main operational background was dealing with production operations for Ghawar Field. I worked in various projects and mega projects as well, mainly targeting unit cost optimization, operational efficiency as well as ensuring safety and environmental safety, including those -- the execution of those projects. Since about a year ago, I joined Kazatomprom as a Board Member for Volkovgeology branch, which provides drilling, geological studies logging for our assets. And since -- as of September, I've been appointed as a Chief Operations Officer. So that's about perfect.

Excellent. Thank you Mr. Sharipov, thank you, Mr. Bulekbay, for the background. We'll combine a few more questions here, largely around future price expectations. What do we view as a healthy market balance in the future in terms of price? And in that regard, could we bring on our production back to 100% before 2023? Or are being committed through 2023?

Thanks, Cory. I think I'll take that on as well about pricing. Well, we've never given any reference price about what should be the fair price to kind of incentivize new production. I mean if we look at the supply and demand ratios and we see on the third parties, our experts forecast for the end of the decade, it was always more than the current production levels and at the current price that is existing to maintain the current production levels. I mean we'll have a very huge distance between supply and demand. And I mean, we will need another Kazatomprom to be on the market to cover that debt. So it's not only Kazatomprom's efforts to return back to 100%, go to 120% or bring some new mines will be sufficient to help the market to be kind of in a healthy situation. So I think we should be looking more to our competitors on that market in terms of supply. As we are kind of covering or occupying the first and the second Tier 1 places in the cost curve, then I think kind of all of our production is now under the kind of market price, and it was a case for almost all the time. So I think we should referring to our competitors, and the one that I can think of, which would be the first one to enter the market would be Cameco's McArthur River. That's the idle capacity that was put off-line specifically for the economical reasons. That's why -- I mean, that should be the first mine to come in on their, I think, last call, last investor call that they've made on their third quarter financial results. They've indicated that they need to see a price about $50 to $55 per pound to return back the idle capacity. I mean the future mines, some new mines that has to come in, I think that they should have the price even higher than that. So I hope that this response to the reference price. Cory, could you remind the last part of the question?

Yes. In terms of bringing back production or the thinking on whether it could happen before 2023 or are we fully committed through 2023.

Sorry. Yes. So I mean, we've given our guidance for 2023 that was given [ pure line ] of market conditions that we have seen. We are not going to revise them as we are not seeing any signals that the material is needed specifically in 2023. I mean we have seen utilities interest picking up in the long-term contracting. They are coming, approaching, testing us. We're in a constant discussion with a lot of utilities at the moment for long-term contracting. And I mean, we pretty know how nuclear fuel cycle looks like. So the fuel that they are going to use in '22 and '23, they have already purchased that fuel. So they're mostly contracting, starting from '24 and onwards. That's why, I mean, we are still holding firm to our guidance that we gave, and we will have a minus 20% for 2023. And let's say, the deadline for the decision, I mean, to reverse it, has already passed, I mean, as the budget campaign has finished, and we have already set the costs that we will be spending for our joint ventures and subsidiaries will be spending in the next year. So for 2023, I mean, we are firm to have minus 20%. As for the future, I mean, we'll be evaluating the market conditions that will be next year to make a decision on 2024. But again, for us, the price is not the trigger to bring some -- kind of to increase our production. For us, we would like to see the expansion of our contract portfolios, so that we will see that the material that we'll be producing will be in the safe hands of utilities. Otherwise, I mean, the price does not trigger our decisions on the production. So kind of in summary, if we have a greater contract portfolio that covers additional production that is required, in that sense, we will be announcing our production plans.

Excellent. Thank you, Askar. So maybe one here, maybe a quick yes to answer, but in terms of the issue -- the legal issue that arose last year from KATCO that was seen in the Orano financials, has there been any resolution or updates on that issue?

Cory, should I take this question?

No, I think I can take this one. So with the -- the process overall is still -- it's pending in the process. The -- it was rejected on the first review, and they are now in the process of appealing. And so it is the pending process.

Okay. Maybe one for Aslan. Background on -- so Kazakhstan experiencing some water issues, and could this somehow affect the operation of sulfuric acid in the Kyzylordan region and uranium mining in that area?

So yes, we have our own sulfuric acid plant in Kyzylorda region, so volumes are relatively big, around 500,000 metric tons. It also has a core generation of electricity, which is I think -- personally, I believe, it's an alignment for circular economy as well as reducing our carbon footprint in our overall operations. The source for that water is not just about Syrdarya. We also have water supply wells that delivers water in case the water level goes down. So we are aware, and we have mitigation plan if it realizes.

And if I may just add here that I would say the plant itself doesn't use river water at all, but we are well aware of the fact that river is melting and it's just a general environmental changes as well there. But as first said, actually, the -- our plant is not using the waters from the river.

Excellent. Thank you. Thank you, Mr. Bulekbay. We just have a couple more here, one from -- actually, a couple related to a new again. I will just follow up with a couple of final here. Questions asking, where will it be listed? And will there be an opportunity for private investors to invest in the fund?

Yes. Very good questions. Thank you. Well, I mean, as the fund is not yet finally settled and properly announced that it started its operation, I mean, we are not going to give any sense of commercial details. But what I can say is the fund will have independent manager that will take a decision whether it will go for kind of private listing or it will have global listing. And we're not very sure if it will go to Hong Kong, as I'm seeing the questions here. So it will be up to the decision of fund manager who kind of -- who will make that final decision. And we'll see where is the most interest is coming from. I mean that most probably will be the trigger.

Perfect. Thank you.

Yes, of course. So about the kind of private people investing as well, I mean, I'm also not sure if that will be available to everyone kind of to have the public investing. So it will depend on how the fund manager will make a decision.

Thank you. We have one more here from -- or a couple of more, one coming from Anna. Wondering about capital allocation policies...

Cory, I think there was a question about Chinese storage facility as well.

Oh, yes. Yes, yes, if you were investing in that. If you want to tackle that one. Sorry?

There was a question about Chinese storage facility, I think, somewhere...

It was just -- yes, I think you already answered it. Just whether we were -- I guess, where we were looking to invest in that.

Well, I mean, we are still in negotiation about kind of participating in that Chinese border warehouse at Alashankou. There's no clear decision yet in what form we will be participating, as investor, as the supplier of the material. But I mean, obviously, as long as the warehouse is looking at the border of China and Kazakhstan, all the material most probably will be from Kazakhstan. I'm not saying that specifically from Kazatomprom, but I mean, it will be Kazakhstani-origin material, for sure.

Okay. Good to know. And asked a question around capital allocation and just what the future investment opportunities might be in terms of brownfield expansion, greenfield or downstream M&A. I think Kamila may have talked a part of this question already, but could reiterate the capital allocation decisions.

Yes. Sure, sure. So yes, you're right, so we constantly keep looking for the investment component with the opportunities. Currently, we will not exclude any greenfield projects because we do need to sustain our competitive advantage, as you know, like keeping the cost curve. We also have in-plant some work to be done to research if there are any opportunities in the various projects. So it's mostly like in the research stage, I would say, and because markets change and they change quickly like the demand for commodities also changing. But again, we plan to stay in our core business, and in that field, we might -- we do not exclude any major projects as well.

Thank you. We'll jump back here. There is one coming from the line. So we'll have [ Boris ].

[Interpreted] I have 2 questions left. Taking -- first one, taking into account that the company is planning to keep the 20% below the subsoil agreement plan, are you trying to reconcile licenses and production plans for these in the next years?

[Interpreted] Let me start, and Aslan might add. According to the current subsoil user code, we can go up or minus 20% without amending our current contracts. That is why we are active within this flexibility provided by the government to us, and we are not planning to reconcile any contracts. Taking into account that we will be use -- doing minus 20% from the subsoil user contract. I would also like to comment and add to Askar's comments, we have units where we have additional [indiscernible] mine field. The works are in progress. And based on the progress, we will be sharing information with you in more detail. Thank you.

And my question is regarding the assets portfolio. Is the company considering the current portfolio -- assets portfolio? Do you divide the key assets and nonkey assets? And if you do so, which assets do you consider as nonkey assets? What is the main principle you address when you make decisions on selling the share of the mine to your partners?

Thank you, [ Boris ], for your question. If you allow me, I'll start. Which principles? So the nonkey assets, we have notion like core business noncore business, and we are working -- [ was a huge ] work, and we have published the information on the sale of 3 noncore assets, which are the part of the SPV company. We have a core business, which is uranium mining based on our client strategy. As of today, the major of the noncore assets have already been sold or restructured. The structure of the business as of today is the key operational activity. We mean 3 or 4 main service companies that's drilling, transportation services, delivery of software, acid and certain IT services supply, that's regarding the service. UMP is our main connection in the NFC cycle and the plant, which owns a unique type of tantalum and beryllium. But the core business is production mining, uranium production mining. So the structure as of today is already our target structure. Regarding your second question concerning the approaches, taking to latest contract with Ortalyk, when we make such serious decisions like selling the assets, we don't only address the mining side; we also look -- address the partnership, the beneficial -- mutual beneficial strategic aspects. So the deal with Ortalyk was a beneficial one, and we started a unique FA production in Kazakhstan, which will provide the offtake of our natural uranium concentrate. We guarantee the delivery of this French design to China and also the development. So that's the example when a share was sold and partnership was a comprehensive one. This is our main approach when taking these kind of decisions. So this is not just a sale of share, but it should also bring certain strategic advantages for our future ways of development.

Excellent. Thank you, Kamila. Maybe one here, we can just ask Askar provide perhaps an update on just the global supply demand balance that we're seeing in uranium right now.

Cory, could you please repeat the question? I was changing channel from Russian to English.

No problem. Yes. Just any comments on the current global supply-demand balance that we're seeing in uranium.

I mean the supply and demand balance is being prepared by -- kind of we're not publishing or we're not sharing our own view on the supply/demand. So we're -- as a public company, we're referring to third-parties' assumptions. And I mean, they are all very clear. You can find them in the Internet. This year as well as last year is expected to be a decent year because of the kind of quality impact, mostly last year because most of the producers had to kind of change their work style in order to make sure that there is no COVID outbreaks at their mines and make sure that the people's health are kind of in a good condition. Rather than this year, logistical change and other kind of quality impacts that followed from last year to this year impacted the production. I mean Cameco's Cigar Lake was closed by -- until April. As our CEO just recently said, we are having some difficulties in getting raw materials for production of pipes and some other goods. So instead of having those years as a balanced year as where supply and demand would be in the balance, we are finding them as decent years, most of them, which means that we will have kind of higher ratio of the inventory drawdown from the utilities, which will also kind of bring closer at the moment when we will have the global kind of supply and demand over this big period of oversupply into the balance. Other than that, I think everything is clear. Cory, you're muted.

Yes. Sorry, I think there was an issue here with Internet being dropped. But yes, it seems everybody is still there, so assuming we continue on. So a couple -- one last question here, maybe, Anna talking about the inflationary pressure that Kamila mentioned about 15%. Does that apply to CapEx as well?

Partially, yes, because like the piping production, mostly is used in the cost that we capitalize in the work [indiscernible]. So yes, it is partially reflected in the capital expenditure as well. I mean the overall piece probably will not be as high. But again, most capital expenditure, in comparison, is not that straightforward, actually, because it mostly depends on the production volumes and the [indiscernible] expirations in the '19. But in that particular example, that piping production being part of the development cost, there will be higher overall inflationary pressures on capital expenditure now again usually in [indiscernible].

Perfect. And just a couple more here. Maybe one for Askar as well, in terms of new energy buying uranium only from Kazatomprom or potentially from other producers.

Well, that's the part, I think, that we will be disclosing just after the kind of final settlement is done. But as of now, I'm not very sure that we will -- we could be giving any more color here. But just after we make a final announcement, I think we can clearly say -- or we can clearly respond to that question.

Perfect. And well, just one final one here, asking, with the interest in the uranium sector right now, would your company consider listing in Toronto or New York? That's a tough one. Maybe, Kamila, if you want to start with that? I could add to it, too.

James, thank you. Good question, good discussion. We had the discussion this year here several times. There is always a dilemma between the cost and benefits of going to a different venue. So for us, the main constraint, as I see it currently, is the free flow [indiscernible] free flow...

It may have dropped. I mean we dropped Kamila. If she rejoins, she can continue. But as she was going to say, I know, I was part of the discussions as well with a 20% free flow potentially some opportunity -- oh, sorry, back. Go ahead, Kamila.

Yes. Sorry, I don't know, something happened and then I got disconnected. So yes, I just was saying that those opportunities should be carefully with against the cost, and for us, the cost of additional most...

Lost you there again. Not sure if you can hear us, Kamila. But yes, the free flow being somewhat of a limitation, I think, on the ability to move into a broader market. And again, the interest, I'd say, from the investment community has definitely been strong in North America just because a longer history of investing in the space, but again, the trade-offs on the cost and the cost internally reported. We are a biannual reporter as we've mentioned a few times within annual results and our half year results. Moving to those venues will put us to a quarterly reporting, which makes a significant difference with the complexity of our consolidation process that takes place with 14 different operations and JVs. And so all of that taken together at the moment, probably a discussion that we will continue to have, but at the moment, not something you can expect, I don't think in the very near term. One last question we have here is asking, what is the potential for the free flow to potentially increase beyond the current 25%? Sorry, not sure if I can out there, but we could have either Kamila or Mazhit to comment if potentially the fund would move higher than 25% free flow.

[Interpreted] Waiting for decisions taken, Samruk-Kazyna upfront as of today holds 75% of shares. So far, any changes regarding on this percentage has not been discussed.

One thing that we've noted a few times, and I can just add to that, is at the moment, that 75% held by Samruk-Kazyna is considered a strategic asset of the state. So there would actually have to be legislative changes in order to change that percentage. And so rest assured that if that was to ever take place, you would see an announcement from Kazatomprom because that would be a material change for us, not to say that there would be an imminent increase in the free flow. But if there was a change that would allow it, we would let the investment community know. So I think that's all we have who raised hands. So I think that concludes the question-and-answer session. That's brings us to the end of our call. So if I missed any questions, absolutely welcome to reach out to the IR team at any time. And I'll pass it back to Mr. Sharipov just for a brief closing word.

So in conclusion, I would like to say a few words in English. The participant, thank you for you joining us. I look forward to working with our various stakeholders in my capacity as CEO. Have a great day. So bye.

Thank you, everyone. Thank you for your time and your interest.

Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]