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

Good time of the day, and welcome to Kazatomprom's conference call to discuss the company's 2023 Annual Operating and Financial Results. My name is Botagoz. I'm leading the Investor Relations team here at Kazatomprom, and thank you for taking the time to join us today. Our conversation will begin with a presentation by our CEO, Mr. Meirzhan Yussupov, followed by an opportunity for investors to ask questions. [Operator Instructions] If you joined through the company's website or through our page on the London Stock Exchange website, note that there will be slides displayed during the remarks. These webcast slides will be also available for download in English and Russian as PDF called 2023 Full Year Conference Call Slides shortly after the call. Note that our press release, full version of the 2023 full year operating and financial review, along with our audited 2023 financial statements for 12 months ended December 31, 2023, are now available on Kazatomprom's website. Participating in today's call, we have Meirzhan Yussupov, Chief Executive Officer; Sultan Temirbayev, Chief Financial Officer; and Dastan Kosherbayev, Chief Commercial Officer. This call is open to all stakeholders with a question-and-answer portion intended to be an opportunity for members of the investment community to engage with the management team and ask their questions. Please note that this conference call may include forward-looking statements. These statements include all matters that are not historical facts. By their nature, forward-looking statements involve risks and uncertainties, 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 it over to Mr. Yussupov. The floor is yours.

Thank you, Botagoz. I am delighted to welcome and thank everyone for joining our conference call today. Along with a discussion of Kazatomprom's 2023 full year operating and financial results, which were released earlier today, I'll touch on a few key nuclear industry and uranium market developments. A key factor that has contributed to improved market fundamentals and a more bullish outlook for the nuclear industry over the past several years has been the international focus on social and environmental impacts of energy infrastructure. Nuclear energy to deliver large amounts of continuous electricity makes it indispensable for achieving a sustainable and secure energy needs that is available 24/7. As countries worldwide try to reduce their carbon footprints and transition to a cleaner energy sources, nuclear energy's significance is likely to increase, particularly in regions where energy demand is growing and decarbonization is a critical goal. Kazatomprom understands the importance of its role in helping the world transition away from reliance on fossil fuels and is steadfast in delivering long-term value for all stakeholders. From the most recent pronuclear policy development, as you know, nuclear energy became the most discussed topic at the UN Climate Change Conference, COP28, held in December last year in Dubai. COP28 saw historical level of support for decarbonization efforts and nuclear energy as a source of low-emission baseload energy in particular. More than 20 countries signed a declaration pledging to triple nuclear energy capacity by 2050. The declaration acknowledges that nuclear energy will be essential in reaching net zero targets worldwide. No matter what reactor design you use, you will need uranium to fill it. Kazakhstan accounts for 40% of the world's uranium production on an annual basis, providing fuel for the global energy needs. This means that at least every third nuclear reactor in the world runs on Kazakh uranium. As the world's largest uranium producer, we are ready to continue playing an active role in ensuring the secure and reliable source of uranium for nuclear power plants across the globe. Continuing our discussion, let me proceed with the broader market picture. As you can see on the slide, the third party forecast indicate that there is a significantly growing supply gap, not covered by the production volumes coming online in the foreseeable future. In 2030, a supply deficit of 21 million pounds of U308 is projected, rising sharply to 147 million pounds of U308 by 2040. This model is prepared by the industry expert and is quite conservative in terms of the role of financial players who have significantly contributed to the demand side in recent years. More than 50 million pounds were purchased by some of the financial institutions for the last 3 years. It didn't only help to absorb available pounds and mobile inventory pockets from the market, but more importantly, it triggered the shift from the utilities spot-market reliance to a long-term security of supply prioritization needs. However, only about 4 million pounds out of those 50 million pounds were purchased in 2023 from spots. Despite that, we still witnessed a strong increase in uranium prices in 2023, which was supported by the activities of other market players. And in early 2024, we have seen uranium price passing the 3-digit threshold, and that move as well was not because of the financial players, but due to increased activity from the more conventional market participants. Although some of the producers made decisions to restart idled capacity and launch new production in mid-2020s, including ourselves, it will not be sufficient to cover uranium requirements post 2030, especially amid current geopolitical uncertainties, inflationary pressures and supply chain challenges worldwide. In the current pricing environment, another Kazatomprom supply source will be needed to cover future market needs. It is important to highlight another important factor that contributed to the market's structural shift, and it refers to the key uranium producers, production and sales discipline. Speaking about ourselves in particular, our commitment to market discipline reflects our strategy, creating long-term value for our shareholders. Kazatomprom alone removed about 112 million pounds in actual uranium production from 2017 to 2023. Otherwise, Kazatomprom's unique position occupying all first quartile of the global cost curve, we could continue generating profits even under the low pricing environment. This year's reduction, however, is not fully attributable to our strategy, but was partially a fourth measure in response to the challenges associated with the sulphuric acid availability and construction delays at our newly developed deposits. Sulphuric acid is the key component of ISR operations. It is needed both when preparing a new deposit for production and throughout an entire life of the mine. On this slide, you can see an illustration of an ISR deposit development. To provide a stable rate of uranium production, the ISR wellfield units should be placed in production in a systematic order. While some units are being prepared for production, others are leached, while others are in recognition. Sulphuric acid is used for both acidification at a block preparation phase and uranium leaching at the production phase. Acidification requires from 20% to 35% of total volume of sulphuric acid, while leaching consumes the other 65% to 80%. Therefore, relationship between acid consumption per tonne of uranium produced is not linear. As a good portion of us, it is consumed prior to actual start of production. This is particularly relevant in periods when there is an anticipated change of production volumes, a period where are we now. This is represented by the lines on the graph, which are provided for illustrative purposes only. But they clearly show the general pattern of sulphuric acid consumption. Kazakhstan's sulphuric acid requirements for the last couple of years outweighs domestic production capacity, while historically, the market was excessive. Generally, about 60% of the world's sulphuric acid is utilized in the production of fertilizers. Consequently, the agricultural sector wields a substantial influence on demand for sulphuric acid. Since we have had numerous discussions with the investment community in February post our 2023 trading update, I won't spend time explaining the situation around the sulphuric acid-related challenges again. As of today, company has secured the volumes required to meet its 2024 production guidance about 20% below subsoil use contract levels. In the medium term, the deficit is expected to alleviate first as a result of the potential increase in sulphuric acid supply from local producers, nonferrous metals mining and smelting operators. Second, the company intends to enhance its in-house sulphuric acid production capacity. Once the new sulphuric acid plant is online, our in-house sulphuric acid production capacity will reach almost 1.5 million tonnes. For reference, in 2023, Kazatomprom required about 1.7 million tonnes. So the company views the sulphuric acid-related challenge as having a short-term nature. Despite the challenges, the company managed to meet all of its 2023 targets. Production volume on both a 100% and attributable basis were within the guidance range, remaining flat compared to 2022. None of these plans could have been achieved without our most important resource, a team of over 20,000 dedicated employees. Kazatomprom ensures that they have the skills, access to training and equipment needed to work safely, and [ HSC ] remains to be one of our key priorities. The [ HSC ] measures taken in 2023 made it possible to prevent significant industrial accidents. Both group and KAP sales volumes were 10% higher compared to 2022, primarily due to additional requests from customers to flex up their annual delivery quantities within the frame of existing contracts as well as some new long-term contracts with the start of deliveries in a prompt window during 2023. Kazatomprom was successful to add new geographies to its customer base in 2023, including UAE's Emirates Nuclear Energy Corporation. Consolidated group inventory of finished products amounted to 7,200 tonnes as at December 31, 2023, 23% lower than at December 31, 2022, a year earlier. Attributable to the company inventory level amounted to 6,100 tonnes of U308, a 21% decrease compared to 2022 year-end volumes. The decrease in inventory at both group and KAP level is attributed to increased 2023 sales. The group's average realized price for 2023 equals to USD 55.09 per pound, an increase of 27% compared to 2022 due to an increase in the uranium spot price. It is worth mentioning that one -- that year-on-year growth rates for both the group and KAP's average realized price were at similar level as an increase in the spot market price for uranium in 2023. Kazatomprom successfully executed its 2023 shipments, experiencing no interruptions, logistical or insurance-related challenge through both Northern and trans-Caspian routes with the latter one comprising 64% of all uranium shipments to the Western markets. Despite this fact, selling expenses for the 2023 were only about 4% of the C1 cash cost, correspondingly to roughly $0.50 per pound of U308. Kazatomprom continues to monitor the list of sanctions on Russia and the potential impact they could have on transportation through Russian territory. To date, there are no restrictions on the company's activities related to the supply of its products to customers worldwide. In addition to physical deliveries, the company has alternative options, including inventory swaps, loans and book transfers. Therefore, the company is fully hedged to guarantee it has the material in the required volumes at the preferred location to meet its customer needs. Here, let me draw your attention to our sensitivity analysis. Our average realized price continues to chase the spot price, and our contract book shows the closest in the market correlation with the spot price. This time last year, the analysis was based on $20 to $70 price range, but we have now expanded it to $140 after seeing the market analysis and investment banks have improved their view on uranium prices and significantly increased their price targets. With that, you can see how higher average realized price reflects in our financial results for the year 2023, which were unbeatably strong. While the average annual uranium price showed a modest year-on-year increase of slightly more than 20%, our 2023 revenue growth was significant, amounting to 43% and resulting in KZT 1.4 trillion. Both gross and operating profits also demonstrated an almost 50% year-on-year increase. Adjusted net profit was 25% higher compared to the previous year results, amounting to about KZT 580 billion. This figure was achieved without any onetime effect. These impressive results reflect the considerable improvement in the uranium market over the past year as well as the company's strong position of the lowest cost producer and largest seller globally. As you know, Kazatomprom is also present in other stages of the nuclear fuel cycle, including uranium dioxide, ceramic powder production, fuel pellets and fuel assemblies. In 2023, 4 batches of fuel assemblies were successfully delivered to a nuclear power plant in China, amounting to just over 130 tonnes of low enriched uranium equivalent in total. It is expected that this year, Ulba Fuel Assembly will increase its production volumes to reach the full production capacity of 200 tonnes per year of low enriched uranium equivalent. For the year 2023, C1 cash cost and all-in sustaining cash cost, AISC, increased by 29% and 32%, respectively, compared to 2022. The increase in C1 cash cost was primarily due to an increase in the mineral extraction tax expenses as well as increase in wages and salaries of the production personnel and inflationary pressure on services, certain materials and reagents. Expenses related to mineral extraction tax used to be 22% of C1 in 2022, but comprised 28% of C1 cash cost in the reporting year due to change in the calculation methodology effective from 2023. All-in sustaining cash cost increased due to an overall increase in capital costs on an attributable basis. Capital expenditures of the mining entities increased by 37% compared to the previous period, primarily due to a shift in wellfield development activities as well as a rise in purchase prices for materials, supplies, equipment and cost of drilling. Increased spending on well construction and expansion aimed at preparing for the intended production expansion has also contributed to CapEx growth. Contrary to the initial ramp-up expectations, Kazatomprom's 2024 uranium production guidance is expected to be slightly higher than the previous years' production. Adjustments to the previously announced production intentions are due to challenges related to the availability of sulphuric acid and construction delays at the newly developed deposits as indicated previously. The company anticipates that the production volume for the majority of its uranium mining operations will be approximately 20% below the levels stipulated in subsoil use agreements. Entities engaged in mining operations at newly established deposits face the potential challenge of descending beneath the threshold of minus 20%. This risk is primarily attributed to delays in the construction of surface facilities and infrastructure. These delays, in turn, are a consequence of the extended timelines required for the development and subsequent approval of project design documentation. I'd like to once again assure that the company will remain committed to its 2024 existing contractual obligations to all clients. The group's sales volumes are expected at the range of 15,500 to 16,500 tons of uranium, including Kazatomprom sales of 15,000 to 12,500 tons of uranium. I am sure you have noted that sales guidance for 2024 is lower compared to 2023. It is due to higher sales of enriched uranium product that is produced out of the company's uranium to Ulba-FA fuel assembly or subsequent production of fuel assemblies and ensuring sufficient level of inventories for the future periods. As previously noted, Kazatomprom's 2023 year-end inventories are at level of 6,100 tons. This volume is comparable to about 10% of world's supply and definitely helps us to stay confident in executing our contractual commitments. Additionally, we usually reserve a portion of our annual production as uncommitted enabling us to capitalize on the emerging market opportunities and adapt to fluctuations in the market conditions. Despite lower sales guidance compared to 2023, we are expecting increase in revenue of about 20% with a forecast ranging at KZT 1.7 billion to KZT 1.8 trillion, which may vary though [indiscernible] to U.S. dollar exchange rate and/or spot price fluctuates significantly during 2024. Procurement and supply chain issues, including inflationary pressure on production materials and the reagents are expected to continue throughout 2024. As a result, we expect a 30% increase in C1 cash costs and about 25% increase in all-in sustaining cash costs for 2024. In addition to the mentioned factors, high uranium prices affecting mineral extraction tax are also expected to contribute to a C1 increase. Speaking about AISC, all-in sustaining costs, an increase of this metric is also attributed to the fact that our CapEx is incurred in advance, usually roughly 12 months, and smooths out when production is stabilized. Therefore, you'll see CapEx normalized when the company starts to produce at a higher rate as was intended in 2024. In 2024, the company expects a 30% increase in its total capital expenditures on 100% basis. The key reason for this are higher cost for materials, supplies, equipment and drilling services as well as a larger portion of capital expenditures attributable to wellfield development at newly developed deposits. As such, in order to catch up on the construction delays of the mining infrastructure at JV Budenovskoye, Katco and Ortalyk, a total amount of approximately KZT 85 billion is now expected to be spent in 2024. As of 2025, should there be any adjustment to the 2025 production plans, these are expected to be announced with the company's half year financial results in August this year. However, a swift return to a 100% production volume level relative to subsoil use agreements maybe at risk. Also worth noting that the company's reserve and resource base is the most sustainable across the industry. As at 31st December 2023, in comparison to 2022, total mineral resources increased by about 88,900 tons of uranium, mainly due to revaluation of uranium resource at Karatau, Khorasan and Appak deposits. As a national operator, Kazatomprom has always focused and will continue to put even more efforts to explore new uranium deposits and replenish its resource base. One of my priorities is to ensure sufficient level of our resource replenishment. Therefore, the company is planning to launch a large-scale exploration program and to work on assessment in territories aimed at new discoveries. Beyond the operational and financial results, let me highlight the company's major corporate developments. High management turnover remains throughout the year 2023, both within the C-suite and the Board level. This is the fact that I have to admit, but I think it is important that the company stays committed to its strategy and constantly delivers on its expectations. When I was appointed as CEO in October 2023, I acknowledged that -- I acknowledged this fact and would like to reiterate that ensuring more stability is definitely one of my priorities. The company also continues to prioritize ESG principles in its operations and activities. Worth highlighting that we have obtained a B score on our carbon disclosure project assessment in 2023. This is better than the average score for both the region and the industry. Kazatomprom continues to demonstrate a strong ESG record and will continue to work in improving it. In July, we completed the payment of dividends for 2022, which amount to KZT 201 billion or $1.7 per share. We will announce our 2023 dividend recommendation in April. But with the exceptional 2023 financial results and net debt to adjusted EBITDA ratio remaining negative, I am sure the company's dividend yield can be expected as the highest across the industry. Wrapping up my presentation, I'd like to confirm the company's continuous commitment to a market-centric strategy, which is one of the most important milestones on the company's development path. Kazatomprom will, with its best-class assets, sustainable reserve base, diversified sales book and strong contract portfolio, is best positioned to capture future market growth opportunities. The company appreciates being a part of the energy security agenda with the continuing geopolitical uncertainty and risks, and continuous thoughts on the bifurcation of the market, Kazatomprom is fully capable of keeping its leadership position as a reliable supplier of natural uranium and is ready to secure utilities needed in diversifying their supply of sources from ESG compliant and low-risk jurisdictions. With that, I will conclude my presentation. Thank you for your interest and attention. Now we'll be happy to answer your questions.

We will now begin the question-and-answer session. [Operator Instructions] And your first question comes from the line of Alexander Pearce from BMO.

So you flagged the KZT 85 billion CapEx for new projects this year, which includes the Budenovskoye, Katco and Ortalyk, I think. Is it possible for you to provide an update on kind of where they stand in terms of percentage completion of the projects at this point?

Alex, thank you for your question. So actually, those projects are at the very beginning of their stage. So I'm not sure I can give you the exact number, but should be less than 1/4 of their, I mean, of total kind of project value. So that is very early stage, I would say.

Okay. And then maybe the second question. Obviously, the new CapEx guidance range is KZT 250 billion to KZT 270 billion for '24. Does that assume -- and I appreciate you haven't given us a 2025 guidance yet. But does that assume that you can get to license capacity in '25? Or is that assuming a lower rate?

This is -- yes, this is kind of a tricky question. But as I say, and we here always have been saying this, we'll be coming up with the updated guidance for '25 production as a result of 6 months results, which will be public in August this year. So technically, at that time, we'll be announcing our guidance for 2025 production. But increased CapEx amount does not necessarily kind of factor in increase in production. Because as we said, there is also a little bit of construction that is going on and will be taking place. Plus, there is some increase in sulphuric acid, plus increase -- sulphuric acid price, plus increase in piping. There is also some workforce. So all those -- how to say, factors can be also kind of factored in increase of those, as you said, KZT 250 billion to KZT 270 billion.

Your next question comes from the line of Jason Fairclough from Bank of America.

A couple of quick ones for me, and I'm going to go back to the CapEx question. There's quite a few questions from investors, and I'd like a little more color as well on how we think about connecting the 100% CapEx number to the CapEx number that actually flows through on the financial statement? So I'm just wondering if you could give us a little bit of color on that. That's the first question. And then second, could you talk a little bit more about if you like the aspiration to get up to the full production level of the subsoil licenses. So you were planning on ramping in '24 and '25. That's still -- that's been pushed back. But do you still have a medium-term aspiration to get back to full production or full licensed production output?

Thank you for your question. This is Sultan. In terms of your second -- the second part of your question, I would comment that the current CapEx for 2024, KZT 250 billion, KZT 270 billion range, it puts us in a position to be able to attain a ramp-up if needed. Obviously, right now, it's hard to say because that will depend on the available volumes of sulphuric acid and the construction timeline for our greenfield projects at Katco, Budenovskoye and Ortalyk. We plan to review our capabilities near the half year to decide if we need to increase our CapEx. And again, that will depend on what level we are going to aspire in 2025. In terms of first part of your question, I think in operation and financial review, we have capital expenditures review, where you will be able to match the CapEx number of KZT 200 billion that we have spent this year, and you'll be able to break down on the -- have a breakdown on the mining entities of the CapEx, if that answers your question.

Yes. It does. Just a quick follow-up, if I could. The guidance on the CapEx, the KZT 250 billion, does that include CapEx for the acid plants? Or is that separate to that number? And if so, could you remind us the CapEx for the acid plant as it stands today?

No, it does not include the acid plant. We only are at the stage of the feasibility study. It has been completed. Now we are at the stage of design. So we don't have a concrete number. So yes. And this CapEx we show of KZT 200 billion is only for mining entities. So you have to have a look in terms of that as well.

Your next question comes from the line of Richard Hatch from Berenberg.

Sorry if I've missed this. Can you just clarify when you would hope to bring the acid plant online, please? That's the first one.

Yes. Our first -- when we first released the news about it, we were aspiring for 2026. But obviously, considering the latest delays, it will probably move to 2027 as of now. Obviously, it's a big construction project. As all big construction projects, it might have delays -- it has risk of delays. But currently, we can say that it's definitely going to move from 2026 to 2027.

Okay. So that kind of, I guess, the view on that would be, therefore, it just ties your hands a little bit more just in terms of being able to ratchet up production. Is that the way we should look at that?

Well, obviously, we're going to look at the market, the available volumes that are available at the market of Kazakhstan and our neighboring countries. Yes, the situation, as it is right now, has developed in 2024. But we have a shortage. Who knows what will be in 2025 or in the later part of 2024. But in terms of securing our own supply, obviously, that -- you can say that it ties our hands a bit.

Okay. Understood. And then my next question is just you mentioned in the release, and I think you alluded to it in your presentation, that you have the ability to step into the spot market should you need. But I'm looking at your inventory levels and just questioning if you really do need to do that. I appreciate your sales are higher than your production volumes, that you've got inventory levels. Does that -- is it more like -- is it fair to say that it's more likely than not that you do not enter into the spot market? Or would you say you more likely would?

Yes. Thank you for your question. Dastan here. We would like to keep all our options available but our inventory levels, as you mentioned, are sufficient, and they enable us to be comfortable and open to any options. But so far, we don't expect to go into the spot market. And hence, we don't need to.

Understood. And then my last one is just on the market. I just wondered, I mean, the spot price has been quite volatile year-to-date. We've had a huge rally, and then we've had a pretty big pullback down into the sort of mid $80 per pound levels. Can you just talk a little bit about your view on the market as we go into '24? And it would appear the spot market is quite thin, so that seems to be moving the price around a bit. But perhaps can you just give us a little bit of your view on the price outlook for '24, if at all possible?

Yes, yes, sure. Well, you've said that yourself, the spot market is very thin, right? We do agree that there is a structural deficit coming. It's just like the situation is going to unravel at a certain pace, and we're going to observe it. We expect certain fluctuations within the market in the upcoming periods. And -- but like as I've said already, the price is going to go up. It's just like the pace we've observed recently perhaps is going to slow down a bit. But in general, like the upward trend is going to continue. There is no doubt about that.

Your next question comes from the line of Alex Bedwany from Canaccord Genuity.

Just following on for my first question from Richard's question regarding inventory. Are you still targeting 6 to 7 months of attributable production to be in that inventory? Or are you happy at this point given that sales are higher than production or likely to be higher than production to run down the inventory, if need be?

Well, like the figure we have right now is the one we're comfortable with. So we're probably going to sustain this at the mentioned level. But we don't have a firm policy on that.

Okay, cool. Now turning to something different. So obviously, the earnings numbers were quite stellar. However, I note that it was about 200 -- somewhere between KZT 200 billion and KZT 250 billion short between EBITDA and operating cash flow -- the conversion into cash flow, and it looks like that is reflected in the VAT receivables build and accounts receivable as well. Have you seen that that's unwound already in this year-to-date? And the reason I ask is, is that something that would be taken into account when the Board sets the dividends in April?

Well, in terms of trade accounts receivable, yes, you are right, and there is an item in financial statement that explains the reason for it. I mean we had a reasonable revenue increase. And obviously, as a percentage our trade accounts receivable are going to increase, I will not say linear. But as a general approach, obviously, it's going to increase. In terms of it affecting the cash flow, obviously, the revenue from operating activities is going to affect the cash flow. I do not see how receivable -- accounts receivables are going to affect that.

So sorry, just to follow up. Has the VAT receivables and accounts receivables begun to unwind this year? Or is it still quite high?

As you know, we have a dividend policy that we clearly stated in our investor handout, and the formula is clearly stated there. So we are going to distribute according to that formula.

[Operator Instructions] Your next question comes from the line of [indiscernible] Grace Symes from Energy Intelligence.

I saw on the operating results. It says the group obtained control over JV Budenovskoye LLP from 1st January 2024, as a result of significant changes in charter documents. I was just wondering if you could give any further detail on what exactly that means?

Well, I don't think we'll be able to comment on that. We have a disclosure that, as you've said, this is according to the charter between the 2 partners. And according to the items in that charter, we are going to attain ownership starting from -- not attain ownership, have a control over JV Budenovskoye starting from 1st January 2024.

Okay. So Kazatomprom did not have control over it until 1st January 2024?

Sorry, can you repeat that again?

Yes. Sorry. So does that mean that Kazatomprom did not have control over the JV until 1st of January 2024?

Yes, yes, that's correct. That's correct. We obtained control starting from 1st January 2024. And we are going to consolidate it starting from 1st January 2024.

Okay. And just one more question. So I know the U.S. is considering a ban on Russian enriched uranium. My understanding is that Kazatomprom's uranium that goes to the U.S. through St. Petersburg is on the same ships that Russia uses for its enriched uranium. Is there any concern about potential impact on shipping of Kazatomprom's uranium to the U.S. because of that? And is there any plan for Kazatomprom to potentially charter its own ships instead?

Well, so far, there are no restrictions on any shipments from St. Petersburg. And as you've probably seen from our results, like 63% of our shipments to the West in 2023 were carried out through trans-Caspian international route through Azerbaijan. So we have all the options in it.

And also, I can add that 63%, 64% last year. So -- and actually, there was a visit paid by our president to Baku earlier this week. And then I've had a personal meeting with the top officials there, including First Deputy Prime Minister, Mr. Eyyubov. And we have again reconfirmed that their willingness and our willingness to cooperate on this matter. And actually, if you just compare absolute numbers or volume that is going through middle corridor through the trans-Caspian routes is uranium products is a tiny portion of this. Because in our case, it's like not more than -- at this point, not more than 10,000 tonnes of uranium, while other materials that is being -- that are being shipped through middle corridor, through Azerbaijan using trans-Caspian route is -- I mean there are huge numbers, including grain, oil and other materials. So even if we, let's say, double our transit volumes through Azerbaijan, that will not, I mean, increase share -- I mean dramatically increase share of uranium in that mix of materials that is being transited through Azerbaijan shows the total volume of all goods being transited, I don't know, maybe it's like hundreds of millions of tonnes. And in our case, it's only like a few thousand tonnes. So this just to give you the color on the amount or absolute amount that we are talking about.

[Operator Instructions] And your next question comes from the line of Anna Antonova from JPMorgan.

A quick question from our side. What share of deliveries through the trans-Caspian routes can we expect this year compared to below 70% last year?

That will be roughly the same as in 2023. So it would be safe to say like 2/3 of our shipments to the West.

We have a further follow-up question from Grace Symes from Energy Intelligence.

Sorry, one more question. I know you mentioned starting an exploration program and resource replenishment. I was just wondering if you could provide any detail on what territories or deposits or areas that you're looking at with that program?

Okay. In terms of further exploration that the territories are pretty much in the same area that we are doing now. And we actually -- our -- one of our priorities, starting from this year, will be further geological exploration and adding up some additional, maybe volumes to or tonnes to our KAP's share. And coming to your question is, yes, it's pretty much in the same area, not far from those deposits that we are mining at this moment.

And a further follow-up question from Alexander Pearce from BMO.

So just a follow-up on Budenovskoye. Obviously, you mentioned in the release that you have the offtake for 100% of production, I think, to Russia between '24 and '26. Are you able to provide any detail for us in terms of the volumes or indeed, if there's any kind of minimum threshold for delivery? And if there is, does that mean that you have to provide some of the volumes from your other operations run?

In terms of whether it's 100% or not, well, it depends on how the construction will go on in the first place. And if -- I mean if there are some delays, then as it might happen sometimes, so there might be some delay, and we already kind of pointed out those risks. And in terms of volumes, I'm not sure, I mean, what is it...

In terms of volumes, you can have a look at the CPR profile of the Budenovskoye mine, and that will give you a reflection of what volumes were planned for '24, '25 and '26, which is, [indiscernible].

So just to be clear then, so if the operation isn't ramped up as per the CPR, though, do you have to provide additional volumes to meet the CPR numbers?

Well, we -- yes, we don't provide detailed information on our kind of negotiations or talks with our partners.

[Operator Instructions] We do have a final question from Anna Antonova from JPMorgan.

A quick follow-up question from our side. I think in the press release, you mentioned that you were able to secure sulphuric acid volumes for production for this year. Could you please maybe talk about the mix of those volumes where they come from? So have you managed to source more from locally? Or you managed secure imports from China or from some other countries? Any comments around that would be much appreciated.

Yes. Thank you for your question. For 2024, yes, we have mentioned that we were able to contract the volumes needed for the guidance that we gave for 2024. Yes, most of it was procured domestically, but some parts were procured from our neighboring countries. But China is not on the list because there are difficulties in terms of legal issues and delivering the acid from China. So China is definitely not on the list, its neighboring countries, CIS countries.

That concludes the question-and-answer session from the audio line. I will now pass the call back to Mrs. Muldagaliyeva to take written questions from the webcast participants. Please go ahead.

Thank you, operator. Yes, we have several questions coming in from our webcast. The first one is coming from [ Boria Petlanda ], a retail investor. First of all, congratulations on these results. It shows the great margins that Kazatomprom has and how much cash it generates. After you commented it would take at least [indiscernible] to close the gap between supply and demand, it is obvious that the market expects and needs Kazatomprom to return to its subsoil use agreement level. So the question is what range of CapEx budget do you foresee to reach this subsoil use agreement levels?

Yes. Thank you to your question. I think we've earlier answered that question partly, and the answer is the same. We see that the current CapEx guidance that we gave for '24, it's kind of puts us in a position to be able to attain a ramp-up, if needed. Because you have to remember, we have prepared reserves in 2023 for a ramp-up -- for a planned ramp-up for 2024. So considering that, we might be able to attain that ramp-up. But obviously, the limiting factor in terms of that is the available volumes of sulphuric acid and the construction timeline for our greenfield projects at Katco, Budenovskoye and Ortalyk. And we are going to decide on that near the half year of 2024. And so I would say that the better guidance we'll be able to give, to answer your question, it will be after we finish the 6 months results and give guidance for 2024.

Thank you, Mr. Temirbayev. The next question is coming from [ John Praxis ] from Praxis Management. How much in percentage is the inflation rate you are feeling in your costs currently and we should expect in 2024?

Yes. The inflation rates in 2023, official inflation rate of National Bank was about 10%. Obviously, it's difficult to say how exactly -- in our cost structure, what exactly and how exactly it's affected. But the usual suspects are obviously materials and supplies, and you will see that our -- the price of sulphuric acid have increased substantially even more than the inflation rate. That's obviously because of the shortage in the market currently. There is pressure on the payroll costs. You can see that increase in our cost of sales. The payroll costs have increased 25%. And the piping materials, the prices of piping materials in the capital expenditures that we have in our wellfield development costs, they have increased as well. So we are feeling the inflation that is in Kazakhstan right now. But to what extent it's in line with the official rate of 10%, it's difficult to say.

Thank you, Mr. Temirbayev. So the next question is coming from [ Will Forbes ] at KGHL. Given asset issues, why you are not looking to boost your own asset production to be fully self-sufficient going forward?

Yes. As you know, we currently have in our assets 2 assets that produce sulphuric acid, that's SKZ-U and SSAP. They are producing at the maximum level that they are able to produce. Obviously, to build up a new capacity is easy to say, but very hard to do. As you know, we are planning to build our sulphuric acid plant. But even as we said today, it has already moved from 2026 to 2027. So to answer your question, yes, we are looking at building up our own capacity, but it's quite challenging to do that very quickly.

Thank you. Well, the next question was coming from the Russian line, so I'll just translate it here. And it corresponds to the previous one. Are there more precise information on the -- when are you expecting to your -- when you're expecting your sulphuric acid supplies to normalize?

As we've already mentioned today, we have already secured -- well, we have contracted the needed volume of sulphuric acid that we need to get for our 2024 guidance. In terms of 2025, as I've mentioned as well, the current market is quite difficult in terms of predicting what available volumes will be in the near term. So for 2024, we have more or less secured. For 2025, it's difficult to say.

Thank you, Mr. Temirbayev. The next question is also related to sulphuric acid. Do your neighbors like Uzbekistan face similar shortages in sulphuric acid supply? The question was from [ John Praxis ] at Praxis Management.

It's difficult to say. I can tell you for sure that we are not importing any volume from Uzbekistan currently and are not planning in 2024. So what's their domestic production and demand, it's hard to say. But considering that we do not import sulphuric acid from Uzbekistan, maybe, gives you some guidance.

Yes, thank you. The next question is coming from [indiscernible] at [ CD-ROMs ]. Some people say that as mines deplete, so they require more sulphuric acid per tonne of uranium produced. Is that true? If not, how can it be evidenced using the data?

Just there were a lot of speculation in terms of that. And I've seen like analysis of previous years, the volumes of assets that we had being compared to the volumes of production that we have. I can say that this analysis is not correct. Because we have, as we said, in the blocks, the leaching phase and the block preparation phase. And obviously, if we have more blocks for preparation, this will change the amount of needed volume of sulphuric acid in 1 year and it might be different in another year. So it's not a straight line analysis, I would say. And I think our CEO has mentioned in our presentation that in terms of wellfield production profile. So just to -- a short answer to your question is, no, there is no depletion. It's just that the needed volume of sulphuric acid for this year was not available due to shortage, and that's why we had to revise our guidance in terms of production. I think if depletion would be an issue, you will see that in our competent person's report that we produce each year.

Thank you, Mr. Temirbayev. So next question is coming from of [indiscernible], ARP Global Capital. Can you please tell us what you are seeing from the Chinese buyers given they have the world's most aggressive nuclear expansion plan? How do you think the percentage of your volumes going to China will evolve?

Yes. Thank you for the question. Well, as you know, China is building the most number of reactors currently, and they have very aggressive plans for expanding. And we receive a lot of inquiries and requests from them for us to indicate our offers. But we try to sustain a balanced approach to our sales portfolio and distribute our sales evenly across all regions, and even though like China is well capable of purchasing everything we produce, it is our own selection or our own choice not to sell everything to China.

Thank you, Mr. Kosherbayev. The next question is what are utilities saying right now? How are your conversations with them since the start of the year?

Yes, we do. We're in constant contact with all the utilities across the world. And naturally, they're all concerned with the security of supply and looking ahead forward into the next decade. But as you well know, like utilities typically keep like 3 to 4 years of inventory stock. So they are in no rush to get contracting. So basically, we're trying to figure out what's the new normal for the market price because you will understand that the current spot market is very thin, as already mentioned, and it's not -- it serves as a reference point. But definitely, that's not the actual market price.

Yes. Thank you, Mr. Kosherbayev. The next question is from [ David Terver ]. When you first announced 2025 production guidance of 31,000 tonnes, you indicated that the order book justified the production increase. What is the expected delivery volume in 2025? And by how much you will need to increase production and/or inventory in 2024 to give a suitable buffer to meet 2025 order commitments?

Thank you for your question. At the time when we did that, yes, we said perhaps that would be a good opportunity to increase our sales. But then we stumbled upon the difficulties we've already mentioned. So the ones associated with sulphuric acid and committed to our value over volume strategy, we decided that it's best to revise that. But as we've said, we are not fully contracted, and we have a lot of flexibility in terms of that. So we don't need to ramp up our production to meet our sales portfolio.

I think these are all the questions from the webcast. Okay. Thank you, everyone. I think there is no further questions in our broadcast lines, none in Russian or English. So thank you, everyone, for joining our call today. If you have any additional questions, please feel free to e-mail or contact our IR team. We'll be happy to answer your questions in written. Thank you, everyone, for your time again, and have a good day.