BUSINESS MODEL

Core Operations and Products

Kazatomprom is the largest global producer of natural uranium with priority access to one of the world’s largest uranium reserves.

Core operations:

Natural uranium
mining

Production of uranium
products

Prospecting and
explorationв

Producing rare
metals

Kazatomprom is:

• the world's largest uranium producer: in excess of 20% of the world's uranium production
• owner of the largest uranium reserves with priority access to a high-quality resource base
• low-cost and easy-to-scale uranium mining by in-situ recovery
• industry leader in operational efficiency, occupational health and safety as well as environmental protection
• a leader in the development of strategies for the sustainable, long-term future of the uranium market

Company's Asset Structure

14 mining assets operating in 26 deposits/blocks located in Kazakhstan, using the in-situ recovery (ISR) mining method, including:

• 2 wholly owned uranium mining subsidiaries operating at 5 uranium deposits/blocks
• 12 uranium mining companies partly owned by Kazatomprom that operate in 21 uranium deposits/ blocks

Mineral assets

Company’s mineral assets are located in four key administrative districts of Kazakhstan:

• Kyzylorda Region (Shieli and Zhanakorgan districts)
• Turkistan Region (Sozak and Otyrar districts)
• North Kazakhstan Region (Ualikhanov District)
• Akmola Region (Enbekshilder District)

Uranium Products Market Overview

PRICING

As the sale of natural uranium and uranium products is the main source of the Company's income and profit, market prices for uranium products have a significant impact on the Company’s financial performance.

Supply-demand balance shapes the market price for uranium products, as for any commodity. The average sales price of uranium sold by any major producer is also quite dependent on the types of contracts concluded and the structure of their sales portfolio (terms, price formulae used in each contract, the proportion of spot and longterm contracts, etc.).

Kazatomprom expects that nuclear power, as a reliable source of carbon-free, base-load electricity, will underpin its position in the broader energy market, resulting in greater demand for uranium in years to come. Kazatomprom is well placed to benefit from this, as it is the key low-cost producer.

URANIUM OUTPUT IN 2021

In 2021, Kazatomprom produced 11,900 tonnes of uranium, which equals 24% of global production which ranked it first globally in terms of natural uranium production. In the context of continued production cuts by a number of key competitors, by the end of 2021, Kazatomprom ranks first in the world in the natural uranium mining.

In August 2021 Kazatomprom announced its intention to continue cutting production by 20% in 2022 against targets under subsoil use contracts. The decision to cut production for another year will reduce the projected global primary uranium output by 5,500 tonnes in 2022, but maintain the uranium production in Kazakhstan at a level similar to that expected in 2021.

At the same time, Kazatomprom plans to maintain production in 2023 at the same level as in 2022, which is expected to be 20% lower than the projected volumes under the subsoil use contracts, keeping production almost at the same level in 2022 and 2023.

On June 24, 2021 Kazatomprom announced the plan to develop blocks 6 and 7 of the Budenovskoye field for the period between 2021-2045 with a ramp up in production to 2,500 tons of uranium not earlier than 2024, and a maximum possible annual production capacity of up to 6,000 tons of uranium not before than 2026. Specific commissioning dates and future annual production volumes are subject to annual review, and actual production volumes are subject to change depending on Kazatomprom's ongoing analysis of market conditions. According to the written agreements with the JV partners, the entire expected production volume of the JV Budenovskoye between 2024-2026 is fully reserved for feedstock supply to the Russian civil nuclear power industry on market terms under an off-take contract.

Analysis of Performance Dynamics

In 2021, Kazatomprom retained its position as the world's largest uranium producer (based on its attributable share of production). According to UxC, the Company's uranium production in 2021 amounted to 24% of the total global primary uranium production. Kazakhstan accounted for more than 45% of global uranium production in 2021.

PRODUCTION HIGHLIGHTS

Kazatomprom's share in the global natural uranium mining market (based on its attributable share of production), %

Kazatomprom's uranium output (attributable share of production), tonnes

Niobium product output, tonnes

Beryllium product output, tonnes

Tantalum product output, tonnes

Fuel pellet output, tonnes

FINANCIAL HIGHLIGHTS

Group revenue, KZT billion

Earnings per share, KZT/share

Dividends paid, KZT billion

Net profit, KZT billion

Capital expenditure of mining companies (on a 100% basis), KZT billion

Operating profit, KZT billion

Adjusted earnings per share, KZT/share

Net debt/adjusted EBITDA

Sales and Distribution

SALES OF URANIUM PRODUCTS

COVID-19 pandemic did not affect the performance of the Company's sales commitments in 2021. Kazatomprom completed all contractual obligations to customers.

In 2021, the Company sold uranium products directly and through its Swiss trading subsidiary Trade House KazakAtom AG (THK) to 21 clients in eight countries.

TRANSPORTATION

Kazatomprom deploys safe, secure, and reliable logistics solutions to deliver uranium products to its customers across the globe. Uranium products are shipped by rail or sea in sealed containers and physically protected by armed guards and convoys until they reach their destination. All shipments are insured against any risks associated with the transportation of uranium products.

In 2021, Kazatomprom delivered U₃O₈ and finished uranium products to various destinations, based on customer needs and requirements including:

Converters. The Group transported U₃O₈ to licensed conversion facilities owned by companies such as Honeywell (US), Cameco (Canada), and Orano Cycle (France), first by rail from the Company’s operations in Kazakhstan most commonly to the port of St. Petersburg in Russia, then by sea to various ports in the US, Canada and Europe. Afterwards, the material was moved by rail or road to processing facilities and transferred to customer’s accounts.

China. When transporting material to China, Company delivered its cargo to the Alashankou railway station near the Kazakhstan-China border.

Russia. When shipping to the Russian Federation (recipients include Siberian Chemical Combine JSC (SCC)) Company delivered its cargo by rail to the Tomsk-2 railway station in Russia.

India. Company mostly delivered U₃O₈ to destinations in India by rail to the port of St. Petersburg, Russia, further by sea to the port of Mumbai, India. The customer would take title at the port and organised further transportation to the final destination.

Argentina. When delivering to Argentina customer would take title at the port and organized further transportation to the final destination.

Romania. Delivery was implemented based on DDP (Delivered, Duty Paid) terms.

The average cost of shipping products to the destinations indicated in the map below ranges from USD 0.5 to USD 3.5 per kilogram of U₃O₈. Where practical, the Group enters swap agreements in order to minimise delivery times (the physical transportation of materials takes, on average, 100 days, while deliveries under swap agreements can take up to 25 days), reduce transportation costs, and lower risks related to the transportation of uranium products.

Development Strategy

DEVELOPMENT STRATEGY IMPLEMENTATION IN 2021

Implementation of the Company’s 2021-2028 Development Strategy focuses on improving operational efficiency in core activities, continuing business transformation and improving corporate governance and HR management processes. All planned activities were completed in 2021.

KEY RISKS OF STRATEGY IMPLEMENTATION¹⁰

• major accidents in the nuclear industry could lead to a sharp drop in uranium prices
• nuclear energy competes with a number of other energy sources, and stable and lower prices for alternative energy sources could lead to a reduction in demand for nuclear feedstock, reductions in nuclear power development and nuclear power plant construction programs and, consequently, a reduction in demand for uranium and its market price
• nuclear energy is subject to public opinion risks, which could have a material adverse effect on the demand for nuclear energy and lead to increased regulation of nuclear energy industry
• the Group's profitability is directly linked to the uranium market price. The volatility of uranium prices may have a material adverse effect on the Group
• the Group faces competition from other uranium suppliers and may lose out on end users of uranium products
• the Group currently depends on a small number of customers who purchase a significant share of the Group's uranium, and any loss of important customers could have a material adverse effect
• some of the Group's customers and business partners may be subject to US and EU sanctions and, if this were to occur, such an event could have a material adverse effect
• the complex and non-quantifiable risks that are associated with the sanctions against Russia and the current situation in Ukraine and could undermine the Group's financial stability and trigger social tensions include, but are not limited to, restrictions on mutual settlements in US dollars and other currencies, suspension of transshipments in the territory of the Russian Federation, and physical security of goods
• the Group is a major taxpayer and thus exposed to tax risks, including changes in the uranium extraction tax rate and transfer pricing within the limitation period as the most significant risks
• the United States or other uranium importers may impose tariffs or quotas on uranium imports
• the Group can continue to hold significant U₃O₈ reserves throughout the entire U3O price cycle
• the Group's uranium mining and transportation operations are subject to operational risks, hazards, and unforeseen disruptions that could cause delays in the production and delivery of the Group's uranium and uranium products, increase the Group's production costs or lead to accidents on the Group's mining sites
• the availability and cost of sulphuric acid significantly affects the continuity and commercial viability of the Group's operations as the Group uses significant quantities of sulphuric acid to extract uranium
• the Group may encounter difficulties in utilising railway lines connecting Kazakhstan with neighbouring countries or other transport infrastructure
• the Group may see unfavorable outlooks regarding its current ore reserves or the discovery of new ore reserves; therefore, estimates or classifications of the Group's uranium ore reserves may be underestimated due to inherent uncertainties in the estimation of ore reserves
• the Group may be unable to obtain, on commercially acceptable terms, or may not obtain at all, the necessary financing for its operations, strategy, business expansion and local infrastructure
• the Group is exposed to various financial risks related to compliance with certain financial and other restrictive covenants, fluctuations in interest rates and exchange rates, liquidity restrictions or inability to obtain necessary financing, counterparty defaults
• the Group may face arbitration or litigation to which it is not a party, legal consequences of non-compliance / misinterpretation of laws
• the Group's insurance coverage may not be sufficient to cover losses arising from potential operational risks and unforeseen interruptions
• any failures of the Group's IT systems or cyber-attacks could adversely affect results
• failure to meet targets for uranium production, output, sales, cost of products and services
• failure to implement the Group's asset restructuring plan timely
• failure to improve corporate governance, safety and environmental performance
• failure to meet targets for the production of fuel assemblies in the Republic of Kazakhstan
• the Group is highly dependent on the macroeconomic, social and political conditions prevailing in Kazakhstan and may be subject to adverse sovereign action by local authorities or be subject to extensive government regulations and laws
• the Group could be affected by labour unrest or rising social unrest in Kazakhstan, which could have a material adverse effect on the Group's business and reputation
• the Group's results of operations are subject to economic, political and legal developments in China, India, and South East Asia
• unexpected catastrophic events, including acts of vandalism and terrorism, could adversely affect the Group's business
• deterioration of the epidemiological situation due to COVID-19 pandemic in Kazakhstan may cause deterioration of the Group's financial stability and increase social tension
• the spread of COVID-19 pandemic may lead to additional shutdowns or production cuts, which will affect the Company's performance and may cause the Company to update and/or not meet its 2022 targets

STRATEGY IMPLEMENTATION IN 2021

Business Transformation

TRANSFORMATION PORTFOLIO

As of December 2021, the Company's transformation portfolio consisted of:

5 projects:

• Automated control system for the pumping fleet
• Upgrade of refining capacity at Kazatomprom-SaUran LLP
• Implementation of a tool for determining the ore bodies contour on the basis of machine learning technologies
• Introducing and developing cybersecurity
• Developing new pricing rules (methodology) for other uranium products (UF₆, enriched uranium product, fuel pellets, fuel assemblies, etc.)

3 events:

• Implementing a safety culture development plan based on the Golden Safety Rules of the Vision Zero international concept
• Advancing the quality of planning, maintenance and repair works for technological equipment
• Digitisation of process drilling data

TRANSFORMATION PROGRAM IMPLEMENTATION

Key results of 2021:

As part of the Transformation Program, the Company took the following measures:

• implementing the IT security processes at the headquarters
• monitoring the IPS system launch at Semizbay-U LLP and JV Inkai LLP
• completing the development of an automatic monitoring system for radiation hazards
• developing BI-analytics tools based on open solutions for mining subsidiaries to digitise technological drilling data
• completing the development of production processes architecture (mining and processing) and data architecture at RU-6 LLP with top-level requirements for IS integration at the mining enterprise
• completing the development of design and estimate documentation for Kazatomprom-SaUran LLP refining capacity modernization project
• developing a draft pricing methodology for uranium products (UF₆, EUP, fuel pellets, fuel assemblies, etc.) to increase the market share through sales of other uranium products and to generate revenue and net profit growth through sale of other uranium products
• updating the methodology for natural uranium concentrate pricing to enhance the export potential of the Republic of Kazakhstan by increasing the company's competitiveness in the global uranium market
• developing a system for monitoring and analysis of the centrifugal pump units’ technical condition at JV Khorasan-U LLP (vibration, pressure, temperature sensors)
• developing and implementing a geological modelling tool to determine the contour of ore bodies based on machine learning and geostatistics technologies at JV Khorasan-U LLP, Baiken-U LLP, and Semizbay-U LLP

Plans under the 2022 Transformation Programme

• complete the development of a system for monitoring and analysis of the centrifugal pump units technical condition at JV Inkai LLP (vibration, pressure, temperature sensors)
• upgrade the refining capacity at Kazatomprom-SaUran LLP
• complete the development of a methodology for determining drilling performance-related KPIs, including a prototype model for setting the interdependence between the probability of repair works and well parameters
• complete monitoring of the ore body contour definition tool at JV Khorasan-U LLP, Baiken-U LLP and Semizbay-U LLP providing recommendations for further development (including possible financial project benefits)
• introduce target IT business processes at KAP Technology LLP
• complete actions to approve the new pricing methodology for uranium products (UF6, enriched uranium product (EUP), fuel pellets, fuel assemblies (FAs), etc., by the authorized agency in the Republic of Kazakhstan

IT ARCHITECTURE DEVELOPMENT

Key events within the scope of the Company's IT architecture development in 2021

1. 24kap.kz introduction

The Company completed the following as part of the Corporate Portal upgrade:

• development of a new functionality (Orders and Services)
• migration of existing databases, as well as modernization of the Corporate Portal functionalities created on the basis of MS SharePoint

2. Development of prototype geophysical research system (PGRS) using artificial intelligence technologies

• development of Terms of Reference for the Industrial PGRS
• the meeting of representatives of the “Digitalisation, automation and robotisation” section of Kazatomprom Scientific and Technical Council has approved an application form and R&D roadmap dedicated to the development of geophysical research support system based on machine learning technologies

3. IT Service Management (ITSM) replication in subsidiaries and affiliates

Replication of three IT processes in twelve subsidiaries and affiliates. Within the framework of replication, the following processes were launched:

• management of service requests and IT-related incidents
• management of access to IT services
• management of IT service agreements

4. Microsoft Licence Purity

• development of a roadmap for achieving licence purity in Kazatomprom Group (the RM SWP)
• development and agreement on technical requirements for Microsoft software products, with defined technical and quality specifications for the procured Microsoft software, requirements to the technical support and potential supplier
• procurement procedures within the framework of Microsoft procurement strategy held according to the agreed schedule and in compliance with the strategy requirements
• fifteen subsidiaries and affiliates, including the headquarters, became participants of the 2021 Microsoft 2021 Procurement Strategy

New SAP PPM, SAP GRC and SAP HCM development projects 2021

1. GRC Access Control

A key tool to ensure compliance with internal company procedures for data protection, identification of access risks and correct assignment of authority to company staff. Business unit heads became SAP modules owners.

2. SAP Project and Portfolio Management (SAP PPM)

Ensures automation of project management processes and makes project portfolio management much easier. In addition, the Company worked to migrate data to the S/4HANA platform, including integration between SAS IPS and SAP PPM, SAP PPM and SAP ERP via the BW migration to the new SAP BW/4HANA version. BW is also the data transfer intermediary from SAP ERP to the Data Warehouse.

3. SAP MDG system

SAP MDG on the S/4HANA platform was launched in May 2021. As part of the Project, the system was configured to automatically generate short and full name of the Goods, Works and Services (hereinafter referred to as “GWS”) directory using the GWS classifier, maintenance of Plan of Accounts and Primary Cost Types directories, integration with public databases, approval processes for master data requests involving business units of companies, quite simplified system interface and much more. All of this has significantly improved the quality of master data, which has a major impact on procurement, production, logistics and other Company business processes.

4. Robotisation of business processes through RPAs

Transformation team together with the interested Company's structural units developed and implemented RPA robots aimed at automation of routine operations performed by employees both of the headquarters and of the Company's subsidiaries and affiliates. Kazatomprom introduced nine solutions covering treasury, accounting, marketing, industrial safety and other processes. The main areas of robotisation are data transfer between information systems, including SAP ERP, collection and processing of information from external and internal portals, building operational reporting, reconciliation and validation of information. In 2021, we developed and implemented an internal regulatory document governing the robotisation of business processes through RPAs.

5. Geological modelling based on machine learning

As part of Kazatomprom Transformation Programme, a project for implementation of a tool for determining the orebodies contour based on machine learning technologies is in the pipeline. The purpose of this project is to model the contour of orebodies represented by a plan using machine learning and geostatistics algorithms and, as a result, to automate the geological modelling process in terms of the task being studied. As part of this project, the Company internally developed the “Contour” tool, which allows geologists to run various modelling scenarios using accumulated historical data. Together with the staff of subsidiaries and affiliates, the tool is implemented and tested within the selected perimeter.

IT architecture development plans 2022

The Company has extensive plans for developing the Group's IT architecture and implementing digitalisation projects. In 2022, the plans are to:

• continue to search for and implement advanced digital technologies applicable to the Group's operations to enhance business opportunities, provide competitive advantages and enhance product value, as well as solutions for data analytics application
• continue to work on the development of the SAP system (ERP, HCM, GRC, PPM, BW, MDG) to improve the Company's business processes
• the Transformation Team will continue to implement best practices in Data Management and Data Governance as part of Data Governance development. It is planned to build up a concept on establishment of data management office within the Company's organisational structure, as well as to continue formalization and implementation of processes on data management and analytics in the headquarters as well as subsidiaries and affiliates

Milestones 2022

• phase 1. Implementation of a unified Enterprise Data Warehouse (EDW) and Enterprise service bus for data collection and processing
• SAP MDG system
• automation of financial statements consolidation process
• increasing the level of automated services use
• Smart Mine
• implementation of the transport accounting system at Volkovgeology JSC

INFORMATION SECURITY

Business transformation opens up new opportunities for real-time decision-making and increasing the productivity, flexibility, and agility of the industry, while at the same time requires special attention to ensuring information security, cyber resilience and business continuity of information systems.

In order to ensure an appropriate level of cybersecurity, Kazatomprom continuously monitors compliance with information security requirements and strives to develop an information security management system in accordance with the laws of the Republic of Kazakhstan and ISO/IEC 27001.

The Company continues to bring to action the Implementation and Development of Cybersecurity Project as part of the Action Plan for the execution of “Establishment of an Integrated Information Security Management System” mechanism under strategic objective on “Digitalisation and Transformation” to achieve the “Apply best practices in business activities” strategic goal as per the 2018-2028 Kazatomprom Development Strategy. Kazatomprom ensures roundthe- clock monitoring and response to information security incidents, and actively interacts with the Digital Security Service and the National Coordination Centre for Information Security. In order to improve and enhance the cyber culture and cyber hygiene in the Group, online training, cyber training sessions and special induction trainings are conducted on an ongoing basis.

To raise awareness on information protection among employees, as well as to inform them about changes in internal documents governing the information security requirements in 2021, an interactive online training for top managers of subsidiaries and affiliates and line managers of the headquarters, and a thematic course for all employees of Kazatomprom were conducted.

As part of the intent on cooperation agreements in information security, the Company works to improve cyber hygiene and digital security, and to ensure participation in forums and meetings to discuss the digitalisation of the nuclear industry and plans for IT and IS systems development, both during the pandemic and in the post-quarantine period.

Information security development plans for 2022:

Kazatomprom will continue to monitor compliance with information security requirements in all existing and developing IT systems, as well as carry out activities to improve cybersecurity and information security awareness among its employees.

In addition, the Company intends to:

• continue to improve and replicate the processes of the integrated information security management system in accordance with 2019-2028 Kazatomprom Information Security Strategy
• take measures as part of the Cybersecurity Introduction and Development Project
• implement the Action Plan for Improvement of the 2022 Information Security Management System
• continue automation of ISMS processes and implementation of advanced cybersecurity systems

Association Membership and International Compliance

Professional nuclear power organisations

World Nuclear Association, London, UK

Tantalum-Niobium International Study Center, Brussels, Belgium

World Nuclear Fuel Market, Norcross, GA, United States

Nuclear Energy Institute, Washington, D.C.

World Nuclear Transport Institute, London, UK

National sectoral organisations

Nuclear Society of Kazakhstan, Nur-Sultan, Kazakhstan

Association Of Legal Entities “Republican Association Of Mining And Metallurgical Enterprises” (AMME), Nur-Sultan, Kazakhstan

KAZENERGY Kazakhstan Association of Oil&Gas and Energy Sector Organisations, Nur-Sultan, Kazakhstan

Atameken National Chamber of Entrepreneurs of Kazakhstan, Nur-Sultan, Kazakhstan