Significant Factors Affecting the Group’s Results of Operations
Key Performance Indicators Analysis
Capital Expenditures Review
Reserves and Geological Surveys
Liquidity and Capital Resources
Indebtedness
Guidance for 2022
OPERATING
AND FINANCIAL
REVIEW
In 2021 the Company fulfilled its obligations and continued to create value, largely due to the consistent implementation of its development strategy maintaining a disciplined market approach, diversifying contract portfolio and strengthening presence at global uranium markets, while working to improve business efficiency and optimise costs, and maintaining a focus on uranium mining as the core business activity.
KEY INDICATORS
AND ACHIEVEMENTS
1.0 billion KZT
Group’s consolidated
revenue
0.0 billion KZT
net income
.1 billion KZT
capital expenditures
of mining companies
.1 billion KZT
dividends paid by the
results of 2020
UN SUSTAINABLE DEVELOPMENT GOALS
EN RU KZ

Significant factors affecting the Group’s results of operations

Significant factors that affected the Group’s results of operations during 2020 and 2021, and are expected to continue their effect in future, include:

UPDATE ON RECENT GEOPOLITICAL EVENTS

Subsequent to financial statements reporting date, significant geopolitical events have occurred in Kazakhstan and in Russia/Ukraine. These events have not had a material impact on the Group’s operations to date although the resulting market uncertainty has caused a significant volatility in the tenge exchange rate and traded price of the Company’s securities. Management is unable to predict the consequences or future impacts of these events, if any, on the Group's financial position or operating performance. Management will continue to monitor the potential impact of the above events and will take all necessary steps to mitigate the risks and prevent adverse business impacts.

JANUARY 2022 CIVIL UNREST IN KAZAKHSTAN

On 2 January 2022 protests triggered by a rise in fuel prices began in the Mangistau region of Kazakhstan which spread to other regions in the country. The protestors demanded a number of social, economic and political reforms. Although the Government took measures to respond to these demands, including a decrease in fuel prices, the protests escalated into significant social unrest in Almaty and southern regions of the country.

As a result, on 5 January 2022 a state of emergency was declared until 19 January 2022, and restrictions were imposed on communication and transportation of people and vehicles, including railway and airline carriage. Currently, the situation in all regions of the country has stabilized, and the state of emergency has been cancelled. The functioning of utilities and life support systems have been fully restored, and restrictions on communication and transportation have been removed.

EVENTS IN UKRAINE

On 21 February 2022, the Russian President announced that Russia would recognize independency of the Luhansk People’s Republic and Donetsk People’s Republic and the Russian military mobilized its troops over the border of Ukraine. As a response to the Russian actions, the United States, the European Union and a number of other countries-imposed sanctions against Russia including the disconnection of a number of Russian financial institutions from SWIFT.

In connection with the sharp devaluation of the Russian ruble, the Tenge exchange rate began to be adjusted. To date, the National Bank of the Republic of Kazakhstan has taken a number of measures to maintain the stability of the Kazakhstan financial system.

Due to active international sanctions processes against Russian banks, including Sberbank, VTB Bank and other organizations, it is inappropriate for the Group to service or interact with these banks and their subsidiaries. The Group has taken measures to redistribute funds to banks that are not under current sanctions.

The Group has a Uranium Processing Agreement with the Uranium Enrichment Center (UEC) (a resident of the Russian Federation). At the date of the financial statements, the Group anticipates that provision of services under this agreement will continue. There may be a risk of difficulty in making mutual settlements in US dollars with UEC in the event of restrictions and blocking of the UEC's foreign currency accounts or in the event of the withdrawal of Russian banks from the SWIFT system. Potential measures related to the risk of Rosatom being sanctioned are now under consideration.

NAC Kazatomprom JSC has already taken a range of measures to prevent a possible risk associated with mutual settlements with Russian partners, including the payment of dividends. All funds deposited on accounts with Sberbank have been transferred to other secondtier banks. At the time of publication, some subsidiaries and associates were completing the transfer of liquid funds.

On an ongoing basis, the Company monitors and evaluates the US sanctions in terms of their potential impact on the Group's performance, as well as monitor all its counterparties in terms of the US sanctions programmes.

Some of the Group’s exported products are transported through the Russian Federation and, accordingly, there are risks associated with both transit through the territory of Russia and the delivery of cargo by sea vessels. The Group constantly monitors the situation with sanctions against Russia and the potential impact on the transportation of finished products. At the date of financial statements, there are no restrictions on the Group's activities related to the supply of the Group's products to end customers.

Being aware of the possible risks associated with the refusal of the European and Chinese suppliers to transport certain goods for the Group’s entities (Ulba FA LLP, Ulba Metallurgical Plant, and SKZ-U LLP) across the territory of the Russian Federation and Belarus, the Company develops alternative supply routes, as well as analyses the impact of changes in supply chain logistics on an increase in the transportation costs and production costs in the medium term. The Company has already made value changes to the procurement plans regarding currency exchange rate changes (in the case of a direct impact of the exchange rate on the cost of goods/work/services).

To reduce the risk of revocation of licences and termination of technical support for software and information technology and security equipment by the US and the EU manufacturers, as well as a possible increase in cyberattacks from hacker groups on the territory of Kazakhstan, Kazatomprom constantly monitors and analyses information on the cost of foreign software products, licences, and their technical support, negotiates with vendors and partners on compliance with the current terms of cooperation, as well as strengthens control over the information security and monitors information security threats 24/7 through the OCIS.

PRICE RECEIVED FOR THE SALE OF NATURAL URANIUM AND CHANGES IN NATURAL URANIUM PRODUCT PRICES

Spot market prices for U3O8, which is the main marketable product of the Group, have the most significant effect on the Group’s revenue. The majority of the Group’s revenue is derived from sales of U3O8 under contracts with price formulae containing a reference to spot price. In addition to spot prices, the Group’s effective realized price depends on the proportion of contracts in the portfolio with a fixed price component in a given period. The average realized price for each period can therefore deviate from the prevailing spot market price. More information regarding the impact of spot market prices on average realized price is provided in Section ”Uranium sales price sensitivity analysis”.

The following table provides the average spot price and average realized price per pound of U3O8 for the periods indicated.

Average spot price and average sales price per pound U3O8

Indicator 2020 2021 Change
Average weekly spot price (per lb U3O8)19 USD 29.60 35.05 18%
KZT 12,236 14,932 22%
Average realized price of the Group (per lb U3O8) USD 29.54 33.11 12%
KZT 12,210 14,108 16%
Average realized price of Kazatomprom (per lb U3O8) USD 29.63 32.33 9%
KZT 12,247 13,776 12%

The Company’s current overall contract portfolio price is closely correlated to current uranium spot prices (see Section ”Uranium sales price sensitivity analysis”). However, the increase in average realized prices in 2021 was lower than the increase in the spot market price for uranium due to the significant spot price volatility in the uranium market in 2021 (low of 27.35 USD/lb and high of 50.38 USD/lb). During the fourth quarter, many deliveries were based on contract price mechanisms that established a contract price for the delivery, set earlier in the year when the market price was lower and prior to the sharp increase in the market price in September 2021.

For additional details related to specific market developments that influenced the pricing of uranium in 2021, please see the “Financial Standing and Performance Analysis 2021”, available on the corporate website.

CHANGES IN THE GROUP STRUCTURE

In 2021 and 2020 the Group completed several transactions that had a significant impact on reported results.

In 2021:

In 2020:

In total, the number of the Group’s subsidiaries, JVs, JOs, associates and other equity investments decreased from 40 as at 31 December 2020, to 36 as of 31 December 2021.

IMPACT OF CHANGES IN EXCHANGE RATES

The Group's exposure to currency fluctuations is associated with sales, purchases and loans in foreign currencies. Significant cash flows of the Group are in USD due to:

A significant portion of the Group’s expenses, including its operating, production and capital expenditures, are denominated in KZT. Accordingly, as most of the Group’s revenue is denominated in USD, while a significant share of its costs are KZT-denominated, the Group generally benefits from appreciation of USD against KZT which subsequently has a positive effect on the Group’s financial performance. However, the positive effect of an appreciating USD may be fully or partially offset given that the Group has outstanding USD-denominated liabilities although the amounts of such liabilities at 31 December 2021 and 2020 are not significant. In addition, the Company purchases uranium and uranium products from its JVs and associates pursuant to KZT denominated contracts, with the prices determined by reference to prevailing spot market prices of U3O8, which are denominated in USD. Accordingly, a significant appreciation of USD would result in a corresponding increase in the KZT-denominated price of such contracts.

The Group attempts to mitigate the risk of fluctuations in exchange rate, where possible, by matching the currency denomination of its payments with the currency denomination of its cash flows. Through this matching, the Group achieves natural hedging without the use of derivatives.

In 2021, the KZT/USD exchange rate fluctuated between KZT 414.77 and KZT 436.35. At the end of 2021, the National Bank of the Republic of Kazakhstan (NBK) exchange rate was KZT 431.67. Changes in exchange rates had material impact on the Group’s financial performance in 2021. The Group’s net foreign exchange gain in 2021 amounted KZT 3,345 million.

The following table provides annual average and yearend closing KZT/USD exchange rates, as reported by the NBK, as of 31 December 2021 and 2020.

Annual average and year-end closing rate for KZT/USD
Average exchange rate for the period 20
+3%
Closing exchange rate for the period
+3%

TAXATION AND MINERAL EXTRACTION TAX (MET)

Kazakhstan’s MET is determined by applying a 29% tax charge to the taxable base related to mining production costs (based on a formula - see table and footnote below). Taxable expenditures are made up of all direct expenditures associated with mining operations, including wellfield development depreciation charges and any other depreciation charges allocated to direct mining activities, but exclude processing and general and administrative expenses. The MET is calculated separately for each subsoil use license. The resulting MET paid is therefore directly dependent upon the cost of mining operations.

The following table provides a summary of taxes accrued by the Group for the years shown.

Group taxes, KZT million

Indicator 2020 2021 Change
Corporate income tax 21 65,492 85,345 30%
Mineral extraction tax 22 20,110 23,659 18%
Other taxes and payments to budget 23 55,490 62,572 13%
Total tax accrued 141,092 171,576 22%

Total tax accrued increased by 22% in 2021 compared to 2020, mainly due to an increase in corporate income tax. The increase was due to a higher tax base resulting from higher uranium spot prices and the weakening of the KZT against the USD. The sale of the Uranium Enrichment Centre JSC in the first half of 2020 had a one-off effect on the tax base of corporate income tax (see Section ”Changes in the Group structure”). The increase in MET and other taxes is mainly due to an increase in uranium production volumes in 2021 (see Section ”Uranium segment production and sales metrics”).

Following the announcement by the President of the Republic of Kazakhstan in January 2022 that the country’s current tax regime and MET would be subject to revision, government authorities are considering options to increase MET rates for solid minerals, including uranium. Although no decisions or changes in legislation have been made to date, the government has publicly stated that it is considering an increase in the MET rates on uranium from 2023.

COST AND AVAILABILITY OF SULFURIC ACID

Extraction of uranium using the ISR mining method requires substantial amounts of sulfuric acid. If sulfuric acid is unavailable, it could impact the Group’s production schedule, while higher prices for sulfuric acid could adversely impact the Group’s profits.

The Group’s weighted average cost of sulfuric acid increased slightly to KZT 22,740 per tonne in 2021 (from KZT 22,203 per tonne in 2020) and the cost is expected to continue increasing in 2022. On average in 2021, the price of sulfuric acid represented about 13% of the Group’s uranium production costs.

PANDEMIC-RELATED COSTS AND AVAILABILITY OF CRITICAL OPERATING MATERIALS & EQUIPMENT

The extraction of uranium using the ISR mining method requires the import of certain key operating materials and components. These items are either imported into Kazakhstan directly by the Group, or they are imported by local suppliers from whom the Group procures such materials. Due to global pandemic-related shipping constraints and export restrictions imposed by some countries, the Group has encountered delays and/or limited access to some key materials & equipment, such as certain types of pipes and pumps, specialised equipment and drilling rigs.

In some cases, shipping and availability constraints have resulted in a higher cost to acquire the necessary operating materials, including inflationary pressure as a result of commodity price changes, driving a slight increase in production costs and a negative impact on profitability. In other cases, there has been a nearcomplete loss of access to certain materials. Pandemicrelated supply chain challenges have continued to result in limited access to certain key operating materials and equipment, which had a material impact on the Company’s wellfield development and production schedules in 2021 (see Section ”Uranium segment production and sales metrics”), adding additional risk to production in 2022 and resulting in a lower and wider ranges for the expected production volume (see Section ”Guidance for 2022”).

IMPACT OF CHANGES IN ORE RESERVES ESTIMATES

The Group reviews its JORC-compliant estimates of Ore Reserves and Mineral Resources on an annual basis, including a review of the estimates by a qualified thirdparty. As a result, certain Ore Reserves and Mineral Resources may be reclassified annually in accordance with applicable standards. Such reclassifications may have an impact on the Group’s financial statements. For example, if a reclassification results in a change to the Group’s life of mine plans, there may be a corresponding impact on depreciation and amortization expenses, impairment charges, as well as mine closure charges incurred at the end of mine life.

TRANSACTIONS WITH SUBSIDIARIES, JVS, JOS AND ASSOCIATES

The Company purchases U3O8 from its subsidiaries, JOs, JVs and associates, principally at spot price with marketbased discounts, which may vary by operation. Purchased volumes generally correspond to the Company’s interest in the respective selling entities.

The Group’s Uranium segment revenue is primarily composed of two streams:

Cost of sales of purchased uranium is equal to the purchase price from JVs and associates, which in most cases is the prevailing spot price with certain applicable discounts. The share of results of JVs and associates represents a significant part of the Group’s profits and should be considered in the assessment of the Group’s financial results. In 2021, U3O8 was purchased at a weighted average discount of 4.09% on the prevailing spot price.

When uranium produced by the Company, consolidated subsidiaries and JOs, is sold, the cost of sales is predominantly represented by the cost of production. For those sales, the full margin for uranium products including uranium for export is captured in the consolidated results of the Group.

The following table provides the volumes purchased by the Company for the periods indicated.

Volumes of U3O8 purchased by the Company, tonnes

Indicator 2020 2021 Change
U3O8, purchased from JVs and associate 2,676 2,910 9%
U3O8, purchased from JOs and subsidiaries 8,586 9,211 7%
Total 11,262 12,121 8%

The volume of U3O8 purchased from JVs and associates, JOs and Subsidiaries comprised 12,121 tonnes in 2021, compared to 11,262 tonnes in 2020, an increase of 8%, mainly due to due to higher 2021 U3O8 production volume on both a 100% and attributable basis (see Section ”Uranium segment production and sales metrics”).

In addition to the above volumes, the Company (including its trading subsidiary THK) also purchases volumes from third parties at variable prices.

Key performance indicators analysis

CONSOLIDATED FINANCIAL METRICS

The analysis in this section of the report is based on 12 months ended 31 December 2021 compared to 12 months ended 31 December 2020. The table below provides financial information related to the consolidated results of the Group for 2021 and 2020.

Financial indicators, KZT billion, unless otherwise indicated

Indicator 2020 2021 Change
Revenue 587,457 691,011 18%
Cost of sales (319,624) (402,967) 26%
Gross profit 267,833 288,044 8%
Selling expenses (14,352) (15,706) 9%
G&A expenses (29,582) (34,105) 15%
Operating profit 223,899 238,233 6%
Other income/(loss), including the following one-time effects: 21,159 (8,172) (139%)
Gain from disposal of joint venture (one-time effect)24 22,063 - (100%)
Share of results of associates 39,482 47,294 20%
Share of results of JVs 604 4,289 610%
Pre-tax income 285,144 281,644 (1%)
Corporate income tax (63,776) (61,618) (3%)
Net profit, attributable to: 221,368 220,026 (1%)
Owners of the Company 183,541 140,773 (23%)
Non-controlling interest 37,827 79,253 110%
Earnings per share attributable to owners (basic and diluted), KZT/share 25 708 543 (23%)
Adjusted Net profit (net of one-time effects) 199,305 220,026 10%
Adjusted EBITDA 26 325,734 350,294 8%
Attributable EBITDA 27 295,465 276,510 (6%)

CONSOLIDATED REVENUE AND OTHER FINANCIAL METRICS

The Group’s consolidated revenue was KZT 691,011 million in 2021, an increase of 18% compared to 2020, primarily due to an increase in the average realized price associated with an increase in the spot price for U3O8 and the weakening of KZT against USD in 2021. This revenue increase was also supported by a slight increase in sales volume in 2021 in comparison to 2020 (see Section ”Uranium segment production and sales metrics”).

The main revenues by source in 2021 compared to 2020, are presented below.

Consolidated revenues, KZT million

Indicator 2020 2021 Change Proportion
2020 2021
Uranium products 28 529,196 625,048 18% 90% 90%
Beryllium products 21,866 26,119 19% 4% 4%
Tantalum products 12,205 15,777 29% 2% 2%
Others 24,190 24,067 (1%) 4% 4%
Total Revenue 587,457 691,011 18% 100% 100%

Operating profit in 2021 was KZT 238,233 million, an increase of 6% compared to 2020. The increase was mainly due to an increase in average realized price.

Net profit in 2021 was KZT 220,026 million, a decrease of 1% compared to 2020. Adjusted net profit for 2021 was KZT 220,026 million, an increase of 10% compared to 2020 and consistent with the increase in the operating profit in 2021. In 2020 the gain from disposal of joint venture Uranium Enrichment Center JSC was KZT 22,063 million (see Section ”Changes in the Group structure”). In 2021, the Company sold 49% of its interest in ME ORTALYK LLP, while Kazatomprom retains a controlling 51% interest, according to which, under IFRS, the financial effect of this transaction is reflected in cash flows (see Section ”Cash Flows from financing activities”) and equity in the Financial Statements.

Adjusted EBITDA comprised KZT 350,294 million in 2021, an increase of 8% compared to 2020 due to a higher operating profit, as well as an increase in the EBITDA of JVs and associates. Attributable EBITDA was KZT 276,510 million in 2021, a decrease of 6% compared to 2020 mainly due to the sale of 49% share in ME ORTALYK LLP.

URANIUM SEGMENT

URANIUM SEGMENT FINANCIAL METRICS

Uranium segment financial metrics (KZT million unless noted)

Indicator 2020 2021 Change
Average exchange rate for the period KZT/USD 413.36 426.03 3%
Uranium segment revenue 29 527,936 621,706 18%
Including U3O8 sales proceeds (across the Group) 30 521,594 606,108 16%
Share of a revenue from uranium products % 89% 88% (1%)

Consolidated U3O8 sales were KZT 606,108 million in 2021, an increase of 16% compared to 2020, mainly due to a higher spot price for U3O8 and weakening of the KZT against the USD in 2021, which resulted in a higher average realized price, supported by slightly higher sales volume.

URANIUM SEGMENT PRODUCTION AND SALES METRICS

Uranium segment production and sales metrics

Indicator 2020 2021 Change
Production volume of U3O8 (100% basis) tU 19,477 21,819 12%
Production volume of U3O8 (attributable basis) 31 tU 10,736 11,858 10%
U3O8 sales volume (consolidated) tU 16,432 16,526 1%
Including KAP U3O8 sales volume 32, 33 tU 14,126 13,586 (4%)
Group inventory of finished goods (U3O8) tU 7,537 8,824 17%
Including KAP inventory of finished goods (U3O8) 34 tU 6,761 7,724 14%
Group average realized price KZT/kg 31,743 36,677 16%
Group average realized price USD/lb 29.54 33.11 12%
KAP average realized price 35 USD/lb 29.63 32.33 9%
Average weekly spot price USD/lb 29.60 35.05 18%
Average month-end spot price 36 USD/lb 29.96 35.28 18%

All annual operational and sales results in the uranium segment were in line with the updated guidance provided for 2021, which was adjusted in the Company’s Third Quarter 2021 Operations and Trading Update.

Production on both a 100% and attributable basis was higher for 2021 compared to the same period in 2020. The pandemic-related safety measures that were implemented in 2020 impacted production volumes throughout the second half of that year – production in 2020 should therefore be considered unusually low. The pandemic-related supply chain challenges have continued to result in limited access to certain key operating materials and equipment (production reagents, certain types of pipes and pumps, specialized equipment, drilling rigs), which had a material impact on the Company’s wellfield development and production schedules in 2021, resulting in a decrease of the guidance by approximately 1,000 tU on 100% basis and by almost 540 tU on attributable basis (original 2021 guidance of 22,500 – 22,800 tU on 100% basis, 12,100 – 12,400 tU on attributable basis).

Uranium sales at the Group level in 2021 were in line with 2020. Due to the timing of customer requirements and differences in the timing of deliveries, a larger proportion of both Group and KAP sales occurred in the fourth quarter, resulting in higher sales in the final quarter of 2021 compared to the same period in 2020. KAP sales volume was modestly lower in 2021 compared to 2020 due to additional sales by consolidated subsidiaries to JV partners.

Consolidated Group inventory of finished U3O8 products in 2021 amounted to 8,824 tonnes as of 31 December 2021, which was 17% higher than at 31 December 2020. At the Company level, inventory of finished U3O8 products was 7,724 tonnes, an increase of 14% compared to 2020. The increase in inventory was mainly related to a higher 2021 U3O8 production volume on both a 100% and attributable basis, while sales level remained approximately on the same level as in 2020. Consistent with the Company’s value strategy, Kazatomprom’s inventory levels vary based on the timing of customer requirements and the resulting differences in the timing of deliveries and mining and sales volumes, in alignment with changing market conditions.

The Group’s average realized price in KZT in the 2021 was KZT 36,677 per kg (33.11 USD/lb), an increase of 16% compared to 2020 due to an increase in the average spot price for uranium products, and the weakening of the KZT against the USD. The average sales prices at the KAP level were also higher and for the same reasons.

The Company’s current overall contract portfolio price is closely correlated to current uranium spot prices (see Section ”Uranium sales price sensitivity analysis”). However, the increase in average realized prices in 2021 was lower than the increase in the spot market price for uranium due to the significant spot price volatility in the uranium market in 2021 (low of 27.35 USD/lb and high of 50.38 USD/lb); during the fourth quarter, many deliveries were based on contract price mechanisms that established a contract price for the delivery, set earlier in the year when the market price was lower and prior to the sharp increase in the market price in September 2021.

URANIUM SEGMENT PRODUCTION BY OPERATION

The information presented in the table below provides the total uranium production level at each asset (100% basis). The impact of delays and/or limited access to some key materials & equipment in 2021 (see Section ”Pandemic-related costs and availability of critical operating materials & equipment”) and the reduction in wellfield development activity due to the Company’s actions to lower staff levels amid the COVID-19 pandemic in 2020 (see Section ”Uranium segment production and sales metrics”), were not equal across all operations due to the nature of the ISR mining process, and differences in the mine plans and development phase at each operation.

Production volume of uranium oxide concentrate, (U3O8 tonnes)

Enterprise Ownership 2020 2021 Change
Kazatomprom-SaUran LLP 100% 1,230 1,493 21%
RU-6 LLP 100% 660 800 21%
APPAK LLP 65% 633 805 27%
JV Inkai LLP 37 60% 2,693 3,449 28%
Baiken-U LLP 52.5% 1,181 1,230 4%
ME ORTALYK LLP 38 51% 1,308 1,579 21%
Semizbay-U LLP 51% 753 962 28%
Karatau LLP 50% 2,460 2,561 4%
JV Akbastau JSC 50% 1,363 1,545 13%
JV Khorassan-U LLP 50% 1,455 1,579 9%
JV ZARECHNOYE JSC 49.98% 648 655 1%
JV Katco LLP 49% 2,833 2,840 0%
JV SMCC LLP 30% 2,260 2,321 3%
Total 19,477 21,819 12%

UMP SEGMENT

UMP SEGMENT URANIUM PRODUCT SALES

UO2 powder and Fuel pellets

ndicator 2020 2021 Change
Fuel pellets Sales, tonnes 60.30 43.5 (28%)
Ceramic powder Sales, tonnes 0.80 10.7 >100%
Dioxide from scraps Sales, tonnes 56.40 50.60 (10%)

Sales of fuel pellets decreased by 28% to 43.5 tonnes and dioxide from scraps by 10% to 50.6 tonnes in 2021, lower than in 2020 as per customer demand.

The significant increase in sales of ceramic powder in 2021 was due to higher demand from customers.

UMP SEGMENT RARE METAL PRODUCT SALES

Rare metals products

Indicator 2020 2021 Change
Beryllium products Sales, tonnes 1,375.08 1,529.31 11%
KZT/kg 15,902 17,074 7%
Tantalum products Sales, tonnes 143.73 165.40 15%
KZT/kg 84,918 95,351 12%
Niobium products Sales, tonnes 16.11 8.24 (49%)
KZT/kg 16,846 20,655 23%

Sales volume of beryllium products increased by 11% in 2021 compared to 2020, due to an increase in the number of orders from customers. Sales price increased by 7% in 2021 mainly related to the weakening of KZT against USD and the product mix changing to highly refined products and higher price in the non-ferrous metal market.

Sales volumes and prices for tantalum products were higher in 2021 compared 2020, due to higher consumer demand for tantalum ingots and chips.

Sales of niobium products in 2021 decreased by 49% compared to 2020 due to a decrease in the quantity of orders for niobium hydroxide, although 2021 orders were for more highly refined products of higher value, resulting in a higher selling price in 2021.

COST OF SALES

The table below illustrates the components of the Group’s cost of sales for 2021 and 2020:

Group’s prime cost, KZT million

Indicator 2020 2021 Change Proportion
2020 2021
Materials and supplies 167,546 241,695 44% 53% 60%
Depreciation and amortisation 60,002 66,429 11% 18% 16%
Wages and salaries 31,874 33,294 4% 10% 8%
Taxes other than income tax 23,775 25,474 7% 8% 7%
Processing and other services 19,738 17,404 (12%) 6% 4%
Other 16,689 18,671 12% 5% 5%
Cost of Sales 319,624 402,967 26% 100% 100%

Cost of sales totalled KZT 402,967 million in 2021, an increase of 26% compared to 2020.

The cost of materials and supplies was KZT 241,695 million in 2021, an increase of 44% compared to 2020 due to a significant increase in the proportion of sales of uranium purchased from JVs and associates, as well as from third parties. When such uranium is sold, the cost of sales is predominantly represented by the cost of purchased uranium (accounted in materials and supplies) at the prevailing spot price with certain applicable discounts. The purchase price of materials and supplies, including U3O8 also increased as a result of the increase in uranium spot prices and the weakening of the KZT against the USD, and increased inflationary pressure.

Depreciation and amortisation totalled KZT 66,429 million in 2021, an increase of 11% compared to 2020, mainly due to an increase in the costs of repayment of the PGR (see Section ”Capital expenditures review”).

Wages and salaries totalled KZT 33,294 million in 2021, an increase of 4% compared to 2020, mainly due to an increase in the payroll of main production personnel.

The taxes other than income tax totalled KZT 25,474 million, which is comprised mostly of MET, increased by 7% compared to 2020 due to an increase in uranium production volumes in 2021 (see Section ”Uranium segment production and sales metrics”).

The cost of processing and other services was KZT 17,404 million in 2021, a decrease of 12% compared to 2020, mainly due to a significant increase in the proportion of sales of uranium purchased from JVs and associates as well as from third parties. When such uranium is sold, the cost of sales is predominantly represented by the cost of purchased uranium.

The other categories of costs totalled KZT 18,671 million in 2021, an increase of 12% compared to 2020 due to an increase in maintenance and repair and other overheads.

URANIUM SEGMENT C1 CASH COST, ALL-IN SUSTAINING CASH COST, AND CAPITAL EXPENDITURE

Indicator 2020 2021 Change
C1 Cash cost (attributable basis) USD/lb 8.67 8.80 1%
Capital cost (attributable basis) USD/lb 3.05 3.83 26%
All-in sustaining cash cost (attributable C1 + capital cost) USD/lb 11.72 12.63 8%
Capital expenditures of mining companies (100% basis)39 60,947 91,087 (49%)

Compared to 2020, C1 Cash cost (attributable) increased by 1% mainly due to an increase in the payroll of production personnel, whereas All-in-sustaining cash costs (“AISC”) (attributable C1 + capital cost) increased by 8% in USD equivalent in 2021 due to an increase in capital expenditures of mining companies (see Section ”Capital expenditures review”). The Company partially shifted wellfield development activities from 2020 to 2021 due to the four-month suspension of wellfield development activity, resulting from the COVID-19 pandemic in 2020, and the shift in schedule resulted in a higher level of capital expenditures in 2021. The results were considerably better than expected and below the guidance ranges provided for 2021 (updated guidance of US$9.50 – 10.50 for attributable C1 cash cost, US$13.50 – 14.50 for AISC) primarily due to the weakening of the KZT against the USD in 2021.

Capital expenditures of mining companies (100% basis) comprised KZT 91,087 million, an increase of 49% compared to 2020, primarily due to a shift in wellfield development activities as described above, as well as higher purchase prices for materials, supplies, equipment and cost of drilling. Capital expenditures in 2020 were lower as a result of measures taken to prevent the spread of the COVID-19 pandemic (see Section ”Capital expenditures review”).

Kazatomprom’s attributable C1 cash cost are generally broken down as follows (proportions vary year-to-year, and vary between operations, deposits and regions):

General Attributable Cash cost (C1) Categories

Indicator 2020 2021
Material and supplies 24% 22%
MET 19% 21%
Processing and other services 18% 17%
Wages and salaries 17% 17%
General and administrative expenses 7% 8%
Selling expenses 3% 3%
Others 12% 12%
Total 100% 100%

SELLING EXPENSES

Selling expenses, KZT million

Indicator 2020 2021 Change Proportion
2020 2021
Shipping, transportation and storing 10,351 11,110 7% 72% 71%
Wages and salaries 1,139 1,456 28% 8% 9%
Materials 212 306 44% 2% 2%
Rent 113 105 (7%) 1% 1%
Depreciation and amortisation 66 65 (2%) 0% 0%
Others 2,471 2,664 8% 17% 17%
Selling expenses 14,352 15,706 9% 100% 100%

Selling expenses totalled KZT 15,706 million in 2021, an increase of 9% compared to 2020. The increase was mainly due to changes in the delivery destination points for uranium products, an increase in transportation tariffs and the weakening of the KZT against the USD, as a significant portion of shipping, transportation and storing expenses are denominated in foreign currency.

GENERAL & ADMINISTRATIVE EXPENSES (G&A)

General & Administrative expenses (G&A), KZT million

Indicator 2020 2021 Change Proportion
2020 2021
G&A expenses 29,582 34,105 15% 100% 100%
Incl. Depreciation and amortisation 1,744 2,493 43% 6% 7%

In comparison to 2020 an increase of G&A expenses was mainly due to a provision for tax fines and penalties for KZT 1,266 million, as well as an increase in wages and salaries and higher depreciation and amortisation.

G&A was also lower in 2020 due to the impact of optimisation and cost reduction in relation to the COVID-19 pandemic.

THE SHARE OF ASSOCIATES’ AND JVS’ RESULTS

The share of results of associates and JVs in 2021 was KZT 51,583 million, an increase of 29% compared to 2020. The increase was related to an increase in uranium spot prices and weakening of the KZT in 2021, which positively impacted the operating results of the associates and JVs and their resulting contributions to the Group.

PROFIT BEFORE TAX AND TAX EXPENSE

Profit before tax and tax expense, KZT million

Indicator 2020 2021 Change
Profit before tax 285,144 281,644 (1%)
Total income tax expense, including: 63,776 61,618 (3%)
Current income tax 65,492 85,345 30%
Deferred income tax (1,716) (23,727) >100%

The Group’s profit before tax was KZT 281,644 million in 2021 which was consistent with 2020. In 2021, corporate income tax expense was KZT 61,618 million, a decrease of 3% compared to 2020, due to an increase deferred income tax and decrease in profit before tax in 2021.

The corporate tax rate applicable to the Group's profits was 20% in 2021 and 2020. Effective income tax rates were 20% and 21% for 2021 and 2020, respectively. The effective tax rate differs from corporate income tax rate primarily due to certain elements of reported income and expenses that are not recognized in tax accounting.

Capital expenditures review

Most capital expenditures of the Group are incurred by subsidiaries, JO’s, JVs and associates engaged in the mining of natural uranium. Such expenditures are comprised of the following key components:

The following table provides the capital expenditures for the Group’s subsidiaries, JOs, JVs and associates engaged in uranium mining for the periods indicated. Capital expenditure amounts shown were derived from stand-alone management information of certain entities within the Group on an unconsolidated basis, and they are therefore not comparable with or reconciled to the amounts of additions to property, plant and equipment as presented in the Financial Statements. Investors and analysts are strongly cautioned to not place undue reliance on capital expenditure information, as it represents unaudited, unconsolidated financial information on an accounting basis that is not in compliance with IFRS.

Capital expenditures of subsidiaries, JOs, JVs and associates of the Group, KZT million

Enterprise Ownership 2020 2021
WC40 S&E41 LF/C42 Total WC S&E LF/C Total
Kazatomprom-SaUran LLP 100% 5,231 925 238 6,394 6,094 865 542 7,501
RU-6 LLP 100% 1,902 672 226 2,800 3,392 657 260 4,309
APPAK LLP 65% 2,666 833 142 3,641 6,769 495 1,331 8,595
JV Inkai LLP 60% 4,306 2,203 23 6,532 4,815 3,925 6 8,746
Baiken-U LLP 52.5% 4,634 400 250 5,284 2,679 590 167 3,436
ME ORTALYK LLP 51% 3,451 851 175 4,477 4,487 594 219 5,300
Semizbay-U LLP 51% 3,108 468 211 3,787 4,231 561 177 4,969
JV Budenovskoye LLP 51% - - 46 46 1,599 320 (4) 1,915
Karatau LLP 50% 1,713 890 171 2,774 4,667 579 112 5,358
JV Akbastau JSC 50% 2,382 713 106 3,201 4,648 291 222 5,161
JV Khorassan-U LLP 50% 3,698 805 202 4,705 7,645 1,781 171 9,597
JV ZARECHNOYE JSC 49.98% 3,129 263 17 3,409 3,878 291 1,281 5,450
JV Katco LLP 49% 8,237 3,067 13,903 25,207 14,391 5,037 1,467 20,895
JV SMCC LLP 30% 3,772 627 251 4,650 3,927 1,879 374 6,180
Total 48,229 12,717 15,961 76,907 73,222 17,865 6,325 97,412

In order to achieve the planned levels of production, the Group’s mining companies assess the required level of wellfield and mining preparation based on the availability of reserves. These costs relate to the capitalized costs of maintaining the sites, with the main component being wellfield construction.

Wellfield construction and sustaining costs, KZT million

Indicator 2020 2021 Change
Well construction 48,229 73,222 52%
Sustaining 43 10,453 13,427 28%
Total wellfield construction and sustaining costs 58,682 86,649 48%
Expansion 2,264 4,438 96%
Capital expenditures of mining companies (100% basis) 60,947 91,087 49%

Wellfield construction and sustaining costs for the 14 mining entities in 2021 comprised KZT 86,649 million, which is 48% higher than in 2020 due to an increase in well construction in 2021 as a result of production reductions associated with a decline in field development activities amid the COVID-19 pandemic in 2020. The results were below the guidance range provided for 2021 (KZT 90 – 100 billion) due to the pandemic-related supply chain challenges (see Section ”Pandemic-related costs and availability of critical operating materials & equipment”). The pandemic-related safety measures that were implemented in 2020 impacted production volumes throughout the second half of that year – production in 2020 should therefore be considered unusually low.

The information presented in the table below reflects the wellfield development depreciation (commonly known as PGR), property, plant and equipment, and depreciation and amortization data for each mining asset in 2021.

Redemption of mining and preparatory operations, KZT million, unless otherwise indicated

Enterprise PGR volumes (tU) PGR at the end of period Exploration value at the end of period Historical cost of PPE (excl. wellstock) at the end of period Carrying amount of PPE (excl. wellstock) at the end of period D&A (excl. wellstock)
Kazatomprom-SaUran LLP 3,988 15,533 2,575 21,732 10,837 988
RU-6 LLP 2,892 7,689 - 8,125 4,950 516
APPAK LLP 1,570 8,002 1,879 10,290 5,531 387
JV Inkai LLP 3,944 21,300 17,100 102,568 60,614 2,444
Baiken-U LLP 2,597 7,555 5,707 20,627 9,923 976
ME ORTALYK LLP 2,466 10,792 1,130 19,055 11,067 1,005
Semizbay-U LLP 2,529 7,819 36 17,360 8,250 925
JV Budenovskoye LLP - 493 11,844 414 346 52
Karatau LLP 2,344 7,068 2,651 29,224 14,939 1,476
JV Akbastau JSC 1,730 6,246 6,150 11,475 7,011 383
JV Khorassan-U LLP 44 3,041 8,921 8,675 16,609 10,156 712
JV Katco LLP 54,875 25,830 2,532 56,738 20,457 1,428
JV ZARECHNOYE JSC 1,082 6,660 2,432 9,013 2,260 460
JV SMCC LLP 4,471 10,730 5,919 22,380 10,667 1,663

Reserves and geological surveys

Reserves and resources, ‘000 TU

In accordance with the SRK Consulting (UK) Limited letter (dated 15 January 2022), the Ore reserves of all mining assets at 31 December 2021 (including annual depletion) totalled 625.4 thousand tU, (100% basis), with 350.8 thousand tU attributable to the Company. Total mineral resources (including ore reserves) were estimated at 784.4 thousand tU (100% basis), with 495.7 thousand tU attributable to the Company. In comparison to 2020, total mineral resources increased by about 32.4 thousand tU mainly due to an increase in reserves of 32.0 thousand tU from Blocks 6 and 7 of the Budenovskoye deposit and 20.6 thousand tU at Block 1 of the Inkai deposit, partially offset by a decrease of 21.8 thousand tU due to the production related depletion of mineral resources related to mining activities in 2021.

Liquidity and capital resources

Kazatomprom’s management aims to preserve financial stability in a constantly changing market environment. The Group’s financial management policy intends to maintain a strong capital base to support existing operations and business development.

The Group’s liquidity requirements primarily relate to funding working capital, capital expenditures, service of debt, and payment of dividends. The Group has historically relied primarily on cash flow from operating activities to fund its working capital and long-term capital requirements, and it expects to continue to do so, although it maintains the option to use external financial resources when required. It is expected that there will be no significant change in the sources of the Group’s liquidity in the foreseeable future. If required, the Company will consider entering into project financing arrangements to fund certain investment projects.

CASH AND AVAILABLE SOURCE OF FINANCING

The Company’s approach to manage the liquidity is to ensure the continued availability of cash sufficient to meet its obligations on time, both in the ordinary course of business and under the distressed conditions, avoiding unacceptable losses and reputation risks.

Cash and available source of financing, KZT million

Indicator 2020 2021 Change
Cash and cash equivalents 113,347 161,190 42%
Term deposit - 43,220 -
Total cash 113,347 204,410 80%
Undrawn borrowing facilities 241,602 177,902 (26%)

Total cash at 31 December 2021 comprised KZT 204,410 million, compared to KZT 113,347 million on 31 December 2020, due to explanations that are presented below in the Section ”Cash Flows”.

Undrawn borrowing facilities are the credit lines available to the Group and considered as an additional liquidity source payable within 12 months, primarily used to temporarily cover cash deficits related to uneven receipts of trade receivables. As of 31 December 2021, the Group’s revolving credit lines comprised KZT 177,902 million (USD 412 million) and were fully available (as at 31 December 2020: KZT 241,602 million (USD 574 million)) the decrease is primarily due to closure of unclaimed credit lines.

DIVIDENDS RECEIVED AND PAID

The Company is the parent for the Group, and in addition to revenue from its business operations, it receives dividends from JVs and associates, and from other investments. In 2021 and 2020, the Group received dividends of KZT 17,108 million and KZT 47,886 million, respectively, from its JVs and associates, and other investments. The decrease was primarily due to a change in timing of the dividend payment schedule in 2020 and 2021. Of note in 2020, the Company received dividends covering the 2017-2019 period from JV Katco LLP comprising KZT 30,870 million. The Company balances dividend maximisation and sustainable development goals at subsidiaries, JVs and associates. Dividends received by the Company from investees domiciled in the Republic of Kazakhstan are exempt from dividend tax.

In July 2021, the Company paid a dividend of KZT 150,082 million (KZT 578.67 per ordinary share) to its shareholders based upon the results of 2020 operations. This dividend represented an increase of 52% compared to 2020 when dividends of KZT 99,002 million were paid to shareholders on the results of 2019 operations. The increase was mainly due to higher operating cash flow and the inclusion of receipts from the sale of the Group’s interest in Uranium Enrichment Center JSC in the Free Cash Flow (FCF) calculation methodology in accordance with the revised dividend policy approved by shareholders at the Annual General Meeting of shareholders in May 2021.

WORKING CAPITAL

The table below provides a breakdown of the Group’s working capital in 2021 and 2020.

Working capital of the Group, KZT million

Indicator 2020 2021 Change
Inventory 233,389 275,856 18%
Receivables 117,418 220,138 87%
Recoverable VAT 48,621 46,447 (4%)
Other current assets 8,159 7,823 (4%)
CIT prepayment 9,986 7,526 (25%)
Payables (43,948) (66,014) 50%
Employee remuneration liabilities (169) (215) 27%
Income tax liabilities (927) (5,096) 450%
Other taxes and compulsory payments liabilities (8,713) (17,973) 106%
Other current liabilities45 (34,994) (57,338) 64%
Net working capital46 328,822 411,154 25%

The Group’s net working capital remained positive during all periods under review. An increase in receivables was mainly due to the timing of customer requirements and differences in the timing of deliveries. A larger proportion of both Group and KAP sales occurred in the fourth quarter of 2021, resulting in higher sales in the final quarter of 2021 compared to the same period in 2020.

The following table sets forth the components of the Group’s inventories in 2021 and 2020.

Group inventories, KZT million

Indicator 2020 2021 Change
Finished goods and goods for resale 185,397 223,750 21%
Including uranium products 183,633 222,195 21%
Work-in-process 22,923 30,409 33%
Raw materials 20,179 14,879 (26%)
Materials in processing 1,204 3,091 157%
Spare parts 682 789 16%
Fuel 655 479 (27%)
Other materials 5,104 5,709 12%
Provision for obsolescence and write-down to net realizable value (2,755) (3,250) 18%
Total inventories 233,389 275,856 18%

The Group constantly monitors the uranium market and may pursue a strategy of increasing its inventories in certain market conditions.

The Group’s largest inventory item is finished goods and goods for resale, which primarily consists of U3O8. The Group’s work-in-process increased by 33%, whereas raw materials decreased by 26% due to a shift in the production schedule of uranium products.

An increase in the inventory balance was due to an increase in inventory volume and an increase in spot price of U3O8 and weakening of KZT against USD during 2021, which increased the cost of purchased uranium from JVs, associates and third parties. Consistent with the Company’s value strategy, Kazatomprom’s inventory levels vary based upon timing of customer requirements and the resulting differences in the timing of deliveries, and mining and sales volumes, in alignment with changing market conditions.

CASH FLOWS

The following cash flow discussion is based on, and should be read in conjunction with the Financial Statements and related notes.

The following table provides the Group’s consolidated cash flows in 2021 and 2020.

Consolidated cash flows of the Group, KZT million

Indicator 2020 2021
Cash flows from operating activities 47 161,593 118,729
Cash flows from/(used in) investing activities 48,759 (71,241)
Cash flows (used in) financing activities (201,415) (1,843)
Net increase/(decrease) in cash and cash equivalents 8,937 45,645

CASH FLOWS FROM OPERATING ACTIVITIES

Operating cash flows totalled KZT 118,729 million, a decrease of 27% compared to KZT 161,593 million in 2020 mainly due to:

CASH FLOWS FROM INVESTING ACTIVITIES

Net cash outflows from investing activities were KZT 71,241 million in 2021 compared to Net cash inflows KZT 48,759 million in 2020.

Changes in investing cash flows in 2021 were due to:

CASH FLOWS FROM FINANCING ACTIVITIES

Net cash outflows from financing activities were KZT 1,843 million in 2021 and KZT 201,415 million in 2020. The decrease in outflow was primarily due to proceeds from the sale of a non-controlling 49% interest in ME ORTALYK LLP of KZT 185,858 million, (a one-time effect), an increase in dividends paid to shareholders of KZT 51,080 million (see Section “Dividends received and paid”) and a change in the net movement of loan balances in 2021 of KZT 62,315 million compared to 2020.

Indebtedness

The total debt and guarantees of the Group as of 31 December 2021 were KZT 110,462 million (KZT 117,962 million in 2020).

Total debt, KZT million

Indicator 2020 2021 Change
Bank loans 6,734 - (100%)
Non-bank loans 91,838 89,308 (3%)
Off-balance sheet guarantees 19,390 21,154 9%
Total debt and guarantees 117,962 110,462 (6%)

The following table summarises the Group’s debt for the years ended 31 December 2021 and 2020.

Total Group’s indebtedness, KZT million

Indicator 2020 2021 Change
Non-current 76,570 77,850 2%
Bank loans - -
Non-bank loans, including: 76,570 77,850
Bonds issued 76,300 77,700
Lease liabilities 270 150
Current 22,002 11,458 (48%)
Bank loans 6,734 -
Non-bank loans, including: 15,268 11,458
Promissory note issued 14,004 10,514
Lease liabilities 476 141
Bonds issued 788 803
Total debt 98,572 89,308 (9%)

As of 31 December, 2021, the Group has no current or long-term bank loans.

The amount of non-bank loans as of 31 December, 2021 comprised KZT 89,308 million and predominantly includes long-term USD-indexed Company coupon bonds with a nominal amount of KZT 70 billion and maturity in October 2024, issued in September 2019 on the Kazakhstan Stock Exchange (KASE).

Promissory notes owned by JV Khorasan-U LLP are with maturity "on demand". As of 31 December 2021, the right to claim under the promissory notes belongs to “Kyzylkum” LLP. In 2021, the notes were partially redeemed.

Guarantees represent off-balance sheet irrevocable obligations of the Group to effect payment in the event that another cannot meet its obligations.

Other liabilities of the Group are finance leases, other debt and leases. According to its loan and guarantee agreements, the Group is required to comply with certain financial covenants based upon the Group's consolidated information, such as debt to equity ratio, and debt to EBITDA ratio. The Group complied with all applicable covenants during the year and as of 31 December 2021.

The following table summarises the Group’s weighted average interest rate for bank loans in 2021 and 2020:

Weighted average interest rate of the Group, %

Indicator 2020 2021
Weighted average interest rate, including: 3.12 3.37
Fixed interest rate 3.31 3.52
Floating interest rate 1.99 0.97

As of 31 December, 2021, the weighted average interest rate was 3.37%, which was higher compared to the prior year. The Group's weighted average interest rate on loans and borrowings in 2021 was mainly influenced by the Group's long-term fixed interest rate liabilities (bonds with a coupon of 4% per annum), while floating interest rate loans were attracted for a short-term period - no more than 1 month (in 2020 - for 3-6 months).

As of the end of 2021, the Group's debt is fully formed from fixed interest rate loans (93% as of year-end 2020).

Credit ratings

According to international rating agencies, Kazatomprom's creditworthiness corresponded to Kazakhstan's sovereign credit rating at the time the ratings were assigned. In 2021, Moody's Investors Service upgraded the Company's rating from Baa3 to Baa2 with stable outlook. The Company's underlying credit score has been upgraded by one notch.

Kazatomprom's credit ratings as of 31 December 2021

ВBВ– Stable outlook Confirmed on 19 March 2021
Baa2 Stable outlook Upgraded on 12 August 2021

NET DEBT / ADJUSTED EBITDA

The following table summarises the key ratios used by the Company’s management to measure financial stability in 2021 and 2020. Management targets a net debt to adjusted EBITDA of less than 1.0.

Net debt/adjusted EBITDA ratio, KZT million

Indicator 2020 2021 Change
Total debt (excluding guarantees) 98,572 89,308 (9%)
Total cash balances (113,347) (204,410) 80%
Net debt (14,775) (115,102) >100%
Adjusted EBITDA 48 325,734 350,294 8%
Net debt / Adjusted EBITDA (coefficient) (0.05) (0.33) >100%

Guidance for 2022

Guidance for 2022

Indicator 2022
Production volume U3O8, (tU) (100% basis) 49, 50 21,000 – 22,000
Production volume U3O8, (tU) (attributable basis) 51 10,900 – 11,500
Group sales volume, (tU) (consolidated) 52 16,300 – 16,800
Incl. KAP sales volume (included in Group sales volume), (tU) 53 13,400 – 13,900
Revenue – consolidated, (KZT billions) 54 750-760
Revenue from Group U3O8 sales, (KZT billions) 610-630
C1 cash cost (attributable basis) (USD/lb) 55 $9.50 – $11.00
All-in sustaining cash cost (attributable C1 + capital cost) (USD/lb) $16.00 – $17.50
Total capital expenditures (KZT billions) (100% basis) 56 160-170

Kazatomprom’s production expectations for 2022 remain consistent with its market-centric strategy and the intention to flex down planned production volumes by 20% for 2018 through 2023 (versus planned production levels under Subsoil Use Agreements). Production volume in 2022 is expected to be between 21,000 tU and 22,000 tU on a 100% basis, which is similar to 2021 at the top end of the range. However, pandemic-related supply chain challenges have continued to result in limited access to certain key operating materials and equipment (production reagents, certain types of pipes and pumps, specialized equipment, drilling rigs), which had a material impact on the Company’s wellfield development and production schedules in 2021, adding additional risk to production in 2022 and resulting in a wider range for the expected production volume. On an attributable basis, 2022 production volume is expected to be between 10,900 tU to 11,500 tU, which is lower than 2021 primarily due to the sale of a 49% share of ME ORTALYK LLP to CGN Mining UK Limited in mid-2021, as well as the above-mentioned supply chain risks.

Sales volume guidance for 2022 is also aligned with the Company’s market-centric strategy. The Group expects to sell between 16,300 tU and 16,800 tU, which includes KAP sales of between 13,400 tU and 13,900 tU, in line with sales volumes in 2021.

Revenue, C1 cash cost (attributable basis) and All-in Sustaining cash cost (attributable C1 + capital cost) may vary from the guidance provided if the KZT to USD exchange rate fluctuates significantly during 2022.

Ranges for C1 cash cost (attributable basis) and All-in Sustaining cash cost (attributable C1 + capital cost) have been increased to reflect the uncertainty in the current geopolitical situation and widening offsetting effects of current KZT devaluation and potential inflationary impacts. Guidance will be updated if the recent fluctuations and geopolitical uncertainties persist throughout 2022.

Wellfield development, procurement and supply chain issues, including inflationary pressure on production materials and reagents, are expected to continue throughout 2022, impacting the Company’s financial metrics and giving rise to an expectation that C1 cash cost and All-in Sustaining cash cost will be higher in 2022 than in 2021. In addition, the Company’s costs could be impacted by potential changes to the tax code in Kazakhstan and by possible local social funding requests, although these risks cannot be quantified or estimated at this time.

Total capital expenditures on 100% basis guidance for 2022 increased significantly in comparison to 2021 results to cover the shift in wellfield development activities (see Section “Capital expenditures review”) and increase in purchase prices for materials, supplies, equipment and cost of drilling.

The Company continues to target an ongoing inventory level of approximately six to seven months of annual attributable production. However, inventory could fall below this level in 2022 due to supply chain challenges and production losses.

URANIUM SALES PRICE SENSITIVITY ANALYSIS

The table below indicates how the Group’s U3O8 annual average sales price may respond to changes in spot prices (shown in the left column), for a given year (shown across the top row). At present, the table clearly indicates that the Group’s U3O8 average sales prices are closely correlated with the uranium spot market price.

This sensitivity analysis should be used only as a reference, and actual uranium market spot prices may result in different U3O8 annual average sales prices than those shown in the table. The table is based upon several key assumptions, including estimates of future business opportunities, which may change and are subject to risks and uncertainties outside the Group’s control. Please review the footnotes under that table and refer to the Section “Forward-looking statements for more information”.

Correlation between the spot price and the U3O8 average sales price

Average Annual Spot Price (USD) 2022E 2023E 2024E 2025E 2026E
20 27 22 22 22 21
30 33 31 31 31 31
40 38 40 40 40 40
50 44 48 48 48 50
60 50 57 57 57 59
70 56 65 66 65 68

Values are rounded to the nearest dollar. The sensitivity analysis above is based on the following key assumptions: