Kazatomprom’s recent IPO listing opens investment opportunities and boosts the credibility of the Astana Financial Center.

In 2007, Canada was the world’s largest producer of Uranium with an annual production of 9.5 tons, while Kazakhstan with its annual production of 6.5 tons trailed behind as the third largest, behind Australia. Just two years later in 2009, Kazakhstan became the world’s largest producer with 14 tons. Uranium production in Kazakhstan began in the 1950s and was integral to the Soviet nuclear program. In the last 20 years, Uranium production has once again become a fulcrum of Kazakhstan’s economy, now that significant investments have been made by the Kazakh government and foreign investors through consortium-arrangements. These have allowed Kazakhstan to tap into its vast deposits and massively increase production rates. In 2017 Kazakhstan produced over 40% of the world’s uranium—around 22 tons. Even under its current mining capacity, Kazakhstan could increase the production by 3 to a whopping 25 tons, but it has set itself production limits because of relatively low commodity prices. Last year, however, it was announced that Kazakhstan would be cutting production by 20%, so output is expected to be around 18 tons this year.

One giant, state-owned mining company, rules the sector: Kazatomprom. Samruk-Kazyna, Kazakhstan’s sovereign wealth fund, which manages over $60 billion in assets, was the only shareholder until the November IPO listing. In November, 15 percent of the company’s equity was sold at a listing at the newly opened Astana Financial Center and the London Stock Exchange, raising a total of $451 million, and putting the company’s value at $3 billion. Kazatromprom remained hesitant about the listing for over a year. Initially the company planned to list last spring but kept stalling because of stagnant uranium prices.

Data from World Nuclear Organization

Of Kazatomprom’s 17 uranium mines, five are among world’s ten largest. Most of the production is concentrated in southern Kazakhstan, north-west of Almaty. Geopolitically, the location of the mines is notably secure for Kazakhstan, a country that threads a careful balancing act between its two superpower neighbors, China and Russia. Unlike in its northern-territories where most of the people are ethnic Russians, the uranium mines are deep in Kazakh heartlands—areas that are secure from any potential secessionist movements.

In the 2010s, the uranium prices have steadily decreased from a peak of $70/lb in 2011 to the current $29. The all-time peak was in 2007 when the prices quickly soared to $135/lbs before collapsing. The high prices may have been indicative of a bubble, but also reflected a significant gap between global demand and supply. Now supply and demand are much closer to equilibrium: the global production, mainly because of Kazakhstan’s rising share, has increased, while demand has stagnated. The Fukushima disaster, Germany’s decision to shut down its nuclear plants, low oil and gas prices have all contributed to the weak demand for nuclear energy. Kazatomprom was unlikely to get to a golden moment just by waiting, but for Kazakhstan, international investment is as much about geopolitics as it is about economics.

 

Global uranium production and demand (World Nuclear Association)

 

Kazakhstan’s multivector energy foreign policy

Kazakhstan portrays itself as the Eurasian bridge, connecting Europe to Asia. In the vein of the ancient Silk Roads, it aspires to be a critical junction of trade, peoples and ideas. A pessimist would dismiss Kazakhstan’s Eurasianism as a spin on its awkward geopolitical squeeze, where Kazakhstan finds itself. It is a close Russian ally more by necessity than choice: Russia’s routes to the rest of Central Asia run through the Kazakh steppes, so antagonizing Moscow is not an option for Astana. Further, a fifth of Kazakhstan’s population are ethnically Russian. Since the Russians are concentrated on Kazakhstan’s northern borderlands, destabilizing the region with similar hybrid war tactics as in Eastern Ukraine would be an easy task for Russia. Kazakhstan also relies on Russia as a backer of its security and territorial integrity against the Chinese might, which Kazakhstan has traditionally viewed with wariness despite the officially harmonious relations.

Nursultan Nazarbayev, the only post-Soviet leader who has ruled his country since the collapse of the Soviet Union (he in fact came to power over two years prior to the collapse), has played Kazakhstan’s tricky position skillfully. President Nazarbayev has rooted his foreign policy in the principle of multi-vectorism. The basic idea is to steer away from any conflicts while reaching out to partners in all directions to maximize Kazakhstan’s autonomy of choice. The uranium industry is no exception. Many of Kazatomprom’s mines are partially owned by foreign companies such as Canada’s Cameco, the world’s second largest uranium producer. Just like in the development of its oil fields, Kazakhstan has signed a multitude of international partnerships to make the international community a stakeholder in the strategically important industry. Kazakhstan has signed agreements with Russia, China, India, and Japan to study the feasibility of constructing nuclear power plants in the country. Japan has already established a nuclear research institute with the support of companies like Marubeni, Toshiba and Toyota in the city of Kurchatov in north-eastern Kazakhstan. Astana and Moscow have already agreed to build a nuclear power plant there as well.

For Kazakhstan, co-opting as many international partners as possible is a way to guarantee diversity, so that it does not rely on any single country for the development of its natural resources. Importantly, the international stakeholders are also an insurance policy: outside partners put up the risks for Russia to exploit Kazakhstan’s weaknesses to advance its political interests in the country. International ownership and investment guarantee that powerful interest groups in many outside great powers would be likely to pressure their governments to take some form of action in such a scenario. Next, Kazakhstan is expected to list the national carrier Air Astana and Kazakhtelecom, Kazakhstan’s largest telecommunications company at the Astana Financial Center. For Kazakhstan, opening the doors to international investors is vital to tie the country to the global economy beyond its closest ally and a potentially most dangerous threat, Russia.