The Zhitong Finance App learned that Bank of China International released a research report saying that on Friday night, Kazakh Engineering announced that it would lower its 2024 production guidelines due to a shortage of sulfuric acid supply, and that production in 2025 will also be adjusted depending on the progress of the mines under construction. CGN Mining's (01164) joint venture/joint mine production in Kazakhstan will also inevitably be affected, but the bank expects that the increase in uranium prices will be enough to offset the impact and ultimately bring better profits. The bank raised its 2024/25 profit forecast by 15%/7% and raised the target price to HK$2.30, reaffirming the “buy” rating.

According to the report, the specific number of production cuts made by Kazakh in 2024 will be disclosed during the annual results announcement at the end of January. Over the past two years, the tight supply of sulfuric acid has been plaguing the production and operation of Harbin Engineering because it is an important raw material for its in-situ leaching production method. So last Friday's announcement was arguably not particularly surprising. To solve this problem, the company announced last year that it will build a new sulfuric acid plant with an annual output of 800,000 tons in the Turkestan region in southern Kazakhstan, but it is not expected to be put into operation until 2026. In the 2018-22 period, sulfuric acid accounted for 12-16% of the production costs of Kazakian raw materials.

Bank of China International pointed out that natural uranium prices reacted strongly to Kazakh's announcement. Numerco's data showed that the median spot price had risen to $103.5 per pound during the evening trading session on Friday. Various uranium ETFs also surged 5.8% to 10.1% during the US trading session. The already tight natural uranium market is particularly sensitive to marginal supply changes, not to mention that this change comes from the world's largest natural uranium supplier, Kazakian Engineering.

In 2022, the market share of Harbin Raw Materials in the global primary supply was as high as 43% (based on 100% production). Global nuclear power owners may take further action to guarantee future fuel supplies, and the bank expects that natural uranium prices will still have room to rise in the coming months. The bank raised its average spot price forecast for the full year 2024/25 from 82.5/92.5 to $100/110 USD/lb.

For the CGN mining industry, BOCI believes that the overall impact is positive. On the one hand, the production of its joint venture/joint venture company in Kazakhstan will also decline due to production cuts (the bank lowered its output by 9%/15% in 24/25), but at the same time, it is estimated that the benefits of rising uranium prices will exceed the drag of production cuts. The bank raised EPS 15%/7% in 24/25 and raised the target price to HK$2.30, corresponding 12 times the 2024 P/E, reaffirming the “buy” rating.