The significant factors that affected the Group’s results of operations during 2020 and 2019, and which the Company expects to continue to affect the Group’s results of operations in the future, include:

• the price received for the sale of natural uranium and changes in natural uranium product prices
• changes in the Group structure
• the impact of changes in foreign exchange rates
• taxation, including mineral extraction tax
• the cost and availability of sulfuric acid
• pandemic-related costs and availability of critical operating materials
• impact of changes in ore reserves estimates; and
• transactions with subsidiaries, JOs, JVs and associates

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 the Uranium sales price sensitivity analysis section.

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

For additional details related to specific market developments that influenced the pricing of uranium in 2020, please see the Kazatomprom 4Q2020 Operations and Trading Update, available on the corporate website.

Changes in the Group structure

In 2020 and 2019 the Group completed several transactions that had a significant impact on reported results.

In 2020:

• on 17 March 2020, the Group completed the sale of its 50% stake (minus one share) in the Uranium Enrichment Centre JSC to its partner in this joint venture, TVEL JSC (TVEL). The Group kept one share in the Uranium Enrichment Centre JSC, which will retain the right to access uranium enrichment services in accordance with the conditions previously agreed with TVEL. The sale price amounted to Russian rubles 6,253 million or Euro 90 million, fixed at an exchange rate as of 31 December 2019. Actual cash consideration of Euro 90 million (KZT 43,858 million equivalent) was received

In 2019:

• in February 2019, the owners of JV Khorasan-U LLP approved changes to the charter documents of that entity, which gave the Group the ability to cast a majority vote on the supervisory board. As a result, the Group obtained control over JV Khorasan-ULLP. The Group has been consolidating JV Khorasan-U LLP from 1 March 2019

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 because:

• uranium is generally priced in USD, therefore most of the Group’s consolidated sales revenue is generated in USD (91% in 2020, 88% in 2019)
• 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 in USD
• the most of the Group’s borrowings are denominated in USD (85% in 2020, 88% in 2019), which is the principal currency of the Group’s revenue

A significant portion of the Group’s expenses, including its operating, production and capital expenditures, are denominated in KZT. Accordingly, as the most of the Group’s revenue is denominated in USD, while a significant share of its costs is 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. 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 2020, the KZT/USD exchange rate fluctuated between KZT 375.87 and KZT 448.52. At the end of 2020, the National Bank of the Republic of Kazakhstan (NBK) exchange rate was KZT 420.71. Changes in exchange rates had material impact on the Group’s financial performance in 2020. The Group’s net foreign exchange gain in 2020 amounted KZT 3,759 million.

The following table provides annual average and year-end closing KZT/USD exchange rates, as reported by the NBK, as of 31 December 2020 and 2019.

Annual average and year-end closing rate for KZT/USD

¹³ The average rates are calculated as the average of the daily exchange rates on each calendar day.

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

¹⁴ Applicable rate: 20%; calculation: taxable income (based on tax reporting accounts) multiplied by corporate income tax rate.

¹⁵ Applicable rate: 18.5% for uranium cost in pregnant solution; calculation: the tax charge is a cost of mining and is based on a deemed 20% profit margin on certain expenditures, and a MET rate of 18.5%. The tax charge of 29% is determined by the following formula: (1 + 20%) × 18.5% ÷ (1 – (1 + 20%) × 18.5%).

¹⁶ Includes property tax, land tax, transport tax, social tax, other payments to budget, VAT and PIT (on PIT Company acts as a tax agent).

Total tax accrued increased by 11% in 2020 compared to 2019, mainly due to an increase in corporate income tax. The increase was due to the higher tax base resulting from higher uranium spot prices and the weakening of the KZT against the USD, as well as an increase in the proportion of sales of uranium produced by consolidated subsidiaries and JO. When such material is sold, the cost of sales is predomi- nantly represented by the cost of production. 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. The decrease in MET and other taxes is mainly due to a decrease in mined uranium volumes in 2020.

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 22,203 per tonne in 2020 (from KZT 21,304 per tonne in 2019). On average in 2020, the price of sulfuric acid represented about 13% of the Group’s uranium produc- tion costs.

Pandemic-related costs and availability of critical operating materials

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 Kazakh- stan 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, such as certain types of pipes and pumps.

In some cases, shipping and availability constraints have resulted in a higher cost to acquire the necessary operating materials, resulting in slightly increased production costs and a negative impact on profitability. In other cases, there has been a near-complete loss of access to certain materials, resulting in an increased risk to production. To date, this risk has been mitigated by sharing inventory across operations to ensure continuous operation. However, if the Group could not procure sufficient critical materials for all of its operations, it could impact the planned production schedule.

Impact of changes in Ore Reserves estimates

The Group reviews its JORC-compliant estimates of Ore Re- serves and Mineral Resources on an annual basis, including a review of the estimates by a qualified third-party. As a re- sult, certain Ore Reserves and Mineral Resources may be re- classified 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 ex- penses, 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 market- based discounts, which vary by operation. Purchased volumes very often correspond to the Company’s interest in the respective selling entities.

The Group’s Uranium segment revenue is primarily com- posed of two streams:

• the sale of U₃O₈ purchased from operations (JVs and associates), and
• the sale of U₃O₈ produced by the Company and by its consolidated subsidiaries and JOs

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 signifi- cant part of the Group’s profits and should be considered in the assessment of the Group’s financial results. In 2020, U₃O₈ was purchased at a weighted average discount of 4.07% on the prevailing spot price.

When uranium produced by the Company, consolidated sub- sidiaries 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

The volume of U₃O₈ purchased from JVs and associates, JOs and Subsidiaries totalled 11,262 tonnes in the 2020, compared to 14,060 tonnes in 2019, a decrease of 20%, mainly due to due to lower 2020 U₃O₈ production volume on both a 100% and attributable basis.

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

Analysis of Key Performance Indicators

Consolidated financial metrics

The analysis in this section of the report is performed on the basis of twelve months ended 31 December 2020 compared to twelve months ended 31 December 2019. The table below provides financial information related to the consolidated results of the Group for 2020 and 2019.

Financial indicators, KZT billion, unless otherwise indicated

¹⁷ Net result from sale of investment in joint venture Uranium Enrichment Center JSC.

¹⁸ In 2019 the Group recorded a net gain in profit and loss to reflect the fair value of inclusion of JV Khorassan-U LLP in consolidation.

¹⁹ Gain from reversal of liability under JOs relates to volumes of uranium that were not purchased from JOs in 2018, and which the Group does not plan to acquire in future, hence this liability, initially recorded in 2018, was derecognised in 2019.

²⁰ Calculated as: Profit for the year attributable to owners of the Company divided by Total share capital from Section “Outstanding shares”, rounded to the nearest KZT.

²¹ Adjusted EBITDA is calculated by excluding from EBITDA items not related to the main business and having a one-time effect.

²² Attributable EBITDA (previously “Adjusted Attributable EBITDA”) is calculated as Adjusted EBITDA less the share of the results in the net profit in JVs and associates, plus the share of Adjusted EBITDA of JVs and associates engaged in the uranium segment (except JV Budenovskoye LLP’s EBITDA due to minor effect it has during each reporting period), less non-controlling share of adjusted EBITDA of APPAK LLP, JV Inkai LLP, Baiken-U LLP and JV Khorasan-ULLP, less any changes in the unrealized gain in the Group.

Consolidated revenue and other financial metrics

The Group’s consolidated revenue was KZT 587,457 million in 2020, an increase of 17% compared to 2019, due to an increase in the average realized price associated with an increase in the spot price for U₃O₈ and weakening of KZT against USD in 2020. This revenue increase was also supported by a slight increase in sales volume in 2020 in comparison to 2019. The main revenues by source in 2020 compared to 2019 are presented below:

Consolidated revenues, KZT million

²³ Include production and sales of UO2 powder and fuel pellets.

Operating profit in 2020 was KZT 223,899 million, an increase of 47% compared to 2019. The increase was mainly due to an increase in average realized price as well as an increase in the share of uranium sold that was produced by the Company’s consolidated subsidiaries and JOs. When such material is sold, the cost of sales is predominantly represented by the cost of production and the full mining margin is captured in the consolidated results of the Group.

Net profit in 2020 was KZT 221,368 million, an increase of 4% compared to 2019. In 2020, the net result from the sale of the investment in the joint venture Uranium Enrichment Center JSC was KZT 22,063 million (see Section “Changes in the Group structure”). Adjusting for that one-time effect, adjusted net profit for 2020 was KZT 199,305 million, an increase of 40% compared to 2019 and consistent with the increase in the operating profit in 2020. During the year 2019, there was a KZT 16,995 million gain from the reversal of a liability under JOs, which was initially recorded in 2018. This gain was related to volumes of uranium that were not purchased from JOs in 2018, and which the Group does not plan to purchase in the future. As a result, this liability was reversed in 2019. Also, during 2019 JV Khorasan-U LLP was included in the consolidation. The one-time effect of this transaction was KZT 54,649 million.

Adjusted EBITDA totalled KZT 325,73 million in 2020, an increase of 31% compared to 2019, while attributable EBITDA was KZT 295,465 million in 2020, an increase of 36% compared to 2019. The changes were mainly driven by a higher operating profit, as well as an increase in the EBITDA of JVs and associates.

Uranium segment

Uranium segment financial metrics (KZT million unless noted)

²⁴ This segment does not include production and sales of UO2 powder and fuel pellets. Calculated from Financial Statements Note Segment Information as a sum of external revenue and revenues from other segments for uranium segment.

²⁵ Calculated from Section “Uranium segment” production and sales metrics: U₃O₈ sales volume (consolidated) multiplied by group average realized price in KZT/kg.

Consolidated U₃O₈ sales were KZT 521,594 million in 2020, an increase of 23% compared to 2019, mainly due to an increase in the average sales price in addition to a higher spot price for U₃O₈ and weakening of the KZT against the USD in 2020, supported by higher sales volume.

Uranium segment production and sales metrics

²⁶ The Production volumes of U₃O₈ (attributable basis) is not equal to the volumes purchased by Company and THK.

²⁷ KAP U₃O₈ sales volume (incl. in Group): includes only the total external sales of KAP HQ and THK. Intercompany transactions between KAP HQ and THK are not included.

²⁸ Group sales volume and KAP sales volume (incl. in Group) does not include approximately 100 tU equivalent sold as UF6 in 1Q20, and does not include approximately 315 tU equivalent sold as low-enriched UF6 to the IAEA fuel bank in 4Q19.

²⁹ KAP inventory of finished goods (incl. in Group): includes the inventories of KAP HQ and THK.

³⁰ KAP average realized price: the weighted average price per pound for the total external sales of KAP and THK. The pricing of intercompany transactions between KAP and THK are not included.

³¹ Source: UxC, TradeTech. Values provided represent the average of the uranium spot prices quoted at month end, and not the average of each weekly quoted spot price, as contract price terms generally refer to a month-end price.

All annual operational and sales results in the uranium segment are in line with the pandemic-adjusted guidance provided for 2020.

On both a 100% and attributable basis, 2020 U₃O₈ production volumes were lower than the prior year, as a result of the impact of decreased wellfield development activity, and lower second quarter staff levels, amid the COVID‑19 pandemic. There is typically a four-to-eight-month lag between the wellfield development and production phases of the in-situ recovery mining process and as a result, the safety measures implemented to deal with the pandemic during the first half of 2020, impacted production volumes in the second half of the year. The difference in percentage decrease in production on a 100% basis (minus 15%) and on an attributable basis (minus 19%) was associated with different levels of production for different assets, and the different ownership proportion for each asset.

Consolidated Group U₃O₈ sales volumes were slightly higher year-over-year due to a higher volume sold to consolidated JV partners (APPAK LLP, JV Inkai LLP, Baiken-U LLP and JV Khorassan-U LLP), while KAP sales volumes were similar year-over-year.

Consolidated Group inventory of finished U₃O₈ products in 2020 amounted to 7,537 tonnes as at 31 December 2020, which was 24% lower than at 31 December 2019. At the Company level, inventory of finished U₃O₈ products was 6,761 tonnes, a decrease of 21% compared to 2019. The decrease in inventory was mainly related to a lower 2020 U₃O₈ production volume on both a 100% and attributable basis, while sales level remained consistent year-over-year. In alignment with the Company’s value strategy, Kazatomprom’s inventory levels vary based on seasonality and mining and sales volumes, in alignment with changing market conditions.

The Group average realized price in KZT in the 2020 was KZT 31,743 per kg (29.54 USD/lb), an increase of 20% compared to 2019 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. However, in 2020, the increase in average realized price differed slightly from the increase in the spot market price for uranium, as some deliveries were based on prices that were fixed prior to the increase in the market price, and some were indexed to March spot prices, when the market price was lower.

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 the reduction in wellfield development activity due to the Company’s actions to lower staff levels, amid the COVID-19 pandemic, was not the same across all operations through 2020 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)

³² For JV Inkai LLP annual share of production on attributable basis is determined as per Implementation Agreement as disclosed in IPO Prospectus.

Mining Assets

LLP MC ORTALYK

Year of creation

2011

Production

1,308 tonnes

Location

Republic of Kazakhstan, Turkistan Region, Suzak District

Number of employees

519

CEO

Zhumagali Dzhumataevich Markenbayev

Date of the subsoil use contract

2000 – 2033

Group ownership interest

100%

Deposit

1. Mynkuduk, central section
2. Zhalpak

Subsidiary

The LLP operates at the central section of the Mynkuduk deposit and at the Zhalpak deposit in the Suzak District of Turkistan Region.

Deposit

The Mynkuduk deposit was discovered in 1973, and the commercial operation of the central section began in 2008. A subsoil use contract to develop the Central Mynkuduk deposit section was concluded on 8 July 2005. The rights to the exploration, production and marketing of uranium are valid until 2033.

Pilot production was conducted at the Zhalpak deposit. The exploration contract was concluded on 31 May 2010. In the event of successful production, full-scale production will begin in 2022.

As at 31 December 2020, the total volume of ore reserves of the deposits (including annual depletion) was 24,600 tonnes. Total mineral resources (including reserves) stood at 39,000 tonnes.

RU-6 LLP

Year of creation

1983

Production

660 tonnes

Location

Republic of Kazakhstan, Kyzylorda Region, Shieli District

Number of employees

397

CEO

Iskakov Daurzhan

Date of the subsoil use contract

1996 – 2022

Group ownership interest

100%

Deposit

1. North Karamurun
2. South Karamurun

Subsidiary

In November 2018, the Company transferred to RU-6 LLP its rights and obligations under a subsoil use contract to develop the North Karamurun and South Karamurun deposits in the Shieli District of Kyzylorda Region.

Deposit

The North Karamurun and South Karamurun deposits were discovered in 1979, and commercial operation began in 1997.

A subsoil use contract to develop the North Karamurun and South Karamurun deposits was concluded on 27 November 1996. The rights to the exploration, production, and marketing of uranium are valid until 27 November 2022.

As at 31 December 2020, the total amount of ore reserves in the deposits (including annual depletion) was 14,200 tonnes of uranium. Total mineral resources (including reserves) stood at 14,200 tonnes of uranium.

KAZATOMPROM-SAURAN LLP

Year of creation

2015

Production

1,230 tonnes

Location

Republic of Kazakhstan, Turkistan Region, Suzak District

Number of employees

1,059

CEO

Orynbek Gylymbek

Date of the subsoil use contract

1996 – 2041

Group ownership interest

100%

Deposit

1. Kanzhugan (including the Kainarsky section)
2. Moinkum, section No. 1 (South), the southern part
3. Moinkum, section No. 3 (Central), northern part
4. Uvanas
5. Mynkuduk, East section

Subsidiary

The Company is the only participant in Kazatomprom-SaUran LLP.

In November 2018, the Company transferred to the LLP its rights and obligations under subsoil use contracts for the Kanzhugan deposit, the south part of section No. 1 (South) and the north part of section No. 3 (Central) of the Moinkum deposit, the Vostochny section of the Mynkuduk deposit and the Uvanas deposit, together with related manufacturing assets.

Deposit

The Kanzhugan deposit was discovered in 1972; commercial operation began in 1997. A subsoil use contract to develop the Kanzhugan deposit was concluded on 27 November 1996. The rights to the exploration, production, and sale of uranium are valid until 15 November 2022.

The south part of section No. 1 (South) of the Moinkum deposit was discovered in 1976, the north part of section No. 3 (Central) in 1974. Commercial operation of the southern part of section No. 1 began in 1997, and the northern part of section No. 3 in 2017.

A subsoil use contract for the south part of section No. 1 (South) was concluded on 26 September 2000. The rights to the extraction, exploration, and sale of uranium are valid until 26 September 2021.

A subsoil use contract for the north part of section No. 3 (Central) was concluded on 31 May 2010. The rights to the extraction, exploration, and sale of uranium are valid until 31 May 2041.

Deposit (continuation)

The Uvanas deposit was discovered in 1963, and commercial operation began in 1997. A subsoil use contract to develop the Uvanas deposit was concluded on 27 November 1996. The rights to the exploration, production, and sale of uranium to be valid until 15 November 2022.

The Mynkuduk deposit was discovered in 1973, and commercial operation of the Vostochny section began in 1997. A subsoil use contract to develop the Vostochny section of the Mynkudyk deposit was concluded on 27 November 1996. The rights to the exploration, production, and sale of uranium are valid until 15 November 2022.

Currently, uranium mining in the southern part of section No. 1 (South) of the Moinkum deposit and the Uvanas deposit has been suspended due, to a depletion of reserves. Work is underway to return the territories to the state.

As at 31 December 2020, the total volume of ore reserves of deposits (including annual depletion) was 26,900 tonnes of uranium. Total mineral resources (including reserves) stood at 26,900 tonnes of uranium.

UMP segment uranium product sales

UO₂ powder and Fuel pellets

Sales of fuel pellets decreased to 60.3 tonnes in 2020, 30% lower than in 2019 due to a decrease in the amount of UF₆ received for processing in accordance with lower customer demand. There were a small number of new contracts for ceramic powder in 2020.

Rare metals products

Cost of sales

The table below illustrates the components of the Group’s cost of sales for 2020 and 2019:

Group’s prime cost, KZT million

Cost of sales totalled KZT 319,624 million in 2020, an increase of 4% compared to 2019.

The cost of materials and supplies was KZT 167,546 million in 2020, an increase of 14% compared to 2019 due to an increase in purchase price of materials and supplies, including U₃O₈ as a result of the increase in the spot prices and the weakening of the KZT against the US dollar as well as slight increase in sales volumes of U₃O₈.

Wages and salaries totalled KZT 31,874 million in 2020, an increase of 8% compared to 2019, mainly due to an increase in the payroll of main production personnel, which took effect during the second half of 2019.

The taxes other than income tax as at 31 December 2020 totalled KZT 23,775 million, which is comprised mostly of MET, decreased by 12% compared to 2019 due to a change in Kazakhstan’s tax legislation whereby the cost of sulphuric acid used in the ISR wellfield acidification process is now capitalised within well construction, rather than being expensed directly to the production cost, thus decreasing the MET.

The cost of processing and other services was KZT 19,738 million in 2020, an increase of 6% compared to 2019, mainly due to an increase in the cost of ancillary production services as a result of increase in wages and salaries of ancillary production personnel.

The other categories of costs, including items such as maintenance and repair and other expenses totalled KZT 16,689 million in 2020, an overall decrease of 33% compared to 2019 due to due to the Company’s actions amid the COVID‑19 pandemic.

Uranium segment C1 cash cost, all-in sustaining cash cost, and capital expenditures, KZT million

³³ Excludes liquidation funds and closure costs and includes expansion investments. Note that in section “Capital expenditures review” total results include liquidation funds and closure cost.

C1 Cash cost (attributable) and All-in-sustaining cash costs (attributable C1 + capital cost) decreased by 7% and 2% respectively in USD equivalent in 2020, compared to 2019. The results were considerably better than expected and below the guidance ranges provided for 2020 (US$10.00 – 11.00 for attributable C1 cash cost, US$13.00 – 14.00 for attributable all-in sustaining cash costs). The decreases were primarily due to the weakening of the KZT against the USD in 2020.

Capital expenditures of mining companies (100% basis) totalled KZT 60,947 million, a decrease of 9% compared to 2019, primarily due to the decreased wellfield development activity, which was the result of a decrease in the number personnel throughout the second quarter to prevent the spread of the COVID-19 pandemic.

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

General Attributable Cash cost (C1) Categories

Selling expenses, KZT million

Selling expenses totalled KZT 14,352 million in 2020, an increase of 33% compared to 2019. The increase was mainly due to changes in the delivery destination points for uranium products and the weakening of the KZT against the USD, as a significant portion of shipping, transportation and storing expenses is denominated in foreign currency.

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

A decrease of G&A expenses was due to a lower average number of personnel, fewer business trips and other cost reductions in connection with the COVID-19 pandemic.

The share of associates’ and JVs’ results

The share of results of associates and JVs in 2020 was KZT 40,086 million, an increase of 20% compared to 2019. The increase was related to an increase in uranium spot prices and weakening of the KZT in 2020, which positively impacted the operating results of the associates and JVs and their resulting contributions to the Group.

Profit before tax and tax expense

Capital Expenditures Review

Most of 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:

• well construction costs
• expansion costs, which typically include expansion of processing facilities, extension of services and transport routes to new wellfield areas, implementation of new systems and processes
• sustaining capital, largely reflecting recurring, infrastructure, maintenance and equipment replacement related costs, which are assumed to cease three years prior to the end of production at the asset; and
• liquidation fund contributions and mine closure costs (not included in the calculation of AISC)

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 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

¹ Well construction.

² Sustaining.

³ Liquidation fund / closure. In 2020 JV Katco LLP has changed the methodology of calculation and increased its LF/C.

⁴ Includes total expansion investments (JV Inkai LLP, Karatau LLP, JV Katco LLP) in amount of KZT 2.2 billion in 2020 and KZT 7 billion in 2019.

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 for the 14 mining entities in 2020 amounted to KZT 58,682 million, which is 2% lower than in 2019. The results were considerably below the guidance ranges provided for 2020 (KZT 65 – 75 billion), due to a decrease in well construction as a result of production reductions associated with a decline in field development activities amid the COVID-19 pandemic. The decrease was offset by the change in Kazakhstan’s tax legislation, whereby the cost of sulphuric acid used in the ISR wellfield acidification process is now capitalised within well construction, rather than being expensed directly to the production cost.

Wellfield construction and sustaining costs, KZT million

³⁴ Excludes total expansion investments (JV Inkai LLP, Karatau LLP, JV Katco LLP) of KZT 2.2 billion in 2020 in 2019 and KZT 7 billion in 2020.

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 2020.

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

³⁵ It includes the fixed assets of Kyzylkum LLP.

Reserves and Geological Surveys

Liquidity and Capital Resources

Kazatomprom’s management aims to preserve financial stability in a constantly changing market environment. The Group’s financial management policy is intended 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. As required, the Company will consider entering into project financing arrangements to fund certain investment projects.

The Group manages its liquidity requirements to ensure the continued availability of cash sufficient to meet its obligations on time, avoid unacceptable losses, and settle its financial obligations without jeopardizing its reputation.

Cash and available source of financing, KZT million

The Group’s cash and cash equivalents at 31 December 2020 were KZT 113,347 million, compared to KZT 98,560 million on 31 December 2019, due to explanations that are presented below in the Section “Cash Flows”.

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 2020 and 2019, the Group received dividends of KZT 47,886 million and KZT 13,266 million, respectively, from its JVs and associates, and other investments. The increase in 2020 was primarily due to an increase in operating results of JVs and associates, and from other investments as well as the Company using its voting power to maximise the dividend flow from subsidiaries, JVs and associates. Dividends received by the Company from investees domiciled in the Republic of Kazakhstan are exempt from dividend tax.

In 2020, the Company paid dividends of KZT 99,002 million to its shareholders on the results of 2019 operations an increase of 24% compared to 2019 when dividends of KZT 80,001 million were paid to shareholders on the results of 2018 operations. The increase was related to improved financial results in 2019, with the dividend payment amount being based upon the Company’s approved dividend policy and shareholder approval at the Annual General Meeting of shareholders. The Company has now met its IPO commitment for minimum USD 200 million dividend payments in 2019 and 2020. Going forward, the annual dividend payment will be proposed for shareholder approval by a decision of Kazatomprom’s Board of Directors, calculated based on the Company’s dividend policy.

Working capital

The table below provides a breakdown of the Group’s working capital in 2020 and 2019:

Working capital of the Group, KZT million

³⁶ Excludes current term deposits as of December 31, 2019 for KZT 1 million.

The Group’s net working capital remained positive during all periods under review.

The following table sets forth the components of the Group’s inventories in 2020 and 2019:

Group inventories, KZT million

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 and raw materials increased by 3% and 6% respectively.

An increase in the inventory balance despite a decrease in inventory volume was mainly related to increase in spot price of U₃O₈ and weakening of KZT against USD during 2020 increasing the cost of purchased inventory from JVs and third parties. In alignment with the Company’s value strategy, Kazatomprom’s inventory levels vary based upon seasonality, 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 2020 and 2019:

Consolidated cash flows of the Group, KZT million

³⁷ Includes income tax and interest paid.

Cash Flows from Operating Activities

Operating cash flows totalled KZT 161,593 million, an increase of 1% compared to KZT 159,529 million in 2019 mainly due to:

• a KZT 88,429 million increase in cash receipts from customers during 2020 compared to 2019, due to growth in the average realized price associated with an increase in the market spot price for U₃O₈ and change in timing of the sales schedule for 2019-2020, and
• a KZT 64,893 million increase in payments for accounts payable to suppliers during the 2020 due to the weakening of the KZT against the USD and an increase in the spot price for U₃O₈ purchased from JV and associates

Cash Flows from Investing Activities

Net cash inflows from investing activities increased up to KZT 48,759 million in 2020 compared to Net cash outflows KZT 28,271 million in 2019.

Changes in investing cash flows in 2020 were due to:

• cash consideration received from the sale of the investment in joint venture JSC Uranium Enrichment Center of KZT 43,858 million
• a decrease in acquisition of property, plant and equipment, acquisition of mine development assets and acquisition of exploration and evaluation assets in sum for KZT 14,186 million due to a decrease in mining and preparatory work associated with a decrease in development activities due to COVID-19

Cash Flows from financing activities

Net cash outflows from financing activities were KZT 201,415 million in 2020 and KZT 159,103 million in 2019. The increase in outflow was primarily due to a change in the net movement of loan balances in 2020 of KZT 16,776 million, an increase in dividends paid to shareholders of KZT 19,001 million, and an increase in non-controlling interest KZT 6,533 million compared to 2019.

Indebtedness

The total debt and guarantees of the Group as of 31 December 2020 were KZT 117,962 million (KZT 176,396 million in 2019).

Total debt, KZT million

The following table summarises the Group’s debt for the years ended 31 December 2020 and 2019:

Total Group’s indebtedness, KZT million

As of 31 December, 2020, the Group has no long-term bank loans. Current bank loans mainly include amounts payable within 12 months under short-term bank loans. These credit lines are an additional liquidity source for the Group and are primarily used to temporarily cover cash deficits related to uneven receipts of trade receivables. As at 31 December 2020, the total limit on the Group’s revolving credit lines was USD 590 million, of which USD 16 million was drawn (USD 574 million still available).

The amount of non-bank loans as of 31 December, 2020 totalled KZT 91,838 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 2020, the right to claim under the promissory notes belongs to Kyzylkum LLP. In 2020, the notes were partially redeemed.

Guarantees represent off-balance sheet irrevocable obli- gations 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 at 31 December 2020.

The following table summarises the Group’s weighted aver- age interest rate for bank loans in 2020 and 2019:

Weighted average interest rate of the Group, %

As of 31 December, 2020, the weighted average interest rate decreased compared to the prior year and was 3.12%. The Group’s weighted average interest rate on loans and borrowings in 2020 was mainly influenced by the decrease in LIBOR rates, which forms the basis for the variable interest rate on the Group’s loans.

As of the end of 2020, 93% of the Group’s liabilities total debt from loans and borrowings were at fixed interest rates and 7% at floating interest rates (90% and 10% as of year-end 2019, respectively).

The Company has credit ratings assigned and affirmed by international agencies:

• Baa3 with stable outlook by Moody’s Investors Service (confirmed 29 June 2020)
• BBB- with stable outlook by Fitch Ratings (confirmed 26 March 2020)

Net debt / Adjusted EBITDA

The following table summarises the key ratios used by the Company’s management to measure financial stability in 2020 and 2019. Management targets a net debt to adjusted EBITDA of less than 1.0.

Net debt/adjusted EBITDA ratio, KZT million

³⁸ Adjusted EBITDA is calculated as Profit before tax + Net finance expense + Net FX loss + Depreciation and amortisation + Impairment losses +/- one-off or unusual transactions.

Guidance for 2021

Guidance for 2021

³⁹ Production volume (100% basis): Amounts represent the entirety of production of an entity in which the Company has an interest; it disregards that some portion of production may be attributable to the Group’s JV partners or other third-party shareholders.

⁴⁰ The duration and full impact of the COVID-19 pandemic is not yet known. Annual production volumes could therefore vary from our expectations.

⁴¹ Production volume (attributable basis): Amounts represent the portion of production of an entity in which the Company has an interest, corresponding only to the size of such interest; it excludes the portion attributable to the JV partners or other third-party shareholders, except for JV Inkai LLP, where the annual share of production is determined as per Implementation Agreement as disclosed in IPO Prospectus. Actual drummed production volumes remain subject to converter adjustments and adjustments for in-process material.

⁴² Excludes the change in attributable share of production, C1 cash cost and all-in sustaining cash cost related to the sale of a 49% share in ORTALYK LLP to China General Nuclear (CGN), expected to take place in 2021 (pending approval).

⁴³ The duration and full impact of the COVID-19 pandemic is not yet known. Annual production volumes could therefore vary from our expectations.

⁴⁴ Group sales volume: includes Kazatomprom’s sales and those of its consolidated subsidiaries (according to the definition of the Group provided on page one of this document).

⁴⁵ KAP sales volume: includes only the total external sales of KAP HQ and THK. Intercompany transactions between KAP HQ and THK are not included.

⁴⁶ Revenue expectations are based on uranium prices taken at a single point in time from third-party sources. The prices used do not reflect any internal estimate from Kazatomprom, and 2020 revenue could be materially impacted by how actual uranium prices and exchange rates vary from the third-party estimates.

⁴⁷ Excludes the change in attributable share of production, C1 cash cost and all-in sustaining cash cost related to the sale of a 49% share in ORTALYK LLP to China General Nuclear (CGN), expected to take place in 2021 (pending approval).

⁴⁸ Note that the conversion of kgU to pounds U₃O₈ is 2.5998.

⁴⁹ Excludes the change in attributable share of production, C1 cash cost and all-in sustaining cash cost related to the sale of a 49% share in ORTALYK LLP to China General Nuclear (CGN), expected to take place in 2021 (pending approval).

⁵⁰ Note that the conversion of kgU to pounds U₃O₈ is 2.5998.

⁵¹ Total capital expenditures (100% basis): includes only capital expenditures of the mining entities.

Sales volume guidance for 2021 is also aligned with the Company’s market-centric strategy. The Group expects to sell between 15,500 tU and 16,000 tU, which includes KAP sales of between 13,500 tU and 14,000 tU, consist- ent with sales volumes in 2020. Sales in excess of planned attributable production are expected to be sourced from inventories, from KAP subsidiaries under contracts and agreements with joint venture partners, and from other third-party purchases.

Revenue, C1 cash cost (attributable basis) and All-in Sustain- ing cash cost (attributable C1 + capital cost) may vary from the guidance provided above if the KZT to USD exchange rate differs from the 2021 budget assumption of 430 KZT/1 USD.

The Company continues to target an ongoing inventory lev- el of approximately six to seven months of annual attrib- utable production (roughly 6,500 tU to 7,500 tU, excluding trading volumes held by THK). However, the market is be- ing constantly monitored and, in alignment with its value strategy, Kazatomprom may carry an inventory level out- side of the target range at any point in time based on sea- sonality, and to optimise mining and sales volumes in line with changing market conditions.

Uranium sales price sensitivity analysis

The table below indicates how the Group’s U₃O₈ annual av- erage 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 ta- ble. The table is based upon several key assumptions, includ- ing 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

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

— Annual inflation at 2% in the US;

— Analysis is as of 31 December 2020 and prepared for 2021–2025 on the basis of minimum attributable annual sales of approximately 13.5 thousand tonnes of uranium in the form of U₃O₈, of which the volumes contracted as of 31 December2020 will be sold per existing contract terms (i.e. contracts with hybrid pricing mechanisms with a fixed price component (calculated in accordance with an agreed price formula) and / or combination of separate spot, mid-term and long-term prices); Kazatomprom’s marketing strategy does not target a specific proportion of fixed and market related contracts in its portfolio in order to remain flexible and react appropriately to market signals;

— For the purpose of the table, uncommitted volumes of U₃O₈ are assumed to be sold under short-term contracts negotiated directly with the customers and based on spot prices..

Risks

The Company is exposed to the following key risks that could have a material adverse effect on the Group and its results:

• major accidents affecting the nuclear industry may result in a dramatic fall in uranium prices
• nuclear energy competes with several other sources of energy, and sustained lower prices of such alternative energy sources may result in lower demand for nuclear raw materials, a reduction in nuclear energy development programs and the construction of nuclear power plants and consequently, in a reduction in demand for uranium which could impact market prices
• nuclear energy is subject to public opinion risks that could have a material adverse impact on the demand for nuclear power and increase the regulation of the nuclear power industry
• the Group’s profitability is directly related to the market prices of uranium, which are volatile
• the Group faces competition and could lose customers to other suppliers of uranium and uranium products
• the Group is currently dependent on a small number of customers that purchase a significant portion of the Group’s uranium, and the loss of a significant customer could have a material impact
• certain customers and business associates of the Group may be subjected to US and EU sanctions, and such sanctions could have a material impact
• the US or other uranium importers could impose tariffs or quotas on uranium imports
• the Group may continue to hold significant U₃O₈ inventories throughout the U₃O₈ pricing cycle if production exceeds sales
• the Group’s uranium extraction and transportation activities are subject to operational risks, hazards and unexpected disruptions, which could delay the production and delivery of the Group’s uranium and uranium products, increase the Group’s cost of extraction, or result in accidents at the Group’s extraction locations
• the availability and cost of sulfuric acid materially affects the continuity and commercial viability of the Group’s operations, as the Group uses substantial amounts of sulfuric acid to extract uranium
• the Group may face difficulty using railroads or other transportation infrastructure connecting Kazakhstan with neighbouring countries
• the Group may be unsuccessful in maintaining existing ore reserves or discovering new ore reserves, and the reported quantities or classifications of the Group’s uranium ore reserves may be lower than estimated because of inherent uncertainties in the estimation process
• the Group may be unable to obtain, on commercially acceptable terms or at all, the necessary financing for its operations, strategy implementation, and/or expansion of its business and local infrastructure
• the Group is subject to various financial risks related to certain financial and other restrictive covenants, fluctuations of interest and currency rates, liquidity constraints or fail to obtain the necessary funding, or defaults of counterparties
• the Group may be affected by arbitration or litigation proceedings to which it is not a party, or by legal consequences of non-compliance / misinterpretation of legislation
• the Group’s insurance coverage may not be adequate to cover losses arising from potential operational hazards and unforeseen interruptions
• failures of the Group’s IT systems or cyber-attacks could negatively influence the results of operations
• failure to achieve planned uranium production or products (U₃O₈) output volumes, sales, or production costs of products and services
• failure to achieve the Group’s assets restructuring plan
• failure to successfully improve corporate governance systems and health, safety, and environmental programs
• failure to successfully complete construction of a fuel fabrication plant on time and on budget
• the Group is impacted by the macroeconomic, social and political conditions in Kazakhstan, and the Group may be exposed to risks related to adverse sovereign action by local government, or subject to extensive government regulation and legislation
• the Group may be affected by labour unrest or increased social tension in Kazakhstan
• 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
• the spread of the COVID-19 pandemic on the territory of Kazakhstan may lead to a deterioration in the financial stability of the Group and an increase in social tension
• the spread of the COVID-19 pandemic could result in additional shutdowns or curtailment of operations, which would have an impact on Company’s results and could cause Company to update and/or miss the Guidance for 2021 stated above