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DE RUEHTA #1033/01 1680925
ZNR UUUUU ZZH
O 170925Z JUN 09
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5628
INFO RUCNCIS/CIS COLLECTIVE 1674
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1047
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RUEKJCS/SECDEF WASHDC 1148
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RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEHAST/USOFFICE ALMATY 1617

UNCLAS SECTION 01 OF 03 ASTANA 001033 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB, T, ISN, INR 
 
E.O. 12958: N/A 
TAGS: PGOV PREL PINR EMIN ENRG EINV ELAB KNNP KZ
SUBJECT:  KAZAKHSTAN:  BUSINESS AS USUAL IN THE URANIUM MINING 
SECTOR 
 
REF:   (A) ASTANA 0209 
 (B) ASTANA 0677 
 (C) ASTANA 0943 
 
ASTANA 00001033  001.2 OF 003 
 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  On June 10-11, Energy Officer met with senior 
managers from Kazakhstan's national nuclear energy company 
Kazatomprom (KAP) and KAP's foreign partners in Almaty to discuss 
the impact of the Prosecutor General's ongoing investigation of 
former KAP President Mukhtar Dzhakishev.  Although Kazatomprom and 
the Samruk-Kazyna National Welfare Fund, which owns 100 percent of 
KAP, gave public assurances that all previous contractual 
obligations and production plans will be met, KAP's foreign partners 
are anxiously awaiting official, written confirmation that prior 
transactions and existing contracts will be honored.  Both 
Kazatomprom and its international joint venture partners seemed 
eager to return to business as usual, despite the arrest of 
Dzhakishev and his top lieutenants.  KAP confirmed Kazakhstan's 
interest in hosting an international nuclear fuel bank and said it 
submitted a technical proposal to the IAEA on June 9.  END SUMMARY. 
 
KAZATOMPROM SAYS IT WILL HONOR PREVIOUS COMMITMENTS 
 
¶2.  (SBU) On June 10, Energy Officer met with KAP Vice President 
Sergei Yashin, the highest-ranking official at Kazatomprom who was 
not investigated or indicted on corruption charges (reftel C). 
Yashin told Energy Officer that "representatives from all of our 
foreign partners have come to see us, to receive assurances that we 
will continue to work in accordance with previously announced 
plans."  He said he told the foreign companies that all projects 
initiated under the leadership of Dzhakishev would continue as 
planned.  Yashin praised Dzhakishev for his leadership role in KAP's 
10-year success story and expressed hope that the investigation will 
be conducted fairly.  Yashin also said that on June 11, 
newly-appointed KAP President Vladimir Shkolnik would present the 
company's strategic plan to Prime Minister Masimov, which he 
expected to remain largely the same as it was under Dzhakishev. 
 
NUCLEAR POWER PLANT STILL A PRIORITY 
 
¶3.  (SBU) According to Yashin, the feasibility study for a new 
nuclear power plant in Aktau will be completed "in about two 
months," and submitted to the Ministry of Energy and Mineral 
Resources for approval.  (NOTE:  In January, Yashin told Energy 
Officer that the feasibility study would be completed in April, 
reftel A.  END NOTE.)  Despite minor technical delays with the 
project, Yashin dismissed a June 3 statement by Kairat Kadyrzhanov, 
Director General of the National Nuclear Center, who argued that it 
would be inexpedient to build the nuclear power plant in Aktau, 
since the city is not connected to the national power grid. 
Kadyrzhanov proposed constructing a nuclear power plant near Lake 
Balkhash.  Yashin said, "That's his private opinion.  He can think 
whatever he wants." 
 
IAEA NUCLEAR FUEL BANK PROPOSAL SUBMITTED 
 
¶4.  (SBU) Yashin confirmed Kazakhstan's interest in hosting an 
international nuclear fuel bank under the auspices of the 
International Atomic Energy Agency (IAEA) and said Kazatomprom 
submitted a technical proposal to the IAEA on June 9.  Yashin also 
said that KAP is waiting for financing to start evacuating spent 
fuel from the decommissioned BN-350 plutonium breeder reactor in 
Aktau. 
 
URANIUM ONE WANTS WRITTEN REASSURANCES 
 
¶5.  (SBU) Uranium One, a Canadian-based uranium producing company 
listed on the Toronto Stock Exchange, has a 70 percent interest in a 
joint venture with KAP that owns the Akdala Uranium Mine -- which is 
currently in operation -- and the South Inkai Uranium Project, which 
commenced pre-commercial production in 2007.  Uranium One also has a 
 
ASTANA 00001033  002.2 OF 003 
 
 
30 percent interest in a joint venture with KAP that is developing 
the Kharasan Uranium Project.  On June 10, Paul Lewis Clarke, Senior 
Vice President of Uranium One, told Energy Officer that he is 
concerned that the Prosecutor General's investigation of Dzhakishev 
will call into question the legitimacy of the company's mining 
licenses at the Akdala, South Inkai, and Kharasan mines.  These 
licenses were obtained from Kazatomprom by offshore companies that 
sold them to UrAsia Energy, which Uranium One acquired in 2007. 
Uranium One's share price has already fallen by more than 40 percent 
since the investigation began.  "We want something more than a 
statement to the press," said Clarke.  "That is simply chitchat.  We 
need official confirmation, in writing, from Shkolnik or 
Samruk-Kazyna, that these licenses are still valid."  Clarke, who 
warned Energy Officer that "our conversation is being monitored," 
noted that Uranium One's transactions were approved by many of the 
same people still in power, including Minister of Defense Daniel 
Akhmetov, who was then Prime Minister, and Kazatomprom president 
Shkolnik, then the Minister of Energy and Mineral Resources. 
 
UNINTIMIDATED, URANIUM ONE ACQUIRES NEW URANIUM MINE 
 
¶6.  (U) On June 15, Uranium One announced that it agreed to acquire 
a 50 percent interest in Kazakhstan's Karatau Uranium Mine from JSC 
Atomredmetzoloto (ARMZ), a Russian state-owned mining company.  The 
Canadian company said the purchase agreement gives ARMZ 117 million 
common shares of Uranium One and a cash payment of $90 million. 
Jean Nortier, Uranium One's president and chief executive, said the 
purchase agreement with AMRZ was never at risk, despite the ongoing 
Dzhakishev investigation.  The transaction gives Uranium One 
exclusive rights to negotiate the purchase of ARMZ's 50 percent in 
the Akbastau uranium project, which is in pilot production and is 
adjacent to the Karatau uranium mine.  "This gives us a chance to 
increase our economies of scale in Kazakhtan.  The mines are close 
together, which makes it easier for us to manage our assets," 
Nortier said. 
 
INKAI LESS AFFECTED, BUT NO LESS CONCERNED 
 
¶7.  (SBU) Aliya Kayupova, Corporate Development Director of the 
Inkai joint venture between Canada's Cameco and KAP, tried to put a 
brave face on recent events.  She told Energy Officer on June 10 
that, "Kazatomprom is simply a minority shareholder of Inkai. 
Cameco is the majority shareholder with 60 percent, and our 
operations will not be affected by the change in leadership at 
Kazatomprom."  Kayupova's statement echoed that of Cameco's 
President and CEO Jerry Grandey, who told shareholders on May 27 
that Dzhakishev's arrest has not impacted the Inkai joint venture. 
"So far we have been left alone," he said, and the company is being 
told "it is business as usual."  Grandey noted that it took Cameco 
five years to get leases and licenses for the Inkai joint venture, 
because the Canadian company proceeded "in a very careful way, 
unlike other foreign uranium companies who were licensed very 
quickly."  Nevertheless, Kayupova, who previously worked in 
Kazakhstan's oil and gas sector for nine years, said the company was 
following the situation closely and likened it to Russia's treatment 
of international oil companies.  "You saw how Shell and BP were 
pressured and pushed out of lucrative projects in Russia," she said. 
 "I would not be surprised if Kazakhstan decides to question the 
validity of existing mining contracts, as it did quite successfully 
with the Kashagan contract," she said. 
 
SULFURIC ACID SUPPLY NOT A PROBLEM 
 
¶8.  (SBU) KAP, Uranium One, and Inkai all reported that, unlike the 
situation one year ago, they now have no difficulty securing 
sufficient supplies of sulfuric acid for their uranium mining 
operations.  Inkai's Kayupova said, "One year ago, we were literally 
fighting with other companies for each ton of sulfuric acid."  Now, 
however, she said the situation is completely different.  Kayupova 
said that Inkai conducted an open tender to supply sulfuric acid and 
had already received five bids before the closing date of June 11, 
whereas in 2008, the company was hard-pressed to find one or two 
 
ASTANA 00001033  003.2 OF 003 
 
 
reliable suppliers.  With the surplus supply of sulfuric acid, 
Kayupova said that Inkai has put on hold an earlier plan to build 
its own sulfuric acid plant.  Uranium One's Clarke, however, told 
Energy Officer that it is moving forward with plans to build a 
sulfuric acid plant together with KAP because, even though there are 
currently no issues with the sulfuric acid supply, future deliveries 
could be constrained by the lack of sufficient railcars.  Clarke 
also said that Uranium One's stake in the joint venture would give 
it access to power generated by the sulfuric acid plant, which would 
help ensure a steady power supply to mining operations. 
 
¶9.  (SBU) COMMENT:  As the Dzhakishev affair becomes more dramatic 
(Dzhakishev's wife was prevented from leaving the country this week 
to visit her parents in Kyrgyzstan), Kazatomprom and its foreign 
joint venture partners simply want to return to business as usual. 
Uranium One's decision to increase its investment in Kazakhstan -- 
despite suffering significant collateral damage as a result of the 
Dzhakishev investigation -- indicates that the company is taking a 
long-term, strategic view of its interests in Kazakhstan.  Clearly, 
Uranium One believes that President Nazarbayev will be true to his 
words at the Foreign Investors Council on June 12:  "Kazakhstan was 
and remains committed to the principle of a market economy, the 
protection of the rights of private ownership, and the sanctity of 
signed contracts."  Uranium mining is a lucrative, strategic sector 
for Kazakhstan, and a steady source of revenue, technology, and 
expertise during the current recession.  President Nazarbayev does 
not want to jeopardize that, which gives us reason to believe that 
the investigation into Dzhakishev's dealings will play out as an 
internal political affair and will not directly or adversely impact 
the overall foreign investment climate.  END COMMENT. 
 
HOAGLAND