Research Notes

Nuclear engineering is gaining momentum worldwide due to advantages offered by nuclear fuel compared to traditional sources of energy used to generate electricity. Until recently, this trend was largely applicable only to developed countries. However, many developing countries have begun to focus on rolling out their own nuclear engineering programs in the face of an acute shortage of available traditional energy resources. For this reason, at present many new nuclear power stations are being constructed, which offers an upbeat outlook for nuclear fuel producers.

Growing demand for nuclear fuel on the part of countries focused on the development of nuclear engineering has pushed up prices for uranium concentrate (also known as yellowcake), which is the main raw material for nuclear fuel production. This upsurge has created a favorable market trend for uranium producers. In the future, we could see a spike in nuclear fuel prices, since only countries with developed nuclear engineering industry have nuclear fuel production capacities and the world nuclear fuel market has gradually been shifting from a buying to selling market. Russian corporation Tvel has already been ranked high in the global nuclear engineering sector and is a strong rival to major nuclear fuel manufacturers.

This Desk Note is devoted to the three companies owned by Tvel Corporation, which integrates large Russian enterprises which span the entire technological cycle of nuclear fuel production. These companies are uranium mining enterprise Priargunsky Mining and Chemical Production Association (PIMCU), nuclear fuel manufacturer Novosibirsk Chemical Concentrate Plant (NCCP) and Mashinostroitelny Zavod (Machine Engineering Works) (MSZ).

Our valuation of the market caps of these companies is underpinned by a favorable market trend for uranium mining enterprises, their capability to increase nuclear output related to the monopolistic position of Russian companies in some market sectors, market development trends, and consolidation of nuclear engineering positions of Western and Eastern European countries. We assign a Buy recommendation to NCCP shares and a Hold recommendation to PIMCU and MSZ shares. Investors are advised to carefully weigh the risks associated with specific features of Tvel’s corporate governance practice, which were not factored into our valuations.

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Anastasia Sarapultseva

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