DELIVERING ON PROMISES. CREATING VALUE.

ANNUAL REPORT / 2018 NAC Kazatomprom JSC ABOUT THIS REPORT

The purpose of this Integrated Annual Report is to inform readers about the material aspects of the business of joint stock company (JSC) Kazatomprom (the Company), Kazakhstan’s national atomic company. With this report, the Company aims to help investors and other stakeholders understand how it formulates its development strategy, manages its operations, achieves its financial performance, ensures the long-term sustainability of its business and develops value for stakeholders and interested parties. It addresses the following questions.

WHAT DO THE COMPANY, ITS SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES DO?

IN WHAT ENVIRONMENT DOES THE COMPANY OPERATE?

HOW WILL THE COMPANY’S CORPORATE-GOVERNANCE STRUCTURE PROVIDE FOR VALUE CREATION FOR STAKEHOLDERS IN THE SHORT, MEDIUM AND LONG TERM?

WHAT IS THE COMPANY’S BUSINESS MODEL?

WHAT ARE THE MAIN RISKS AND OPPORTUNITIES INFLUENCING THE COMPANY’S ABILITY TO CREATE VALUE FOR STAKEHOLDERS IN THE SHORT, MEDIUM AND LONG TERM, AND HOW ARE THESE BEING MANAGED?

WHAT ARE THE COMPANY’S GOALS, AIMS AND OBJECTIVES, AND HOW DOES IT INTEND TO ACHIEVE THEM?

TO WHAT EXTENT HAS THE COMPANY MET ITS GOALS, AIMS AND OBJECTIVES FOR THE REPORTING PERIOD, AND WHAT HAS BEEN THE EFFECT ON ITS VALUATION FOR STAKEHOLDERS?

WHAT ARE THE KEY CHALLENGES AND UNCERTAINTIES THE COMPANY IS LIKELY TO FACE IN PURSUING ITS DEVELOPMENT STRATEGY AND WHAT ARE THE POTENTIAL IMPLICATIONS FOR ITS BUSINESS MODEL AND FUTURE PERFORMANCE?

NAC Kazatomprom JSC | 1 Contents CONTENTS

KEY FIGURES. KEY INDICATORS — 2018 4 1. ABOUT THE COMPANY 26 2018 KEY EVENTS 6 STATEMENT OF THE CHAIR OF THE BOARD 1.1 Activity Profile 27 OF DIRECTORS 8 1.2 Main Products 28 STATEMENT OF THE CHIEF EXECUTIVE OFFICER 10 1.3 Company History 28 BUSINESS MODEL 12 1.4 Company Asset Structure 30 COMPANY DEVELOPMENT STRATEGY 15 1.5 Geography and Target Markets 32 BUSINESS TRANSFORMATION 19 1.6 Association Membership and International LISTING INFORMATION 21 Compliance 38 ABOUT KAZAKHSTAN 22 2. OPERATING AND FINANCIAL REVIEW 40

2.1 Significant Factors Affecting Group Operating Results 42 2.2 Key Performance Indicators 47 2.3 Capital Expenditures Review 50 2.4 Reserves and Geological Surveys 53 2.5 Financial Analysis 54 2.6 Liquidity and Capital Resources 58 2.7 Indebtedness 62 2.8 Guidance for 2019 63 Sensitivity Analysis for 2019 64 2.9 Forward-looking Statements 65

3. SUSTAINABLE DEVELOPMENT 66

Programme of Sustainable Development 67 Sustainable Development Initiatives 69 Governance Diagnostics 69

3.1 Sustainable Economic Development 70 Created and Distributed Direct Economic Value 70 Science and Innovation 70 Economic Effect in Regions of Operation 71 Charity and Sponsorship 72 Procurement 72 3.2 Social Responsibility 74 Company Staff 74 Social Policy 79 Social Stability 81 Occupational Health and Safety 82

2 | Annual Report 2018 3.3 Environmental Responsibility 84 4.15 External Audit 132 Waste Management 85 Direct Greenhouse Gas Emissions 87 5. ABOUT THIS REPORT 133 Energy Efficiency 87 Water Resources 88 5.1 Principles for Defining Report Content Nuclear Safety 89 and Subject Limitations 134 3.4 Development Plans 91 5.2 Essential Subjects 135 3.5 Interaction with the Stakeholders 93 5.3 Standards and Guidelines 137 5.4 External Verification 137 4. CORPORATE GOVERNANCE AND ETHICS 98 6. INFORMATION FOR SHAREHOLDERS 141 4.1 Corporate Governance Structure 99 7. CONTACT INFORMATION 142 4.2 Corporate Governance Code 101 4.3 General Meeting of Shareholders 103 ANNEXES 143 4.4 Board of Directors 103 Composition of the Board of Directors 104 CONSOLIDATED FINANCIAL STATEMENTS 143 Changes in the Composition of the Board of Directors in 2018 108 INDEX OF GRI-COMPLIANT STANDARDS Activity of the Board of Directors 108 IN THIS REPORT 254 Assessment of the Activity of the Board of Directors 110 General Disclosures 254 Engagement of Independent Directors 110 Specific Disclosures 256 Committees of the Board of Directors 110 4.5 Management Board 115 GLOSSARY 259 Composition of the Management Board 115 Activity of the Management Board in 2018 120 Management Board Committees 121 4.6 Remuneration of Directors and Executives 123 4.7 Statement of Responsibility of Members of the Board of Directors and the Management Board 123 4.8 Employment Agreements of Senior Management 123 4.9 Conflicts of Interest 124 4.10 Internal Audit System 124 4.11 Organisational Structure of the Company’s Corporate Centre 124 4.12 Corporate Ethics 125 4.13 Risk Management and Internal Control 126 4.14 Information on Taxation in the United Kingdom 130

NAC Kazatomprom JSC | 3 Key Figures KEY FIGURES

Key indicators — 2018 102-7

Uranium production output in volume Output of niobium terms (including all participations, products (tonnes of Nb) subsidiaries and affiliates) (tonnes)

11,476 25.6 PRODUCTION –5% 12,093 –5.2% 27 KAP2 2018 2017 2018 2017

Output of beryllium Output of tantalum products (tonnes of Be) products (tonnes of Ta)

1,711.7 131.7 1st 8% 1,585.2 –6% 140 Kazatomprom 2018 2017 2018 2017 uranium mining world ranking in 2017-2018 (in Electrical power Kazatomprom share of the global natural volume terms) output (million kWh)1 uranium mining market, (including all participations, subsidiaries and affiliates (%)

117.8 2.6% 114.8 9% 23% 2018 2018 2017 21% 2017

Revenue (KZT million) Operating profit (KZT million)

436,632 77,480 58% 277,046 138% 32,602

FINANCE 2018 2017 2018 2017

1 In 2018 operations of MAEK-Kazatomprom LLP were classified as discontinued.

4 | Annual Report 2018 Net profit Net debt/Adjusted (KZT million) EBITDA

380,266 0.54 173% 139,154 142% –1.3

2018 2017 2018 2017

Profitable mining investments Free float of shares (%) (100% base) (KZT billion)

81.5 8% 75.4 14.92% 2018 2018 2017 0% 2017

Net income per share (KZT/share)

1,435.0 169% 534.1

2018 2017

Number of employees Social security tax and social contributions (KZT million)

20,507 6,034 % 25,020 % 6,163 STAFF –18 –2 AND SOCIAL 2018 2017 2018 2017 RESPONSIBILITY

Injury frequency rate (number of injuries per 1,000 employees)

0.15 52% 0.31 HEALTH AND SAFETY 2018 2017

NAC Kazatomprom JSC | 5 2018 Key Events 2018 KEY EVENTS

01 JANUARY 03 MARCH 07 JULY

• 10 January 2018: The termination • 7 March 2018: A Memorandum of • 3 July 2018: NAC Kazatomprom JSC of the activities of Ulba FtorComplex Understanding is signed by NAC completes the sale of 100% of its LLC is registered by order of the Kazatomprom JSC and a consortium shares in MAEK-Kazatomprom LLP to Department of Justice of Ust- of Japanese companies (EAHL) in Nur- Samruk-Kazyna JSC. Kamenogorsk, Department of Justice Sultan (Astana), setting out the basic • 1 July 2018: In the corporate centre of East Kazakhstan region No. 41. conditions for the parties’ interaction of NAC Kazatomprom JSC and with respect to Baiken-U LLP, Kazatomprom-SaUran LLP a single Kyzylkum LLP and JV Kharasan-U LLP. integrated SAP system was put into operation. • 31 July 2018: Transition to new 02 FEBRUARY strategic planning and performance management processes completed. • 8 February 2018: The Board of 04 APRIL Directors of NAC Kazatomprom JSC approves a new development strategy • 4 April 2018: The termination of for 2018-2028. the activities of Geotechnoservice LLP is registered by Order of the 08 AUGUST Department of Justice of South Kazakhstan region No. 22. • 29 August 2018: Extraordinary General Meeting of the shareholders 03 MARCH in Ulba-Konversia LLP approves the voluntary liquidation of • 2 March 2018: The “Kazatomprom the legal entity. The liquidation Town Hall: In Lockstep with Time” 06 JUNE committee also approves decisions is held in the city of Shymkent, on the procedure for and terms of during which Galymzhan Pirmatov, • 29 June 2018: NAC Kazatomprom liquidation. Chairman of the Board of NAC JSC sells 100% of its shares in the Kazatomprom JSC, presents NAC authorised capital of KAES JSC to Kazatomprom JSC’s strategic Samruk-Kazyna JSC. priorities for 2018-2028, in line with • Transition to the target model the new development strategy. of personnel management was completed within the transformation programme. The project covers the corporate centre and 6 subsidiaries and affiliates.

6 | Annual Report 2018 09 SEPTEMBER 10 OCTOBER 12 DECEMBER

• 3 September 2018: • 12 October 2018: NAC Kazatomprom • 13 December 2018: NAC Kazatomprom JSC signs an JSC signs an agreement to sell its NAC Kazatomprom JSC completes a agreement with EAHL, under which, 100% stake in the share capital of transaction to acquire 40.05% of the and under a number of specific Sareco LLP. The buyer is NMC Tau- shares of Energy Asia (BVI) Limited conditions, to buy 40.05% of Energy Ken Samruk JSC. (EAL) and 16.02% of shares in the Asia (BVI) Limited (owner of 95% of • Transition to the target model of authorised capital of JV Kharasan-U shares in the authorised capital of integrated security was completed LLP. Consequently, the Company’s Baiken-U LLP and 40% of shares in the within the transformation stake in Baiken-U LLP increases from authorised capital of Kyzylkum LLP) programme. The project covers the 5% to 52.5% (5% direct participation and 16.02% of shares in the authorised corporate centre and 6 subsidiaries and 47.5% indirectly through EAL), its capital of JV Kharasan-U LLP. and affiliates. stake in Kyzylkum LLP increases from • 28 September 2018: NAC • 15 October 2018: The integrated 30% to 50% (30% direct participation Kazatomprom JSC enters into an planning system has been put into and 20% indirectly through EAL) agreement to sell its 76% stake in commercial operation at the first-tier and its stake in JV Kharasan-U LLP the authorised capital of Kyzyltu LLP enterprises. increases from 33.98% to 50% (direct for KZT 3,834,000,000. The buyer participation). is Stepnogorsk Mining-Chemical • 21 December 2018: The termination Complex LLP. of the activities of Betpak-Dala • In September 2018, NAC LLP is registered by Order of the Kazatomprom JSC became a Vision 11 NOVEMBER Department of Justice of Turkestan Zero partner. Region No. 208. • Implementation of the SAP ERP • The Company listed its shares and • 28 December 2018: Kazatomprom project (enterprise resource global depository receipts (GDRs) and Cameco Corporation entered management system) at TTK LLP was on LSE and Astana International into an Agreement under which launched under the Transformation Exchange (AIX). Kazatomprom will receive by programme. • The first stage of automated 2020 (upon receipt of necessary • 24 September 2018: NAC processes implementation in permits from state bodies) the Kazatomprom approved a accordance with the target IT right to use refining and uranium Transformation programme roadmap management model within the conversion technologies. This would for 2017-2018. transformation programme allow Kazatomprom to proceed • The Board of Directors of NAC implementation plan has been with assessment of the economic Kazatomprom JSC approved the Code completed. feasibility of such technologies of Ethics and Compliance. application in the Republic of Kazakhstan, subject to favourable market conditions. • December 2018: The first 30 students — 12 DECEMBER 20 of whom are employees of the subsidiaries and affiliates of NAC • 7 December 2018: the General Kazatomprom JSC and 10 of whom Meeting of Shareholders of are undergraduates not associated Kazatomprom-Damu LLP approves with NAC Kazatomprom JSC and the voluntary liquidation of the legal its enterprises — graduate from entity. the Master’s degree programmes of the International Scientific and Educational Centre of the Nuclear Industry, founded with KazNRTU named after scientist K.I. Satpaiev.

NAC Kazatomprom JSC | 7 Statement of the Chair of the Board of Directors

STATEMENT OF THE CHAIR

OF THE BOARD OF DIRECTORS 102-14

Dear Shareholders, 2018 was an historic year for Kazatomprom and the Republic of Kazakhstan, due to our successful privatisation and dual listing on two international exchanges. Kazatomprom is the first national company to successfully place its shares simultaneously via initial public offering (IPO) on the Astana International Exchange (AIX) and the London Stock Exchange (LSE).

Kazatomprom’s IPO was The company has entered a new phase Directors includes three independent the first major milestone of its corporate development. It now directors who are established of the State Privatisation counts Kazakh investors and leading professionals with deep international Programme adopted by international investment funds amongst management experience in natural the Government at the end its shareholders. This means additional resources, as well as the uranium and of 2015 as part of the plan responsibility for Kazatomprom in terms nuclear industries. formulated by the First of delivering transparency and corporate In 2018, the International Atomic President of the Republic governance. Kazatomprom, as a public Energy Agency (IAEA) announced the of Kazakhstan Nursultan company, is committed to achieving selection of Kazatomprom as a supplier Nazarbayev to reduce the highest international standards of of low enriched uranium (LEU) to the the state’s share in the corporate governance. IAEA LEU Bank. The Board of Directors economy. Last year also saw approval of the new of Kazatomprom believes its selection Kazatomprom development strategy reflects the high level of trust the for 2018–2028. The strategic objectives global community has in the company for this period were developed based as a reliable and recognised supplier of upon our vision — to be the partner uranium products. of choice for the global nuclear fuel Within the framework of improving industry. The company will focus on health and safety across our business its core business — the mining and in 2018, Kazatomprom was one of the processing of uranium and associated first national companies of the Republic mineral resources — while continuing of Kazakhstan to become an official to optimise production, processing participant in a global programme to and sales volumes based on market promote the concept of ‘zero injury’ conditions. It will also strengthen (Vision Zero), which prioritises the the marketing function and expand health, safety and wellbeing of our sales channels, apply best practices in employees and contractors. The its business activities and develop a programme was developed by the corporate culture corresponding to its International Social Security Association status as an industry leader. To guide (ISSA) to help prevent industrial the achievement of these strategic accidents and reduce occupational goals and objectives, the new Board of health risks.

8 | Annual Report 2018 The Board of Directors is confident in the long-term prospects of the industry and believes that nuclear energy as a carbon-free, stable source of electricity will remain an important and growing part of the global energy supply mix. The results we achieved in 2018 confirm the effectiveness of the strategy we have implemented to date and will ensure the company’s sustainable development in the interests of all its shareholders.

JON DUDAS

Chairman, the Board of Directors of NAC Kazatomprom JSC

NAC Kazatomprom JSC | 9 Statement of the Chief Executive Officer

STATEMENT OF THE CHIEF EXECUTIVE OFFICER

102-14

Dear Colleagues, Partners and Investors, I am proud to present Kazatomprom’s annual report for 2018. The achievements of the atomic holding company mirror the contribution it has made to the socio-economic development, preservation of the environment and wellbeing of the citizens of the Republic of Kazakhstan.

At the end of 2018, Our successful IPO is both the result solidifying our customer base. Our Kazatomprom placed of a strong preparatory collaboration main customers are nuclear power 15% of its shares on the with Samruk-Kazyna in the lead up to operators and our key export markets international markets and the flotation and a sign of confidence are China, Southeast Asia, North it was very well received by from our new shareholders. Our ability America, Europe and the Asia-Pacific both domestic and foreign to meet our obligations will build the region. In 2018, Kazatomprom produced investors. The company’s company’s reputation and this, along a record amount of natural uranium, main shareholder, with market and operational factors, becoming not only the world’s largest Samruk-Kazyna Sovereign will be reflected in the value of our uranium producer, but also the world’s Wealth Fund, received and shares. largest seller. transferred to the State’s The company’s mission, per our new As part of our efforts to expand our National Fund $450 million development strategy, is to effectively presence in all areas of the nuclear from the sale of its shares. and safely develop uranium deposits fuel cycle, Kazatomprom signed an and components of the nuclear value agreement with Cameco Corporation chain to create long-term value for in December 2018, which will allow all of our stakeholders. Our planned us to use Cameco’s refining and operating activities will not start with conversion technologies by 2020. If an increase in production volumes, market conditions are favourable, this but an appropriate response to market will enable us to explore the economic conditions. Kazatomprom reduced feasibility of using these technologies its uranium production by about 8% in the Republic of Kazakhstan. from previously planned production Last year, we completed the acquisition levels in 2017 and will do so again, by of a 40.05% stake in Energy Asia (BVI) 20%, between 2018 and 2020. Partially Limited and a 16.02% stake in the due to Kazatomprom’s actions in 2018, share capital of JV Kharasan-U from global supply and demand for uranium Energy Asia Holdings (BVI) Limited. products became more balanced. The purchases brought Kazatomprom’s As the world’s largest uranium shareholdings in Baiken-U LLP, producer, we have been able to forge Kyzylkum LLP and JV Kharasan-U LLP strong relationships with most of the to 52.5%, 50% and 50%, respectively. world’s leading uranium consumers Kazatomprom applies best practices with a view to supplying our natural when it comes to health and safety uranium products to more regions, and environmental protection, and

10 | Annual Report 2018 these topics will remain of paramount importance to our team. In 2018, we adopted an environmental and social action plan to achieve full compliance with the best international industry practices, including IFC Performance Standards. We continue to support the socio-economic and infrastructural development of uranium mining regions, allocating funds for these purposes under our subsoil-use contracts. We also met all of our social-guarantee commitments in 2018 and further improved our corporate governance processes. Kazatomprom’s results in 2018 were entirely due to the efforts of the entire workforce — a close-knit and highly efficient team, working in line with our GALYMZHAN core values. PIRMATOV Our 2018 results confirm the effectiveness of our strategy and Chief Executive Officer the importance of the priorities we NAC Kazatomprom JSC identified. I am confident that in 2019, Kazatomprom will maintain its momentum and continue to strengthen its leading position in the global uranium market, achieving high production rates, maximising the efficiency of all business processes and increasing the long-term value of the company.

NAC Kazatomprom JSC | 11 Business Model

BUSINESS MODEL KAP1

The Kazatomprom Group is the largest producer of natural uranium globally (in production volume terms), with priority access to one of the world’s largest resource bases.

According to UxC data, the Group’s2 cost efficiently in response to evolving uranium production, including the market conditions. output and refined products of The Company is Kazakhstan’s national its jointly controlled entities and importer and exporter of uranium % attributable associates, for the year and its compounds, nuclear power- ended 31 December 2018 corresponded plant fuel, special equipment and to approximately 23% of total global technologies, as well as rare metals. Its primary uranium production and status as the country’s flagship operator around 40% of global in situ leach gives the Company certain privileges. 23of total global recovery (ISR) uranium production. For example, it can access subsoil use primary uranium Through its subsidiaries, jointly agreements through direct negotiation production in 2018 controlled entities and associates, the with the Government, rather than Group operates 26 deposits, grouped through the tender process that would into 13 asset clusters, all of which otherwise be required. This effectively are located in Kazakhstan. All of the gives the Company priority access to the Group’s uranium deposits are suitable high-quality and ISR-conducive deposits for ISR. The combination of cost- of natural uranium that are abundant efficient ISR technology, which has a in Kazakhstan. smaller environmental impact than The Group only produces uranium other mining methods, and the Group’s from deposits in Kazakhstan. According long-life mining asset base will allow it to UxC data, for the year ending 31 to remain amongst the highest-output December 2018, Kazakhstan is one and lowest-cost uranium producers of the largest uranium producing globally, according to UxC data. The countries which accounted for about Group can draw on more than 40 44% of global uranium production. years of ISR experience in Kazakhstan’s The Group also possesses the largest uranium mining industry. In addition uranium ore reserves of its competitors, to being cost efficient and having a low according to UxC data. As of 31 December environmental impact, ISR technology 2018, the Group’s attributable proved offers enhanced operational flexibility and probable ore reserves contained compared with conventional mining, 305,600 tonnes of UME; its attributable improving the scalability of Group measured and indicated mineral operations and allowing it to increase resources (including those mineral or decrease production quickly and resources modified to produce the ore

2 In this document, the term “the Group” refers to the Company and its consolidated subsidiaries, i.e. companies that the Group controls by having (i) the power to direct their relevant activities that significantly affect their returns, (ii) exposure, or rights, to variable returns from its involvement with these entities, and (iii) the ability to use its power over these entities to affect the amount of the Group’s returns. The existence and effect of substantive rights, including substantive potential voting rights, are considered when assessing whether the Group has power over another entity.

12 | Annual Report 2018 reserves) contained 476,700 tonnes of subsidiaries, JVs and associates) in most portion of the risk and cost of field UME, in accordance with the terms and of the other stages of the ‘front-end’ development with joint-venture definitions of the JORC Code3. nuclear fuel cycle, with the exception partners. The listing of Kazatomprom’s As the Republic of Kazakhstan’s of uranium conversion. These stages shares on the Astana International national atomic company, the Company include production of nuclear fuel Exchange (AIFC) and the London Stock has partnered with most of the leading components and uranium reconversion. Exchange, along with the availability of players in the global uranium mining The Group has access to production credit ratings, provide the Group with industry. The Group has built 10 facilities for uranium enrichment. The favourable conditions for accessing the successful asset-level partnerships with Group produces uranium products, capital markets. Cameco, CGNPC, Kansai, Marubeni, including natural uranium concentrate, Orano (formerly Areva), RosAtom uranium dioxide ceramic powder and and Sumitomo, as well as the Energy fuel pellets, which are used in the Asia consortium, demonstrating the manufacture of nuclear fuel assemblies, prominence of the Group’s asset base the fuel used by nuclear power stations on a global scale. These collaborations to generate electricity. In addition, have also given the Group access the Group is currently engaged in 305,600 to its partners’ technologies, at the the construction of a fuel assembly tonnes same time allowing it to improve its plant for the Chinese market, which it technological and management know- expects to be operational by the end the Group’s attributable how. For the years to 31 December of 2019. Further, by the end of 2020 it proved and probable 2017 and 31 December 2018, 60.4% is planned that the plant certification ore reserves and 49.1%, respectively, of the Group’s procedure by the technology provider attributable mined uranium stemmed (Framatome) will occur followed by from its joint-venture (JV) and associate commissioning of the first output. participations. Commercial deliveries of fuel The Group’s primary customers are assemblies to China are scheduled to operators of nuclear power plants begin in 2021. The Group is well placed and the principal export markets for to develop a conversion facility, should the Group’s products are China, South conversion become economically and Eastern Asia, North America and attractive in future; besides that, the Europe. The Group sells uranium Group plans to secure access to the products under long-term contracts, requisite conversion technologies. short-term contracts as well as on In addition to its uranium operations, the spot market via its Switzerland- the Group is engaged in the based trading subsidiary. The price manufacture of certain rare metal of uranium accounts for a relatively products, primarily tantalum and small fraction of the overall cost of beryllium. producing nuclear energy and most of The Group has a stable financial the Group’s customers tend to prioritise position and positive cash flow from its security of supply, which the Group operating activities. The Group expects is well positioned to provide on more to finance its operating activities and favourable terms, thanks to its size and planned capital investments in existing uranium production output. production assets from its own funds While uranium mining is the and available debt financing facilities predominant focus of its operations, in the foreseeable future. At the same the Group is also present (through its time, the Group shares a significant

3 The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves.

NAC Kazatomprom JSC | 13 Business Model

NAC Kazatomprom JSC business model

CAPITAL KEY OPERATIONAL PROCESSES VALUE CREATION

revenue

FINANCIAL CAPITAL MINING AND PRODUCTION 436,632 mln KZT • Share capital • External loans natural uranium beryllium cash flow from operating activities

NATURAL RESOURCES U3O8 Be 4 58,327 mln KZT • Uranium deposits • Energy consumption • Water consumption • Biodiversity Operating profit Ta 73 Nb 41 77,480 mln KZT

PRODUCTION tantalum niobium dividends CAPITAL • Process solution mln KZT • Infrastructure 161,661 R&D HIGH TECHNOLOGIES basic and diluted earnings per share INTELLECTUAL PROPERTY 1,435 KZT • Patents • Licenses Information Technology SALE • social taxes and payments natural uranium beryllium 6,034 mln KZT STAFF • Ethical values costs on environmental • Professionalism U3O8 Be 4 protection activities 2,138 mln KZT 73 41 COMMUNITIES Ta Nb • Local communities number of personnel • Customers • Suppliers • Partners tantalum niobium 20,507 persons

14 | Annual Report 2018 COMPANY DEVELOPMENT STRATEGY

Kazatomprom’s mission is to develop uranium deposits and the components of the uranium value chain, creating FOCUS ON MINING OPERATIONS AS THE CORE BUSINESS long-term value for all of the Company’s stakeholders, in accordance with the principles of sustainable development. Kazatomprom’s core business activity is uranium mining. The Kazatomprom’s vision is to become Company believes that mining — in particular, the ISR extraction the preferred partner of the global method — is the most attractive segment of the nuclear-fuel value nuclear industry. This vision allows the chain in terms of sustainable profitability and returns on capital. Company to operate in step with the It further expects it to remain so for as long as current market priorities of its customers and partners fundamentals persist. The Company’s access to ISR-conducive in the industry. uranium deposits in Kazakhstan gives it a natural competitive In 2018, the Company adopted a new advantage in ISR uranium mining. Accordingly, Kazatomprom development strategy, focusing on intends to maintain its primary focus on its uranium mining five strategic objectives for 2018-2028: operations, while retaining the option to expand its presence in other segments of the front-end cycle, such as conversion, as well 1 Focus on uranium mining as the as in its rare metals operations. main activity; To streamline its operations, Kazatomprom has progressively disposed of a significant number of non-core assets, including– Optimise production, processing more than 30 non-core subsidiaries over the past five years. 2 and sales based on market Most recently, these included MAEK, the utility company, which conditions; accounted for a material portion of the Group’s revenue (but a small share of profit) in the periods under review. The Company Create value by enhancing aims to complete its non-core asset disposal programme by the 3 the marketing function and end of 2019. expanding sales channels; Kazatomprom has also increased its interest in a select number of uranium mining joint ventures. Most notably, as of 1 January 2018, Apply best practices in business it increased its equity stake in its joint venture with Cameco, JV 4 activities; Inkai LLP, from 40% to 60%, while in December 2018, it raised its equity stake in Baiken-U LLP, a joint venture with the Energy Asia Develop a corporate ethics Limited consortium, from 5.0% to 52.5% and increased its equity 5 culture commensurate with an interest in JV Kharasan-U LLP, a joint venture with RosAtom and industry leader. Marubeni Corporation, from around 34% to 50%. Kazatomprom is currently engaged in the construction of a fuel assembly plant in Kazakhstan together with China General Nuclear (CGN). Expansion into new segments of the nuclear value chain could allow Kazatomprom to offer a broader range of products to its customers and capture additional margins. The Company may consider further strengthening its market position by selectively acquiring or investing in high-quality assets in the nuclear-fuel chain.

NAC Kazatomprom JSC | 15 Company Development Strategy

CONTINUE TO PURSUE A MARKET- CONTINUE TO ENHANCE SALES AND MAINTAIN GLOBAL LEADERSHIP IN THE CENTRIC APPROACH TO URANIUM MARKETING CAPABILITIES AND URANIUM MINING INDUSTRY THROUGH PRODUCTION, OPTIMIZING OPTIMISE THE CONTRACTS PORTFOLIO OPERATIONAL EXCELLENCE PRODUCTION, PROCESSING AND SALES VOLUMES BASED ON MARKET CONDITIONS

In the past two years, Kazatomprom has Kazatomprom has strengthened Kazatomprom prides itself on being substantially changed its strategic approach a number of areas of its sales and the world’s leading uranium producer to become a market-centric, rather than marketing function over the past two and seeks to build on this standing a production-led operator. Crucially, this years. Notably, it has created a new in future in terms of scale, operating involves setting production targets based sales channel through its wholly owned efficiency and innovation. It intends to upon market and sales-volume forecasts, subsidiary THK in Switzerland, allowing continue investing in the exploration as well as adapting production plans to it to engage with new categories of and development of its reserve base to changing market conditions. customer, such as US-based utility ensure sustainable low-cost production The Group’s use of ISR technology allows companies, which prefer to purchase from its mines in the long term, while it to respond to changes in uranium uranium on the spot market. THK has its current reserve base allows it to market conditions by ramping up also enhanced the Company’s analytical maintain current production levels for or reducing its uranium production capability, enabling it to undertake around 15 years. far more rapidly and cost effectively arbitrage operations, and facilitating The Company views its low production than most of its peers, which rely on its expansion into the short-term/ costs as a key competitive advantage conventional mining methods to develop spot market, which requires significant and plans to work continuously on non-ISR-amenable deposits. The Group’s operational flexibility. Moreover, sustaining its attractive position on uranium deposits can be developed Kazatomprom has expanded its physical the global uranium-mining cost curve. exclusively using ISR technology, giving it sales presence in each of its main target Kazatomprom intends to achieve this the flexibility to react rapidly to uranium regions and will continue to strengthen by continuing to optimise its mining market prices and adjust its production this sales network. development plans and stringent accordingly, without a meaningful impact In addition, with the launch of THK’s cost controls. The Company takes a on the per-unit cost of production. operations in 2017, Kazatomprom disciplined approach to production For example, in the year ended 31 became able to offer complex sales- planning, focusing overwhelmingly on December 2017, the Group cut its uranium formula pricing terms to its customers. value and economic returns rather than output by 8% from the previous year. In The Company plans to build on these maximizing production volumes. November 2017, it announced its intention capabilities and offer customers a wider Kazatomprom remains focused on the to reduce its planned contractual range of pricing options than it could ongoing optimisation and digitalisation obligations production volumes by 20% before, due to certain limitations of of its business processes and the for 2018–2020. While the Company’s Kazakhstan’s legislation. further strengthening of its sales and production plans beyond 2020 currently The Company stopped its sales to marketing function. Kazatomprom envisage a return to ‘pre-production-cut’ uranium traders in 2016, in line with continues to follow its Transformation levels, the Company enjoys full technical its strategy to bypass intermediaries Initiative for 2016 to 2025, aimed at and legal flexibility to keep production and build direct relationships with increasing the transparency, efficiency at reduced levels if market conditions customers that are contracting smaller and harmonisation of processes across dictate, as long as any amendments amounts. the Company. to its subsoil-use agreements with the Government are approved.

16 | Annual Report 2018 preserving a conservative balance-sheet structure that allows it to maintain a comfortable leverage level in case of adverse changes in commodity prices. The Company’s dividend policy is to 7.38 distribute no less than 75% of its free KZT billion cash flow if the Company’s leverage DEVELOP AN ETHICS CULTURE ratio is below or equal to 1.0x net debt/ investments in labour COMMENSURATE WITH AN INDUSTRY adjusted EBITDA and no less than 50% protection and occupational LEADER AND CONTINUE TO IMPROVE of its free cash flow if the ratio is above safety in 2018 HEALTH, LABOUR AND ENVIRONMENTAL 1.0x and below 1.5x net debt/adjusted POLICIES IN LINE WITH GLOBAL BEST EBITDA. PRACTICES

Kazatomprom is committed to best health and safety practices and these will remain of paramount importance to the management team going forward. Kazatomprom strives to be an employer of choice in Kazakhstan. It aims to ensure that its facilities are a completely safe working environment and that they are not inflicting damage Review of Company development strategy implementation in 2018 on Kazakhstan’s natural ecosystem. Furthermore, the Company has signed up to the international Vision Zero Strategic Steps towards strategic goal movement to promote zero work- goals implementation in 2018 related injuries and is focused on To focus on the core business • The acquisition of a 40.05% stake in Energy maintaining a low lost time injury Asia (BVI) Limited (47.5% in Baiken-U LLP and 20% in Kyzylkum LLP) and 16.02% of the share frequency rate and the lowest possible capital of JV Kharasan-U LLP was completed. level of occupational accidents. In • The increase in reserves in 2018 amounted to 96,057 tonnes, including in category C — 50,747 2016-2017 Kazatomprom stepped up its 1 tonnes, C2 — 45,310 tonnes. investment in health and safety from • A Portfolio of investment projects of the Company for 2018 have been formed in KZT 5.1 billion in 2015 to more than KZT accordance with the key provisions of 7.1 billion in 2017 and will continue to Investment Policy of the Company. increase this investment in the coming To optimise production, • Based on forecasts of uranium market needs years. processing and sales based on for 2018, the Company reduced its volume of market conditions uranium mined by 20% relative to planned volumes for 2018 set out in its subsurface use contracts. Another one of the Kazatomprom’s strategic priorities is to ensure a To create value by enhancing the • The Company developed and implemented a marketing function and expanding methodological base of procedures, methods, balance between shareholder income the sales channels questionnaires, and standard forms of purchase and optimal capital structure. The and sale agreements aimed at strengthening marketing functions. Company runs high-margin and • Planned uranium sales revenue was exceeded cash-generative operations with a by 5% due to an increase in the customer base, as the Company attracted new customers in relatively limited capital-expenditure the US, Europe and South Korea, expanded profile for expansion and low leverage. the geography of uranium supplies, stopped uranium sales to traders, sold uranium Kazatomprom will, therefore, seek to derivative instruments and optimised its pay dividends to its shareholders, while uranium sales-contract portfolio.

NAC Kazatomprom JSC | 17 Company Development Strategy

Review of Company development strategy implementation in 2018 (continued)

Strategic Steps towards strategic goal goals implementation in 2018

To apply best practices in • In the area of occupational safety, processes business activities were put in place for conducting behavioural safety audits and for identifying hazardous conditions and actions, or potentially dangerous near-miss accidents. Some 1,800 audits were conducted and 6,200 near misses registered. • The use of alternative chemical reagents in the process of manufacturing finished uranium products achieved savings of KZT 109.2 million. • The economic effect of cost optimisation in the construction of production wells amounted to KZT 107.6 million. • The Company developed and approved its IT strategy. • The Company carried out a primary inventory of digitisation projects and created a list of future priority projects. • The Company is implementing a portfolio approach to investment activities, in this regards the methodology on the portfolio project management have been developed and approved in 2018. • Twelve business processes (some automated) were implemented in the Corporate Centre and its subsidiaries. As of the end of the year, coverage corresponded to 32% of all business- process reengineering planned until 2021, in accordance with the Company’s transformation programme charter. • SAP ERP and EIS information systems were implemented in the Corporate Centre, as well as in certain individual subsidiaries and affiliates. • Supporting the International Social Security Association (ISSA) initiative to improve safety, health and well-being at work, the Company is registered as a member of the international Vision Zero program. This participation reflects the Company’s conviction that a strong safety culture can reduce accidents, injuries and illnesses at work.

To develop an ethics culture • The Company updated and approved its Human commensurate with an industry Resources (HR) Policy for 2018-2028 based leader on global industry best practices, designing a system of principles, key directions, approaches and human-resource management methodology based on business needs. • The Company formulated and approved a system of corporate values and began its dissemination to employees. • The Company improved its corporate governance in accordance with best international practices (based on the recommendations of independent consultants), ensuring that its corporate-governance rating was maintained. • Educational programme has been deployed.

18 | Annual Report 2018 BUSINESS

TRANSFORMATION KAP3

In 2015, the Company and 12 of its subsidiaries embarked on a transformation initiative, with a view to implementing the principles set out by its then sole shareholder, Samruk-Kazyna.

The principal aims of the transformation initiative were to improve transparency In the first half of 2018, the Company’s and operational efficiency, as well as to standardize and harmonise business transformation programme was processes, based on Samruk-Kazyna’s reference model. As part of the initiative, expanded by the inclusion of additional in 2016, the Company developed a portfolio of 24 projects on various aspects initiatives aligned with the master plan of Kazatomprom’s operations, such as production, procurement, resource for implementing the Samruk-Kazyna’s management, and business planning and modelling efficiency. By 2017, it had transformation programme for 2018– implemented seven of these projects, including: 2021, approved by the Chairman of the Samruk-Kazyna Board on 14 May 2018. Thus, in addition to the business- process reengineering initiative, in 1 A category-based 3 A targeted risk-management procurement management model, enabling Kazatomprom 2018, Kazatomprom’s transformation system, allowing the Group to automate risk-management programme included initiatives to: to optimise its approach to processes, such as a risks registry, procurement and achieve report monitoring, visualisation short- and long-term benefits, and prediction. These capabilities Digitise business using approved category-based improved the Company’s risk- processes strategies. Kazatomprom analysis capabilities and keep implemented this strategy in senior management appraised of the fuel and lubricants category pertinent risks, ensuring timely and the power category. reaction. Simplify the legal structure 2 An information security 4 A sales and marketing model, designed to improve model, designed to increase information security and the Company’s margins incident management processes by improving its market Transform based on a Security Information perception, strengthening human capital and Event Management its sales and marketing (SIEM) class control and capabilities, developing a analysis system. This allowed better understanding of the Kazatomprom to avail of unified strengths and weaknesses of Implement change systems, as well as the services both Kazatomprom and its management and a project and risk-oriented approach competitors, and improving management approach offered by the system. the Company’s understanding of customer and potential customer needs.

NAC Kazatomprom JSC | 19 Business Transformation

As part of the business-process A number of IT systems were As part of the plan to implement reengineering initiative in 2018, the introduced in 2018: change management and a project Company completed the following approach, the change-management transformation initiative projects: In July 2018, function was structured within the 1 the SAP Enterprise Resource Planning (ERP) business transformation department. was put into commercial Professional requirements for 1 A new model of personnel system management, aimed at use in the Corporate Centre and employees in certain positions in the ensuring the Company’s Kazatomprom-SaUran LLP and, Corporate Centre and in subsidiaries compliance with the best in December 2018, in the Trade were updated to reflect project- practices in human-resource and Transport Company LLP. management competencies, and management, strengthening training was provided for the CEO, CEO- staff engagement, accumulating In October 2018, the 1, CEO-2 management levels on change 2 integrated and preserving knowledge planning system was put into and project management. within Kazatomprom and operation in the Corporate In 2019, the company plans to continue enhancing the role of Centre and four enterprises implementing the following key Kazatomprom corporate (RU-6 LLP, the Ortalyk LLP Transformation projects: culture; production company, APPAK LLP • SAP ERP replication in the Company’s and Kazatomprom-SaUran LLP). production facilities; An integrated planning system in 2 A new health and safety • aimed at reducing the In December 2018, production companies of the second model, 3 the Digital number of accidents at work Mine system was piloted at wave; and by introducing the timely Kazatomprom-SaUran LLP. • Digital Mine replication in two monitoring of potentially mining facilities. dangerous situations, by In December 2018, the Under the digitisation framework, there 4 IT conducting behavioural service management (ITSM) are plans to diagnose business problems, safety audits at Kazatomprom system was launched in to identify potential growth with the facilities and by checking the Corporate Centre and in need for digitalisation, to develop a contractors for compliance two Group enterprises (KAP portfolio of projects of digitalisation and with safety-monitoring Technology LLP and RU-6 LLP). to start implementing them. requirements; As part of the plan to transform people, the Company plans to continue its work Based on the Transformation initiative on the development of a corporate 3 A new model of strategic planning and performance projects implementation results the ethics culture and to train at least 60% management, aimed at Company expects to gain economic of management at CEO-1, -2 and -3 creating a unified process benefits due to work efficiency increase. levels on the leadership development of strategic planning and Following the other initiative programme. performance management, projects implementation in 2018a To implement change management creating a clear hierarchy digitisation office was created, while and project management approach, the of goals with a specified seven subsidiaries and affiliates were Company plans to adapt and approve relationship to key performance removed from the structure. The change- and project-management indicators (KPIs). Motivational company established a code of ethics standards, update change management KPIs were then set for Company and compliance with corporate values, competencies and incorporate the executives, subsidiaries and along with a leadership development Corporate Centre and subsidiaries associates, all focused on programme for 2019-2020. Leadership- (included in the perimeter of the achieving the Company’s development modules were run for the transformation) into the corporate strategic goals, so as to meet its CEO and CEO-1 management levels. A model, training mid- and lower-level shareholders’ expectations in company ethics analysis was conducted corporate managers in the Corporate the strategic long and medium and a roadmap approved for corporate Centre and subsidiaries on project and term. culture development in 2018-2021. change management.

20 | Annual Report 2018 LISTING INFORMATION

In November 2018, the Company listed its shares and global depositary receipts (GDRs) on the Astana International Exchange (AIX) and London Stock Exchange (LSE), respectively. 102-5

The successful placement occurred despite vulnerable market conditions characterised by high volatility. For example, in the second half of 2018 some 17 IPO transactions in the EMEA region were cancelled. The Company’s IPO attracted significant interest among investors evidenced by the existence of top-tier international investors amongst the Company’s new shareholders.

Share and GDR listings

Instrument Currency ISIN Astana International London Stock Exchange Exchange (AIX) (LSE)

Ordinary shares KZT KZ1C00001619 KAP –

Global depositary receipts (GDRs); USD US63253R2013 KAP.Y KAP 1 GDR corresponds to 1 ordinary share

There are a total 259,356,608 at USD 11.60 per GDR, or the equivalent Kazatomprom shares in issue (including KZT 4,322.74 per common share, on the those represented by the GDRs), of day of announcement. Consequently, which 14.92% are in free circulation at the time of the IPO, the Company’s % and the remaining 85.08% are owned market value (capitalisation) was by the state-run Sovereign Wealth around USD 3 billion. The value of Fund Samruk-Kazyna. The shares and the placed shares (including those .92 GDRs were listed in November 2018 represented by the GDRs) was about 14shares in connection with the initial public USD 450 million. offering (IPO) of Kazatomprom, priced in free float

NAC Kazatomprom JSC | 21 About Kazakhstan ABOUT KAZAKHSTAN

KEY FACTS

The Group’s activities and assets Population (as of 1 January 2019) GDP per capita (2018) are predominantly concentrated in Kazakhstan. Kazakhstan became an independent sovereign state in 1991 ~18,4 million people 9,331 USD following the collapse of the USSR. Since then, the country has undergone large-scale changes, transitioning from Capital city (before 03/2019 — Astana) a centralised command economy and (population — more than 1 million) GDP growth in 2018 embracing a market-based model of economic development. Kazakhstan is a unitary state with a presidential Nur-Sultan 4.1% form of government. According to its constitution, the country is a democratic, secular, legal and social Largest city state, the highest values of which (population of 2 million people)) Territory are the person, their life, rights and freedoms. The President of the Republic ² of Kazakhstan is the head of state, its Almaty 2,724,900 km highest official, who determines the main directions of domestic and foreign policy and represents Kazakhstan at Ethnic makeup of the population – one Kazakhstan has 67% of home and abroad. of the most multinational in the world the world’s proven uranium 102-4 reserves suitable for mining Kazakhs — 67.5% Uigurs — 1.5% by the ISR method Russians — 19.8% Tatars — 1.1% Republic of Kazakhstan credit Uzbeks — 3.2% other — 5.6% ratings as of 31 December 2018 Ukrainians — 1.5% 67%

Baa3 October Moody’s (Stable) 2018 Ratio of urban to Kazakhstan shares borders ВВВ- September rural dwellers, % with the Russian Federation, S&P (Stable) 2018 China, Kyrgyzstan, Uzbekistan and Turkmenistan. BBB September 58:42 Fitch (Stable) 2018 Its land border stretches

Exchange rate as of 31.12.2018 National currency KZT 384.2 per USD 1 tenge 13,200 km

22 | Annual Report 2018 %

average GDP growth 9from 2005 to 2017

Main trading partners – the Russian Federation, China, the countries of the The Republic of Kazakhstan is a huge country located in Central Asia, occupying an European Union and the Commonwealth area roughly equivalent to ​​Western Europe. It has enormous mineral reserves and of Independent States (CIS) considerable potential for economic growth.

The volume of foreign investment Kazakhstan’s resource base the value of which is since 1991 has totalled about comprises more than estimated in the tens mineral of trillions of dollars 300 USD billion 5,000 deposit sites,

Kazakhstan is a founder member of the Eurasian Economic Union, of the 150 deposits elements of the periodic table lying 70 which includes Russia, Belarus, have been explored Armenia and Kyrgyzstan beneath the country’s surface, EEU more than 60 elements have been in production According to World Bank and International Finance Corporation Doing Business Survey for 2019, Currently, there are Kazakhstan ranks 493 known deposits, -th in the world for the ease 28 of doing business, containing types of mineral raw the best in its region 99have been identified 1,225 material

NAC Kazatomprom JSC | 23 About Kazakhstan

KAZAKHSTAN’S MINERAL DEPOSITS BY GLOBAL RANKING

zinc tungsten steel uranium chromite

Zn W U FeCr2O4

№ № BaSO4 1 Ag Pb 22 barites silver plumb

copper fluor

№ Cu CaF2 33

molybdenum gold

Mo №4 Au №6

coal petroleum gas №7 №12 №24

Source: Committee of Geology and Subsoil Use of the Ministry of Investment and Development of the Republic of Kazakhstan, Statistical Review of British Petroleum.

24 | Annual Report 2018 Geological and economic assessments 9%. All national economic, social and To develop the country’s financial- of the mineral reserves of Kazakhstan international policy is implemented in services sector and improve the region’s show coal, oil, copper, iron, lead, zinc, accordance with the country’s plan for access to international capital markets, chromites, gold and manganese to sustainable long-term development. Kazakhstan has established a financial have the greatest weight in terms of The main goal of the Government’s hub — the Astana International economic importance. Ores of ferrous Kazakhstan 2050 strategy is to join the Financial Centre (AIFC) — with a and non-ferrous metals mined in world’s 30 most developed countries special legal regime based on English Kazakhstan are exported to Japan, by 2050. law. The main AIFC strategic priorities South Korea, the US, Canada, Russia, Kazakhstan is committed to the are the development of the capital China and the EU. principles of economic liberalisation. market, asset management, wealth Kazakhstan depends on neighbouring The national privatisation programme management (private banking for states for access to world markets; will have reduced the percentage of high net worth individuals), financial its main exports are uranium (all of state participation in the economy by technologies and Islamic finance. the Group’s uranium products are 2020. In the World Bank’s Ease of Doing In 2018, the Astana International exported), oil, natural gas, steel, copper, Business rankings for 2019, Kazakhstan Exchange (AIX) came into operation and ferroalloys, iron ore, aluminium, coal, came in top in the region, polling in commenced trading with the placement plumb, zinc and wheat. Thus, good 28th place globally, ahead of Russia of securities of NAC Kazatomprom JSC. neighbourly relations are crucial to (31st), Turkey (43rd), Kyrgyzstan (70th) realizing export opportunities. and China (46th) and just a little behind Kazakhstan is a country with a fast- Azerbaijan (25th). growing economy and a long-term Between 2005 and 2018, foreign direct development plan. From 2005 to investment in Kazakhstan exceeded 2017, average GDP growth was about USD 280 billion.

Sources: Statistics Committee of the Ministry of National Economy of the Republic of Kazakhstan, World Bank, World Trade Organization, BP Statistical Review, International Monetary Fund, Kazakh Invest.

NAC Kazatomprom JSC | 25 1. About the Company

1

1.1 Activity Profile

• Geological exploration • Natural uranium mining • Uranium products: natural uranium concentrate, ceramic-grade uranium dioxide powders and fuel pellets • Bulk concentrate of rare-earth metals • Beryllium, tantalum, niobium products ABOUT THE COMPANY • Science, social security and personnel training

26 | Annual report 2018 NAC Kazatomprom JSC | 27 1. About the Company

1.2 Main Products

Main product characteristics

Uranium products Uranium mining; reprocessing and sale of uranium products

Beryllium products Production and sale of beryllium products; research and development

Tantalum products Production and sale of tantalum products; research and development

Energy resources Production and sale of electrical power, heating and water

Other Sale of products and services connected to main production activities

102- 2

1.3 Company History

For more than 60 years, Kazakhstan under the guaranty that a customer has been a key global supplier of raw is not engaged in the utilisation of materials and components for nuclear uranium or uranium products for fuel. Some of the entities that currently military purposes. A brief history of the 1997 belong to Kazatomprom subsidiary Company is provided below: Ulba Metallurgical Plant JSC (UMP) began operating in 1949 and have been The Company was established by involved in the production of uranium a decree of the President products since 1954. In 1996, JV Katco of the Republic of Kazakhstan LLP and JV Inkai LLP (subsequently transferred to the Company) were launched as joint ventures with Areva (now Orano) and Cameco, respectively. The Company was established in 1997 by a decree of the President of the Republic of Kazakhstan, as the national operator of Kazakhstan’s nuclear fuel industry. Since inception, the Company has adhered to the principles of the non-military use of atomic energy, supplying the produced uranium and uranium products only

28 | Annual Report 2018 1997 2010 2016

The Company is established. The Group becomes the world’s largest The Group undertakes an asset Kazatomprom is the 13th largest uranium producer in volume terms, restructuring programme. uranium miner globally in volume according to the NEA, IAEA and Red terms. The Company buys a stake in JV Data Book. Inkai LLP, a Group joint venture with Cameco. 2017

2012 Trading Company Kazakatom AG (THK — Trade House Kazakatom AG), 2000 The Group commissions a sulphuric a new trading company established in acid plant with an annual capacity of Switzerland, begins operations. The Group becomes the world’s sixth- 500,000 tonnes. largest producer of uranium in volume terms, according to the NEA, IAEA and Red Data Book. The Group launches tantalum and beryllium production, 2018 focused on peace-time production. 2013 The Company lists its ordinary shares Through equity participation, and global depository receipts (GDRs) on the Group gains access to the LSE and AIX. enrichment plants of Urals Integrated 2002 Electrochemical Plant JSC and the The Company’s Board of Directors International Uranium Enrichment adopted a new development strategy The Group extends the reach of its Centre (IUEC) with respective annual focusing on five key elements: (i) uranium product sales to include the US separation capacities of 2.5 million and reorientation to the core area of and European markets. It also enters the 60,000 tonnes. focus; (ii) optimisation of production, Chinese and South Korean markets. processing and sales volumes based on market conditions; (iii) value creation by expanding sales and marketing; (iv) introducing advanced business 2015 processes; and (v) fostering the 2003 corporate culture of an industry leader. The Group enters into a strategic The Group is now the world’s second- agreement on commercial terms with largest producer of beryllium (29% of CGNPC for the design and construction world production) and the fourth-largest of a fuel assembly plant and the joint producer of tantalum in volume terms. development of uranium deposits in Kazakhstan. UMP JSC takes over as operator of the bank of low enriched uranium in the Republic of Kazakhstan, established under the umbrella of the 2007 IAEA.

The Сompany is assigned a credit score for the first time.

NAC Kazatomprom JSC | 29 1. About the Company

1.4 Company Asset THE HOLDING’S MAIN ASSETS ARE: Structure Subsoil use contracts that grant Group subsidiaries mining rights in 1 respect of 9 uranium deposits located in the Chu-Sarysu and Sirdariya In this document, ‘the Group’ refers regions, in which there were combined proven and probable ore reserves to the Company and its consolidated containing 234,000 tonnes of UME, as well as measured and estimated subsidiaries, i.e. the companies that mineral resources containing 374,200 tonnes of UME as of 31 December the Group controls by having (i) 2018; the power to direct activities that significantly affect their returns, (ii) Subsoil use contracts that grant joint ventures and associates of the 2 exposure or rights to variable returns Group mining rights in respect to 11 uranium deposits located in the from its involvement in those entities, Chu-Sarysu and Sirdariya regions, in which proven and probable ore and (iii) the ability to use its power reserves are registered on a 100% basis in the amount of 286,600 tonnes over these entities to affect the level of UME and total mineral resources (including measured, estimated and of Group returns. The existence and pre-estimated mineral resources) in the amount of 365,800 tonnes of effect of substantive rights, including UME as of 31 December 2018; substantive potential voting rights, are considered when assessing whether the Thirteen uranium production companies, out of which 5 are subsidiaries 3 Group has power over another entity. (excluding Baiken-U LLP) and 8 JVs and associated companies of the The Group, with its Associates and Joint Group; Ventures (“JVs”), are collectively referred to as “the Holding”. Ulba Metallurgical Plant JSC, a facility for the production of uranium 4 products and rare-earth metals, with an annual capacity of 3,728 tonnes 102-1 of U3O8, 317 tonnes of UO2 powder made from UF6, 155 tonnes of UO2 102-10 powder made from scrap and 108 tonnes of fuel pellets, as well as 1,626.9 102-7 tonnes, 141.9 tonnes and 25.2 tonnes of products from the rare earth metals beryllium, tantalum and niobium, respectively;

Uranium trading subsidiary, Trade House Kazakatom AG (THK), located in 5 Zug, Switzerland; and

Ancillary enterprises, including: 6 • two sulphuric acid production plans, with an aggregate annual production capacity of 680,000 tonnes; • Volkovgeologia JSC — a company that conducts geological work and technological drilling; and • A transport and logistics company serving the assets of the Group.

The following table lists the Group’s subsidiaries, JVs, joint operations (JOs) and associates as of 31 December 2018. In all cases, the share is equal to the Group’s voting rights, with the exception of Ulba Metallurgical Plant JSC and Volkovgeologia JSC, in which the Group has 100% voting rights.

30 | Annual Report 2018 Holding’s subsidiaries, JVs, JOs and associates (31 December 2018)

Treatment Name Share (%) Uranium mining and processing Subsidiaries Ortalyk LLP 100.00 Kazatomprom-SaUran LLP(1) 100.00 RU-6 LLP(1) 100.00 APPAK LLP 65.00 JV Inkai LLP(2) 60.00 Baiken-U LLP (4) (5) 52.50 Joint ventures JV Budenovskoye LLP 51.00 Semizbai-U LLP 51.00 Joint operations JV Akbastau JSC (3) 50.00 Karatau LLP (3) 50.00 Associates JV Katco LLP 49.00 JV South Mining Chemical Company LLP 30.00 JV Zarechnoye JSC 49.98 JV Kharasan-U LLP (4) 50.00 Kyzylkum LLP (5) 50.00 Zhanakorgan-Transit LLP (6) 60.00 Energy Asia (BVI) Limited(4), (5) 40.05 Nuclear fuel cycle and metallurgy Subsidiaries Ulba Metallurgical Plant JSC 90.18 ULBA-CHINA Co Ltd(6) 100.00 Mashzavod JSC(6) 100.00 Ulba FA LLP(6) 51.00 Nuclear fuel cycle Joint ventures Uranium Enrichment Centre JSC 50.00 Ural Electrochemical Integrated Plant JSC(6) 25.00 Investments International Uranium Enrichment Centre JSC 10.00 Ancillary operations Subsidiaries High Technology Institute LLP 100.00 KazakAtom TH AG 100.00 KAP-Technology JSC 100.00 Trading and Transportation Company LLP 99.99 Volkovgeologia JSC 90.00 Rusburmash-Kazakhstan LLP(6) 49.00 Korgan-KAP LLP 100.00 Power System International Limited (5) 100.00 Joint ventures SKZ-U LLP 49.00 Uranenergo LLP 48.54 Shieli-Energoservice LLP(6) 99.75 Taukent-Energoservice LLP(6) 99.75 Uranenergo-PUL LLP(6) 100.00 Associates JV SKZ Kazatomprom LLP 9.89

(1) The Company transferred its rights and obligations under the subsoil use licences relating to Kanzhugan, Southern Moinkum, Eastern Mynkuduk and Uvanas deposits, along with the associated production assets to Kazatomprom-SaUran LLP and its rights and obligations under the subsoil use licences relating to the Southern and Northern Karamurun deposits, to RU-6 LLP, in November 2018. Rights and obligations under the subsoil use licence relating to Central Moinkum are planned to be transferred to Kazatomprom-SaUran LLP in 2019. (2) The Company increased its interest in JV Inkai LLP from 40% to 60% and started fully consolidating this entity in its financial statements with effect from 1 January 2018. (3) JV Akbastau JSC and Karatau LLP were classified as joint operations with effect from 1 January 2018. (4) On 13 December 2018, the Company completed the acquisition of 40.05% of the shares in EAL and a 16.02% stake in the issued capital of JV Kharasan-U LLP from Energy Asia Holdings (BVI) Limited. As a result of these transactions, the Company increased its interests in Baiken-U LLP from 5% to 52.5% (direct ownership 5%, indirect ownership through Energy Asia (BVI) Limited 47.5%), its interest in JV Kyzylkum LLP from 30% to 50% (direct ownership 30%, indirect ownership through Energy Asia (BVI) Limited 20.0%) and in JV Kharasan-U from 33.98% to 50% (direct ownership). (5) The Company holds 100% (direct ownership) of Power System International Limited (PSIL) and 40.05% (direct ownership) of Energy Asia (BVI) Limited. PSIL holds 9.95% (direct ownership) of Energy Asia (BVI) Limited. Energy Asia (BVI) Limited holds 40% (direct ownership) of Kyzylkum LLP and 95% (direct ownership) of Baiken-U LLP. (6) These companies are third-level entities for the Company through interests in the subsidiaries, JVs and associates presented above these companies in the table.

NAC Kazatomprom JSC | 31 1. About the Company

Assets for sale or subject to restructuring

Treatment Name Share (%) Alternative Energy Subsidiaries Kazakhstan Solar Silicon LLP(7) 100.00 MK KazSilicon LLP(7) 100.00 Astana Solar LLP(7) 100.00 Nuclear fuel cycle Joint venture JV UKR TVS Closed Joint Stock Company 33.33 Auxiliary operations Associates Caustic JSC(8) 40.00%

(7) The Company intends to dispose of its interests in Astana Solar LLP, MK KazSilicon LLP and Kazakhstan Solar Silicon LLP before the end of 2019. (8) The Company intends to dispose of its entire block of shares in Caustic JSC before the end of 2020.

1.5 Geography and Target Markets

MINERAL ASSETS KAP4

The Company’s mineral assets are located in four main administrative regions of Kazakhstan (Figure 2): the Kyzylorda Region (Shieli and Zhanakorgan districts), the Turkestan Region (Sozak and Otyrar districts), the North Kazakhstan Region (Ualikhanov district) and the Akmola region (Enbekshilder district) (Figure: Location of mineral assets and mining and processing facilities). Location of mineral assets and mining and processing facilities

NORTH KAZAKHSTAN REGION

AKMOLA REGION

KYZYLORDA REGION

TURKESTAN REGION

32 | Annual Report 2018 Kazakhstan’s uranium provinces and distribution of uranium reserves

Uranium deposits in Kazakhstan are grouped into six uranium provinces NORTH KAZAKHSTAN (Figure: Kazakhstan’s uranium provinces and distribution of uranium reserves).

17.3%

SHU-SARYSUYSKAYA PRIBALKHASHSKAYA

0.8% CASPIAN 15.2% ELI

1.8% 4.7%

60.1% SYRDARYA

With the exception of the Semyzbay URANIUM PRODUCTS electricity demand not associated field in Northern Kazakhstan, which is MARKET KAP2 with greenhouse gas emissions, will located in the North Kazakhstani and maintain and strengthen its position Akmola regions, the Company’s fields The key factor affecting the Company’s in the overall structure of growing are located in the south of Kazakhstan financial results is the sales price for energy production, which will ensure in the Shu-Sarysu (8) and Syrdarya uranium products, as the uranium growth in demand for uranium energy (5) provinces. All mines are located segment accounted for 84% of products. This, in turn, will lead to in areas that are sparsely populated consolidated revenues in 2018. a rise in prices for these products and have minimal vegetation cover. Although the average annual sales from current levels; prices have been Natural vegetation in mine areas varies price of a uranium producer depends depressed by declining demand for from desert to shrub and steppe. Only upon the structure of sales (in uranium following the accident at six mines are located within 10km particular, the share of deliveries the Fukushima power station in 2011, of human settlements, all of them under long-term contracts and price against a backdrop of rising global villages. In all regions, the climate is formulae used in each contract), in uranium production in previous years. continental, with hot summers, harsh the long term, the market price for A detailed analysis of factors affecting winters and little rainfall (300mm or uranium products is determined by the price of uranium products is less). the balance of supply and demand. provided in the ‘industry overview’ Based on the opinion of industry section of the Kazatomprom IPO experts, Kazatomprom expects that Prospectus. in the long term, nuclear power, as a stable source of meeting base-load

NAC Kazatomprom JSC | 33 1. About the Company

Spot prices for uranium, 2000-2018 Source: UxC

140

U.S. DOE McArthur River Auctions Indeterminate 120 Suspension Financial Crisis 100 Ranger Cyclones Fund Buying + UX U O Price 3 8 Additional nd Kazakh Cuts 80 2 Cigar Lake Fakushima Flood Accident Chinese Buying 60 UPC Enters Rabbit Lake McArthur Suspension River Initial Suspension Hedge 40 Fund Buying

McArthur River Flood 20 Initial Cigar Lake Flood Kazatomprom Production Cut 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

On the demand side of the around USD 30 per pound, with a small accounted for 45% and 62% of Group uranium products market in 2018, volume of purchases — just over 90 revenues, respectively. multidirectional factors were at play. million pounds of U3O8 — significantly In May 2018, the Company entered into Consumer sentiment was dented by less than annual consumption. a supply agreement with Yellow Cake uncertainty surrounding the ongoing On the supply side, an important plc, a long-term corporate buyer and investigation under Section 232 of the factor was the reduction in supply holder of uranium, listed on LSE AIM. United States Trade Expansion Act, and investment in the expansion Under the agreement, the Company which could limit the access of US of uranium production from the initially supplied 8.1 million pounds (or operators of nuclear power plants to largest global producers, including about 3,112 tonnes) of U3O8 worth USD imported uranium if it were to lead to Kazatomprom, as well as in supply from 170 million and Yellow Cake will have the introduction of quotas or customs secondary sources. As a result, after a the right to purchase additional U3O8 to duties. In terms of the prospects for long period of market oversupply, in a cap of USD 100 million annually from introducing additional generating 2018, there was a shift towards market 2019 to 2027. capacity, demand for construction balance, or even a small deficit. As a The Group estimates that there are during the year was affected, on result, in the spot market in 2018, there around 70 end-users of uranium the one hand, by the delay in the was an increase in price from USD 24 to globally. The company is seeking to construction of a nuclear reactor in the almost USD 29 per pound of U3O8, with expand its client base and is negotiating United Arab Emirates and the slow pace high trading volumes. with potential customers in Europe, of restarting Japan’s reactors and, on North and South America and the the other, by a delay in plans to reduce Middle East. the proportion of nuclear energy in REALISATION 102-6, 102-9, 102-10 The following table shows the France and popular opposition to plans AND SALES geographical distribution of customers to abandon nuclear power in Taiwan for the Group’s uranium products by and South Korea. The persistence of an Customers revenue for the calendar years 2015 to uncertain situation on the demand side The Group sells its products to more 2018. led to low activity in the market for than 22 customers in 11 countries. In medium-term and long-term contracts: 2018, the Company’s top three and the long-term U3O8 price stagnated at top five uranium-product customers

34 | Annual Report 2018 Group sales of uranium products by region, 2015–2018 (%)

Year ended December 31 Regions 2015 2016 2017 2018 China 44% 47% 60% 34% Europe 19% 16% 18% 9.2% India – 11% 8% 23.2% South Korea 3% 6% 4% – USA 20% 12% 4% 4.5% Other(1) 14% 8% 6% 29.1% TOTAL 100% 100% 100% 100%

(1) Sales to other countries, to uranium funds and THK sales on the cash market.

Realisation and marketing this period and concluded a number rail or road to the processing facilities In 2017, Kazatomprom established of long-term contracts for the supply in question. In some cases, the Trading House Kazakatom AG (THK), a of uranium (with the term of some Group enters into swap (exchange) subsidiary trading company based in contracts concluding in 2029). agreements to reduce transportation Switzerland, to improve the Company’s The Company believes that, due to costs. These can include the exchange marketing function, strengthen its the scope of work and coverage of of U3O8 with partners of the Group cooperation with partners, facilitate THK, the Company can more easily at the conversion facility. Please see sales of uranium and uranium products understand both sides of the global the following section on ‘realisation in Kazakhstan and, more generally, uranium market: the demand side, and sales’ for more. increase the Company’s global reach. as the leading producer and seller of • China. When transporting materials THK’s key activities are: natural uranium, and the supply side. to China, the Company delivers its • The sale and purchase of uranium As a result, Kazatomprom can get a cargo to the Alashankou railway in the cash market with the aim of better sense of the market, improving station near the Kazakhstan-China generating additional profit, thanks its analytical capabilities and allowing border. to THK’s quick decision-making management to make more informed • Russia. When shipping to the procedures; decisions. Russian Federation — recipients • Assistance in creating additional include Angarsk Electrolysis and liquidity in the spot uranium market Chemical Combine OJSC (AECC)), and improving the reliability of the TRANSPORTATION 102-9 Siberian Chemical Combine OJSC Kazatomprom portfolio of contracts (SCC) and Chepetsk Mechanical

for uranium mining; and Transportation of U3O8 is carried out Plant OJSC (Rosatom) — the Group • Improving the global reach of the in special 20-foot sealed containers delivers its cargo to the Sukhovskaia Company in the uranium market and any such load is accompanied by railway station for delivery to AECC by offering a wider choice of pricing security personnel until it reaches its in Angarsk, to the Tomsk-2 railway and contractual structures and destination. The Company insures risks station for delivery to the Siberian providing additional market tools for associated with the transportation of Chemical Combine in the city of Kazatomprom customers, such as uranium. Seversk, and to the Glazov railway

offer kits and more flexible pricing The Group delivers U3O8 and finished station for delivery to the base of structures. products to the following destinations the Chepetsk Mechanical Plant OJSC Since its launch, THK has helped for conversion or to end customers: (Rosatom) in Glazov.

Kazatomprom to enjoy some tangible • Western countries. The Group • India. The company delivers U3O8 to benefits in the uranium market. transports U3O8 to companies such destinations in India by rail to the Notably, THK achieved additional spot as ConverDyn (US), Cameco (Canada) port in St. Petersburg, Russia, and sales on the cash market of more than and Comurhex (France) by rail to the then by sea to the port of Mumbai, USD 80 million for the year ended 31 port of St. Petersburg in Russia, then India. From the port of Mumbai, the December 2018. THK also acquired new by sea to various ports in the US, client organises their own transport customers for the Company during Canada and Europe, then, finally, by to the destination.

NAC Kazatomprom JSC | 35 1. About the Company

Illustrative delivery process to our end-customers The average cost of shipping products to specified destinations ranges from USD 0.5 to USD 3.0 per kilogram of

U3O8. As far as possible, the Group tries to enter into swap agreements to minimise delivery times (physical transportation of materials takes, on RUSSIA average, 100 days, while deliveries under CANADA swaps agreements take, on Saint Petersburg average, 25 days), transportation costs and the risks associated with Tomsk transporting uranium products. Topoli

Alanshankou FRANCE USA

CHINA

INDIA

Mumbai

Rail Transport to Final destination

Transport to transportation hub

Ship Global shipping center in Saint Petersburg for shipment to overseas customers

36 | Annual Report 2018 NAC Kazatomprom JSC | 37 1. About the Company

1.6 Association Membership and International Compliance

Kazatomprom is an active member of a number of professional industrial nuclear power organisations: 1 WORLD NUCLEAR 102-13 ASSOCIATION

London, United Kingdom www.world-nuclear.org Member since 1993

2 NUCLEAR SOCIETY OF KAZAKHSTAN

Nur-Sultan, Republic of Kazakhstan www.nuclear.kz Member since 2002

3 WORLD NUCLEAR FUEL MARKET NORCROSS

Norcross, Georgia, USA www.wnfm.com Member since 2002

4 TANTALUM-NIOBIUM INTERNATIONAL STUDY CENTRE

Brussels, Belgium www.tanb.org Member since 1999

5 NUCLEAR ENERGY INSTITUTE

Washington, DC, USA www.nei.org Member since 2018

38 | Annual Report 2018 The Company strictly observes key agreements in relation to the peaceful use of nuclear energy to which the Republic of Kazakhstan is party: 102-12, 103-2

International agreements on the peaceful use of nuclear energy to which Kazakhstan is party

Document Place and date of signing Date of effect

Agreement on the Privileges and Immunities of the IAEA Vienna, Law of the Republic of Kazakhstan 1 June 1959 No. 178-I of 30 October 1997 on ratification

Convention on the Physical Protection of Nuclear Material Vienna, New York Law of the Republic of Kazakhstan and Nuclear Facilities 3 March 1980 No.17 of 22 December 2004 on joining Law of the Republic of Kazakhstan No. 416-IV of 19 March 2011 on ratification of the amendment to the Convention

Convention on Early Notification of a Nuclear Accident Vienna, Law of the Republic of Kazakhstan 26 September 1986 No. 243-IV of 3 February 2010 on ratification, effective 9 April 2010

Convention on Assistance in the case of Nuclear Accident Vienna, Law of the Republic of Kazakhstan or Radiological Emergency 26 September 1986 No. 244-IV of February 03, 2010 on ratification, effective 9 April 2010

Agreement on Basic Principles of Cooperation in Peaceful Minsk, Effective the day of signing Uses of Atomic Energy 26 June 1992 (of CIS member-states)

Treaty on the Non-Proliferation of Nuclear Weapons (NPT) 13 December 1993 Supreme Council Regulation of the Republic of (Washington, London, Moscow, Geneva, 1 July 1968) Kazakhstan of 13 December 1993, No. 2593-XII, on joining, effective the day of signing

Convention on Nuclear Safety Vienna, Act of the Republic of Kazakhstan, 17 June 1994 3 February 2010, No. 245-IV on ratification, effective 8 June 2010

Memorandum on security guarantees in connection with the accession 5 December 1994 Effective the day of signing of the Republic of Kazakhstan to the Treaty on the Non-Proliferation of Nuclear Weapons

Agreement on the Application of Safeguards in Connection with the Almaty, Decree of the President of the Republic of Treaty on the Non-Proliferation of Nuclear Weapons, signed between 19 June 1995 Kazakhstan of 19 June 1995, No. 2344 the Republic of Kazakhstan and the IAEA

Comprehensive Nuclear-Test-Ban Treaty New York, Law of the Republic of Kazakhstan 30 September 1996 of 14 December 2001, No. 270, on ratification

Joint Convention on the Safety of Turning Wasted Production Vein, Law of the Republic of Kazakhstan and on the Safety of Radioactive Waste Management 5 September 1997 of 3 February 2010, No. 246-IV, on ratification, effective 8 June 2010

International Convention for the Suppression of Acts of Nuclear New York, Law of the Republic of Kazakhstan Terrorism 14 September 2005 of 14 May 2008, No. 33-IV, on ratification (General Assembly of the United Nations 13 April 2005)

Central Asian Nuclear-Weapon-Free Zone Treaty Semipalatinsk Approved by Decree of the President of the 8 September 2006 Republic of Kazakhstan, No. 176 of 7 September 2006 Law of the Republic of Kazakhstan No. 120-IY of 5 January 2009 on ratification

Additional Minutes to the Agreement between Kazakhstan and the IAEA 2007 Law of the Republic of Kazakhstan, for application of safeguards in connection with the Treaty on the Non- No. 229, of 19 February 2007 Proliferation of Nuclear Weapons

Vienna Convention on Civil Liability for Nuclear Damage 1997 February 2011 Law of the Republic of Kazakhstan, (Consolidated text of Vienna Convention on Civil Liability for Nuclear No. 405-IV, of 10 February 2011 Damage of 21 May 1963, as amended per the Minutes of 12 September on ratification, effective 29 June 2011 1997)

NAC Kazatomprom JSC | 39 2. Operating and Financial Review

2

This Operating and Financial Review is intended to assist with understanding and assessment of trends and significant changes related to the operations and financial position of NAC Kazatomprom JSC (‘the Company’ or ‘Kazatomprom’).

This review is based on the audited and trading update, and other consolidated financial statements Company reports. All financial data and of the Group, in each case without discussions thereof are based upon OPERATING AND material adjustment, unless otherwise the audited consolidated financial stated. It should be read in conjunction statements prepared in accordance with those statements and the with International Financial Reporting accompanying notes, in addition to Standards (IFRS), unless otherwise FINANCIAL REVIEW the Kazatomprom Q4 2018 operations indicated.

40 | Annual report 2018 NAC Kazatomprom JSC | 41 2. Operating and Financial Review

2.1 Significant Factors Affecting Group Operating Results

The significant factors affecting the Group’s operating results for 2017 and 2018, which the Company expects to continue to affect the Group’s operating results in 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 exchange rates; • Taxation, including mineral extraction tax; • The price and availability of sulphuric acid; • The impact of changes in ore reserves estimates; and • Transactions with JVs and associates.

CHANGES IN NATURAL formulas referencing the spot price. CHANGE IN GROUP STRUCTURE URANIUM PRODUCT PRICES In addition to spot prices, the Group’s effective realised price depends on the In 2018, the Group completed several

Spot market prices for U3O8, the Group’s proportion of contracts in the portfolio projects that resulted in a change in main marketable product, have the with a fixed price component in a given accounting treatment: most significant effect on Group period. The average realised price for revenue. The majority of Group revenue each period can, therefore, deviate The Group’s shareholding in JV Inkai is derived from sales of U3O8 in the spot from the prevailing spot-market price. LLP increased from 40% to 60%, market and from contracts with price effective 1 January 2018, resulting in a change in accounting treatment from equity to full consolidation. Average spot-market and realised prices per pound of U3O8 Agreements were signed with Uranium Currency 2017 2018 Change One Inc., under which the Company Average market spot price USD 22.07 24.64 12% and Uranium One Inc. have the (per lb U3O8) KZT 7,196 8,497 18% obligation to purchase all of the output Average realised price by the Group USD 23.85 24.46 3% of JV Akbastau JSC and Karatau LLP (per lb U3O8) KZT 7,779 8,435 8% on equitable terms, with financing of Average realised price by Kazatomprom USD 24.15 24.37 1% the joint arrangements in proportion (per lb U3O8) KZT 7,874 8,406 7% to their shareholdings. As a result, the Group’s investments in these two Source: Market prices per UxC LLC operations were reclassified as JOs in the consolidated financial statements and accounted for by recognizing the Group’s direct right in joint assets, liabilities, income and expenses in proportion to its ownership, effective 1 January 2018.

42 | Annual Report 2018 • may be responsible for financial and environmental liabilities that may be identified in future periods relating to the utilities business.

Management believes that the Group had no obligations under this agreement as of 31 December 2018 and, accordingly, no liability is recognised in the consolidated financial statements.

In June 2018, the Company transferred its entire block of shares in Kazakhstan Nuclear Power Plants JSC to its then sole shareholder, Samruk-Kazyna. This transaction was also cash neutral.

In December 2018, the Company entered into an advisory and consulting services agreement with Samruk-Kazyna in relation to MAEK- In accordance with IFRS, the Group During the periods under review, the Kazatomprom LLP and Kazakhstan assessed the fair values of the assets Group also disposed of seven non-core Nuclear Power Plants JSC. According and liabilities acquired in the above assets: to the agreement terms, the Company business combinations of JV Inkai 102-49 will provide consulting services with LLP, JV Akbastau JSC and Karatau LLP, respect to all matters raised for resulting in a net gain of KZT 313.5 In July 2018, the Company transferred Samruk-Kazyna’s consideration in billion being recorded in the 2018 its entire interest in MAEK- its capacity as a sole participant in statement of profit and loss. Kazatomprom LLP to its then sole MAEK-Kazatomprom LLP, including the shareholder, Samruk-Kazyna, resulting approval of the implementation plan In December 2018, the Company in the elimination of the Group’s for a management reporting system increased its interest in JV Kharasan-U Energy segment. This transaction was and the formation of a supervisory LLP (from 34% to 50%), its effective cash neutral, as an amount equivalent board and management board. The interest in JV Kyzylkum LLP (from 30% to the sale proceeds was paid to services agreement will be effective to 50%) and its effective interest in Samruk-Kazyna as a dividend in 2018. until December 2021, or until MAEK is Baiken-U LLP (from 5% to 52.5%). The transferred by Samruk-Kazyna to the company expects to fully consolidate That entity has a utilities business and Government of Kazakhstan (whichever the results of these operations, owns a non-operating BN-350 nuclear comes first). except for JV Kyzylkum LLP, once the reactor, which is currently being agreements are finalised in 2019. decommissioned. In accordance with The agreement with respect to The fair-value assessments of the the sale and purchase agreement, in Kazakhstan Nuclear Power Plants assets and liabilities acquired in these relation to its period of ownership of JSC includes the same scope of the transactions have yet to be completed MAEK-Kazatomprom LLP, the Group: Company’s services and is expected to and, accordingly, no gain or loss was remain effective until December 2021, recognised in 2018. • is not exposed to any liabilities or until a feasibility study for nuclear associated with the reactor, unless power-plant construction is completed caused by the Group’s gross and approved by the competent negligence or intentional guilty state authorities of the Republic of actions; and Kazakhstan (whichever comes first).

NAC Kazatomprom JSC | 43 2. Operating and Financial Review

In September 2018, the Company IMPACT OF CHANGES However, because the Group has signed an agreement to sell its 76% IN EXCHANGE RATES significant outstanding USD- interest in Kyzyltu LLP to the other denominated liabilities, the positive shareholder, Stepnogorsk Mining and Fluctuations in the KZT/USD exchange effect of an appreciating USD may be Chemical Plant LLP (SMCP), for KZT rate can significantly affect the Group’s fully or partially offset. In addition, 3.8 billion. Currently, the Company is consolidated operating results, although the Company purchases awaiting payment. Under the terms of primarily because: uranium and uranium products from the sale and purchase agreement, from • Uranium spot prices are typically its JVs and associates under KZT- 7 December 2018, the Company will quoted in USD, so most of the denominated contracts, the prices charge SMCP an amount of 0.01% of the Group’s sales contracts and are determined by reference to the total sum per day until the payment consolidated revenues are prevailing spot-market prices of U3O8, is completed. Ownership rights will be denominated in USD. In 2017, 78% which are in turn denominated in USD. transferred after the Company receives of Group revenue was denominated Accordingly, a significant appreciation the full amount of the purchase price. in USD; this rose to 87% in 2018. of USD would result in a corresponding The increase was due to higher USD increase in the KZT-denominated In October 2018, the Company revenues from the uranium segment uranium purchase costs under such transferred its entire interest in in 2018 than in 2017. contracts. Sareco LLP, a company engaged in the • A substantial portion of Group Where possible, the Group attempts manufacture of an insignificant volume expenses, including most of its to mitigate the risks associated with of rare earth metal products, to the operating production expenses and exchange rates by matching the national mining company, Tau-Ken more than two-thirds of its capital currency of its interest payments and Samruk JSC, a related entity of Samruk- expenditure, are denominated financial liabilities with the currency of Kazyna. in KZT. The main expenses not its cash flows. Through this matching, denominated in KZT relate to the the Group is able to hedge without In December 2018, Kazatomprom-Damu purchase of industrial pumps used the use of derivatives. For monetary LLP began the dissolution of the legal in ISR operations and resins used in assets and liabilities denominated in entity following approval at the Annual processing uranium. currencies other than KZT, the Group General Meeting. • Most of the Group’s borrowings are attempts to keep its net exposure denominated in foreign currencies. to an acceptable level by buying or JV Betpak Dala LLP was also dissolved As of 31 December 2018, 99% of selling such currencies at spot rates as a legal entity. All necessary the Group’s borrowings were when necessary to address short-term liquidation measures are in progress. denominated in USD. imbalances. As most of the Group’s revenue In 2018, the KZT/USD exchange rate In January 2019, the General Meeting is denominated in USD, while a fluctuated between KZT 332.3 and KZT of Shareholders approved the interim significant share of its costs is in KZT, 384.2 per USD. The following table liquidation balance of ULBA Conversion an appreciation of the USD against provides annual average rates and year- LLP. The legal entity is expected to be the KZT generally has a positive effect end closing KZT/USD exchange rates. dissolved by the end of 2019. on the Group’s financial performance.

In total, the number of Group Annual average and year-end closing rate for KZT/USD subsidiaries, JVs, JOs and associates decreased from 50 as of 31 December 2017 to 44 as of 31 December 2018. 2017 2018 Change In 2019, the Company expects to dispose Average exchange rate for the period(1) KZT/USD 326.08 344.90 6% of its entire interests in Astana Solar Closing exchange rate for the period KZT/USD 332.33 384.20 16% LLP, Kazakhstan Solar Silicon LLP and MK KazSilicon LLP, as well as its holdings (1) The average rates are calculated as the average of the daily exchange rates on each calendar day. in Shieli-Energoservice LLP, Taukent- Energoservice LLP and Uranenergo-PUL Source: National Bank of Kazakhstan LLP. In 2020, it expects to dispose of its entire stake in Caustic JSC.

44 | Annual Report 2018 TAXATION AND MINERAL EXTRACTION TAX (MET)

Kazakhstan’s MET is determined by depreciation charges attributable to applying a 29% tax charge to the taxable direct mining activities, but specifically 98,816 base related to mining production costs exclude processing and general and KZT million (based on a formula — see footnotes administrative expenses. The MET is total tax accrued in 2018, to Table below). Taxable expenditures calculated separately for each subsoil including corporate income are made up of all direct expenditures use licence. tax, MET and other taxes associated with mining operations, The resulting MET paid is therefore including wellfield development dependent upon the cost of mining depreciation charges and any other operations.

Summary of taxes accrued by the Group, KZT million

Indicator 2017 2018 Change

Corporate income tax(1) 14,675 31,412 114%

Mineral extraction tax(2) 13,280 17,720 33%

Excess profit tax(3) 5,609 – –

Other taxes and off-budgetary payments(4) 38,470 49,684 29%

TOTAL TAX ACCRUED 72,035 98,816 37%

(1) Applicable rate: 20%; calculation: taxable income (based on tax reporting accounts) multiplied by corporate income tax rate. (2) 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%). (3) Applicable rate: 10–60%. Abolished as of 1 January 2018 for subsoil use licences relating to solid mineral deposits, including uranium. (4) Includes property tax, land tax, transport tax, social tax, off-budgetary payments, VAT and PIT.

Total tax accrued, including corporate income tax, MET and other taxes, increased by 37% on the year to KZT 98,816 million in 2018, due to an increased tax base resulting from higher sales volumes and higher spot prices, as well as accounting changes related to the change in the Group structure (see section Company Asset structure on page 30 for details).

PRICE AND AVAILABILITY OF SULPHURIC ACID

Extraction of uranium using the ISR KZT 21,557 per tonne in 2018 (from KZT mining method requires substantial 21,529 per tonne in 2017). On average amounts of sulphuric acid. If sulphuric in 2018, the price of sulphuric acid acid is unavailable, it could impact the represented about 16% of the Group’s Group’s uranium production schedule. uranium production cost. Higher prices for sulphuric acid could adversely impact the Group’s profits. The Group’s weighted average price of sulphuric acid increased slightly to

NAC Kazatomprom JSC | 45 2. Operating and Financial Review

IMPACT OF CHANGES • The sale of U3O8 purchased from JVs IN ORE RESERVE ESTIMATES and associates, and

• The sale of U3O8 produced by the The Group reviews its estimates of Company and by its consolidated 4,699 Ore Reserves and Mineral Resources subsidiaries and JOs. tonnes on a regular basis. As a result, certain Cost of sales of purchased uranium Ore Reserves and Mineral Resources is equal to the purchase price from Volume of U3O8 purchased from may be reclassified in accordance JVs and associates (using equity JVs, associates and non-controlled with applicable standards. Such accounting), which in most cases investment reclassifications may have an impact is the prevailing spot price with on the Group’s financial statements. certain applicable discounts. The For example, if a reclassification share of results of JVs and associates results in a change to the Group’s therefore represents a significant life of mine plans, there may be a part of the Group’s profits and should corresponding impact on depreciation be considered accordingly in the and amortisation expenses, impairment assessment of the Group’s financial charges, as well as mine closure charges results. In 2018, the weighted average incurred at the end of mine life. discount on pounds purchased from operations was 4.2% of the prevailing spot price. TRANSACTIONS WITH JVS When uranium produced by the AND ASSOCIATES Company, consolidated subsidiaries and JOs, is sold, the cost of sales is

The Company purchases U3O8 from predominantly represented at the cost its subsidiaries, JVs and associates, of production. For those sales, the full principally at spot price with discounts, mining margin is therefore captured in which can vary by operation. Purchased the consolidated results of the Group. volumes generally correspond to the The following table provides the Company’s interest in the respective volumes purchased by the Company; selling entities. these volumes were accounted for using The Group’s Uranium segment revenue the purchase price in the Company’s is primarily composed of two streams: cost of sales for the periods indicated:

Volume of U3O8 purchased by the Company, 2017–2018, (tU)

Indicator 2017 2018 Change

U3O8 purchased from JVs and associates 6,877 3,022 (56)%

(1) U3O8 purchased from non-controlled investment 1,882 1,647 (12)%

TOTAL 8,759 4,669 (47)%

(1) Non-controlled investment is Baiken-U LLP, with 5% direct ownership by the Company.

The volume of U3O8 purchased from JVs, associates, and non-controlled investments that is accounted for in cost of sales using purchased price, totalled 4,669 tonnes in 2018, a decrease of 47% compared to 2017 mainly due to the change in the Group structure (see section Company Asset structure on page 30 for details). Note that total volumes of purchased uranium are higher since the Company and THK also buys from subsidiaries and third parties.

46 | Annual Report 2018 2.2 Key Performance Indicators 380.3 KZT billion CONSOLIDATED FINANCIAL INDICATORS net profit for 2018 Consolidated financial indicators, KZT billion unless noted (an increase of 173% compared to 2017) Indicator 2017(4) 2018 Change (recal- culated) Group consolidated revenue 277.0 436.6 58% (according to the financial statements) Operating profit 32.6 77.5 138%

Net profit 139.2 380.3 173%

Gain on exercise of put option (one-time effect)(1) 107.7 – – Gain from business combinations (one-time effect) – 313.5 –

Adjusted net profit 31.5 66.8 112% Earnings per share attributable to owners 534.1 1,435.0 169% (basic and diluted), KZT/share Adjusted EBITDA(2) 96.7 131.3 36%

Adjusted attributable EBITDA(3) 128.2 140.2 9%

Operating cash flow 23.4 58.3 149%

(1) In 2017 the Group recognised a gain from the exercise of a put option of KZT 107.7 billion because of the difference between the consideration received and the carrying amount of the investments. (2) Adjusted EBITDA is calculated by excluding from EBITDA all items not related to the main business and having a one-time effect. (3) Adjusted Attributable EBITDA is calculated as an 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 Budenovskoye JV LLP’s EBITDA due to minor effect it has during each reporting period) less non-controlling share of adjusted EBITDA of Appak LLP and Inkai JV LLP less any changes in the unrealised gain in the Group. (4) Due to classification of operations of MAEK-Kazatomprom LLP as discontinued.

Consolidated revenues were KZT 436.6 2017. However, a significant portion of Adjusted EBITDA totalled KZT 131.3 billion in 2018, an increase of 58% the year-over-year increase is associated billion in 2018, an increase of 36% from compared with 2017, mainly due to an with one-time effects of transactions 2017, while adjusted attributable EBITDA increase in sales of uranium products in both years, especially the exercise of was KZT 140.2 billion, an increase of as a consequence of market-share the put option in 2017 and the change 9% compared with 2017. The increases growth and the change in Group in investment value resulting from the were mainly driven by the increase structure (see section Company Asset inclusion of JV Inkai LLP, Karatau LLP, in operating profit and the change in structure on page 30 for details). JV Akbastau JSC in the consolidation Group structure (see section Company Operating profit was KZT 77.5 billion (see section Company Asset structure Asset structure on page 30 for details). in 2018, an increase of 138% compared on page 30 for details). The one-time For similar reasons, operating cash with 2017, mainly due to the rise in effects of these transactions increased flows totalled KZT 58.3 billion, an

U3O8 sales volumes, the appreciation net income by KZT 107.7 billion and increase of 149% from 2017. of the USD against the KZT, and higher KZT 313.5 billion in 2017 and 2018 average sales price. respectively. Adjusting for those effects, Net profit for the year was KZT 380.3 adjusted net profit was KZT 66.8 billion, billion, an increase of 173% compared to an increase of 112% compared to 2017.

NAC Kazatomprom JSC | 47 2. Operating and Financial Review

PRODUCTION AND SALES METRICS Production and sales metrics

Indicator. 2017 2018 Change

Production volume as U3O8 (100% basis) tU 23,321 21,705 (7)%

Group production volume as U3O8 (attributable basis)(1) tU 12,093 11,476 (5)%

U3O8 sales volume (consolidated) tU 10,111 16,647 65%

Including KAP HQ/THK U3O8 sales volume tU 9,300 15,287 64%

Group inventory of finished goods (U3O8) tU 9,085 7,892 (13)%

KAP/THK inventory finished goods (U3O8) tU 8,999 7,353 (18)%

Average sales price of the Group KZT/kg 20,222 21,930 8%

Average sales price of the Group USD/lb U3O8 23.85 24.46 3%

Average weekly spot price USD/lb U3O8 22.07 24.64 12%

Average month-end spot price USD/lb U3O8 21.78 24.59 13%

(1) Group production volumes as U3O8 (attributable basis) are not equal to the volumes purchased by the Company and THK.

Production volumes of U3O8 on a 100% sale of 3,112 tU to uranium fund Yellow finished U3O8 products was 7,353 tU, a basis decreased by 7% at all uranium Cake PLC following its initial public decrease of 18% compared to 2017. The mining entities for 2018, compared offering; the effect of the change in the lower inventory levels are the result of to 2017. Production was reduced in Group structure; and transformation of an increase in sales volumes in 2018, accordance with the Company’s decision the Group’s marketing sales function as well as the Company’s target to that saw production at all operations that included the creation of THK, maintain an optimum inventory level reduce by 20% against subsoil- which resulted in the acquisition of new of approximately six months of annual use licence volumes. Attributable customers and higher direct contracting attributable production. production volumes were lower for the without the use of intermediaries. The average KZT sales price realised by same reason. Consolidated Group inventory of the Group in 2018 was KZT 21,930 per Consolidated U3O8 sales volumes in 2018 finished U3O8 products at 31 December kg (24.46 USD/lb), an increase of 8% totalled 16,647 tonnes, an increase of 2018 amounted to 7,892 tU, which is compared to 2017 due to the increase of 65% compared to 2017. Consolidated sales 13% lower than at the end of 2017. average spot price for uranium products in 2018 were favourably impacted by the At the HQ/THK level, inventory of and the appreciation of USD against KZT.

URANIUM SEGMENT FINANCIAL METRICS Uranium segment financial metrics, KZT billion unless noted

Indicator 2017 2018 Change

Average exchange rate for the period KZT/USD 326.08 344.90 6%

Uranium segment revenue 205.6 366.8 78%

Including U3O8 sales proceeds (across the Group) 204.5 365.1 79%

Share of a revenue from uranium products % 74% 84% 13%

Attributable cash cost USD/lb 12.02 11.56 (4)%

Attributable all-in sustaining cost USD/lb 16.09 15.08 (6)%

Investments of mining companies (100% basis)(1) KZT billion 81.5 75.4 (7)%

(1) Excludes liquidation funds and closure costs and includes expansion investments. In section Error! Reference source not found. total results includes liquidation funds and closure cost.

48 | Annual Report 2018 Consolidated U3O8 sales were KZT 365.1 for details), the cost of production per billion in 2018, an increase of 79% unit in KZT changed insignificantly compared to 2017, mainly due to an due to cost optimisation efforts to increase in sales of uranium products, further position the Group’s U3O8 unit reflecting market share growth and the production costs among the lowest in 75.4 change in the Group structure. the industry. KZT billion Attributable Cash Cost (C1) and All- Investment costs of mining companies In-Sustaining Costs (AISC) decreased (on 100% basis) totalled KZT 75.4 investment costs of by 4% and 6% respectively in 2018, billion, a decrease of 7% compared to mining companies compared to 2017. The decreases were 2017, mainly due to the decrease of (on 100% basis) primarily due to depreciation of KZT. It sustaining capital costs substantiated should be noted that despite of the 7% by the cost optimisation programme decrease in production volumes (see (see section Capital Expenditures section Production and Sales metrics Review for details).

UMP SEGMENT UMP segment

Rare metals products 2017 2018 Change

Beryllium products KZT/kg 8,267 10,447 26%

Sales, tons 1,599.6 1,662.1 4%

Tantalum products KZT/kg 95,369 104,076 9%

Sales, tons 135.0 137.7 2%

Niobium products KZT/kg 19,906 24,088 21%

Sales, tons 23.7 22.9 (3)%

Increased consumer demand for beryllium and tantalum products in 2018 resulted in higher sales. Sales of niobium in 2018 decreased compared to the prior year due to a reduction in quantity of orders for niobium alloying additives and for niobium-containing sublimates.

UO2 power and fuel pellets

Sales 2017 2018 Change

Fuel pellets tonnes 75.2 84.3 12%

Ceramic powder tonnes 10.2 10.2 –

Dioxide from scraps tonnes 15.3 8.3 (46)%

Sales of fuel pellets in 2018 increased to 2018 were unchanged compared to 2017. 84.3 tons, 12% higher than in 2017 due The decline in sales volumes of dioxide to increased amounts of tolling services from scraps is due to a reduction in according to customer agreements. scrap recycling. Sales volumes of ceramic powder in

NAC Kazatomprom JSC | 49 2. Operating and Financial Review

OTHER SEGMENTS Other segments, KZT billion unless noted

79.2 Indicator 2017 2018 Change KZT billion Revenue 80.3 79.2 (1)% total external revenue Including external revenue 39.1 31.4 (20)% from other segments Cost of sales 75.3 77.0 2% in 2018 Gross profit 5.0 2.2 (57)%

* All indicators include intra-group transactions (eliminations), for more details see the annual financial statements.

Other segments include services from the Other segments represented such as drilling, transportation of about 7% of the Group’s total commodities and sulphuric acid, R&D consolidated revenue in 2018, compared and training which are provided to to about 14% in 2017. A decrease in mining entities. the Other segments gross profit is Total external revenue from other mainly due to the change in the Group segments was 79.2 billion in 2018, which structure (see section Company Asset was similar to 2017. External revenue structure on page 30 for details).

2.3 maintenance and equipment replacement related costs which are Capital assumed to cease three years prior to Expenditures cessation of production; • Liquidation-fund contributions and Review mine-closure costs, which are not included in the calculation of AISC The following table provides the The Group primarily incurs capital capital expenditures for the Group’s expenditures in relation to its subsidiaries, JVs and associates subsidiaries engaged in the mining engaged in uranium mining for the of natural uranium, as well as periods indicated. Capital expenditure expenditures of a similar nature amounts shown were derived from relating to its JVs and associates stand-alone management information engaged in the mining of natural of certain entities within the Group uranium. Such expenditures are on an unconsolidated basis, and they comprised of the following key are therefore not comparable with or components: reconciled to the amounts of additions • Well construction costs; to property, plant and equipment as • Expansion costs, which typically presented in the financial statements. include expansion of processing Investors are strongly cautioned to facilities, extension of services and not place undue reliance on capital transport routes to new wellfield expenditure information, as it areas, implementation of new represents unaudited unconsolidated systems and processes; financial information on an accounting • Sustaining capital — largely basis which is not in compliance with reflecting recurring, infrastructure, IFRS:

50 | Annual Report 2018 Group capital expenditure (KZT millions)

2017 2018 Enterprise name Stake WC(1) S(2) LF/C(3) Total Owner WC(1) S(2) LF/C(3) Total ship Ortalyk LLP 100% 2,555 543 169 3,267 100% 2,321 5,010(4) 171 7,502 Kazatomprom-SaUran LLP 100% 5,197 1,185 639 7,020 100% 6,778 1,478 2,990 11,245 RU-6 LLP 100% 2,453 541 282 3,276 100% 2,472 676 1,062 4,210 Appak LLP 65% 2,046 209 87 2,341 65% 999 257 68 1,325 JV Inkai LLP 40% 5,258 8,077 — 13,335 60% 8,707 2,324 31 11,062 Semizbay-U LLP 51% 2,364 470 137 2,971 51% 2,996 980 115 4,091 Karatau LLP 50% 4,369 2,558 99 7,026 50% 2,376 685 80 3,141 JV Akbastau JSC 50% 3,103 2,486 144 5,733 50% 2,031 1,192 79 3,301 JV Zarechnoye JSC 49.98% 3,386 535 11 3,931 49.98% 3,971 182 10 4,162 JV Katco LLP 49% 10,252 2,866 768 13,886 49% 9,275 2,447 1,368 13,090 JV Kharasan-U LLP(5) 34% 6,582 254 182 7,018 34% 4,983 1,611 142 6,736 JV SMCC LLP 30% 3,962 2,761 858 7,582 30% 5,813 339 535 6,688 Baiken-U LLP(5) 5% 4,389 3,051 233 7,674 5% 4,674 861 146 5,681 TOTAL OF MINING ASSETS 55,918 25,535 3,609 85,061 57,396 18,041 6,798 82,235

(1) Well construction (2) Sustaining (3) Liquidation fund/closure (4) Includes expansion investments in amount of KZT 4.6 billion. (5) As of 31 December 2018, the share in Kharassan was 50%, in Baiken-U, 52.5%.

In order to achieve the planned levels of production, on an annual basis, the Group’s mining companies assess the required level of wellfield and mining preparation based upon the availability of reserves. These costs relate to the capitalised costs of maintaining the sites, with the main component being wellfield construction.

Wellfield construction and sustaining costs, 2018 in KZT millions

Katko 9,275 2,447

Semizbai-U 2,996 980

Zarechnoye 3,971 182

SCMC 5,813 339

Karatau 2,376 685

Akbastau 2,031 1,192

Khorasan-U 4,983 1,611

Baiken-U 4,674 861

Appak 999 257

Inkai 8,707 2,324

Sauran 6,778 1,478

RU-6 2,472 676

Ortalyk 2,321 388

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000

Wellfield construction Number of wells NAC Kazatomprom JSC | 51 2. Operating and Financial Review

Wellfield construction and sustaining costs

(KZT millions) 2017 2018 Change

Well construction 55,918 57,395 3%

Sustaining 25,535 13,419 (47)% TOTAL WELLFIELD CONSTRUCTION AND 81,452 70,8141 (13)% SUSTAINING COSTS (¹) Excludes expansion investments of KZT 4.6 billion

Wellfield construction and sustaining sustaining capital expenses related a During 2018, 23,199 tU of reserves were costs for the 13 mining entities in 2018 cost optimisation program. A 3% rise in added to production, down 11% from 2017. amounted to KZT 70.8 billion, which the cost of well construction is related to The increase in ready-to-mine reserves is 13% lower than in 2017. The change higher piping costs, higher pump prices was smaller due to lower uranium was mainly due to the decrease of combined with KZT depreciation. production volumes in the mine plan in 2018 compared with 2017. The increase in ready-to-mine reserves is made according Production vs. increase in ready-to-mine reserves, tonnes to the results of the GPR complex that included construction of technological 21,699 wells on technological blocks, piping of 2018 23,199 technological wells and technological 23,391 blocks, acidification of technological 2017 26,103 blocks. KAP4

0 5,000 10,000 15,000 20,000 25,000 30,000 The information presented in Table 25 reflects wellfield development Uranium minning Increase in ready-to-mine reserves depreciation (commonly known as PGR), property, plant and equipment, and depreciation and amortisation data for each mining asset as of 31 December 2018. Depreciation and amortisation, 31 December 2018, KZT million unless noted

PGR volumes PGR Exploration Book value Gross value D&A (excl. (tU) value of PPE (excl. of PPE (excl. wellstock) wellstock) wellstock)

Ortalyk LLP 2,711 9,909 328 12,749 18,168 1,046

Kazatomprom-SaUran LLP 4,993 11,088 2,870 6,518 15,085 1,059

RU-6 LLP 2,954 7,838 - 3,058 5,589 391

Appak LLP 2,447 3,942 2,158 4,118 8,280 368

JV Inkai LLP 4,901 19,901 20,320 59,706 95,428 2,244

Semizbay-U LLP 2,902 5,611 31 7,990 16,346 809

Karatau LLP 3,070 6,772 3,202 11,733 22,708 1,272

JV Akbastau JSC 2,277 4,758 6,893 7,509 10,831 402

JV Zarechnoye JSC 2,502 8,406 664 2,811 8,435 668

JV Katco LLP 4,881 22,590 4,432 17,502 50,212 3,538

JV Kharasan-U LLP 4,108 9,637 9,893 10,738 15,379 681

JV SMCC LLP 4,813 9,615 6,479 12,290 19,269 1,949

Baiken-U LLP 3,176 9,246 7,193 11,318 19,475 1,135

52 | Annual Report 2018 2.4 Reserves and Geological Surveys 740,000 Reserves and resources, 31 December 2018, thousand tU tU total mineral resources Budenovskoye 6, 7 (including mineral reserves 32.7 of all production companies)

Inkai 2, 3 125.1 58.1 Katko 58.1 Mineral reserves of all mining assets as of 31 December 2018 (including 27.3 Semizbai-U annual depletion) totalled an estimated 27.3 520,600 tU, (100% basis, 305,600 tU 5.0 attributable to the Company, or 59%). Zarechnoye 6.4 Total mineral resources (including reserves) were estimated at 740,000 43.1 tU (100% basis, 476,700 tU attributable SMCC 88.2 to the Company). In comparison to the first half of 2018, as reported in the IPO 46.9 Karatau prospectus, total resources increased 46.9 by about 66,000 tU (100% basis, about 43.0 41,000 attributable). Akbastau 43.0 The Company pays significant attention to the evaluation of prospective 41.7 deposits and the projects portfolio, Khorasan-U 41.7 including exploration projects. In 2018, the Company was awarded uranium 21.5 Baiken-U exploration contracts for site No. 2 21.5 and No. 3 of the Inkai deposit with 18.8 duration of 4 years. According to the Appak 18.8 Report of the Competent Authority of the Ministry of Energy of the Republic 141.8 of Kazakhstan, as of 1 July 2017, the Inkai 141.8 mineral resources for sites No. 2 and 3 are 125,100 tonnes (of which 42,000 29.8 Sauran tonnes are on site No. 2, and 83,100 30.6 tonnes on site No. 3). In 2019, the Company plans to start geological 15.5 RU-6 studies on site No. 2 of the Inkai 15.5 deposit. 28.0 Ortalyk 42.3

0 20 40 60 80 100 120 140 160

Reserves 520.6 THOUSAND TU Resources 740 THOUSAND TU

NAC Kazatomprom JSC | 53 2. Operating and Financial Review

2.5 Financial Analysis

The table below shows financial information related to the consolidated results of Net profit of the Group in 2018 is the Group for 2017 and 2018: significantly affected by the transactions related to change in the Group structure: Key financial information, 2017–2018 • a gain from increase of additional interest in JV Inkai LLP of KZT 95,929 2017(2) 2018 Change (KZT millions) (recal- million culated) • a gain from the change of Revenue 277,046 436,632 58% classification of Karatau LLP and JV COGS (209,934) (313,817) 49% Akbastau JSC to joint operations of GROSS PROFIT 67,112 122,815 83% KZT 124,632 million and KZT 92,951 Selling expenses (4,316) (10,530) 144% million, respectively G&A (30,194) (34,805) 15% The components of revenue, cost of OPERATING PROFIT 32,602 77,480 138% goods sold, general and administrative Other income/(loss), including: 77,294 312,436 304% expenses, distribution costs, and other Gain on exercise of put option (one-time effect) 107,714 income and expenses are changed in Net gain from business combinations (one-time effect)(1) 313,517 2018 compared to 2017 due to the change Share in the results of associates 22,007 22,786 4% in the Group structure (see section Share of JV results 22,107 (4,743) (121)% Company Assets Structure on page 30 PRE-TAX INCOME 154,010 407,959 165% for details). Corporate income tax (17,287) (28,797) 67% Income from discontinued operations 2,431 1,104 (55)% NET PROFIT 139,154 380,266 173% ADJUSTED NET PROFIT (NET OF ONE-TIME EFFECT) 31,440 66,759 112% (1) Includes the gain in amount of KZT 5 million from other investments. Net profit attributable to shareholders 138,527 372,176 169% (2) Due to classification of operations of MAEK- Net profit attributable to non-controlling interest 627 8,090 1,191% Kazatomprom LLP as discontinued.

REVENUE BY SOURCE Revenue by source (KZT millions)

43,163 Oters 36,610

Sales of other 3,326 uranium products 3,258 12,871 Tantalum products 14,333 13,224 Beryllium products 17,364 204,462 Uranium products 365,067

0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000

2017 2018

54 | Annual Report 2018 The main factors influencing the change in revenue in 2018 compared to 2017 are presented in the graph below:

Sources of changes in revenue (KZT millions)

Revenue 2018 436,632

Changes in exchange rate 22,028

Increase in Rare metals sales prices 2,707

Increase of U3O8 sales prices 8,498

Increase of U3O8 volumes 126,353

Revenue 2017 277,043

0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000

COST OF SALES

Cost of sales totalled KZT 313,817 million (see section Company Assets Structure in 2018, an increase of 49% compared on page 30 for details). to 2017. The increased is mainly due to The table below shows the Group’s higher uranium sales volumes in 2018 cost of sales for 2017 and 2018 by and the change in the Group structure component:

Cost of sales by component, 2017–2018

Proportion of cost of sales (KZT millions) 2017 2018 Change 2017 2018 Materials and supplies 143,771 202,817 41% 69% 64% Wages and salaries 22,830 24,024 5% 11% 8% Processing and other services 5,052 10,354 105% 2% 3% Depreciation and amortisation 13,623 39,866 193% 6% 13% Taxes other than income tax 10,552 22,033 109% 5% 7% Other 14,106 14,723 4% 7% 5% COST OF SALES 209,934 313,817 49% 100% 100%

The cost of materials and supplies was The cost of processing and other due to the consolidation of expenses KZT 202,817 million in 2018, an increase services was KZT 10,354 million in 2018, attributable to JV Inkai LLP and an of 41% from 2017. The increase was an increase of 105% from 2017, mainly as increase in sales of uranium products largely due to higher uranium sales a result of higher costs associated with at Group level compared with products volumes and the change in the Group third-party services. purchased from JVs and associates structure. The other cost categories — including during 2018. Wages and salaries totalled KZT 24,024 depreciation and amortisation, taxes million in 2018, an increase of 5% from and other expenses, and other — 2017, mainly due to the change in the totalled KZT 76,622 million in 2018, an Group structure. increase of 100% from 2017, mainly

NAC Kazatomprom JSC | 55 2. Operating and Financial Review

The main factors influencing the change in cost of sales in 2018 are presented in the graph below:

Changes in cost of sales, 2018 vs. 2017 (KZT millions)

Cost of sales 2018 313,817

Decrease of cost of sales incl. due to consolidation –15,815

Increase of purchased uranium from JV’s and Assoc. 11,611

Changes in exchange rate 7,376

Increase in prices of raw materials and energy resources 1,474

Increase in U3O8 volumes 99,237

Cost of sales 2017 209,934

0 40,000 80,000 120,000 160,000 200,000 240,000 280,000 320,000

SELLING EXPENSES Selling expenses Proportion of selling expenses (KZT millions) 2017 2018 Change 2017 2018 Shipping, transportation and storing 2,868 7,275 154% 66% 69% Wages and salaries 484 950 96% 11% 9% Rent 85 106 24% 2% 1% Materials 169 221 31% 4% 2% Depreciation and amortisation 65 67 3% 2% 1% Others 645 1,911 196% 15% 18% SELLING EXPENSES 4,316 10,530 144% 100% 100%

Selling expenses totalled KZT 10,530 sales volumes) and the change in the total increase in selling expenses; the million in 2018, an increase of 144% Group structure. remainder related to the change in the from 2017, mainly due to an increase in Selling expenses related to sales of HQ/ Group structure (see section Company the costs of loading, transporting and THK volumes increased by 123% on the Assets Structure on page 30 for details). storing (associated with higher uranium year in 2018. This constituted 29% of the

GENERAL & ADMINISTRATIVE EXPENSES (G&A) General and administrative expenses, 2017–2018, KZT millions Proportion of G&A expenses Indicator 2017 2018 Change 2017 2018 Wages and salaries 16,556 17,809 8% 55% 51% Consulting and information services 3,150 4,488 42% 10% 13% Rent 1,086 1,166 7% 4% 3% Depreciation and amortisation 696 808 16% 2% 2% Other 8,706 10,534 21% 29% 31% G&A EXPENSES 30,194 34,805 15% 100% 100%

56 | Annual Report 2018 G&A expenses were primarily expenses, communication expenses, influenced by the change in the Group materials, taxes other than income tax, structure, including wages and salaries utility costs, corporate events, fines and (KZT 17,809 million in 2018, 8% higher penalties, and certain other expenses. than 2017), rent expenses (1,166 million, 407,959 7% higher than 2017), and depreciation KZT million and amortisation (KZT 808 million, 16% THE SHARE OF ASSOCIATE higher than 2017). AND JV RESULTS profit before The cost of consulting and information tax in 2018 services was KZT 4,488 million in The share of results of associates and 2018, an increase of 42% from 2017, JVs in 2018 was KZT 18,042 million, a largely due to an increase in services decrease of 59% from 2017. The decrease purchased by the Company during 2018. was mainly down to the change in Other expenses totalled KZT 10,534 Group structure (see section Company million in 2018, an increase of 21% from Assets Structure on page 30 for details). 2017. The increase was largely related to The increase in the average spot price expenses on the construction of social in 2018 compared with 2017 positively facilities in the newly formed Turkestani impacted the operating results of the region. Other expenses also includes associates and JVs and their resulting maintenance and repairs, travel contributions to the Group.

PROFIT BEFORE TAX AND TAX EXPENSE Profit before tax and tax expense, 2017–2018, KZT millions

0 2% 4% 6% 8% 10% 12%

2018 407,959 28,797 7% 2017 154,011 17,287 11% The Group’s profit before tax was KZT 407,959 million in 2018, an increase of 165% from 2017. The increase was 0 5,000 10,000 15,000 20,000 25,000 30,000 mainly due to the change in the Group structure and the resulting recognition Profit before tax Corporate Income Tax of a KZT 313.5 billion profit related to Effective tax rate the business combination, as well as higher uranium sales volumes in 2018. The corporate tax rate applicable to Profit before tax and tax expense, 2017–2018, KZT millions the majority of the Group’s profits was 20% in both 2018 and 2017. The Group’s Indicator 2017 2018 Change effective tax rates were 11% and 7% in Profit before tax 154,010 407,959 165% 2017 and 2018, respectively. The effective Non-taxable one-time effects 107,714 313,517 191% tax rate differed from corporate income

Taxable profit before tax 46,296 94,442 104% tax primarily due to certain elements of reported income not being recognised Corporate income tax 17.287 28.797 67% in tax accounting.

NAC Kazatomprom JSC | 57 2. Operating and Financial Review

2.6 Liquidity and Capital Resources

Kazatomprom’s management pays special attention to preserving financial stability in a constantly changing market environment. The Group’s financial management policy is aimed at maintaining a strong capital base to support existing operations and business development.

CAPITAL RESOURCES DIVIDENDS RECEIVED use its voting power to maximise its dividend flow from subsidiaries, JVs and The Group’s liquidity requirements The Company is the parent company for associates. Dividends received by the primarily relate to funding working the Group, and in addition to revenue Company from investees domiciled in capital, capital expenditures, service of from its business operations, it receives the Republic of Kazakhstan are exempt debt, and payment of dividends. The dividends and other payments from from dividend tax. Group has historically relied primarily its subsidiaries, JVs and associates, and In 2018, the Company paid dividends in on cash flow from operating activities, other investments. In 2017 and 2018, the amount of KZT 161,661 million to and to a smaller degree, external the Group received dividends of KZT Samruk-Kazyna. sources of financing, to fund its 36,486 million and KZT 12,773 million, working capital and long-term capital respectively, from its JVs and Associates requirements. It is expected that there and other investments. The decrease in WORKING CAPITAL will be no significant change in the 2018 was primarily due to the change sources of the Group’s liquidity in the in the Group structure (see section The table below provides the Group’s foreseeable future. As required, the Company Assets Structure on page 30 working capital as at 31 December 2017 Company will consider entering into for details). The Company strives to and 2018: project financing arrangements to fund certain investment projects. The Group Group working capital, year end, 2017 and 2018, KZT millions also obtains capital for its operations through the formation of joint ventures with industry partners, and in the Indicator 2017(1) 2018(2) Change past, it has raised financing in the Inventory 169,675 170,261 – international debt capital markets. Receivables 58,085 94,477 63% Recoverable VAT 24,182 29,799 23% Other current assets 18,396 18,322 – CIT prepayment 5,493 4,366 (21)% Payables (112,642) (51,534) (54)% Employee remuneration liabilities (173) (147) (15)% Income tax liabilities (5,618) (977) (83)%

Other taxes and compulsory payments liabilities (4,168) (10,711) 157%

Other current liabilities (14,349) (30,319) 111% NET WORKING CAPITAL 138,881 223,537 61%

(1) Include the MAEK as of 31 December 2017. (2) Excluding the MAEK due to the disposal from the Group.

58 | Annual Report 2018 The Group’s net working capital Table 32 summarises the Group’s remained positive during all periods turnover of inventories, receivables and under review. The Company regularly payables, and provides details of the Finished goods and goods for monitors the cash position of its Group’s cash conversion cycle (in days), resale decreased subsidiaries and focuses on effectively at 31 December 2017 and 2018: collecting excess cash from such by subsidiaries. % Turnover of inventories, receivables and payables and cash conversion cycle, days

Indicator 2017 (1) 2018 Change Inventories turnover 292 198 (32)% 7 Receivables turnover 70 79 13% Payables turnover 208 60 (71)% Cash conversion cycle 154 217 41%

(1) For the comparison purpose the Inventories, Receivables and Payables of the MAEK were excluded in 2017. Also, in the consolidated statement of Profit and Loss, the MAEK was reclassified as discontinued operations as in 2017.

The increase in the cash conversion (see section Company Assets Structure in unfavourable market conditions. cycle in 2018 is largely due to increased on page 30 for details). The following table sets forth the sales volumes of finished goods, The Group constantly monitors the components of the Group’s inventories repayments of accounts payable in 2018, uranium market and may pursue a as at 31 December 2017 and 2018: and the change in the Group structure strategy of increasing its inventories

Group inventories, year end, 2017 and 2018, KZT millions

Indicator 2017 2018 Change Finished goods and goods for resale 140,533 130,157 (7)% Work-in-process 17,563 19,768 13% Raw materials 14,520 13,728 (5)% Spare parts 819 720 (12)% Materials in processing 762 1,226 61% Fuel 889 1,875 111% Other materials 2,842 5,459 92% Provision for obsolesce and write-down to net (8,253) (2,672) 68% realizable value TOTAL INVENTORIES 169,675 170,261 –

The Group’s largest inventory item is inventory levels of U3O8 decreased by market prices and exchange rates in finished goods and goods for resale, 13% whereas Finished goods and goods 2018. which primarily consist of U3O8. In line for resale in the table above decreased The Company expects to maintain with its market-oriented strategy, the by 7%. The difference is largely because inventory levels of approximately Group’s inventory levels decreased inventories in 2018 includes uranium six months of annual attributable in 2018 due to the increase of sales purchased from JVs and associates, production. volumes including U3O8 and other the cost of which was higher in 2018 goods sold by the Group. Consolidated compared to 2017 due to higher spot

NAC Kazatomprom JSC | 59 2. Operating and Financial Review

CASH FLOWS

The following cash flow discussion The following table provides the is based on, and should be read Group’s consolidated cash flows for 2017 in conjunction with, the financial and 2018: statements and related notes. Group consolidated cash flows, 2017–2018, KZT millions

Indicator 2017 2018 Cash flows from/(used in) operating activities(1) 23,355 58,327

Cash flows from/(used in) investing activities 215,575 (40,279)

Cash flows (used in) financing activities (74,881) (139,272)

NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS 164,049 (121,224)

(1) Includes income tax and interest paid.

Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities

Cash flows generated from operating There was net cash used in investing Cash flows used in financing activities activities increased to KZT 58,327 million activities in 2018 of KZT 40,279 million increased to KZT 139,272 million in 2018 for 2018 from KZT 23,355 million for compared to net cash from investing from KZT 74,881 million for 2017. This 2017. This change was primarily due to: activities of KZT 215,575 million in 2017. change was primarily due to: • a KZT 120,952 million increase in cash In the prior year, investing cash flows • an increase of KZT 95,812 million in receipts from customers in 2018. were significantly affected by the dividends paid to Samruk-Kazyna in This increase was largely due to an receipt of KZT 173,719 million relating 2018 compared 2017; increase in the Group’s sales volumes to a put option held by the Company, • a KZT 86,324 million increase in and the change the Group structure which it exercised. cash used in repayment of loans (see section Company Assets Other changes in investing cash flows in and borrowings in 2018, due to early Structure on page 30 for details). 2018 are due to: repayment for loans related to Astana • a KZT 69,024 million increase in • KZT 23,713 million decrease in Solar LLP, MK KazSilicon LLP and payments to suppliers for 2018. This dividends received from associates, Kazakhstan Solar Silicon LLP, and the increase was largely due to payments JVs and other investments as a result change in the Group structure (see of accounts payable in 2018 which of the change in the Group structure section Company Assets Structure on were greater than payments of (see section Company Assets page 30 for details). accounts payable during 2017, and Structure on page 30 for details). In 2018, there was a KZT 117,754 million, the change the Group structure (see • KZT 34,193 million payments for or 223%, increase in proceeds from section Company Assets Structure on the acquisition of 40.05% shares in loans and borrowings compared to the page 30 for details). Energy Asia Limited and a 16.02% prior year. The increase was primarily stake in the chartered/authorised attributable to short-term borrowings capital of JV Kharasan-U LLP from by the Group to finance the Group’s Energy Asia Holdings (BVI) Limited. payments for the increased share in In the consolidated financial Baiken-U LLP and Kharasan-U LLP, and statements, it is presented as an working capital requirements. acquisition of interest in controlled entities, net of cash acquired, in accordance with IFRS.

60 | Annual Report 2018 128,819 KZT million cash and cash equivalents as of 31 December 2018

LIQUIDITY

The Group manages its liquidity funds on demand in amounts sufficient requirements to ensure sufficient funds to cover expected operating expenses are available for operations and for using, among others, short-term as settlement of financial obligations. well as long-term corporate credit lines The Group ensures the availability of without collateral.

Liquidity, year end, 2017 and 2018, KZT millions

Indicator 2017 2018 Change Cash and cash equivalents 239,936 128,819 (46)% Current term deposit 8,472 205 (98)% TOTAL CASH 248,408 129,024 (48)%

The Group’s cash and cash equivalents total available revolving credit facilities as at 31 December 2017 and 2018 were of USD 302.5 million of which USD 222.5 KZT 239,936 million (includes cash million or 74% was undrawn at that receipt from put-option exercising) date. and KZT 128,819 million, respectively. The decrease as of 31 December 2018 is mainly caused by dividends paid Samruk-Kazyna in 2018 and scheduled repayment of debt. The corporate credit lines are an additional liquidity source for the Company. At 31 December 2018, the Company with certain subsidiaries had

NAC Kazatomprom JSC | 61 2. Operating and Financial Review

2.7 Indebtedness

The Company’s financial liabilities comprise loans and guarantees issued for loans of affiliated companies. The debt portfolio is primarily in USD, which is its main revenue currency (99% for 2018). As a result, the Company has a natural economic hedge of USD/ KZT foreign-currency risk without the use of derivative financial instruments.

Total Debt, KZT millions

Loans, borrowings increased Indicator 2017 2018 Change Loans, borrowings and finance lease liabilities 121,703 200,169 64% by Guarantees issued for loans of affiliated companies 14,732 13,935 (5)% % TOTAL DEBT 136,435 214,104 57% The following table summarises the Group’s indebtedness as of December 31, 2017 and 2018:

64 Total Group’s indebtedness, KZT millions

Indicator 2017 2018 Change Non-current debt, including 39,204 16,620 (58)% Bank loans 38,557 16,270 (58)% Non-bank loans 353 — – Finance lease liabilities 294 350 19% Current debt, including 82,498 183,549 122% Bank loans 82,374 74,159 (10)% Non-bank loans — 35,726 – Issued bonds – 73,535 100% Finance lease liabilities 125 129 3% TOTAL DEBT 121,703 200,169 64%

Total debt increased by 64% largely due for working capital requirements. accordance with Kazakhstan legislation. to the consolidation of Inkai JV LLP’s debt On October 11, 2018, the Group issued Bonds to be redeemed in November 2019. of KZT 35,085 million, and an increase in bonds indexed to the US dollar in the The following table summarises the short-term loans to finance the Group’s amount of KZT 70,000 million with Group’s weighted average interest rate on payments for the increased share in an annual rate of 4.6% to supplement bank loans as at 31 December 2017 and Baiken-U LLP and Kharasan-U LLP, and working capital requirements in 2018:

The Group’s weighted average interest rate, %

Indicator 2017 2018 Fixed interest rate 6.29 5.61 Floating interest rate 3.47 4.05

62 | Annual Report 2018 The Group’s credit facilities contain certain affirmative and negative covenants described in the annual financial statement.

Net debt and debt leverage ratio The following table summarises the key ratios used by the Company’s management 79.2 to measure its financial stability as at 31 December 2017 and 2018: KZT billion total external revenue The key financial stability ratios, KZT millions from other segments in 2018

Indicator 2017 2018 Change Total debt 121,703 200,169 64% Total cash 248,408 129,024 (48)% NET DEBT (126,705) 71,145 156% Adjusted EBITDA 96,733 131,208 36% NET DEBT / ADJUSTED EBITDA (1,3) 0,54 –

The above indicators reflect a stable financial position. They indicate the creditworthiness of the Company, achieved through the generation of adequate financial resources and capital, and moderate debt.

2.8 Guidance for 2019

Guidance indicators

(exchange rate 370 KZT/1USD) 2019

Production volume (tU) (100% basis)(1) 22,750–22,800

Production volume (tU) (attributable basis)(2) 13,000–13,500

KAP/THK sales volume (tU)(3) 13,500–14,500

Group sales volume (tU)(3) 15,000–16,000

Total capital expenditures (KZT billions) (100% basis)(4) 85–95

Revenue - consolidated (KZT billions) 485–505

Revenue from Group U3O8 sales, included in consolidated revenue (KZT billions) 392–408

C1 cash cost (attributable basis) (USD/lb U3O8) $11.00–$12.00

All-in sustaining cash cost (attributable C1+capital cost) (USD/lb U3O8) $15.00–$16.00

(1) Production volume (100% basis): Amounts represent the entirety of production of an entity in which the Company has an interest; it therefore disregards some portion of that production may be attributable to the Group’s JV partners or other third-party shareholders. (2) Production volume (attributable basis): Amounts represent the portion of production of an entity in which the Company has an interest, which corresponds only to the size of such interest; it excludes the remaining portion attributable to the JV partners or other third-party shareholders. (3) Kazatomprom HQ/THK sales volume: includes only the consolidated sales of Kazatomprom HQ and THK. Intercompany transactions between KAP HQ and THK are not included. (4) Total capital expenditures (100% basis): includes only capital expenditures of the mining entities

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

NAC Kazatomprom JSC | 63 2. Operating and Financial Review

In 2019, Kazatomprom expects to planned attributable production are remain consistent with its previously expected to be primarily sourced from announced intention to flex down inventories, and from KAP subsidiaries planned production volumes by under contracts and agreements with 20% for 2018 through 2020 (versus JV partners and other third parties. consolidated planned production levels The Company expects to maintain under subsoil use licences, which were an inventory level of approximately increasing annually over that period). six months of annual attributable With the flex down, under the existing production at the 2019 year-end. subsoil use licences, production is expected to total approximately 22,750 to 22,800 tU (100% basis) in 2019; SENSITIVITY ANALYSIS FOR 2019 without the reduction, production would have exceeded 28,500 tU (100% The table below presents the basis) in 2019. correlation between the spot price and

Kazatomprom expects to continue the U3O8 average sales price. This table following a market-centric approach to is based on several key estimates and uranium production, rather than the assumptions that are subject to risks previous production-focused strategy. and uncertainties outside the Group’s By leveraging the in-situ recovery control. These estimates are also based mining method, the Company can on assumptions regarding future adjust production levels and respond to business opportunities, which may changes in uranium market conditions change. This sensitivity analysis should very rapidly and cost-effectively. be used only as a reference, and actual The guidance for sales remains price changes may result in different consistent with Kazatomprom’s market- values than those provided in the table centric strategy. Sales in excess of below.

Correlation between the spot price and the U3O8 average sales price

Nominal Spot Price (USD) 2019E 2020E 2021E 2022E 2023E 20 23 22 22 22 22

30 30 31 31 31 31

40 37 40 40 40 40

50 45 49 49 50 49

60 52 59 58 59 59

70 59 68 67 68 68

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 at 31 December 2018 and prepared for 2019–2023 on the basis of minimum annual sales of approximately 13.5 thousand tonnes of Uranium in form of U3O8, of which the volumes which are contracted as of 31 January 2019 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, while the rest of the sales would be largely based on spot prices;

– U3O8 will be sold under short-term contracts negotiated directly with the customers and based on spot prices.

64 | Annual Report 2018 2.9 Forward-looking Statements

This document contains statements does not assume obligation to update that are considered to be ‘forward- any information regarding the industry looking statements’. Terminology that or any forward-looking statements describes or references the future contained herein, whether as a result — including, inter alia, words such as of obtaining new information or the ‘believes’, ‘according to preliminary occurrence of future events or any estimates’, ‘expects’, ‘forecasts’, ‘intends’, other circumstances. The Company ‘plans’, ‘suggests’, ‘will’ or ‘should’ or, makes no representations, provides no similar or comparable terminology, assurances and publishes no forecasts or references to discussions, plans, as to whether the outcomes described objectives, goals, future events or in such forward-looking statements intentions — is used to denote will be achieved. forward-looking statements. These forward-looking statements include all statements that are not historical facts. These statements include, without limitation, statements regarding intentions, opinions and announcements on the Company’s expectations, concerning, among other things, the results of operations, financial state, liquidity, prospects, growth, potential acquisitions, strategies and sectors, in which the Company operates. In their nature, forward-looking statements involve risks and uncertainties because they relate to future events and circumstances that may or may not occur. Forward-looking statements do not guarantee future or actual performance. The Company’s financial position and liquidity, as well as the development of the country and industries in which the Company operates, may differ significantly from the options described herein or assumed pursuant to the forward-looking statements contained herein. The Company does not plan and

NAC Kazatomprom JSC | 65 3. Sustainable Development

3

Kazatomprom’s programme of sustainable development in corporate and social responsibility for 2017–2019 is aimed at creating the conditions for sustainable corporate development by: 102-11

103-2

• Ensuring decent conditions and the regions in which the Company • Creating a favourable business wages for Company employees; operates; climate, both within the Company SUSTAINABLE • Safeguarding the labour and social • Reducing the Company’s and in those regions where it is rights of Company employees; environmental impact; present; • Increasing the longevity and quality • Assisting in the sustainable • Ensuring effective interaction of life of Company employees, their development of the regions in which between Kazatomprom, its partners DEVELOPMENT families and the population of the Company operates; and state authorities.

66 | Annual report 2018 NAC Kazatomprom JSC | 67 3. Sustainable Development

The programme includes the following measures, divided into three categories:

1 SOCIAL 2 OCCUPATIONAL HEALTH, 3 MEASURES OF ECONOMIC MEASURES SAFETY AND ENVIRONMENTAL EFFECT ON REGIONS PROTECTION MEASURES OF OPERATION

Ensuring social Occupational Supporting the social stability in labour health and safety and economic development collectives of the regions of operation

Development Environmental Procedures to ensure of human resources protection and oversee sustainable procurement practices

Ensuring social calmness Nuclear and radiation among the unions of companies safety being restructured

Combatting corruption and fraud, dealing with corporate conflicts and conflicts of interest

68 | Annual Report 2018 SUSTAINABLE DEVELOPMENT GOVERNANCE INITIATIVES DIAGNOSTICS

The Management Board of The contribution of innovative In order to assess the implementation Kazatomprom by its decision No. scientific research into increase of of the Corporate Governance Code 53 dated March 20, 2018, approved natural uranium production processes principles in Kazatomprom, in 2017- the Materiality Matrix (only (approval and implementation of the 2018, following the initiative of Samruk- taking into account the survey of Kazatomprom R&D Plan); Kazyna, the Company conducted a employees of Kazatomprom), the diagnostic of its corporate governance Programme for the implementation Human potential development system. As part of this diagnostic, the of sustainable development initiatives (organization of training according to implementation of the sustainable of Kazatomprom for 2018 as well as employees’ individual development development principles and sustainable updated Stakeholder map. plans). development systems of Kazatomprom According to the above documents, were assessed. In addition, based sustainable development initiatives Information on the implementation on the results of the diagnostics of were: of the above sustainable development the corporate governance system initiatives is normally provided to conducted in 2017, Kazatomprom Sustainable economic development the BoD’s Committee on Industrial, received a number of recommendations (achievement of the target EVA Environmental, Radiation Safety, to improve internal processes (for the indicator (Economic Value Added), Labor Protection and Sustainable period 2018-2025), including internal meeting the targeted net consolidated Development. processes in the field of sustainable income on the Group level, staying development (consistency of economic, below the planned cost threshold environmental and social goals for of the uranium oxide production in long-term sustainable development, subsidiaries); implementation of a sustainable development system). Increase of industrial safety The recommendations of independent (implementation of the target model consultants aimed at corporate for integrated security management, governance system improvement, implementation of the Industrial including such under the “Sustainable Safety Behavioral Audit, introduction Development” section are included of the LTIFR index, increased reporting in the Action Plans for 2018 and 2019. transparency); The relevant departments work on the implementation of these activities, Environmental impact of the including in the field of sustainable company’s operations (maintaining development. of the established emissions limits below the threshold, development and introduction of scientifically- based standards of production waste generation per unit into operations); Production efficiency (energy saving and energy efficiency increase measures);

NAC Kazatomprom JSC | 69 3. Sustainable Development

3.1 Sustainable Economic Development

CREATED AND DISTRIBUTED and expenditures, overseen by the SCIENCE AND INNOVATION DIRECT ECONOMIC VALUE development planning and budgeting procedures of Samruk-Kazyna JSC’s Kazatomprom is a world-class innovator, Kazatomprom performs significant Corporate Standard for Strategic focused on the scientific and technical social and economic functions, ensuring and Business Planning. The business development of its production methods. the sustainable development of both development plan is formulated in The Company consistently increases its the Company and the population in consolidated form, to include five- financing of scientific and technical work numerous areas of Kazakhstan. year plans of subsidiaries and its in fields such as geology, geotechnology, The Company’s high degree of implementation is monitored by the natural-resource processing, nuclear economic effectiveness is attributable Company’s Board of Directors as well as fuel cycle (NFC) production, rare and to its thorough planning of income by Samruk-Kazyna JSC. rare-earth metal production and the legal protection of new-generation technologies. Direct economic value created and distributed (KZT millions)* The Company has a scientific and 201-1** technical subdivision (Institute of High № Item 2017***** 2018 Change Technologies LLP), as do its subsidiaries Direct economic value created and affiliates (CRL at UMP JSC, CRME at 1 Revenue*** 801,608 444,839 80% Volkovgeologiya JSC). There are more Distributed economic value: than 486 research and design staff in total, including eight doctors of science 2 Operating costs**** (293,760) (193,783) 52% and 54 doctoral candidates. 3 Salaries and wages (41,833) (39,386) 6% In 2018, the Company, its subsidiaries 4 Interest and dividend costs (12,672) (8,933) 42% and its affiliates boasted 101 research 5 Taxes, excluding income tax (23,559) (11,275) 109% and development agreements worth KZT 6 Corporate income tax (28,797) (17,287) 67% 3.417 billion. The Company filed three 7 Investment in local society (social expenditures) (730) (609) 20% patent applications for inventions and 8 Miscellaneous expenses (19,991) (34,412) (42)% received 14 protection documents for UNDISTRIBUTED ECONOMIC VALUE 380,266 139,154 173% inventions. Employees of Kazatomprom put forward 1,697 rationalisation * Ukraine, the US, the UK and Kazakhstan are members of the Extractive Industries Transparency Initiative (G4 mining and metals sector disclosures). proposals, of which 1,564 were accepted ** Information from the Company’s audited consolidated financial statements for 2018. and 977 have been implemented to date. *** Revenue is calculated in accordance with GRI methodology and includes the sales revenue and all other Company revenues. The expected economic effect is more **** Operating costs include the following items: cost of sales (except for salaries, wages and taxes), than KZT 2.393 billion. distribution costs, general and administrative costs (except for salaries, wages and taxes). ***** Operations of MAEK-Kazatomprom LLP classified as discontinued. To maintain its competitive edge in the world market, the Company has developed its own Research and Detailed information on the financial and economic results of Company activities for Technological Activity Management 2018 can be found in the audited consolidated financial statements on the Company’s policy. Kazatomprom’s priority research corporate website: areas are coordinated by four scientific https://www.kazatomprom.kz/en/investors/finansovaya_otchetnost/page-1 hubs:

70 | Annual Report 2018 Geology, geotechnology and of 2001) in exchange for an annual 1 ECONOMIC EFFECT IN REGIONS mining and development — remuneration payment for the duration OF OPERATION Volkovgeologiya, JSC; of the contract. The company pays close attention to Extraction and processing of supporting infrastructure projects in 2 Research and development product solutions, concurrent Almost all of the Company’s R&D work the regions in which it operates in REM extraction — IVT, LLP; is aimed at improving and upgrading order to promote their socio-economic the production process. In 2018, the development. High technologies of the NFC, RM following technologies were developed 3 203-1 production and processing — CRL and adopted: of UMP, JSC; In February 2018, the Company donated Ultrasound technology to boost a pre-school institution with 240 1 Knowledge management, the desorption of uranium. places to the Department of Education 4 commercialisation of intellectual of Nur-Sultan City . The project was property, general coordination The deposition of small crystals implemented under the auspices of the 2 of research and technological of uranium peroxide using Memorandum of Mutual Cooperation activity — UKN of NAC flocculants made in Kazakhstan. between NAC Kazatomprom JSC and Kazatomprom, JSC. the Akimat of Nur-Sultan city, dated 17 To optimise the flow of March 2014. The total cost of the project 3 In 2018, there was one meeting technological solutions, a was more than KZT 831 million. The of Kazatomprom’s Scientific and simulator (version 3.0) was facility has a total area is 4,602 m2 and Technical Council and 12 meetings of developed and integrated into the the site of the school totals 0.9 ha. the Specialised Scientific and Technical module of the “Mine” programme, In December 2018, as part of the Councils of its priority research areas. with a view to designing the framework of the Memorandum In accordance with the new policy, in geo-technological field, the of Mutual Cooperation between 2018, the Company updated its policy on construction of wells and their Kazatomprom and the Water rationalisation activity. operation. The program module Resources Committee of the Ministry On 20–22 September 2018, the was tested on the cells of the of Agriculture of the Republic of Company held an ‘Innovation School’ ‘central’ section of the Mynkuduk Kazakhstan, dated 15 August 2018, the in Almaty on the theme of 'prospects deposit. Thanks to the use of Company transferred to the state the and technologies for diversifying the the simulator in the process of operating rights for KAZVODHOZ Shieli- activities of NAC Kazatomprom JSC'. underground leaching, a 10% Energoservice, together with more than Also in 2018, as part of Kazatomprom’s reduction in the consumption of KZT 523 million of financial resources to cooperation with Atomredmetzoloto sulphuric acid can be expected. overhaul the transferred entities. JSC, there were mutual visits to mines and industrial sites, along with technical Low-acid leaching using 4 meetings to exchange experiences on cavitation-jet technologies uranium mining by the PSV method in combination with special- and on by-product extraction of useful purpose chemicals at the pilot associated components. testing phase is planned to be To commercialise the results of its introduced in 2020. scientific and technological activities, in 2018, Kazatomprom signed a licence Kazatomprom’s scientific subdivisions agreement, granting JV Khorasan-U are making significant contributions (Khorasan-U), LLP the right to use its to the achievement of the Company’s patented invention for the underground strategic goals, including increasing leaching of metals through technological value added and producing high-tech well systems (Patent RK No. 11745 Kazakh uranium products.

NAC Kazatomprom JSC | 71 3. Sustainable Development

In 2018, the Group paid KZT 1,337 million under its subsoil use contracts for the social, economic and infrastructural development of the regions in which it operates:

TRANSFERS TO THE TURKISTAN REGIONAL 965,879 KZT ’000s 1,337 BUDGET, 2018 KZT million Enterprise name Amount transferred (KZT ’000s) Kazatomprom transferred NAC Kazatomprom JSC 504,057 to regional budgets under Karatau LLP 45,206 its subsoil use contracts APPAK LLP 32,652 JV Zarechnoye JSC 17,441 JV Inkai LLP 11,220 Volkovgeologiya JSC 4,200 PE Ortalyk LLP 70,194 JV UGHT LLP 83,493 JV Akbastau JSC 185,930 JV KATKO LLP 11,234 Kazatomprom-SaUran LLP 252

TRANSFERS TO THE KYZYLORDA REGIONAL 326,489 KZT ’000s CHARITY AND SPONSORSHIP BUDGET, 2018 In decision No. 126 of January 2016, the Enterprise name Amount transferred (KZT ’000s) Board of Directors of Samruk-Kazyna JSC NAC Kazatomprom JSC 92 986 approved the Fund’s Charity Policy and Baiken-U LLP 37 119 Charity Program. Khorasan-U LLP 171 112 At present, all charitable activity of RU-6 LLP 2 000 the Fund group is conducted by the Semizbai-U LLP 23 272 Samruk-Kazyna Trust Social Projects Development Foundation, which selects projects of social importance on a competitive basis. TRANSFERS TO OTHER 44,430 KZT ’000s REGIONAL BUDGETS, 2018 PROCUREMENT Enterprise name Amount transferred (KZT ’000s) Akmola region The Company ensures transparency Semizbai-U LLP 16,623 of purchases and publishes its North Kazakhstan region procurement regulations and plans, Semizbai-U LLP 16,623 including its long-term procurement Almaty region plans, as well as the legal and MK Kaz Silicon LLP 1,758 regulatory documents pertaining to tenders and results for information East Kazakhstan region purposes on its website. UMP JSC 7,457 Mangistau region NAC Kazatomprom JSC 1,869

72 | Annual Report 2018 The Company is currently implementing a new procurement model with the following goals:

The new purchasing model will apply to Kazatomprom’s corporate centre and all of its subsidiaries and affiliates.

To improve purchasing To create and develop efficiency by using best a qualified suppliers practices list

To ensure the monitoring To reduce and transparency of purchases stock costs

The Company lends assistance in Kazakhstan’s Subsoil Code generally bodies, national companies and subsoil the negotiation of contracts for the requires subsoil users to comply with users. The Local Content Requirements purchase of goods, work and services certain local content requirements, introduced new criteria, such as using between its affiliates and regional including the use of local suppliers local employee wages as a percentage suppliers with a local content level of and personnel. These requirements of payroll to calculate local content. 79% to support domestic suppliers. are usually set out in the subsoil use Under a project aimed at managing agreements to which the Company’s procurement by category in 2018, four subsidiaries and joint venture new category-based procurement companies are party. strategies (sulphuric acid, shipping and In 2002, the Government introduced packaging containers, ion-exchange a policy aimed at replacing imports resin and hydrogen peroxide) were and spurring the greater involvement, developed and seven strategies were support and stimulus of local implemented in one to four waves. producers. This was taken a step For example, when selecting pump further in 2009, when the Government suppliers for the first time, the made amendments to subsoil Company used a total cost of ownership legislation, which were then reflected (TCO) tool, with a total economic in the Subsoil Code and in related laws, benefit of KZT 3.07 billion, above the to increase local content of goods, planned figure of KZT 2.3 billion. work and services purchased by state

Percentage of local-origin products, work and services purchased (%)

Indicator 2016 2017 2018 Local-origin products, work and services 82% 80% 80% purchased (as a percentage of total)

NAC Kazatomprom JSC | 73 3. Sustainable Development

Table below provides a breakdown of Local-origin purchases, by region, 2018 (%) the percentage of local-origin purchases by Kazakhstani regions. Region Percentage of local origin in purchases (%) 204-1 Akmola region 98 Almaty region 67 Kyzylorda region 93 Mangistau region 83 South Kazakhstan 89 East Kazakhstan 78 Atyrau region 61 Zhambyl region 89 West Kazakhstan 10 Karaganda region 88 Kostanay region 53 Pavlodar region 89 Aktyubin region 11 North Kazakhstan 73 Nur-Sultan city 82 Almaty city 83 TOTAL FOR KAZATOMPROM 80 (IN REPUBLIC OF KAZAKHSTAN)

3.2 Social Responsibility

COMPANY STAFF growth, except for activities related social conditions and to equal 103-2 to the optimisation of the Company’s opportunities for professional and management structure; personal growth. Kazatomprom’s employees are its main • Increase in the share of employees Since 2012, the Company has been asset; they foster its development and who have completed training and implementing a management ensure it maintains its leading position further education; succession programme to: in the world uranium market. • Competitive recruitment; and • Ensure the succession of top The Company’s guiding document • Human-resource and staff-cost Company management from a in the field of human-resources planning efficiency. pool of candidates suited to key management is its HR Policy. Its In addition, the ideological principles management and administrative objective is to achieve the Company’s and ethics of the Company’s business positions; strategic goals by fostering effective culture, structure and development • Identify and develop employees individual and team work by qualified are governed by its Code of Corporate who have significant potential to and motivated employees who share Ethics and Compliance, a collective fill management and administrative the Company’s values. agreement, and regulations on roles; Kazatomprom’s HR Management corporate rewards. • Encourage Company staff to Department monitors compliance The Company adheres to principles, advance professionally and avail annually, based on the Company’s HR standards and regulations to safeguard of development and career Policy, using the following performance the interests and rights of workers opportunities. indicators: and strives to prevent all forms of Management has objectively selected • Increase in staff involvement; discrimination and forced labour. It a pool of candidates with the greatest • Stabilisation of staff transfers and pays particular attention to safety in potential to operate at a higher level the prevention of staff turnover the workplace, to improving workers’ after appropriate training and practice.

74 | Annual Report 2018 As of the end of 2018, Kazatomprom’s majority of the work is executed by the total headcount, including joint Company’s employees. Outsourcing ventures and affiliates, was 20,507, (non-staff) is used to carry out works down 18% from the previous year that are not of a permanent nature, (25,020 people at end 2017 and 25,819 at based on the conclusion of a paid 20,507 end 2016). The reduction in headcount service agreements. people was due to the disposal of assets (MAEK 102-8 LLP, KAES JSC and SARECO LLP). The Kazatomprom’s total headcount, including joint ventures Total number of staff and non-staff employees in the Republic and affiliates of Kazakhstan as of end 20184 102-8

Including Number Indicator Men Women (persons) Total headcount 20,956 16,981 3,975 Headcount at the end of the reporting period (staff) 20,507 16,642 3,865 Workers on paid services agreements, (non-staff) 449 339 110

Note: The Company’s main region of activity is Kazakhstan.

At the end of 2018, the share of employees on paid services agreements was 2.1% of total headcount, while 95.4% of Group staff had open-ended employment contracts. 102-8

Total headcount by employment agreement and gender, end 2018 102-8

Including Number Indicator Men Women (persons) Total headcount 20,507 16,642 3,865 Permanent employees 19,572 15,974 3,598 Temporary employees (fixed-term agreement) 935 668 267

The percentage of Group employees that were part time as of end 2018 was 0.1%. 102-8

Total headcount by employment type, end 2018 102-8

Including A significant percentage of Number Indicator Men Women (persons) Kazatomprom’s employees (about 66%) Total headcount 20,507 16,642 3,865 work in the South Kazakhstan region Full-time employment 20,488 16,629 3,859 (including the city of Shymkent, 2.7%), Part-time employment 19 13 6 where the country’s main uranium deposits and, consequently, the 4 Information on the number of staff is provided according to the data of statistical report 1-T (labor Company’s operations are located. report). Regional disclosures are provided by place of work.

102-8

NAC Kazatomprom JSC | 75 3. Sustainable Development

Total headcount by region and gender

Including Number Indicator Men Women (persons) % Almaty 655 379 276 Nur-Sultan 939 518 421 Shymkent 526 306 220 West Kazakhstan 0 0 0 North Kazakhstan 1,198 940 258 81share of men in the total South Kazakhstan 13,067 11,709 1,358 headcount in 2018 Central region 0 0 0 East Kazakhstan 4,107 2,781 1,326 Russian Federation 0 0 0 People’s Republic of China 10 5 5 United States of America 2 2 0 81% men Switzerland 3 2 1 women TOTAL 20,507 16,642 3,865 19%

Kazatomprom’s management positions As of the end of 2018, 81% of the production activities of the nuclear and main staff categories reflect Group employees were men and 19% industry. The average age of the Group management’s inclusive approach. were women. Compared with the employees was 40 years as of end Indicators of inclusivity, for example, previous year, the number of men as a 2018 — a figure that tends to remain on gender, age and minority-group percentage of total employees increased virtually unchanged year on year. affiliation, can be found the company’s slightly (from 80%). This gender ratio annual sustainable development report. is very much down to the specific

Structure of governing positions and staff by gender, nationality and age, end 2018 405-1

Indicator Indicator Employees Adminis- Production Share Governing Share trative staff staff positions HEADCOUNT 20,388* 2,131 18,257 100% 119 100% Gender Men 16,532 984 15,548 81% 110 92% Women 3,856 1,147 2,709 19% 9 8% Minority group Kazakh 13,710 1,562 12,148 67% 92 77% (by nationality) Russian 5,280 444 4,836 26% 17 14% Other 1,398 125 1,273 7% 10 8% Age groups Under 30 years 3,544 372 3,172 17% 3 3% of age From 30 to 50 11,470 1,372 10,098 56% 75 63% years of age Over 50 years 5 374 387 4 987 26% 41 34% of age

* Excluding management.

The share of Company employees covered by collective agreements in 2018 remained unchanged at 98%. 102-41

76 | Annual Report 2018 Percentage of employees covered by collective agreements in 2018

Indicator Value Headcount (end of period) 20,507 Total number of employees covered by collective agreements 20,119 Percentage of employees covered by collective agreements 98%

In 2018, the number of employees leaving the Company declined 10% from the previous year, indicating a higher level of social stability.

Number of employees who left the Company in 2016–2018, by gender 102-8

Indicator 2016 2017 2018 Change Change 2017–2016 2018–2017 Women 1,046 727 566 –30% –22% Men 3,109 2,604 2,418 –16% –7% TOTAL 4,155 3,331 2,984 –20% –10%

Out of the 2,984 people who left the Company in 2018, the largest proportion (43%) were men between the ages of 30 and 50. As Kazakhstan’s uranium mining enterprises are largely located in its Southern region (including Shymkent), most employees who left the Company were in this region (63%). Conversely, 2,378 employees joined the Company in 2018. Of these new staff, 51% were hired in the Southern region (including Shymkent).

Number of Group employees hired in 2018, by region 401-1

Region Number Share of new hires (%) Almaty 164 7 Nur-Sultan 306 13 Shymkent 112 5 West region 0 0 North region 289 12 South region 1,101 46 Central region 0 0 East region 404 17 Switzerland 2 0 TOTAL 2,378 100

This information is based on information technology (IT) reports and official documentation from Group subsidiaries and affiliates, in line with the indicators of the Global Reporting Initiative (GRI) on social impact.

NAC Kazatomprom JSC | 77 3. Sustainable Development

BUSINESS TRANSFORMATION training and development, personnel СЕО, СЕО-1 from HQ, and General PROJECTS — “IMPLEMENTATION OF records, organisational management, managers from subsidiaries, where THE TARGET PERSONNEL MANAGEMENT calculation of working time and wages, the Company’s corporate values were MODEL”, “BUSINESS PROCESSES analytics and reporting. determined: SAFETY, RESPONSIBILITY, AUTOMATION” AND “JOB-MATCHING” As part of the transformation PROFESSIONALISM, DEVELOPMENT, process, in 2017, the transition to TEAM. Kazatomprom’s target organisational The Roadmap of the Corporate Culture structure was undertaken according to Project for 2018-2022 was formed in the job-matching recommendations of 2018. It includes the following main Between November 2016 and June then sole shareholder Samruk-Kazyna sections: values promotion, creation 2018, Kazatomprom implemented JSC (an assessment of candidates’ of a change agents team, updating a target personnel management compliance with requirements for new the competence model, improving project (KAP-17) aimed at building HR positions, based on competencies, the performance assessment system, functions using a process approach skills and work experience). The main leadership training system, succession taking into account the value of target prerequisites for the transition were: management and material and personnel to the Company’s business. • updated development strategy; non-material motivation, leadership HR processes were implemented using • a new operational model involving development programme, effective the target personnel management a divisional structure based on working environment development, model developed as part of the elements of the production chain, employer brand development as well Company’s business transformation with a new organisational structure; as development of the communication programme. This involved updating • updated competency and skill system. policies and process tools, reviewing requirements; and In order to support its efforts in the functionality and developing the • the introduction of a post grading corporate culture development competencies of key users, and training system. and corporate values promotion, process participants in line with best In 2017, job matching was completed at Kazatomprom organized 63 events, practices. The objective was to achieve the Corporate Centre and, in 2018, at DP 6 out of which were new practices the strategic goal of developing a Ortalyk LLP, RU-6 LLP, Kazatomprom- (annual assessment, change agents, corporate culture of an industry leader Sauran LLP, IVT LLP, UMP JSC, TTK townhalls/corporate culture and values (part of Kazatomprom’s development LLP, Volkovgeology JSC. In 2019, the educations, toast master, open space strategy for 2018–2028). The transition plan is to complete the move to job and strategic session Vision zero), to new personnel management matching at the Company’s uranium- with more than 80% of the Group’s processes was completed for both the mining enterprises. Job-matching has personnel involved. Company and six pilot subsidiaries. In led to replacing 26% of the Corporate 2019–2020, the project is scheduled to Centre employees and 25% of CEO Staff training and development be replicated in the Group’s affiliates. and CEO-1 level employees at the A key area of Kazatomprom’s human- In 2018, as part of the first way of above-mentioned subsidiaries. In resources focus is the professional a project to automate business 2018, the Corporate Centre embarked development and training of its staff. processes, the Company’s personnel on preparatory work to revise The Group has systematised the administration, organisational organisational structures, strengthen process of training, retraining and management, attendance and payroll qualification requirements and assess further education of employees. As functions were moved to an automated staff competencies to ensure a quality part of its staff training programme, system (baseline SAP HCM). By the start to the job-matching process in the Group enterprises cooperate with end of 2019, as SAP HCM is rolled Company’s uranium-mining affiliates. 33 universities and 10 colleges of out more broadly, an employee HR In 2017 Kazatomprom started a project the Republic of Kazakhstan and self-service system is scheduled for on Corporate culture development. neighbouring countries. Today, at phased launch. The new automated Within this project in 2017 the the Company’s expense, 335 students system will allow the combination of Company organized the following are being trained in industry-and all personnel management processes events: corporate culture diagnostics, region-specific specialties and into a single database, including that covered more than 17 thousand professions; 158 of them are employees comprehensive employee assessments, employees (77%), strategic session with of Kazatomprom, its subsidiaries or

78 | Annual Report 2018 affiliates, while 177 are not. In 2018, and succession-related initiatives. corporate expenditure on third-level In addition to educational training education amounted to KZT 213.5 programmes, the Company, its million. subsidiaries and affiliates also Students enrolled at the Company’s pay close attention to employee 335 expense undertake practical work development programmes, both students experience at the company (if they professional, including the compulsory are not employees) and each student education required by legislation are being trained at is assigned a mentor, who is an in the Republic of Kazakhstan, and the Company’s expense experienced member of staff. Mentors corporate (leadership development, in industry-and region-specific are also assigned to those taking lean manufacturing, corporate culture, specialties and professions part in Kazatomprom’s internship health and safety, etc.). programmes, including the Zhas-Orken 404-2 internship programme, the Young Specialist programme, and other talent-

Costs of employee training in 2018

Staff category Number of people Cost of training (KZT ’000s) Administrative and managerial staff 3,338 688,532

Production staff 23,444 1,023,970

TOTAL 26,782 1,712,502

Average annual training hours per employee, man hours* 404-1

Staff category 2016 2017 2018 Change Change 2017–2016 2018–2017 Total 31.2 36 32.5 15% −10% Top management 61.4 80 59.6 30% −25% Middle management 43.3 61 45.2 41% −26% Administrative staff 49.5 49 32.1 –1% −35% Production staff 28.9 33 31.1 14% −6%

* Reduction of training hours per employee is associated with the introduction of a corporate format training whereas the number of staff trained has increased, and the number of hours per a worker has decreased.

SOCIAL POLICY

Collective agreement of the Group’s employees were party and trade unions to collective bargaining agreements Approximately 73% of the Group’s in their companies, which provide for employees are members of Public certain additional social benefits, such Association “Sectoral Union of Nuclear as the entitlement to compensation Industry Workers”, which had 15,046 payments for certain categories members as of 31 December 2018, all of employee availing of prolonged of which were Group employees. As of statutory career breaks, such as 31 December 2018, approximately 98% mothers of three or more children

NAC Kazatomprom JSC | 79 3. Sustainable Development

under the age of 12, or single parents. provided for in the collective agreement companies also contain measures of The collective bargaining agreements of and are guaranteed for all employees. social support for employees, similar certain Group companies also provide There are also special conditions to the above or other measures of benefits to retired employees. The provided for, such as social benefits for social support. Some Company entities Group’s current collective agreement employees who can no long work due provide benefits in excess of the norms is valid for three years and subject to to disability or age. guaranteed by the laws of the Republic regular renewal. Under the collective agreement, the of Kazakhstan. 102-41 trade union is allocated at least 2.5% of There is no difference in benefits the Company’s annual salary pool. In for employees in full or part-time The collective agreements of the 2018, that corresponded to around KZT employment. Group’s companies also require the 200 million. 401-2 Company to give employees and their In addition, funds are allocated representatives prior notification of annually for employee medical In addition, the following measures any significant changes in corporate insurance; in 2018, this amounted to are taken to support employees made activity that might affect their working more than KZT 822 million. redundant by subsidiaries and affiliates: conditions. The minimum notification Financial assistance is provided to • Support with employment within the period is at least four weeks for most employees requiring rehabilitation or entities of the Group and outsourcing employees and at least two weeks for treatment, in addition to payments on companies that provide services to others. the birth of a child, on retirement, to the Group; 402-1 families with disabled children under • Various requalification programmes age of 18 years and to large families. are implemented; The collective agreement of the There are also reward payments • Compensation packages Company also contains provisions that associated with employee work 404-2 regulate the following: anniversaries. • Form of remuneration, in accordance The Company provides financial Remuneration system with labour legislation; assistance to retired employees (of The Company’s remuneration system • Payment of material assistance pension age), as well as charitable is aimed at motivating employees to to employees upon marriage, assistance to retirees and their families produce quality and efficient work. In retirement, the birth of children and to commemorate professional holidays, 2018, the wages of production workers the death of family members, etc.; on anniversaries, in the event of a increased 4% from 2017, to average KZT • Employee working time and time off; retiree’s death and for medical reasons. 244,543 per month. • Creating healthy and safe working Collective agreements of the Group’s conditions; • Organizing vocational training, Average monthly salary of Kazatomprom’s production staff* (KZT) retraining and advanced training for employees; Indicator 2016 2017 2018 Change Change • Guarantees and social protection for 2017–2016 2018–2017 employees; Average monthly salary of production 215,889 234,029 244,543 10% 4% • Rehabilitation and sanatorium- staff (KZT) resort treatment and recreation for *The indicator is calculated as the Pay Fund of production personnel in accordance with the labor report employees; (Stat. Report) / actual number of production workers. • Compensation payments for employees required to retire; Kazatomprom accrued salary pool (KZT million)* • Other issues identified by parties to the collective agreement. Indicator 2016 2017 2018 Change Change 2017–2016 2018–2017 Social policy, payments and benefits Total wage pool 59,600 61,829 63,413 4% 3% Social benefits and payments are an integral part of Kazatomprom’s * Accrued wages, including all relevant taxes and deductions. remuneration system; they are

80 | Annual Report 2018 The ratio of Kazatomprom’s entry- The Company does not discriminate level minimum wage, for all of its between employees based on gender and enterprises, to the legal minimum wage pays men and women equally for their of the Republic of Kazakhstan is 1.04. work. 202-1

Ratio of basic salary of men to women, by employee category (KZT ’000s) 405-2

Top management 809 (board of directors, management committee or similar body) 809

Middle 358 management 358 153 Administrative staff 153 72 Production staff 72

0 100 200 300 400 500 600 700 800 900

Basic salary of men Basic salary of women

Ratio of standard wage of entry level employee to the established minimum wage in 2018 202-1

Including Indicator Men Women Minimum wage in the Republic of Kazakhstan (KZT) 28,284 28,284 Average wage of entry-level Group employee (KZT)* 29,360 29,360 Ratio 104% 104%

* Base wage rate of an entry-level production employee.

SOCIAL STABILITY

NAC Kazatomprom JSC has a well- improve wellbeing and safety, organise to assess the level of workforce balanced HR policy and strives to create catering, provide financial incentives for satisfaction and wellbeing, as well a comfortable working environment employees, increase their qualifications, as staff involvement and the level of to maintain social stability and bolster etc. The heads of Kazatomprom social development among the Group’s staff morale. subsidiaries and affiliates are personally enterprises. 103-2 responsible for implementing the In 2018, studies were conducted in 17 of action plan. Kazatomprom’s enterprises and put its The Company has developed action The Centre for Social Interaction and social stability rating (index) at 80%. plans to enhance social and working Communications conducts research conditions at its enterprises, to ensure to determine the Company’s social a positive psychological environment, stability rating (index) annually

NAC Kazatomprom JSC | 81 3. Sustainable Development

Kazatomprom’s social stability index/rating, %

83 90 81 80 76 80 72 66 70

60

50 2013 2014 2015 2016 2017 2018

The result ranks the company ‘above including technical inspectors, on a measures. In order to implement this average’ in terms of its level of social parity basis. Production councils do recommendation, the Department of stability. Companies with such research not replace industrial safety services, Industrial Safety of Kazatomprom has results are seen as paying greater but complement safety and labor developed a new process - Behavioral attention to social-development issues. protection, prevention of occupational audit, which monitors the behavior The social climate and general mood injuries and occupational diseases, as of workers during their production of production personnel suggest a well as organize inspections of working tasks, the organization and conditions positive attitude and constructive conditions and labor protection at of workplaces / sites, the technical approach to solving any problems workplaces with the help of technical condition of equipment, tools and that arise. The index of social stability labor inspectors. At the same time, the equipment. devices, availability of shows some fluctuations in values. occupational safety and health council all necessary internal documents Changes within (+ -5%) within this decisions are set to be binding on the (instructions, procedures, standards, study are permissible. In the long-term employer and the employees. etc.). The implementation of this development, the Index value increased 403-1 process can have a positive effect on significantly from 66% in 2013 to 80% increasing the degree of security. in 2018. In support of the International Social The company is constantly working to Security Association (ISSA) initiative improve its safety culture and increase to improve safety, health and welfare the level of informed compliance with OCCUPATIONAL HEALTH at work, the Company has registered industrial safety requirements by AND SAFETY as a member of the international employees and leaders at all levels. Vision Zero project, reaffirming its In 2018, the Company channelled KZT Ensuring a safe work environment commitment to zero injuries in the 7.38 billion (KZT 300 million more is the Company’s main priority. In workplace. than in 2017) to the implementation of addition to strict compliance with 102-12 measures to ensure it met legislative all applicable laws, the Company requirements on labour protection takes a comprehensive approach to Based on the results of diagnostics of and industrial safety and to improve security, which includes international the corporate governance system of working conditions. Over the past five best practices in the field of labour Kazatomprom, it was recommended to years, expenditure in these areas has protection and industrial safety. develop a new process for identifying, shown steady growth. 403-1 assessing and managing workplace 403-7 risks and managing production process In accordance with the labor legislation safety (PSM) in accordance with Under the framework of of the Republic of Kazakhstan, the requirements of the Reference Kazatomprom’s business Production Safety Councils have Model on industrial safety as well transformation programme, the KAP20 been approved throughout the as to revise the identified risk of project to implement a target model for Company’s enterprises, which include «industrial injuries» in the corporate integrated security management has representatives of the employer risk map in terms of the risks causes been implemented in the Company’s and representatives of employees, and the effectiveness of preventive subsidiaries and affiliates. ISO-14001

82 | Annual Report 2018 environmental management systems Group’s enterprises. and OHSAS 18001 occupational health In addition, as an indication of and safety management systems have the leadership and involvement also been introduced in its subsidiaries of Company managers in ensuring and affiliates. occupational, environmental, industrial 7.38 102-12 and radiation safety, it was decided that KZT billion the occupational safety services of the channelled to the implementation In 2018, in line with company policy, Company’s subsidiaries, joint ventures of measures to ensure compliance there were no industrial accidents, such and affiliates should come under the with legislative requirements as uncontrolled explosions, emissions direct supervision of top managers. on labour protection and industrial of hazardous substances or destruction 403-9 of buildings. safety and improvement of working Nine road accidents (without injury) As part of efforts to further improve conditions and 12 other accidents were registered, the Company’s safety culture and however, including one fatal accident to promote the application of at UMP JSC (the only fatal incident international best practices in the field in the last three years). A tantalum of industrial safety, special attention production operator received an is being paid to the use of preventive electrical injury from an electrical measures, including identifying and furnace which tragically led to his responding to potentially dangerous death. Based on the investigation it situations. was determined that the main reason To assess the effectiveness of labour for the accident appears to have been a protection measures, the Company uses lack of risk assessment on working with as an indicator the lost time injury hazardous energy sources. Following frequency rate (LTIFR), which measures an investigation into the accident, a the number of incidents leading to loss system to shut down dangerous power of working time per 1,000,000 hours. sources is being introduced at the

Injury rates 403-9

Indicator 2017 2018 Change, % Number of accidents 7 12 71 LTIFR rate 0,15 0,31* 107 Fatal accidents – 1 – Road accidents 7 9 28

* 2018 LTIFR data excludes the amount of time worked by MAEK-Kazatomprom LLP staff for the 2H2018.

NAC Kazatomprom JSC | 83 3. Sustainable Development

3.3 Environmental Responsibility

The management of Kazatomprom The Company’s entities use an environmental protection activities and its subsidiaries and affiliates environmental management system, in the Company’s nuclear operations believes that improving environmental integrated Kazatomprom policy in HSE increased to KZT 2,138.3 million, up KZT indicators increases the Company’s and provision of nuclear and radiology 127.3 million from 2017. Of this amount, competitiveness. Kazatomprom strives safety which are revised regularly to KZT 1,124.6 million was directed to to minimise the negative impact on the take into account changes in market improving technological processes, environment and ensure the stability conditions, production upgrades including the reduction of unorganised of the ecosystems in those areas where or new, relevant environmental emissions to the environment. KZT environmentally hazardous production requirements. 51.03 million was spent on increasing facilities are located. It does this by: According to the results of the efficiency of existing dust and gas Kazatomprom’s corporate traps and water treatment plants, while governance system diagnostics, KZT 124.1 million was spent on scientific Improving the regulatory and it was recommended to develop and design work in environmental 1 technical base, developing a corporate plan / programme in protection areas. and assisting in the adoption order to improve the analysis and The Company’s enterprises managed of technical regulations and assessment of environmental aspects, to achieve a reduction in key standards; which shall include a section on environmental impact indicators (gross monitoring of the timely receipt emissions and discharges of pollutants) Introducing environmental of emission permits. In order to in 2018. Total gross emissions of 2 management systems in implement this recommendation, pollutants for 2018 amounted to 1,866 accordance with ISO 14000, as part of the development, tonnes, down 1,829 tonnes from 2017. with a view to continuous implementation, preparation for Data for MAEK-Kazatomprom LLP are improvement in the area of certification of the OHSAS 18001 and not taken into account here, because of environmental protection; ISO 14001 management systems, the the transfer to Samruk-Kazyna. 102-12 documentation on the occupational A significant reduction in the health and safety management system, emission of harmful chemicals during including environmental management the reporting period was down to 3 Creating a system of conditions and risk management, is being environmental protection measures and mechanisms to consider developed and updated. This initiative resulting from scheduled preventive environmental aspects and will be continued in 2019. maintenance of process equipment mitigate environmental risks at Also in 2018, according to at the exhaust gas conversion and all stages of production activity; recommendations of independent final absorption stages, which saw the consultants who performed diagnostics replacement of filters and demister 4 Preventing pollution and of the corporate governance system, units. reducing environmental impact the Company’s risks have been revised The volume of pollutants discharged by through the integration of state- and environmental risk with developed the company as a whole decreased by of-the-art technologies; and risk factors and preventive measures for 9.5% in 2018. The emissions of MAEK- them have been included in the draft Kazatomprom LLP for 2018 are not Ensuring the environmental and risk register for 2019 (the risk register included in this figure. occupational safety compliance was approved by the decision of the However, some deficiencies and 5 of the Company’s staff and Board of Directors of Kazatomprom No. omissions were observed in the contractors in charge of work at 11/18 dated December 6, 2018). environment-related activities of the Company facilities. In 2018, the total costs of Company’s subsidiaries and affiliates.

84 | Annual Report 2018 Many entities fell short on analysing WASTE MANAGEMENT standards set by the Company, and assessing environmental aspects, namely, the Rules of Production and failed to minimise the negative The Company’s production activities Consumption Waste Management environmental impact of their produce many different types of waste, at Enterprises of NAC Kazatomprom activities or did not comply with among them: JSC and the Practical Guidelines for the requirements of environmental • Solid and liquid radioactive waste; Management of Radioactive Waste laws. Overall, the penalties imposed • Overburden rocks generated during Prior to Landfill. on the Company’s enterprises for the mining of fluorite copper- In the reporting period, the Company’s non-compliance with environmental molybdenum ores; subsidiaries and affiliates performed an laws decreased and amounted to KZT • Drilling mud from the drilling of the industrial environmental monitoring 15.3 million in 2018, of which KZT 13.6 wells at the ISL field testing site; (IEM) exercise in accordance with million represent fines imposed on • Fluoric gypsum from the production environmental legislation. The IEM UMZ JSC for operations at Karadzhal of hydrofluoric acid; is carried out every quarter, with mine in 2018 and an enrichment plant • Ashes and slag waste from the the involvement of certified and in Kurchatov city, East Kazakhstan production of thermal energy; accredited contractors (laboratories). Region, during the first five months • Municipal waste; Kazatomprom’s environmental impact of the year 2016, without the required • Waste oil products; in 2018 did not exceed established environmental permits. Non-financial • Car tyres. environmental quality limits. sanctions have not been reported Solid radioactive waste created during In 2018, the Company carried out an during this period. the production process occurs in: account and inventory of the sources 307-1 of generation, storage and landfill Radioactive contaminated soil at sites, the disposal and recycling of 1 sites where pregnant solutions waste, production waste transferred are delivered through pipes; to third parties for use, utilisation and recycling, and disposal on specially Used ion-exchange resins allotted sites. 2 removed from the production In 2018, the Company’s industrial sites cycle; generated 1,366,000 tonnes of waste. Hazardous waste (38,401.54 kg) was Radioactive contaminated slurry transferred to specialized enterprises 3 from collecting tanks; and for disposal. Non-hazardous waste in the form of drill cuttings (1,163,195.76 Fragments of equipment and kg) resulted from drilling of 4 metal constructions removed technological and exploration wells are from production. housed in special sludge dumps and are reclaimed in accordance with the These types of solid radioactive waste set procedures. Also, non-hazardous are characterised as ‘low active’ and waste included municipal waste deemed fourth or fifth grade, which (2,490.49 kg). indicates that they are the least Most of the produced hazardous waste hazardous solid radioactive waste. The was transferred on a contractual Company’s mining facilities dispose basis to specialized enterprises. of solid radioactive waste in special Waste management methods were disposal facilities certified by state determined in accordance with the ecological experts, in accordance with Environmental Code of the Republic the regulations of Kazakhstan. of Kazakhstan. Waste emissions limits The Company’s subsidiaries and excess established by government affiliates manage industrial and agencies (1,812.9 thousand tons) is not radioactive waste in line with corporate recorded.

NAC Kazatomprom JSC | 85 3. Sustainable Development

A detailed breakdown of the Company’s waste by type can be found in Table:

Total volume of waste generated by Kazatomprom, by type (000’s tonnes) 306-2

Waste type 2016 2017 2018 Change Change 2017–2016 2018–2017 Industrial 443.6 797.1 1,253.5 80% 57% Municipal 3 2.7 2.5 –10% –7% Solid radioactive 2.9 11.5 3.9 297% –66% Liquid radioactive 111.1 125.5 106.1 13% –15% TOTAL 560.6 936.8 1,366 67% 46%

The 57% increase in industrial waste in system for 2016–2020, has been 2018 compared with 2017 was caused by submitted to the state authorities for the sub-grade drilling of wells and the approval. Once approved, it will apply generation of overburden rocks at the to all of the Company’s uranium mining Karadzhal fluorite ore deposit (EKR). enterprises. The guidelines will enable The Company’s subsidiaries and problems regarding non-compliance affiliates posted the following shortfalls with environmental and tax laws to be and omissions during the reporting resolved. period: 1. The uptrend in the accumulation of production and consumption waste persisted, while there was insufficient work carried out to utilise and recycle waste prior to disposal. Waste management systems needed improvement. Just over 1% of the total volume of generated waste was disposed of. The remaining waste was collected or buried. A regulatory document governing the hazard-level determination and coding of drilled cuttings was unavailable, resulting in the violation of both environmental and tax laws. 2. A regulatory document governing the hazard-level determination and coding of drilled cuttings was unavailable, resulting in the violation of both environmental and tax laws. It should be noted that the guidelines for hazard-level determination and the coding of drilled cuttings generated at the construction of process wells at uranium deposits, developed as part of the Company’s plan of action for an integrated approach to the development of its waste-management

86 | Annual Report 2018 DIRECT GREENHOUSE GAS EMISSIONS

Experts from both the Company and the Environmental Regulation and Control Committee of the Ministry of Energy of the Republic of Kazakhstan conduct continuous monitoring of atmospheric emissions at the Company’s uranium production facilities.

Overall greenhouse gas emissions, CO2 (carbon dioxide) equivalent, thousand tonnes 305-1

Indicator 2016 2017 2018 Change Change 2017–2016 2018–2017 Direct greenhouse gas emissions 3,767 3,929 132.48* –97% 4% (coverage area 1)

* Substantial decrease in greenhouse emissions is associated with disposal of MAEK Kazatomprom LLP.

Carbon dioxide accounts for more significant power consumption. Energy than 97% of all greenhouse gas consumption has become one of the emissions and is, therefore, regulated. Company’s biggest production costs. Accordingly, every year, prior to 1 April In addition, energy consumption and of the year following the reporting energy efficiency directly affect its period, Company entities submit a environmental indicators. greenhouse gas emission inventory The Company has been making report to the Ministry of Energy of the vigorous efforts to increase its energy Republic of Kazakhstan. The national efficiency, particularly in three key plan for the distribution of greenhouse areas: gas emission quotas sets the limits for CO emissions. The modernisation of production 2 1 process;

ENERGY EFFICIENCY 2 The readjustment of equipment;

The specifics of the Company’s By promoting changes in staff 3 production processes involve behaviour.

Energy consumption, thousand GJ 302-1

Energy 2016 2017 2018 Change Change 2017–2016 2018–2017 Thermal energy 11,435 11,775 11,551 3% –2% Electrical energy 6,042 5,936 5,766 –2% –3% TOTAL ENERGY CONSUMPTION 17,477 17,711 17,317 –1% –2%

The amount of electrical energy saved as a result of Company measures to reduce energy consumption and improve energy efficiency was 170,000 GJ in 2018.

305-1

NAC Kazatomprom JSC | 87 3. Sustainable Development

Use of primary energy sources, GJ 302-1

Source type 2016 2017 2018 Change Change 2017–2016 2018–2017 Non-renewable: Coal 2.5 2.6 2.5 5% –5% 5,189 Natural gas 75,837 75,438 77,434 –1% 3% KZT million Fuel (benzine, oil-fuel, diesel) 180 177 170 –1% –5% the economic effect of actions Renewable:

* * * to save energy and improve Hydrogen* 30 112 44 273% (61%) energy efficiency * Hydrogen consumption is in tonnes.

The Group’s total consumption of 1 Energy-saving measures; The 2018 figures do not include data for fuel and energy resources in 2018 was MAEK-Kazatomprom LLP, as the asset 94,924,000 GJ6. The total consumption 2 Measures to speed up processes; was transferred to Samruk-Kazyna. figure excludes hydrogen consumption This led to a significant decrease in the of 38.28 tonnes. The hydrogen is The introduction of effective new reported volume of water drawn and 3 produced at the UMP JSC station and methods of repair and renewal; discharged. used for production purposes. In some regions, Kazatomprom supplies Kazatomprom’s has an energy A reduction in the consumption water to the local population and to 4 management system in place in all of reagents and materials; and local industry. of its entities, as required by MS ISO Water is used in accordance with 50001. The Company complies with The reuse of materials and permits issued by authorised bodies 5 Kazakh legislation governing the equipment. for the protection of water resources. electric power industry and on energy Enterprises keep strict control of saving and improvements in energy all water drawn and recycled. The efficiency. Consequently, it continuously The economic effect (fact) of these monitoring of wastewater quality is conducts energy audits to assess the actions in 2018 was KZT 5,189 million. carried out by specialised, accredited potential for energy savings. After each The Plan’s forecast economic effect laboratories. energy audit, it develops strategies was KZT 3,550 million. Hence, the The Company actively uses water in to save energy and improve energy effectiveness ratio was 146%. In 2018, its operating activities. Water use is efficiency. In line with Kazakh law according to an analysis of Plan significant in both primary production and the Company’s action plan for implementation by Kazatomprom’s and in the operation of desalination 2017–2020, which seeks to implement mining operations, planned operations plants, where desalinated water is the its development strategy for 2015–2025, were by and large completed. end product. the Company developed a plan to save The Company is also an active user of energy and increase energy efficiency at water in its production activities. It uses its mining enterprises. WATER RESOURCES a considerable amount of water in its The plan included: main production activities and in the A number of the Company’s operation of osmosis plants, through subsidiaries and affiliates carry out which demineralised water becomes a extraction activity and the discharge raw material for generating electricity of water involved has an impact on that is supplied to the grid to meet the sensitive water bodies, the largest of needs of the local population. which is the Ulba River. In 2018, the Company used more than 3 303-1 12.2 million m of water.

6 A formula taken from the «GRI 302: Energy» standard was used to calculate the total consumption of fuel and energy resources.

88 | Annual Report 2018 Total water drawn, by source (thousand m3) 303-5

Source 2016 2017 2018 Change Change 2017–2016 2018–2017 Surface water 1,249,917 1,200,372 951.1 –4% –99.9% Ground water 14,659 14,806 9,955.4 1% –33% Municipal and other supply systems 1,521 1,330 1,311.5 –13% –1% TOTAL WATER DRAWN 1,266,097 1,216,508 12,217.95 –4% –99%

Kazatomprom seeks to reduce the amount of water it draws for production. To this end, a number of enterprises now use closed water cycles. 303-2

Total volume of reusable water (thousand m3) 303-2

Indicator 2016 2017 2018 Change Change 2017–2016 2018–2017 Total volume of reusable water 19,774 20,447 19,840 3% –3%

Total water discharge volume by source (thousand m3) 303-3

Wastewater receiver, thousand m3 2016 2017 2018 Change Change 2017–2016 2018–2017 Caspian sea 1,202,440 1,154,910 0 –4% –100%

Ulba river 1,461 1,353 1,671 –7% 23%

Containment pond 1,307 1,663 3,167.5 27% 90%

Evaporation fields 1,281 1,279 410.9 –0.2% –68%

TOTAL 1,206,489 1,159,205 5,249.9 –4% –99.5%

Contamination of ground water NUCLEAR SAFETY The monitoring of ground water is the most important environmental Nuclear security measures are in place Review and approval of the 2 activity in uranium mining by the ISR for all Company enterprises that carry design, engineering, detail method. To monitor ground-water out activities involving nuclear materials. and process documentation contamination, samples are taken from At present, UMP JSC possesses nuclear on nuclear safety of UMP JSC wells for analysis. To protect the ground materials. The monitoring and subdivisions working with NFM; water, the mining area is enclosed by a supervision of nuclear fissile material sanitary area that extends 500 meters (NFM) is the responsibility of the Chief In Q2 2018, an emergency 3 from the ore zone. Furthermore, Physicist’s Department. In 2018, the response drill for staff and radionuclide contamination in water Chief Physicist’s Department carried out services in relation to a samples taken from monitoring wells the following safety-related activities: spontaneous chain reaction (SCR) may not exceed levels set by SERERS. signal by the emergency alarm Except for the Ulba Facility, all of the A regular nuclear-safety knowledge system at all nuclear hazardous Company’s uranium mining operations 1 test to check the knowledge level of units of UMP JSC; are located in desert areas of employees in the finished products Kazakhstan and are far removed from storage area, uranium production In November 2018, an inspection 4 densely inhabited areas. and support departments of UMP of the nuclear safety status of JSC, which work with NFM. UMP JSC.

NAC Kazatomprom JSC | 89 3. Sustainable Development

A nuclear materials inventory and Radiation safety Kazakhstan, No. 155, of 27 March 2015. nuclear safety inspection are carried In 2018, the Company carried out In 2018, measures were taken to out at the Group’s enterprises on a systematic process monitoring of improve the radiation environment, regular basis to ensure nuclear safety. the radiation environment in its including repairs on rooms and The absence of any faults and problems workplaces, premises, production sites equipment, the replacement of underscores the effectiveness of and monitored areas. corroded or obsolete equipment, the measures taken. Radiation factors at the production repair and upgrade of ventilation site and in sanitary protection and systems, the removal of low-level residential zones remained unchanged radioactive waste to disposal areas, the and equal to the values for 2017. No purchase of new radiation monitoring radiation accidents and incidents instruments and radiation safety occurred at the Company’s enterprises and protection training for staff. in 2018. There were no recorded In 2018, 2,900 tonnes of low-level values above the annual radiation radioactive waste were removed dose limits set the Sanitation and from Kazatomprom enterprises to Hygiene Standards and Sanitary and low-level radioactive waste disposal Epidemiological Requirements for areas, 31 new radiation monitoring Radiation Safety (SHS SERRS), approved instruments were purchased and 464 by Order of the acting Minister of employees completed radiation safety National Economy of the Republic of and protection training at licensed organisations. The average dose of radiation to which Kazatomprom’s staff were exposed in 2018 was 1.55 mSv per year, including the natural background radiation. Permissible level - 20 mSv per year. At the same time the level of such natural background radiation in areas where Company operates amounted 0.3-1.2 mSv per year. The average level in 2018 was 0.76 1.55 mSv per year after subtraction of the natural background radiation. For comparison purposes, the population is typically exposed to natural background radiation of 1-3 mSv per year. In 2018, the maximum annual effective dose of group A staff at the Company’s enterprises was 4.97 mSv per year, down 10% from the maximum dose recorded in 2017.

90 | Annual Report 2018 3.4 The Board of Directors acknowledges the need for Development a paradigm shift and will Plans consider the use of external expertise to help guide the process. Trainings and The group is working to adopt best The ESAP is based on the following key workshops for Company practices in the fields of health, safety principles: and subsidiary management and the environment and will continue will be used to facilitate the to consider these areas as issues of Adoption of a risk-based process. 1 paramount importance in future. and proactive management To continually improve its HSE approach. The Group will standards, the Company approved move its focus on maintaining an environmental and social action regulatory compliance to a plan (ESAP) aimed at reviewing the risk-based approach that goes findings and recommendations of beyond compliance, in order to SRK Consulting (UK) Limited (SRK), achieve an even higher level of which analysed the Group’s assets in environment, health and safety June 2018. This series of initiatives (EHSS) performance. 2 is aimed at bringing the Company’s practices into full compliance Increases in headcount with Good International Industry to support the timely Practices (GIIP), in particular, with IFC implementation of the ESAP. The Performance Standards, as well as with Company’s Board of Directors the Guidelines on Occupational Safety has acknowledged the need for and Environmental Safety. The plan additional resources. 3 includes a wide range of protection measures relating to air, water, land, Performance reporting and waste management, stakeholder management review. The participation, habitat review, land-cover Company’s health and safety restoration plans, etc. team will coordinate, analyse The overall objective of the ESAP is to and report to the Company’s move the Group from merely ensuring senior management and Board regulatory compliance to taking of Directors on implementation proactive risk-based management of PB of the ESAP. In addition, senior issues in accordance with international management will review ESAP best practices in all aspects of the progress on at least a semi- Group’s activities over a five-year period. annual basis.

The following table sets out the principal steps envisaged by the ESAPs:

ESAP goal Summary of actions Outcome

Improved impact prediction The EHSS reviews identified that operations require greater understanding Improved ability of operations to prove and monitoring of the environmental and social context, while the impact assessment and and ensure that they are not having monitoring undertaken is currently focused on regulatory compliance, impacts on receptors. rather than geared to a receptor-based approach. To address these gaps, the following actions are required: • Further study of water resources, habitats and land use in the vicinity of the mines to identify impact receptors. • Refinements to impact predictions. • Definition of cumulative impacts. • Improvements in the monitoring and reporting of impacts.

NAC Kazatomprom JSC | 91 3. Sustainable Development

The following table sets out the principal steps envisaged by the ESAPs: (continued) ESAP goal Summary of actions Outcome

Improved community stakeholder The EHSS review identified that the community stakeholder engagement Active engagement with communities, engagement and grievance management processes are currently not formally enhancing risk management and integrated into management systems and otherwise not fully aligned with constructive relationships with GIIP. To address these gaps, the following actions are required: surrounding communities. • • Undertake social scans that define how people are using land and water around the mines. • Community stakeholders to be identified by means of a formal stakeholder identification and analysis exercise. • Stakeholder engagement plans geared to more active engagement. • Grievance procedures framed in the context of good international practices and documented. • Documentation of stakeholder engagement.

Improved control over low-level The EHSS review identified a need to pay more attention to low-level Group enterprises will be able to prove radioactive waste service providers radioactive waste services, particularly services for the decontamination that the radioactive waste services of metal low-level radioactive waste, as well as better understanding of used are responsible. their capacity to handle large quantities of radioactive waste at closure, Improvement of closure plans by including the process through which low-level radioactive waste is better understanding of the capacity of disposed of. To address these gaps the following actions are required: radioactive waste facilities and metal • Where waste is sent to third-party waste facilities, enterprises must decontamination services. ensure appropriate service agreements are in place (incorporating liability transfer) and that they have evidence that the EHSS performance of these facilities is acceptable. • Group companies must also precisely estimate the quantities of radioactive waste that will be generated at closure and confirm that the available licensed waste facilities have capacity to receive such waste.

Improved closure planning The estimated closure costs for the mines were found to be low during the The Group will regularly update EHSS review and were further reviewed and revised for the SRK report. its estimates with respect to both SRK’s EHSS review of non-mining assets also included an evaluation of statutory closure liabilities (required the estimated closure liabilities, in line with GIIP (while under Kazakhstan by Kazakhstan legislation) and closure law, an estimate of closure costs is only required for nuclear installations, liabilities, in line with GIIP. The Group which has a specific definition in the applicable regulation and does not will then ensure sufficient funds apply to any of the Group’s facilities, or subsoil use obligations). The EHSS are in place to cover closure and review identified the need for the following improvements in closure rehabilitation costs at the end of each planning: respective asset’s life. • Establishment of an internal closure planning group to regularly review liquidation programmes and cost estimates. • Update of closure plans and cost estimates on a regular basis. • Closure criteria to be agreed with regulatory authorities and other stakeholders and addressed in closure plans.

Health and safety and radiation safety The EHSS review identified that use of personal protective equipment Further enhancement of safety (PPE) was rigorous in most operations, but not all, while improvement to performance. radiation protection practices were required. To address these gaps the following actions are required: • Further promote adherence to requirements to use PPE at all operations. • Establish capacity to monitor urine samples of personnel where relevant. • Incorporate requirements of the IAEA Safety Guide No. SSG-27 not already covered in radiation management plans.

Increase the capacity of the corporate • An increase of the ISD’s headcount is required to meet the Group’s The Company’s industrial safety team Industrial Safety Department current EHSS aspirations, handle the increasing volume of EHSS data will be in a position to guide, monitor, being collected from the operations and implement the ESAP. audit and report on implementation of • Increase the capacity of the Company’s ISD team. the action plan. • Bring in external expertise to assist with impact identification and training and mentoring of staff.

The Group also developed a set of key environmental performance indicators, to which the Group will strive, including for waste generation, waste emissions and discharge. 103-3

92 | Annual Report 2018 3.5 Interaction with the Stakeholders

A prerequisite to the successful are staff and trade unions, shareholders, implementation of any project is suppliers, consumers, state and local to build a constructive system of government authorities, the mass media relationships with stakeholders. and local communities. Stakeholders are defined by the To organise effective, targeted degree of their exposure to, or their interaction with the parties concerned, opportunity to be exposed to, direct or the impact the community groups have indirect positive or negative effects of on the Company’s operations and the the implementation activities, which impact the Company has on them have may influence the production processes, been evaluated on a 0 to 4 scale. corporate governance or loyalty of the 102-42 brand. The Company’s key stakeholders

Map of Kazatomprom’s stakeholders

Shareholders 1 Community organisations 4.0 Partners and local people 12 2 3.5 3.0 2.5 Mass media 11 3 Creditors 2.0 1.5 1.0 0.5 Labour unions 10 0.0 4 Company suppliers

Local authorities 9 5 Customers

Public authorities 8 6 Affiliated subsidiaries 7

Management and staff

Degree of influence of the stakeholder on the Company (0 to 4) Degree of influence of the Company on the stakeholder (0 to 4)

NAC Kazatomprom JSC | 93 3. Sustainable Development

Stakeholders groups 102-40, 102-43, 102-44

Stakeholder Stakeholder’s interest Form of dialogue between Degree of Degree of in the Company stakeholders and the Company influence of the influence of stakeholder on the Company the Company on the (1 to 4) stakeholder, 1 to 4 1. Shareholders • Economic profit/consolidated net profit/ • Decisions of the general meeting of 3.7 2.8 economic performance shareholders • Free funds for development and dividends • Decisions of the Board of Directors • Net asset value (NAV) • Joint working groups • Corporate governance rating • Meetings, negotiations and more • Market share/market presence • Annual report • Minimisation of emissions to the • Questioning environment • Company internet resources

2. Partners • Market share/market presence • Founding treaties; 3.04 2.99

• Specific production cost of U3O8 produced • Decisions of the general meeting of by the Company and all uranium mining shareholders subsidiaries and affiliates • Board decisions • Decisions of joint consultative and advisory bodies • Joint working groups • Joint checks • Meetings, negotiations • Correspondence on the activities of the subsidiaries and affiliates • Annual report • Questioning • Company internet resources

3. Creditors • Economic profit/consolidated net profit/ • Business correspondence 2.94 2.33 economic performance • Regular analytical meetings, conversation • Free funds for development and dividends • Publication of information about the • Net asset value (NAV) Company in the media • The practice of investment and • Annual report procurement/ benefits from the • Company internet resources implementation of category-based procurement strategies

4. Suppliers of goods, • Free funds for development and dividends • Customer feedback 2.55 3.08 works and services • The practice of investment and • Holding meetings, negotiations procurement/ benefits from the • Signing agreements, memoranda, implementation of category-based agreements on strategic cooperation procurement strategies • Annual report • Energy/specific weighting of energy costs • Company internet resources in the production cost of finished products

5. Customers • Market share/market presence • Customer feedback 3.23 3.21 • Product and service labelling • Meetings, negotiations • Marketing communications • Agreements, memoranda, agreements on • Minimisation of emissions to the strategic cooperation environment • Annual report • Company internet resources

6. Subsidiaries • Employment, relationship of employees • Decisions of the Company as a 2.64 3.30 and affiliates and management, non-discrimination, participant/shareholder of the level of satisfaction with the work of subsidiaries and affiliates employees, as well as the work of • Management hearings from subsidiaries Company-controlled services and affiliate companies • Training and education • Performance information/reports, • Enhance production safety culture • production, investment and social plans/ • Market share/market presence commitments • Product and service labelling • sent to the Company • Annual report • Questioning • Company internet resources

94 | Annual Report 2018 Stakeholders groups (continued)

Stakeholder Stakeholder’s interest Form of dialogue between Degree of Degree of in the Company stakeholders and the Company influence of the influence of stakeholder on the Company the Company on the (1 to 4) stakeholder, 1 to 4 7. Management • Employment, relations between • Decisions of the Board, orders 2.98 3.44 and personnel employees and management, • Hardware/ manufacturing/ non-discrimination, level of • operational and other meetings employee satisfaction with the • Reports on current activities work of Company-controlled • Inbound and outbound services • correspondence • Training and education • Verbal negotiation • Improving the level of safety • Instructing on production • Culture of production • security • Surveys, questioning, testing • Company internet resources • Social networks • Hotline • Internal corporate communication channels 8. Public authorities • Minimisation of emissions to the • Verification of compliance of the Company’s 2.93 1.93 environment subsidiaries and affiliates with the laws and • Compliance with requirements regulations of the Republic of Kazakhstan • Reporting on the results of the Company’s financial and economic activities • Providing information at the request of government agencies in various areas of the Company’s activities • Development of proposals for amendments and additions to the Laws and regulatory acts of the Republic of Kazakhstan • Coordination of the subsoil use contract and state registration on the right of subsoil use • Licensing, checks on subsidiary and affiliate fulfilment of licence and contract obligations • Reports on subsidiary and affiliate fulfilment of licence and contract obligations • Annual report • Questioning • Company internet resources

9. Local executive • Sponsorship and charitable • Memoranda of cooperation between local executive 2.24 2.10 authorities assistance/indirect economic bodies and the Company in order to support and impacts develop the social sphere of the regions • Compliance requirements • General agreements between local executive • Amount of recycled water bodies and the Company on social financing for the regions • Company internet resources • Social networks • Hotline 10. Labour union • Enhance production safety • Holding public hearings 1.83 2.47 culture • Informing on current activities of subsidiaries and affiliates • Letters (complaints) to the Company • Company internet resources • Social networks • Hotline 11. Mass media • Creating a positive image of the • Company internet resources 1.84 1.52 Group • Social networks • Annual report • Hotline

12. Public • Enhance production safety • Holding public hearings 2.02 2.52 organisations, culture • Informing on current activities of subsidiaries and local communities • Amount of recycled water affiliates • Sponsorship and charitable • Letters (complaints) to the Company assistance/ indirect economic • Company internet resources impacts • Social networks • Compliance with requirements • Hotline • Minimisation of emissions to the environment • Training and education

NAC Kazatomprom JSC | 95 3. Sustainable Development

Getting feedback In 2018, 18 appeals were posted on the In 2018, 24 complaints were received The Company builds dialogue with Company’s corporate website at the from employees of Kazatomprom stakeholders on various aspects of its CEO blog, including: 4 questions about entities via “hotline”, including: activities. Notably, to obtain information the Company, 6 social questions, 6 on their concerns and claims, the questions about career, and 2 marked related to human-resource Company developed a mechanism for as “other matters”. 4 questions were 1 issues — 11 appeals; submitting and considering complaints replied and published on the site. The and grievances, through a feedback remaining questions were processed in 2 ethical complaints — 6 appeals; function on the Company’s external working order (answers were provided website, written request, or a telephone via e-mails and phone, etc.). 3 concerning purchasing - 5 appeals; hot line. Company enterprises monitor For regional groups with insufficient and review complaints and grievances Internet skills (primarily local 4 other issues - 2 appeals and submit reports to Kazatomprom’s communities in remote areas), the 102-44 central office on a quarterly basis. After Company holds ‘doors-open days’ and appropriate checks, each application subsidiaries and affiliates allocate is followed up in order to rectify any time for individuals to discuss their non-conformities or to give appropriate concerns. A schedule of meetings is advice. published in local mass media. 102-43 102-43

96 | Annual Report 2018 All complainants were given advice and explanations in relation to their concerns. The following activities are held for employees to avoid repeated complaints and grievances and to improve working conditions:

Annual staff meetings with All complaints and grievances are 30 1 5 management of Kazatomprom’s considered in a timely manner; appeals entities; Corporate newsletters were received from employees 6 A forum on the internal website are published containing of Kazatomprom in 2018 2 for discussing problematic issues; information relevant to every enterprise and team; Visiting hours for citizens 3 to meet management at Managers hold monthly meetings 7 Kazatomprom’s subsidiaries; with employees on personal matters; Hotline numbers are made 4 available at production sites Complaint and proposal 8 and shops as well as at the boxes are installed in public Kazatomprom website and places (foyers, canteens and websites of the Group’s dormitories, for example). companies (emails, phone#, etc.);

NAC Kazatomprom JSC | 97 4. Corporate Governance and Ethics 4 CORPORATE GOVERNANCE AND ETHICS

Corporate governance rating The Company is working to bring Based on the outcome of the its corporate governance system assessment, NAC Kazatomprom JSC has in line with global best practices. put in place an action plan to improve % Its corporate governance rating is its corporate governance system and assessed on an annual basis using regular reports on its implementation methods developed by independent are provided to the Audit Committee .08 consultants and approved by the and the Board of Directors of NAC Company’s shareholders. Efforts are Kazatomprom JSC. 85of Kazatomprom shares currently underway to improve the The assessment showed that the are owned by Samruk-Kazyna corporate governance system, in line Company’s corporate governance with the Activity Plan approved by the rating had not changed. However, the Company’s Board of Directors: independent consultant report showed In 2018, at the request of Samruk- that the efficiency of the Board of Kazyna JSC, an independent consultant Directors and the executive body had conducted a reassessment of NAC improved, as had processes to ensure Kazatomprom JSC’s corporate the transparency of Company activities. governance system. The assessment The corporate governance rating was based on the methodology of assigned as a result of the diagnostic diagnosing the corporate governance assessment meets the Company’s target system in legal entities, more than for 2018 (a key performance indicator). 50% of the voting shares of which are A plan of measures for the improving directly or indirectly owned by Samruk- corporate governance system for Kazyna JSC. This methodology was 2019 was prepared and approved by approved by the decision of the Board the Audit Committee and the Board of Samruk-Kazyna JSC on 26 September of Directors of Kazatomprom on 19 2016 (No. 35/16). The methodology February 2019. assesses the effectiveness of the Board of Directors and the executive body, risk management, internal control and audit, the system of sustainable development, respect for shareholders’ rights, transparency.

98 | Annual Report 2018 4.1 at increasing long-term value and Corporate sustainable development. Good Governance corporate governance is based on efficiency and transparency. Structure The main tasks of the Company’s corporate governance system are to 102-18 improve business transparency and to create and maintain effective long-term The Company’s corporate governance relationships with shareholders and all system ensures proper management stakeholders. The system is based on and control of activities and is aimed the following principles:

Protection of rights Share of responsibility and duly Transparency and objectivity and interests execution by the management bodies of NAC Kazatomprom JSC of shareholders and personnel of the Company activities

Legitimacy and ethics Effective dividends Effective management of the policy Company and the effective functioning of the Board of Directors and Management Board

Occupational health and safety Environmental protection

Settlement of corporate disputes Effective human-resources and conflicts of interest policy

NAC Kazatomprom JSC | 99 4. Corporate Governance and Ethics

The bodies of the Company’s corporate Corporate governance structure of NAC Kazatomprom JSC governance system are:

Supreme body — General 1 Meeting of Shareholders; SHAREHOLDERS Supervisory body — the Board of 2 Directors;

Executive body — the SAMRUK-KAZYNA, JSC — 85.08% FREE FLOAT – 14.92% 3 Management Board; and

The Internal Audit Service — 4 which monitors and evaluates the Company’s internal control and risk management systems .

INTERNAL AUDIT BOARD OF SECRETARY SERVICE DIRECTORS

Compliance Service

Committee on strategic Renumeration and planning and investments appointment Committee

Committee on industrial, Audit environmental and radiation Committee safety, labour protection and sustainable development

SECRETARY OF THE MANAGEMENT BOARD MANAGEMENT BOARD

Risk-management Credit committee committee

Investment Scientific and technical committee committee

100 | Annual Report 2018 4.2 Corporate Governance Code % The Company adopted its corporate governance code in 2015, based upon the corporate governance code of then sole shareholder Samruk-Kazyna. The aims of the code are to improve corporate 87 of the provisions of the Code are governance practices, ensure transparency of governance, and observed in full, according to the underscore the Company’s commitment to following the standards results of the conducted analysis of good corporate governance.

Corporate governance code internal changes and to analyse were observed in full, about 4 % of The Company adopted its corporate trends in global and national process the provisions of the Code were partly governance code in 2015, based upon development that may have an impact observed, none of the applicable the corporate governance code of on standards of corporate governance. provisions were characterised as not then sole shareholder Samruk-Kazyna. Compliance with the highest standards observed and the remaining 9 % of the The aims of the code are to improve of corporate governance and provisions of the Code were deemed corporate governance practices, ensure transparency are key to improving the inapplicable. transparency of governance, and Company’s investment attractiveness For more information on compliance underscore the Company’s commitment and its operational efficiency . These, of Kazatomprom with the corporate to following the standards of good in turn, will inspire confidence among governance code for 2018 please follow corporate governance. potential investors, help reduce the this link to the relevant section on our The code was developed in line risks associated with inefficient use of website: https://www.kazatomprom. with the legislation of the Republic resources, increase Company value and kz/en/investors/inie_otcheti_i_ of Kazakhstan and taking on board spread prosperity. The Company has prezentatsii/page-1 corporate governance developments ensured that its corporate governance in Kazakhstan and around the world. system complies with the listing rules AIX corporate governance principles The code establishes the principles of the world’s largest stock exchanges The Astana International Exchange that form the basis of the Company’s and the main principles of corporate (AIX) has established general corporate corporate governance system. governance agreed by the global governance principles for companies Corporate governance is a complex, economic community (for example, the whose shares are listed on AIX. multi-layered system of relationships corporate governance principles of the Kazatomprom’s corporate governance that is constantly evolving due to Organization for Economic Cooperation code is consistent with these principles internal and external factors and and Development). to a large extent. Its corporate influences. The Company’s decision governance code also contains certain to apply high standards of corporate Compliance with the corporate provisions that ensure compliance governance are, first and foremost, governance code with Samruk-Kazyna’s objectives and determined by its objectives to improve In line with Kazatomprom’s corporate forecasts. Any Group engagements in investment attractiveness and partner governance code, the Corporate activities outside of its core business confidence. External factors that could Secretary Service analysed the are subject to consideration and vetting influence Company development, such Company’s compliance with the by the Company’s Board of Directors, as changes in the macroeconomic principles and provisions of the which is chaired by an independent environment, pose challenges to corporate governance code in 2019. non-executive director and includes corporate governance. Hence, it is According to the results of this analysis two more independent non-executive necessary to monitor external and 87% of the provisions of the Code members. By the end of December

NAC Kazatomprom JSC | 101 4. Corporate Governance and Ethics

2019, Samruk-Kazyna intends to have the question was addressed should • The UK Corporate Governance Code updated the Company’s corporate provide a written answer as soon as prohibits the Chair of the Board of governance code based on international possible after the conclusion of the Directors from being a member of best practices. General Meeting. In addition, major the Audit Committee. shareholders may hold meetings with Differences between the Company’s the Chair and members of the Board There is no such restriction in the corporate governance code and of Directors to discuss development Company’s corporate governance code. the provisions of the UK corporate strategy issues, elect the head of governance code7 the executive body and address • The UK Corporate Governance Code The main differences between the other elements that affect growth in requires that semi-annual and Company’s corporate governance code long-term value and the sustainable annual financial statements reflect and the provisions of the UK Corporate development of the organisation. Such the position of the Company’s Board Governance Code are as follows: meetings are pre-planned and held in of Directors on the acceptability accordance with approved procedures. of accounting approaches used in • In accordance with the provisions preparing the financial statements of the UK Corporate Governance • The UK Corporate Governance Code and reveal any significant doubts Code, in the event that 20% or more states that non-executive directors about the Company’s ability to of shareholders vote against the should play a major role in appointing continue such work for 12 months recommendations of the Board of and terminating the powers of the from the date of approval of the Directors, on announcing the results executive body. It also stipulates the financial statements. of such a vote, the Company should need for meetings of non-executive explain what actions it intends to directors without the participation of The Company’s corporate governance take to understand the reasons for executive directors. code does not require this. the shareholders’ vote. Updated information on shareholder opinions, The Company’s corporate governance • The UK Corporate Governance Code as well as on measures taken, should code states that candidates for head prohibits the Chair of the Board be published no later than six of the Company must be approved of Directors from chairing the months after the General Meeting of by the President or the Presidential Nominations and Remunerations Shareholders. The Board of Directors Administration of the Republic of Committee. The Chair of the should note the impact of feedback Kazakhstan (if the company is included Board of Directors can only be a on decisions made in the general on a certain list, approved by Decree member of the Nominations and conclusions of the Company’s annual of the President of the Republic of Remunerations Committee if they report, in the explanatory notes Kazakhstan), the Board of Samruk- are an independent member of the to the proposed decisions of the Kazyna JSC, the Nominations and Board of Directors. General Meeting of Shareholders (if Remuneration Committee of the Board applicable). of Directors of Samruk-Kazyna JSC and There is no such restriction in the Chairman of the Board of Directors of Company’s corporate governance code. The Company’s corporate governance Samruk-Kazyna JSC. code obliges the Chair of the Board • Under the UK Corporate Governance of Directors to build a constructive • The UK Corporate Governance Code Code, the Remuneration Committee dialogue between members of the sets out the main responsibilities is responsible for the appointment of Board of Directors, major shareholders of the Company’s Nominations remuneration consultants in respect and the Company’s executive body. At and Remunerations and Audit of executive director pay. The views the same time, the Chair of the General Committees. It also cites the need of the external consultant should Meeting of Shareholders should strive to include a description of the main be independent in evaluating the to ensure that shareholders receive activities of these committees in the external recommendations of third answers to questions directly during Company’s annual report. parties and obtaining the views the meeting. If the complexity of the of executive directors and senior questions does not allow for immediate There is no such requirement in the management. answer, the person (s) to whom Company’s corporate governance code.

7 Differences are indicated on the basis of a literal comparison of the contents of the Company’s corporate governance code and the UK Corporate Governance Code. However, such differences do not imply complete non-compliance with the norms of the UK Code in practice.

102 | Annual Report 2018 There is no such provision in the 4.3 has the authority to make decisions Company’s corporate governance code. on all aspects of the Company’s General Meeting activities, except for those matters • The UK Corporate Governance Code of Shareholders expressly reserved for the General sets out a detailed and long-term Meeting of Shareholders under JSC remuneration system, including the law, the law governing the Sovereign need for long-term ownership of the Samruk-Kazyna owns 85.08% of the Wealth Fund, other applicable laws Company’s shares by its executive Company’s outstanding shares, while and the Company’s charter. The directors. There are also clarifications 14.92% of the shares are in free float. Company’s Board of Directors operates on the terms of contracts concluded Shareholders operate in line with the in accordance with the principles with Company directors. competences stipulated by the Company set out in the Charter, the corporate Charter. governance code and the regulations There are no such provisions in the The key decisions taken by the General governing the Board of Directors. Company’s corporate governance code. Meeting of Shareholders include: The powers of the Board of Directors include, among other things: Election and early removal 1 of members to and from the Board of Directors of NAC Setting the Company’s priority 1 Kazatomprom JSC; business objectives and approving the Company’s strategy; Selection of an auditor for 2 the consolidated and separate Approving the Company’s 2 financial statements of NAC development strategy, Kazatomprom, JSC; development plans and budget;

Approval of the financial Appointing the members of the 3 3 statements of NAC Management Board, the Internal Kazatomprom, JSC; Audit Service, the Compliance Service and Corporate Secretary; 4 Approval of dividends; Approving the terms for issuance 4 Approval of the Charter and of bonds and derivatives by the 5 Regulations governing the Company and the buyback of Board of Directors of NAC securities; Kazatomprom, JSC and any amendments thereto. Making decisions on participation 5 in the incorporation of other legal entities or ceasing participation in other legal 4.4 entities by way of transfer (or receipt) of some or all assets Board (other than where such action of Directors requires approval pursuant to item (viii) of the General Shareholders’ Meeting); 102-22 The Board of Directors is responsible Approving transactions or series 6 for the general management of the of interrelated transactions Company’s activities. It directs the resulting in the acquisition Company’s strategy and policy and or divestment of assets with the value of more than 10%

NAC Kazatomprom JSC | 103 4. Corporate Governance and Ethics

of the total book value of the a term of up to three years. Members included in the workplan. Company’s assets; may be re-elected for a further period of up to three years where performance COMPOSITION OF THE BOARD Making decisions on the is satisfactory. Any term of appointment 7 OF DIRECTORS conclusion of major transactions to the Board of Directors for a period and related party transactions longer than six consecutive years is The Board of Directors comprises seven where the Company has interest subject to special consideration. An members, including three Independent (other than transactions that fall independent director cannot be elected Directors. A description of the criteria under the responsibility of the to the Board of Directors for more for compliance with the standards of General Meeting of Shareholders); than nine consecutive years, apart independence of members of the Board from exceptional cases. In such cases, of Directors is set out in the Articles Approving purchases elections should be held annually, with of Association and the Regulations on 8 (divestments) by the Company a detailed explanation of the reasoning the Board of Directors, posted on the of 10% or more of the shares in behind the nomination of said candidate Company’s website. other legal entities; to the Board of Directors. Jon Dudas, the Chairman of the Board 102-24 of Directors of the Company, in March Increases in the Company’s 2019 (after the publication of the annual 9 liabilities that are equal to 10% Individuals who are nominated (or financial statements and the opening or more of its equity capital; recommended) for appointment to the of the trading period for the Company’s Board of Directors as a representative insiders) acquired 2,000 GDRs of the Resolving any issues within of shareholders, or individuals who are Company. Relevant information has 10 the competence of the General neither a shareholder themselves nor been disclosed and reported to the stock Meeting of Shareholders in appointed to represent the interests of exchanges. relation to stakes or interests of shareholders, are eligible for election Other members of the Board of 10% or more that are owned by to the Board of Directors. The Board of Directors of NAC Kazatomprom JSC the Company; Directors must have not less than six hold no shares (equity interest) in the members, of whom at least 30% must Company, its affiliates, the Company’s Preliminary approval of updates be independent directors. suppliers or its competitors. 11 or amendments to the Company The Board of Directors operates in The Company’s current Board of Charter; and accordance with an annual workplan Directors was elected on 14 August 2018 and meeting schedule based on for a three-year term and the terms of Approving transactions with state the principles of rationality and the current members of the Company’s 12 authorities, government bodies, effectiveness, but meet at least six Board of Directors expire on 14 August state-owned enterprises (i.e., times a year. If required, the Board 2021. The current Board of Directors has legal entities in which the state of Directors may consider issues not the following members: owns 50% or more of the voting power) or legal entities affiliated Board of Directors with any of them, excluding (a) transactions with dependent legal Name Year of birth Title Member of the entities and Company subsidiaries Board since and (b) transactions documented Chairman of the Board of Directors Jon Dudas 1959 2015 using templated agreements, the (independent) forms of which are established by Neil Longfellow 1958 Board Member (independent) 2017 applicable law. Approval of such Russell Banham 1954 Board Member (independent) 2018 transactions requires the approval Alik Aidarbayev 1963 Board Member 2018 of the majority of independent Beybit Karymsakov 1962 Board Member 2018 directors. Kanat Kudaibergen 1979 Board Member 2018 Galymzhan Pirmatov 1972 Board Member, Chief Executive Officer 2017 Members of the Board of Directors are appointed by a resolution of the General Meeting of Shareholders. Members of The business address of the directors is 17/12. YE-10 Street, Nur-Sultan, the Board of Directors are elected for 010000, Kazakhstan.

104 | Annual Report 2018 JON DUDAS NEIL LONGFELLOW

Chairman, Independent Independent Director Director

Year of birth 1959 Year of birth 1958

Citizenship UK Citizenship UK

Education He is a registered professional mining engineer, Education He is a chartered electrical engineer and a Fellow having graduated from the University of the of the Institute of Measurement and Control. Witwatersrand, South Africa, with a Bachelor’s degree in mining engineering and a Master’s degree in mineral economics in 1984. Mr. Dudas also holds an MBA from Heriot-Watt University in Edinburgh.

Experience Mr. Dudas began his working career at Rand Mines Ltd in 1984 and has held a variety of senior managerial positions across a number of commodities and functions at companies such as Experience Mr. Longfellow started his career in electrical Gencor Ltd and BHP Billiton, where he was CEO engineering in the UK. In 1991, he joined British of the Aluminium division. Since 2012, Mr. Dudas Nuclear Fuels Limited, working at the Sellafield has been working as an independent corporate nuclear reprocessing plant in West Cumbria, where adviser to multinational mining and professional he was Head of Reprocessing, before becoming service companies. An independent member of Deputy Managing Director in 2007. In 2009, Mr. the Company’s Board of Directors since 2015, Longfellow joined Westinghouse Electric Company Mr. Dudas was elected Chairman of the Board of as Managing Director of Springfields Fuels Limited Directors of Kazatomprom in August 2018. and Vice President of the European Fuel Business. In 2013, Mr. Longfellow joined Costain PLC as Director of Major Projects for the nuclear, oil and gas sectors in the UK. Since 2015, Mr. Longfellow has been an independent consultant to the international nuclear sector.

NAC Kazatomprom JSC | 105 4. Corporate Governance and Ethics

RUSSELL BANHAM ALIK AIDARBAYEV

Independent Member Director

Year of birth 1954 Year of birth 1963

Citizenship Australia Citizenship Republic of Kazakhstan

Education He has a Bachelor of Commerce degree from the Education Mr. Aidarbayev has a PhD in Engineering and is an University of New South Wales, is a fellow of the honorary professor at Kanysh Satpayev National Institute of Chartered Accountants Australia and Technical University. He holds an MBA from the New Zealand, and a graduate of the Australian Russian Presidential Academy of National Economy Institute of Company Directors. and Public Administration in Moscow.

Experience He began his career as an auditor in 1974 in the Experience Mr. Aidarbayev has held various management Australian operations of Andersen; he was admitted positions at Yuzhkazneftegaz, Kumkol- into the worldwide partnership in 1988 and worked Lukoil (renamed Turgai Petroleum CJSC), until 2002. From 2002 to 2007, Mr Banham was the Mangistaumunaigaz JSC and NC KazMunaiGas Advisory Services Practice Leader of Ernst & Young JSC. He was General Director of KazMunaiGas in Brisbane, Australia. In 2007, he was appointed as Exploration & Production JSC from 2011 to 2013, the Audit Function Leader and Executive Committee Governor of the Mangistau region from 2013 to member of Deloitte CIS, based in Almaty, 2017 and First Vice-Minister for Investment and Kazakhstan. In 2011–2014, Mr. Banham was Energy Development of the Republic of Kazakhstan in and Resources Industry Group Leader of Deloitte 2017–2018. Since April 2018, Mr. Aidarbayev served CIS, based in Moscow, Russia. Since 2014, he has as Deputy Chairman of the Management Board of worked as an independent director on the boards of Samruk-Kazyna JSC. Since November 2018 Mr. a number of international companies. Aidarbayev has served as the Chairman of the Management Board of NC KazMunayGas JSC

106 | Annual Report 2018 BEYBIT KARYMSAKOV KANAT KUDAIBERGEN

Member Member

Year of birth 1963 Year of birth 1979

Citizenship Republic of Kazakhstan Citizenship Republic of Kazakhstan

Education He graduated from the Almaty Institute of National Education Mr. Kudaibergen holds an MBA in International Economy with a degree in the organisation of Management from the Geneva Business School mechanised processing of economic information and an MBA in Mining Management from the NUST and from Taraz State University with a law degree. Moscow Institute of Steel and Alloys.

Experience Mr. Karymsakov has worked in the Tien-Shan Experience Mr. Kudaibergen started his career in 2001 cooperative as an accountant and head of the Kordai as a senior prosecutor’s assistant at the district finance department. In 2003–2015, Mr. Semirechenskaya transport prosecutor’s office. Karymsakov held a senior position with the Almaty In 2007–2016, Mr. Kudaibergen held various City tax authority. In August 2015, He was appointed senior positions at Trading and Transportation Managing Director of National Company Astana Company LLP, including Lead Specialist of the EXPO-2017 JSC. Currently, Mr. Karymsakov is the Legal Department, Chief Manager – Head of the Managing Director for Economics and Finance at Legal Department, Deputy General Director, First Samruk-Kazyna JSC. He was elected as a member Deputy General Director and Chief Executive of the Board of Directors of Kazatomprom in April Officer. In 2016–2018, he served as the General 2018. Director of Karatau LLP and Managing Director of Kazatomprom’s uranium mining division. Since 23 April 2018, he has served as Chief Executive Officer of NMC Tau-Ken Samruk JSC.

NAC Kazatomprom JSC | 107 4. Corporate Governance and Ethics

CHANGES IN THE COMPOSITION OF THE BOARD OF DIRECTORS IN 2018

By the decision of the then sole 1 shareholder, on 23 April 2018, the terms of Board Members Kuanysh Abdugaliyevich Bektemirov and Mazhit Abdykalikovich Turmagambetov were ended ahead of time. Beybit Yerkimbayevich Karymsakov and Ardak Makhmuduly Kasymbekov were appointed to the Board of Directors.

In June 2018, the term of the 2 previous Board of Directors expired.

GALYMZHAN PIRMATOV In August 2018, a new Board of 3 Directors was appointed, with Member John Dudas as Chairman and Alik Serikovich Aidarbayev, Beibit Yerkimbayevich Karymsakov,

Year of birth 1972 Kanat Zhakypuly Kudaibergen, Russell Banham, Neil Longfellow Citizenship Republic of Kazakhstan and Galymzhan Olzhaevich Pirmatov as members. Education Mr. Pirmatov was born in 1972 and is a citizen of the Republic of Kazakhstan. He has degrees from the Novosibirsk State University, the Kazakhstan Institute of Management of Economics and ACTIVITY OF THE BOARD Strategic Research (University of KIMEP), the OF DIRECTORS Atkinson Graduate School of Management at Willamette University. In 2018, the Board of Directors held 12 meetings (eight in person), at which Experience His previous roles include Financial Director of JV Altyn-Tas and Director for Investment at AIG Silk 135 issues were considered. Fourteen Road Capital Management. In 2007, Mr. Pirmatov internal and planning documents held the position of Managing director of Halyk were approved and decisions were Bank JSC. From 2007 to 2009 he was Vice-Minister of Economy and Budget Planning of the Republic made to conclude 20 interested-party of Kazakhstan. From 2009 to 2011 - Vice-President transactions. Also in 2018, the Board for Economics and Finance of NAC Kazatomprom of Directors made important decisions JSC. From 2011 to 2015, he was President of to improve corporate governance, Cameco Kazakhstan. Since December 2015, Mr. Pirmatov has been Deputy Chairman of the National personnel policy, risk management and Bank of Kazakhstan. Mr. Pirmatov has served the Company’s internal control systems as the Chairman of the Management Board of as well as the Company’s strategy. Kazatomprom since August 2017.

108 | Annual Report 2018 The following issues, among other Attendance at meetings of the Board of Directors in 2018 things, were considered during the Members of the reporting year: Board of Directors/ Committee % Preliminary consideration of 1 08.02.2018 06.04.2018 24.04.2018 28.05.2018 28.06.2018 15.08.2018 29.08.2018 26.09.2018 19.10.2018 14.11.2018 06.12.2018 26.12.2018 annual financial statements;

J. Dudas Appointment of new Board of NAC + + + + + + + + + + + + 100 2 (Chair) Kazatomprom JSC;

Appointment of the heads of 3 A.S. Aidarbayev executive bodies of subsidiaries (appointed + - + + + - + 71 14 August 2018) and affiliates;

Preliminary approval of the B.Y. Karymsakov 4 (appointed + + + + + + - + + + 90 transfer of Kazatomprom’s stakes 23 April 2018) in the authorised capital of MAEK- Kazatomprom LLP and Kazakhstan Nuclear Power Plants LLP to K. Zh. Kudaibergen (appointed + + + + + + + 100 Samruk-Kazyna JSC; 14 August 2018)

Approval of the roadmap for 5 R. Banham implementing the Company’s (appointed + + + + + + + 100 environmental and social action 14 August 2018) plan;

Agreement on the placement 6 N. Longfellow + + + + + + + + + + + + 100 of securities between NAC Kazatomprom JSC, Samruk-Kazyna JSC and the underwriting banks; G.O. Pirmatov + + + + + + + + + + + + 100 Approval of the action plan to 7 improve the corporate governance system of NAC Kazatomprom JSC A.M. Kasymbekov (appointed 23 April + + + 100 for 2018; 2018, member until 29 June 2018) Other reports, work plans, key 8 Company indicators, development A.U. Mamin programmes, etc. (member until + + + + + 100 29 June 2018.)

Members’ attendance, in person at Board of Directors meetings in 2018 Z.F. Arslanova (member until + + + + + 100 averaged 92%. The following table 29 June 2018) shows the individual, in-person attendance records of members of the Board of Directors. M.A. Turmagambetov (member until + + 100 23 April 2018)

K.A. Bektemirov (member until + - 50 23 April 2018)

NAC Kazatomprom JSC | 109 4. Corporate Governance and Ethics

ASSESSMENT OF THE ACTIVITY by the Nominations and Remunerations Audit Committee OF THE BOARD OF DIRECTORS Committee. The Audit Committee was formed as 102-24 a consulting and advisory body of the An independent assessment of the Board of Directors and oversees the activity of the Board of Directors was In accordance with the Company’s Company’s financial reporting , internal conducted in 2018. Along with the corporate governance code, the Board control and risk management systems. analysis of Kazatomprom’s corporate established the independence of the The Audit Committee also monitors governance system undertaken directors and believes that John Dudas, the Company’s compliance with the by Samruk-Kazyna JSC in 2018, Russell Banham and Neil Longfellow provisions of its internal corporate independent consultants evaluated are independent in nature and in their governance documents. The Audit the effectiveness of the Board of decision-making. The Board of Directors Committee operates for the benefit of Directors, the committees of the has determined that there are no the shareholders and works to assist Board of Directors, the chairman relationships or circumstances that have the Board of Directors by: and the individual members of the or could have a significant impact on the • Establishing an efficient control Board of Directors, and the corporate independent decisions of these directors. system on the Company’s financial secretary. The report on the result of and economic activities (including the independent assessment Board of completeness and authenticity of Directors’ performance contains an COMMITTEES OF THE BOARD financial statements); analysis of activities for 2015, 2016 and OF DIRECTORS • Monitoring the reliability and 2017. efficiency of internal control and An indepen assessment of the activity To create a platform for active risk management, as well as the of the Board of Directors is conducted discussion and detailed analysis of execution of corporate governance once every three years. Self-assessment issues related to the management of documents; is conducted on an annual basis. the Company, four committees – the • Control over the independence of The results of the assessment can Audit Committee, the Committee on internal and external audits, as trigger changes to the individual Strategic Planning and Investment, well as procedures for compliance professional development plans of the Nominations and Remunerations with the laws of the Republic of the Board members or provide a Committee, and the Committee on the Kazakhstan; basis for recommendations regarding Environmental, Health and Safety – • Other matters as required by the recruitment or replacement of operate under the Board of Directors. Company Regulation on the Audit directors. 102-18 Committee of the Board of Directors. 102-28, 103-3 The Audit Committee is accountable to Committee activity is subject to the Board of Directors, in accordance relevant Company regulations, which with the authority granted to it by the ENGAGEMENT OF INDEPENDENT stipulate that only independent Board of Directors and the Company’s DIRECTORS directors may be appointed to the Regulation on the Audit Committee of Audit Committee, and that independent the Board of Directors. The Company’s The Company is guided by the directors should constitute a majority Audit Committee includes the following requirements of the Law of the on other committees. members: Republic of Kazakhstan on Joint Stock Companies, the Company’s Articles of Audit Committee members Association, and the Regulations on Selecting Independent Directors of Name Year Other Member of the Sovereign Wealth Fund Samruk-Kazyna of birth positions Committee since Chairman of Committee, Independent JSC, which define the procedure for Russell Banham 1954 2018 recruitment and selection of candidates Director Member of the Committee, Chairman on a competitive basis to the position Jon Dudas 1959 of the Board of Directors, Independent 2016 of independent directors, as well as the Director Member of Committee, Independent rules for carrying out a preliminary Neil Longfellow 1958 2017 Director qualification assessment of candidates

110 | Annual Report 2018 In 2018, the Audit Committee held 11 in- • Approval of the annual internal audit and risk management activities. person meetings at which key issues of plan and review of the results of The composition of and attendance the Company’s business were discussed internal audit activities; data for the Audit Committee were as including: • Reports on compliance programs; follows: • The interim and annual financial • The preparation of the Integrated statements including reports from Annual Report; the Company’s external auditor; • Review of the risk register, risk map

Composition of and attendance at meetings of the Audit Committee in 2018

Committee members

% 23.01.2018 05.02.2018 28.02.2018 15.03.2018 19.03.2018 27.03.2018 18.04.2018 31.05.2018 20.06.2018 25.09.2018 21.11.2018

R. Banham + + 100 (Committee Chair, elected 15 August 2018)

J. Dudas + + + - - + + + + + + 81,8

N. Longfellow + + + + + + + + + + + 100

Z.F. Arslanova + + + + + + + + + 100 (member until 29 June 2018)

Strategic Planning and Investment • The development of Company legislation that could affect Company Committee strategy, the evaluation of the development, and approval of The Strategic Planning and Investment efficiency of measures to implement company’s development master plan; Committee was formed as a consulting the strategy, the means for achieving • Review and evaluation of investment and advisory body to the Board of the goals of the strategy, internal and innovation initiatives at all Directors. It provides recommendations Company documents related to the stages of development. that shape the direction and priority of drafting of its strategy, strategic The Strategic Planning and Investments Company activities, drafts development decisions to increase efficiency from Committee is accountable to the Board strategy, plans investment activity and a short- and long-term perspective, of Directors, in accordance with the determines the Company’s innovation strategic decisions on M&A activities, authority granted to it by the Board of strategy. The Strategic Planning and and reorganisation procedures; Directors and the Company’s Regulation Investment Committee operates for • Internal documents regulating on the Strategic Planning and the benefit of Company shareholders Company investment activity, Investment Committee of the Board and assists the Board of Directors by investment projects within in the of Directors. The Company’s Strategic providing recommendations on: framework of the Company’s strategy, Planning and Investment Committee changes in accounting standards and includes the following members:

Strategic Planning and Investment Committee

Name Year Other Member of the of birth positions Committee since Chairman of Committee, Chairman of the Board Jon Dudas 1959 2016 of Directors, Independent Director Member of Committee, Russell Banham 1954 2018 Independent Director Member of Committee, Neil Longfellow 1958 2017 Independent Director

NAC Kazatomprom JSC | 111 4. Corporate Governance and Ethics

In 2018, the Committee on Strategic investment projects and achievement • A benchmarking analysis report on Planning and Investment held eight in- of target values of strategic key NAC Kazatomprom JSC with respect person meetings at which key issues of performance indicators (KPIs); to other uranium mining companies; the Company’s business were discussed: • Preliminary consideration and • Reports on the implementation of • Preliminary consideration of approval of the action programme the Company’s development strategy documents to be proposed to and activity plans for implementation for 2015-2025 and issues related to the Board of Directors containing of the Company’s development achieving strategic KPIs in 2018. information on the implementation strategy and an elaboration of the The composition of and attendance data of the Company’s development recommendations for achieving its for the Committee on Strategic Planning strategy, the status of large-scale goals; and Investments were as follows:

Composition of and attendance at meetings of the Committee on Strategic Planning and Investments in 2018

Committee members

% 19.01.2018 27.03.2018 18.04.2018 24.04.2018 31.05.2018 20.06.2018 25.09.2018 20.11.2018

J. Dudas + + + + + + + + 100 (Committee Chair)

Banham R. + + 100 (elected 15 August 2018)

N. Longfellow + + + + + + + + 100

Z.F. Arslanova + + + + + + 100 (member until 29 June 2018)

T.B. Yerzhanov + + + + + + 100 (member until 29 June 2018)

Nominations and Remunerations Board, the Company Secretary and and Management Board, policies Committee other positions filled or coordinated on evaluating the activities of the The Nominations and Remunerations by the Board of Directors in members of the Board of Directors Committee was formed as a consulting accordance with a Board-approved and the Management Board, the and advisory body to the Board of list; Corporate Secretary, improving the Directors. It provides recommendations • The formation of proposals for qualifications of the members of the on the efficiency of the Company’s the Board of Directors on matters Board of Directors, and other matters personnel policy and evaluates the determining the remuneration of as decided by the Board of Directors. goals and results of activities of independent directors, members of The Nominations and Remunerations the Management Board and other the Management Board, the Company Committee is accountable to the employees appointed by the Board Secretary, in accordance with the Board of Directors, in accordance with of Directors. The Nominations and goals, objectives, current status the authority granted to it by the Remunerations Committee operates of the Company and the level of Board of Directors and the Company’s for the benefit of the shareholders remuneration in similar companies, Regulation on the Remuneration and and assists the Board of Directors by by type and scale of activity; Appointment of the Board of Directors. providing recommendations on: • The Company’s personnel policy, The Company’s Nominations and • Attracting qualified specialists to the the procedure for nominating Remunerations Committee includes the Board of Directors, the Management members to the Board of Directors following members:

112 | Annual Report 2018 Nominations and Remunerations Committee

Name Year of birth Other Member of the positions Committee since Chairman of Committee, Chairman of Jon Dudas 1959 2016 the Board of Directors, Independent Director Member of Committee, Russell Banham 1954 2018 Independent Director Member of Committee, Нейл Лонгфэллоу 1958 2017 Independent Director Committee expert Нурлан Утенов 1972 2018 (no voting power)

In 2018, the Nominations and • Appointment of members of The composition of and attendance Remunerations Committee held 12 in- the Management Board of NAC data for the Nominations and person meetings, at which key issues of Kazatomprom JSC; Remunerations Committee are as the Company’s business were discussed, • Approval of the appointment of follows: including: chief executive officers at certain • Consideration of key performance subsidiaries and affiliates; indicators of the executive officers of • Plans for the succession of executive NAC Kazatomprom JSC; officers of NAC Kazatomprom JSC.

Composition and attendance at meetings of the Nominations and Remunerations Committee in 2018

Committee members

% 23.01.2018 20.02.2018 27.03.2018 17.04.2018 18.04.2018 24.04.2018 20.06.2018 28.06.2018 25.09.2018 17.10.2018 26.10.2018 20.11.2018

J. Dudas + + + - + + + + + - + + 83,3 (Committee Chair)

N. Longfellow + + + + + + + + + + + + 100

R. Banham + + + + 100 (elected 15 August 2018)

N.K. Utenov + + + + 100 (elected 15 August 2018)

Z.F. Arslanova + + + + + + + - 87,5 (member until 29 June 2018)

K.A. Bektemirov - - - - - 0 (member until 23 April 2018)

Committee on the Environmental, safety, the efficiency of communication benefit of the shareholders and assists Health and Safety with subsidiaries for the coordination the Board of Directors by providing The Committee on Environmental, policy implementation related to labour recommendations on development Health and Safety was formed as and environmental safety, and the of integrated Company policy related a consulting and advisory body to approval of the Company’s programmes to labour, environmental safety and the Board of Directors. It provides on sustainable development, including radiation safety, as a part of the recommendations on improving the labour and environmental safety. Company’s sustainable development management system in the field of The Committee on Environmental, plan to minimise chemical and industrial, ecological and radiation Health and Safety operates for the radiation impact, ensure environmental

NAC Kazatomprom JSC | 113 4. Corporate Governance and Ethics

and personnel safety, improve with the authority granted to it by the production safety and automate Board of Directors and the Company’s technological processes, in addition to a Regulation on the Committee on preliminary review of social issues. Environmental, Health and Safety of The Committee on Environmental, the Board of Directors. The Committee Health and Safety is accountable to on Environmental, Health and Safety the Board of Directors, in accordance includes the following members:

Committee on Environmental, Health and Safety

Name Year of birth Other Member of the positions Committee since Chairman of Committee, Neil Longfellow 1958 2017 Independent Director Chairman of the Board of Directors, Jon Dudas 1959 2016 Independent Director Committee expert Talgat Yerzhanov 1984 2016 (no voting power)

In 2018, the Committee on Kazatomprom JSC; The composition of and attendance Environmental, Health and Safety held • A report on the provision of decent data for the Committee on five in-person meetings at which key social and working conditions Environmental, Health and Safety are issues of the Company’s business were for Kazatomprom’s production as follows: discussed: personnel; • A report a corporate social • Reports on work carried out to accountability activities and the prevent industrial accidents at NAC sustainable development of NAC Kazatomprom JSC.

Composition of and attendance at meetings of the Committee on Environmental, Health and Safety in 2018

Committee members

% 19.01.2018 15.03.2018 31.05.2018 25.09.2018 20.11.2018

N. Longfellow + + + + + 100 (Committee Chair)

J. Dudas + - + + + 80

Z.F. Arslanova + + + 100 (member until 29 June 2018)

T.B. Yerzhanov + + + + + 100 (named committee expert on 15 August 2018)

114 | Annual Report 2018 4.5 Management Board

The Management Board is the executive Approving the Company’s Members of the 1 body of NAC Kazatomprom JSC. internal operational guidelines; Management Board may The Management Board is responsible be representatives of for the day-to-day management and Appointing heads of branch and shareholders, or Company 2 administration of the Company and is representative office; employees who are not controlled by the Board of Directors and shareholder representatives, the General Meeting of Shareholders. Developing and implementing and are appointed and 3 Activity of the Management Board the Company’s business strategy dismissed by the Board of of Company is determined by the and budget; Directors. The quantitative principles described in the Charter, composition and term of the Company’s corporate governance Making executive business office of the Management 4 code and regulations governing the decisions; and Board is determined by Management Board. Among other the Board of Directors. The things, the Management Board’s Implementing resolutions Management Board should 5 responsibilities include the following: adopted by the Board of consist of not less than five Directors and the General people. Meeting of Shareholders.

COMPOSITION OF Management Board was set at six THE MANAGEMENT BOARD people, each with terms equal in length to the terms of the Management By resolution of the Board of Directors Board of NAC Kazatomprom JSC. of NAC Kazatomprom JSC dated 8 The Management Board of NAC February 2018 (minutes of meeting Kazatomprom JSC was elected as No. 1/18), the composition of the follows:

Management Board of NAC Kazatomprom JSC

Name Year of birth Title Year when joined the Group

Galymzhan Pirmatov 1972 Chairman of the Management Board 2009

Marat Niyetbayev 1956 Chief Director for Operations 1998

Chief Director on Nuclear Fuel Cycle and Atomic Baurzhan Ibrayev 1958 2001 Energy

Meirzhan Yussupov 1979 Chief Director for Economics and Finance 2010

Chief Strategy and Marketing Officer (Chief Riaz Rizvi 1972 2017 Commercial Officer)

Birzhan Duisembekov 1971 Chief Business Support Director 2017

NAC Kazatomprom JSC | 115 4. Corporate Governance and Ethics

GALYMZHAN PIRMATOV MARAT NIYETBAYEV

Chairman of Chief Director the Management Board for Operations

Year of birth 1972 Year of birth 1956

Citizenship Republic of Kazakhstan Citizenship Republic of Kazakhstan

Education He has degrees from the Novosibirsk State Education Mr. Niyetbayev graduated from the Kazakh University, the Kazakhstan Institute of Management Polytechnic Institute with a bachelor’s degree in of Economics and Strategic Research (University the automation of metallurgical production. He is a of KIMEP), the Atkinson Graduate School of doctoral candidate in the field of technical sciences. Management at Willamette University.

Experience His previous roles include Financial Director of JV Experience Mr. Niyetbayev began his career at Shymkent Lead Altyn-Tas and Director for Investment at AIG Silk Factory, starting as a fifth-grade smelter, rising Road Capital Management. In 2007, Mr. Pirmatov to the position of General Director. Mr. Niyetbayev held the position of Managing director of Halyk has held managerial positions at various major Bank JSC. From 2007 to 2009 he was Vice-Minister organisations. Mr. Niyetbayev has worked for of Economy and Budget Planning of the Republic Kazatomprom for 21 years, holding the positions of Kazakhstan. From 2009 to 2011 - Vice-President of Mining Director of Kazatomprom and General for Economics and Finance of NAC Kazatomprom Director of both Mining Company LLP and Ken JSC. From 2011 to 2015, he was President of Dala.kz JSC. Mr. Niyetbayev has also worked as Cameco Kazakhstan. Since December 2015, Mr. head of the Kazakhstan Branch of Eurasia Energy Pirmatov has been Deputy Chairman of the National Holdings LTD and as Vice President for Operations Bank of Kazakhstan. Mr. Pirmatov has served for Uranium One Inc. as the Chairman of the Management Board of Kazatomprom since August 2017.

116 | Annual Report 2018 BAURZHAN IBRAYEV MEIRZHAN YUSSUPOV

Chief Director of Nuclear Fuel Chief Director for Economics Cycle and Atomic Energy and Finance

Year of birth 1958 Year of birth 1979

Citizenship Republic of Kazakhstan Citizenship Republic of Kazakhstan

Education Mr. Ibrayev was born in 1958 and is a citizen of the Education He graduated from the Middle East Technical Republic of Kazakhstan. He graduated from the University with a degree in economics and Kazakh State University (S.M. Kirov). He holds a management, the London School of Economics doctorate in physical and mathematical sciences with a Master of Science in Economic Development and is National Academician of Natural Sciences of Management (Department of Economics) and the Republic of Kazakhstan. from Harvard University with a Master in Public Administration.

Experience Mr. Ibrayev started his career in 1983 as a junior Experience Mr. Yussupov started his career as the deputy researcher at the Institute of Nuclear Physics director of the Marketing and Internal Audit at the Academy of Sciences of the Kazakh SSR. Department at Turkuaz Group. From 2003 to 2006, He then worked as a senior lecturer, associate he worked at Demir Kazakhstan Bank JSC and held professor and head of the Department of Optics and various positions at Samruk-Kazyna. In 2009–2010, Plasma-Physics at Kazakh State University (Al- Mr. Yussupov worked in public service, as a Deputy Farabi), latterly as Deputy Director of the Physics Director of the Investment Policy Department of Department. In 1996, Mr. Ibrayev passed IAEA the Ministry of Economy and Budget Planning of training at the Berlin Centre for Neutron Research the Republic of Kazakhstan. In 2010, he took up the (operating in the BER-2 reactor) and, in 1999, position of Director of the Department of Corporate he became a director at the Scientific Research Finance and Treasury for Kazatomprom. In 2015, Institute of Experimental Theoretical Physics Mr. Yussupov was appointed Chief Director of (SRI ETF). Since 2001, Mr. Ibrayev has headed up Economics and Finance at Kazatomprom. Kazatomprom’s Company Mining Group No. 6, as well as its MAEK-Kazatomprom LLP, Mining Company LLP, Ken Dala.kz LLP and DP Ortalyk LLP subsidiaries.

NAC Kazatomprom JSC | 117 4. Corporate Governance and Ethics

RIAZ EL HASAN SAYED RIZVI BIRZHAN DUISEMBEKOV Chief Strategy and Chief Business Marketing Officer Support Director (Chief Commercial Officer)

Year of birth 1972 Year of birth 1971

Citizenship Netherlands Citizenship Republic of Kazakhstan

Education He holds a Bachelor of Science degree in business Education In 1993, he graduated from the Lenin Kazakh administration from Kings College, an MBA and Polytechnic Institute in Almaty with a Bachelor’s Doctorandus in Business Administration from degree and mining engineer’s qualification in Nijenrode University. technology and the general mechanisation of underground development of mineral deposits. In 2006, Mr. Duisembekov graduated from the Atyrau Oil and Gas Institute with a degree in economics.

Experience Mr. Rizvi started his career as Country Director of Experience He began his career as a level 3 miner in the mine Uzbekistan in a multi-family office, then worked area of Almatymetrostroy Trust. Mr. Duisembekov as Country Director for the Republic of Georgia has held executive positions at Uzenmunaigaz and Project Officer for Bosnia and Herzegovina for JSC, Embamunaigaz JSC, KazMunaiGas EP JSC, the Independent Bureau for Humanitarian Issues. Kazyna Capital Management JSC, JV Kazgermunai From 1999 to 2001, Mr. Rizvi was Head of Coal LLP, AktauNefteService LLP, Offshore Oil Company Origination for Enron Europe Limited. From 2001 KazMunaiTeniz JSC, in Samruk-Kazyna JSC Group to 2004, we held the position of Head of Origination companies and in Kazakhstan second-tier banks. for American Electric Power and, from 2004 to Mr Duisembekov has worked for Kazatomprom 2009, he was Co-Head of the Constellation Energy since October 2017. Commodities Group. Between 2009 and 2016, Mr. Rizvi served as CEO and Founder of NuCap Limited. Since March 2017, he has been Chief Strategy and Marketing Director of Kazatomprom.

118 | Annual Report 2018 Member attendance at meetings of the Management Board of NAC Kazatomprom JSC

Member Attendance % at meetings (no.)

G.O. Pirmatov 28 76

B. Zh. Duisembekov 30 81

B.M. Ibrayev 34 92

M.A. Nietbayev 30 81

R. Rizvi 27 73

M.B. Yussupov 35 95

Membership during the reporting period BEKSULTAN BEKMURATOV Member Membership Chief Transformation during the reporting and IT Officer period 01.01.2018 — G.O. Pirmatov 31.12.2018 08.02.2018 — B. Zh. Duisembekov Year of birth 1986 31.12.2018 01.01.2018 — B.M. Ibrayev Citizenship Republic of Kazakhstan 31.12.2018 08.02.2018 — M.A. Nietbayev 31.12.2018 Education In 2009, he graduated in engineering from the 01.01.2018 — Russian State University of Oil and Gas. R. Rizvi 31.12.2018 01.01.2018 — M.B. Yussupov 31.12.2018

Experience From 2011 to 2013, Mr. Bekmuratov held the position of Health and Safety Adviser at Shell. According to the Regulations on From 2014 to 2018, Mr. Bekmuratov worked as the Management Board of NAC transformation project manager at Samruk- Kazatomprom JSC, approved by Kazyna. Since February 2018, Mr. Bekmuratov has been Chief Transformation and IT Officer at resolution of the Company’s Board of Kazatomprom. Directors No. 8/10 of 26 July 2010, the Management Board can make decisions in the following ways:

1 Voting in person (in presentia);

2 Absentee voting (in absentia); or

3 Combined voting.

NAC Kazatomprom JSC | 119 4. Corporate Governance and Ethics

ACTIVITY OF THE MANAGEMENT in accordance with (i) Article 21 of the General Meetings of Shareholders. BOARD IN 2018 Law of the Republic of Kazakhstan These included the activities of APPAK on the National Wealth Fund, dated 1 LLP, Semizbay-U LLP, Karatau LLP, JV During the reporting period, the February 2012, No. 550 IV, (ii) paragraph Akbastau JSC, Zarechnoye JV JSC, KATKO Management Board held 37 meetings, 1 of Article 71 of the Law of the Republic JV LLP, Inkai JV LLP, Kyzylkum LLP , at which 320 issues were considered. It of Kazakhstan, dated 13 May 2003, No. LLP JV Khorasan-U, LLP JV UGHK, LLP made and signed off on822 decisions 415-II, on joint stock companies, and Baiken-U, LLP S P Budenovskoye, JSC by way of 288 in-person and 534 (iii) Clause 3 of the rules for concluding UMZ, JSC IUEC, JSC ECC, JSC JV UKRTVS, absentee votes: transactions between organisations LLP Uranenergo, JSC Volkovgeology, belonging to Samruk-Kazyna Group, LLP SKZ-U, JSC Kaustik, LLP Trade and One hundred and twenty-two issues in respect of which the Law of the Transport Company, Kazatomprom- were submitted for consideration and Republic of Kazakhstan «On Joint- Damu LLP, Kyzyltu LLP and JV Betpak approval of the Board of Directors Stock Companies» establishes special Dala LLP. of NAC Kazatomprom JSC in 2018. conditions approved by the decision These included the approval of of the Board of Directors of Samruk- Fifty-two internal documents were internal and planning documents, Kazyna JSC on April 27 2009 №18; approved. These included the Company’s the conclusion of transactions in implementation plan and higher-level which the Company had an interest, Sixty transactions were considered, roadmap for 2018–2028 development decisions on the transfer of subsoil use as a result of which NAC Kazatomprom strategy; the Group’s corporate tax rights, the acquisition or divestment JSC divested and/or acquired property policy, tax control regulations and of shares in the authorised capital of with a value of less than 10% of the tax risk processes; the information other legal entities, the approval of total value of the Company’s assets. Its technology strategy for 2018–2028; an annual financial statements and the conclusions were made in accordance update of the business transformation distribution of dividends. They also with Clause 2 of Article 180 of the Law programme charter; data-management included Management Board reports of the Republic of Kazakhstan on State concepts; rules for candidate selection on risk management, production Property. for heads of executive bodies of safety, the execution of measures to subsidiaries and affiliates and the improve the corporate governance Seventy-four decisions were taken on creation of a committee for the system and the implementation matters relating to the competence of selection of candidates for heads of of large investment projects, the the General Meeting of Shareholders subsidiary and dependent companies; conclusion of interested-party (participants) of a legal entity, the instructions on the accounting of transactions (decisions on which were shares (shares in the authorised sulphuric acid for the preparation of taken by the Board). Further decisions capital) of which belonged to the reserves for uranium mining and the included approval of the business Company, where NAC Kazatomprom determination of a unified method plan implementation report and the JSC acted as the sole participant (DP for the accounting of sulphuric acid business plans itself, amendments to ORTALYK, Kazatomprom-SaUran LLP, for acidification; provisions for the the Company’s subsoil use contracts, Institute of High Technologies LLP, Investment Committee; and funding approval of key performance indicators Korgan-Kazatomprom LLP, RU-6 LLP, strategies for 2018-2028. for the Chairman and members of the Astana Solar LLP, Kazakhstan Solar Board for 2018 and approval of the Silicon LLP, MK KazSilicon LLP, LLP KAP One hundred and forty-two decisions organisational structure of the Central Technology, JSC TN KazakAtom AG, LLP were taken on various issues, including Office, total number of employees, etc. MAEK-Kazatomprom, JSC KAES and LLP an update of the limits on Group SARECO). balance-sheet and off-balance-sheet Decisions were taken on the conclusion obligations to second-tier banks and a of 110 transactions in which the Board decisions were made on 262 revised list of second-tier banks with Company had an interest, or in issues to determine the position of which deposits of free cash may be which the Company acted as a the Company as a shareholder in legal placed temporarily; approval of a list representative or intermediary of its entities in which NAC Kazatomprom of managerial successors; approval of affiliates. Decisions on the conclusion JSC was not sole shareholder for the Board’s workplan for 2018; and the of transactions in which Kazatomprom the purposes of subsequent voting appointment of the Investment and had an interest were taken by the Board by authorised representatives at Risk Management Committees.

120 | Annual Report 2018 Number of issues considered by the Management Board in 2017–2018

Indicator 2017 2018 Change

Number of in-person meetings 36 37 3%

Number of issues considered at meetings in person (including issues considered that were not on the 254 288 13% agenda) Number of issues considered at meetings in 582 534 –8% absentia

MANAGEMENT BOARD COMMITTEES

The following are Management Board Committees aimed at enhancing the effectiveness of resolutions made by the Management Board:

Risk Management Committee The Risk Management Committee is a key working body that considers and makes suggestions on the Company’s risk management. The main functions of the Risk Management Committee are as follows:

The consideration and The consideration and approval 1 5 preliminary approval of drafts of of the Company’s risk register, internal and other documents including consolidated action on Company risk management plans for risk minimisation, and (including policy and rules); risk map;

The coordination of the The consideration and approval 2 6 interaction between structural of key risk indicators; subdivisions in relation to risk management; The consideration and approval 7 of risk matrices and controls; The consideration and approval 3 of Company risk appetite and 8 The preparation of proposals level of risk tolerance; on the organisation and maintenance of an effective risk The review and approval of limits management system; 4 for banks and the list of second- tier banks for temporary deposit 9 The consideration and approval of free funds (if necessary); of risk owners on the basis of the risk register 102-18

NAC Kazatomprom JSC | 121 4. Corporate Governance and Ethics

Investment Committee Credit Committee Specialised Scientific and Technical The main purpose of the The main purpose of the Credit Council Investment Committee is to make Committee is to implement the The Specialised Scientific and Technical recommendations and suggestions Company’s credit policy in accordance Council (SSTC) is a key working body for to improve the efficiency of the with the requirements of Samruk- implementing the Company’s strategic investment activities of the Company, Kazyna JSC and to ensure the timely approach to scientific, technical and its subsidiaries and affiliates. and qualitative adoption of resolutions innovative development. The main functions of the Investment on issues associated with the The main functions of the SSTC are as Committee are as follows: Company’s granting of loans. follows: 1. The approval of internal regulatory The main functions of the Credit 1. The formation, updating and documents on investment activity; Committee are as follows: implementation of the strategic 2. To consider, implement and make 1. The consideration and preparation approach to Kazatomprom’s recommendations in accordance with of recommendations on loan scientific, technical and innovative established procedures: applications, including an analysis development; • on the investment initiatives of of expert estimates of the actual 2. The application of scientific the Company, its subsidiaries and and planned financial indicators on achievements and new technologies affiliates; which approval is based, and the for the benefit of Kazatomprom, its • on the acquisition or sale by the verification of mortgage security; subsidiaries and affiliates; Company or its subsidiaries and 2. The determination of the terms of 3. The consideration and agreement affiliates of shareholdings in the loans being granted, such as the of strategic plans for research and other legal entities, the merger of amount, term, purpose, interest rate, development and innovative work at subsidiaries and affiliates with third- security, repayment schedule for Kazatomprom, its subsidiaries and party legal entities, and the creation principal and interest, etc.; affiliates; of new legal entities for the purpose 3. The consideration and decisions 4. The updating and monitoring of the of implementing investment projects; on the scheduled and unscheduled research, development and design • on organic growth projects; monitoring of credit activities; work performed for Kazatomprom. • on M&A projects; 4. The consideration and preparation 102-18 • on creating working groups for of recommendations on decisions the implementation of investment related to loan restructuring and projects; and problem loans; • on other issues as required by 5. Other questions related to credit the company’s internal rules and activity of the Company. practices. 102-18 3. The issuance of recommendations on Company investment initiatives to be submitted for consideration to Samruk-Kazyna JSC. 102-18

122 | Annual Report 2018 4.6 4.7 • been a member of the administrative, Remuneration of Statement of managerial or supervisory bodies Directors and Responsibility of of any company or partner in any partnership at the time or Executives Members of in anticipation of the bankruptcy the Board of process, property management due to insolvency or liquidation; or In accordance with the Company’s Directors and the • been subject to official public charges charter, the remuneration of the Management Board or sanctions by a government members of the Board of Directors organisation or regulatory body is determined by the General (including a professional body) and Meeting of Shareholders, while the has never been deprived of the remuneration of the Chairman of the In accordance with the Company’s right, upon a court order, to act as Management Board and the members corporate governance code, the Board a member of the administrative, of Management Board is determined by of Directors and the Management Board management or supervisory bodies the Board of Directors. are responsible for the accuracy of the of a company or to participate in the In accordance with the law of the Company’s annual report and financial management of a company or doing Republic of Kazakhstan on joint statements. her business. stock companies, by decision of According to the disclosure and the Company’s General Meeting of transparency rules of the United Shareholders, independent members Kingdom Financial Supervision of the Board of Directors shall be Authority (Disclosure and Transparency 4.8 remunerated and reimbursed expenses Rules of the Handbook of the Financial related to the execution of their Conduct Authority), each member of Employment functions. the Board of Directors confirms, based Agreements of The Company approved its rules of on the information he has, that: remuneration, bonuses and benefits • The financial statements have been Senior Management for senior management on 28 June 2017 prepared in accordance with IFRS, and these set out the procedure and provide a true and reliable reflection terms of payment. of the assets, liabilities, financial The company enters into fixed-term Total remuneration for the condition, results of the financial and employment contracts with the Management Board members and economic activities of the Company Members of senior management for independent members of the Board of and consolidated balance of the a fixed term. Under such agreements, Directors of NAC Kazatomprom JSC in Company with its subsidiaries; members of the Company’s top 2018 totalled to KZT 932,197,628 (before • The management report includes management receive bonuses or other taxes). accurate data on the development forms of remuneration in addition to and indicators of financial and their regularly paid salary. economic activities and the financial Each member of senior management condition of the Company and its signs an individual employment contract, subsidiaries, as well as a description the terms and conditions of which must of the most important risks and fully comply with Kazakhstan legislation, uncertainties that they face. including the Labour Code. These As of the date of preparation of conditions usually include a five-day, this integrated report, none of the 40-hour week, an eight-hour working members of the Board of Directors or day, an annual vacation of 30 calendar the Management Board has, over the days, the Company’s insurance against past five years: life and health hazards arising from the • had a criminal record for offenses performance of its duties, and medical related to fraud; insurance.

NAC Kazatomprom JSC | 123 4. Corporate Governance and Ethics

4.9 4.10 4.11 Conflicts of Internal Audit Organisational Interest System Structure of the Company’s The Code of Ethics and Compliance of The Company has an Internal Corporate Centre the Company, approved by a decision Audit Service, the independence of of the Board of Directors, defines the which is ensured by its functional grounds for the occurrence of conflicts subordination to the Board of Directors. The Company comprises a Corporate of interest, as well as procedures Functional subordination includes Centre with a clear functional structure. for their prevention. The Company’s the appointment of Internal Audit As part of its transformation programme, regulations on the resolution of Service employees, the determination the Company plans to take a process corporate conflicts and conflicts of of remuneration, approval of policies/ management approach to its main interest were approved by the Board procedures for internal audit, the activities in the future. of Directors on 10 March 2011. There annual audit plan and financial budget. KAP3 are no actual or potential conflicts of The Internal Audit Service assesses interest between the obligations of the and contributes to the improvement The organisational structure was formed Members of the Board of Directors or of the corporate governance, risk by taking into account the target business the Management Board prior to joining management and control processes processes necessary to implement the the Company and the private interests of the Group organisations using a strategic goals and objectives of the or other duties of the Members. systematic, consistent and risk-oriented Group in all key areas of its activities. The The Code of Ethics and Compliance approach. best practices of comparable companies expressly prohibits the participation of It applies International Internal Audit of in the global uranium and nuclear members of the Board of Directors, the Standards in its activities and complies industries were used, as were the Management Board, as well as other with the Code of Ethics for Internal legislative requirements of the Republic employees of the Company in actions Auditors. of Kazakhstan and the requirements of that may lead to a conflict of interest. In 2018, Internal Audit Service did not shareholders. A similar practice is being introduced in encounter any cases of obstruction of the subsidiaries of the Company. audit or interference with the activities The Company is taking measures to of the Internal Audit Service by the raise the awareness of members of the Company’s executive body. Board of Directors, the Management All employees of the Internal Audit Board, and other employees about Service confirm annually their the Company’s policy for preventing independence from the audited entities conflicts of interest, including training, included in the annual audit plan explanatory activities, and periodic approved by the Board of Directors. testing of knowledge of the principles Service performance results are of ethics. regularly discussed and evaluated by The company requires its suppliers the Audit Committee. to join the Kazatomprom Code of Suppliers and Contractors, which includes provisions for the prevention of conflicts of interest. An additional tool to minimize the risk of conflict of interest is the Anti-Corruption Clause, which is included in the Company’s procurement contracts.

124 | Annual Report 2018 4.12 requirements of legislation, for members of the Management the Company charter, listing Board and in January of 2019 for Corporate requirements, and the terms the departments most prone to the Ethics of international treaties and to compliance risks. establishing sanctions for their The Company has a Regulation on violation; the settlement of corporate conflicts • Ensure occupational safety and and conflicts of interest, approved by The Company recognises that respect the environment; a decision of the Board of Directors, transparent business, including • Raising the awareness of personnel which determines the causes of combating corruption, is a necessary about the importance of compliance corporate conflicts, conflicts of factor in dealing with stakeholders and with the requirements of the interests, procedures to prevent them, building trustful internal corporate law, encouraging employees to and also regulates the activities of the relationships. Thus, the social and report incidents of violation of Company’s bodies as part of conflict economic environment in which the the Company’s policies, rules and resolution activities. Company operates is improved by procedures; The company controls the circulation increasing the reliability and integrity • Demonstrating that the level of and use of insider information, notifies of transactions, preventing corruption remuneration of Company employees stock exchanges of transactions made and providing reliable information for corresponds to the work performed by insiders, helps to prevent insider decision-making by stakeholders. and the level of qualification; transactions. All employees of the Company are • Fulfilling in a timely manner its The company has a “hotline” for made familiar with the Code of Ethics contractual obligations, including reporting ethics violations. The and Compliance as a part of the hiring the payment of taxes and other “hot line” is administered by an process, as well as any amendments payments to the state budget; external supplier, which ensures the to the Code. To confirm their • Observing the principles of independence of accepting appeals for familiarisation with the Code, every fair competition and using the consideration, and enables confidential employee signs a familiarisation form. criteria of ethical equality in the information, including anonymity of 102-16 implementation of procurement the appeal. The Company’s actions policies and the conclusion of aimed at preventing and suppressing Periodic testing of personnel is carried contracts, including compliance audit violations of the laws of the Republic of out to check their understanding of the of counterparties; and Kazakhstan or the Company’s internal provisions of the Code of Ethics and • Ensuring transparency, openness and regulatory documents are governed by Compliance. objectivity of decisions. a number of documents, the main of The Company is committed to high 102-16 which is the Confidential Information standards and principles of corporate Policy. ethics provided for by the Code of During 2018 the company appointed During 2018, 24 requests received via Ethics and Compliance and commits to: Birzhan Duisembekov, a Management the hotline were considered. • Using and improving policies and Board member, responsible for internal The Company has an Anti-Corruption practices that help to prevent communication of the approved and Fraud Policy that defines the bribery, extortion and the facilitation ethics principles. The Code of Ethics main activities of the Company and of remuneration and other corrupt and Compliance approved by Board the general rules of conduct for anti- practices, including the imposition of Direcors’ resolution # 8/18 of corruption officials and employees. of anti-corruption obligations on 29.06.2018 is available on the corporate Each employee signs an obligation suppliers; website. Furthermore, the information to comply with the rules of anti- • Counteracting the legalisation of regarding the ethics principles has corruption legislation. illegally gained income; been circulated by management to all 102-16 • Prevent conflicts of interest, emplyees of the Group by e-mail. The including situations of joint Code of Ethics and Compliance has also In the event of labour disputes and employment of spouses and close been communicated to the subsidiaries conflicts, certain issues are resolved in relatives; and affiliates in which Kazatomprom accordance with the labour legislation. • Prevent discrimination and other owns 50% or more of the share capital. Mediation is also used to resolve labour manifestations of ethical violations; Trainings on compliance were disputes. • Ensuring compliance with the conducted in December of 2018

NAC Kazatomprom JSC | 125 4. Corporate Governance and Ethics

OFFICE OF THE OMBUDSMAN Symkent City Executive Committee, various aspects of risk management, head of the Dzerzhinsk regional it considers internal control to be Since 2011, the Board of Directors has administration of the city of Shymkent, an essential component of risk appointed a Company’s Ombudsman. the district administration of the management in any enterprise. In accordance with the Code of the rayon administration, akim of the Ombudsman, the basic functions of the city of Chimkent, akim of the South • Standard ISO 31000:2018 risk Ombudsman include: Kazakhstan region, a vice-president management – principles and • Providing and coordinating of NAC Kazatomprom JSC, deputy of guidelines (2018) explanations to officials and the Senate Parliament of the Republic A guide that defines the principles employees of the Company on of Kazakhstan and as Advisor to the and approaches to the risk- issues related to the requirements Chairman Board of NAC Kazatomprom, management process. The standard of the Code of Corporate Ethics and JSC. establishes the fundamental Compliance; principles and processes of risk • Consulting with officials and management that apply to any type employees on the provisions of the of organisation in the private or Code of Corporate Ethics; 4.13 public sector. • Collecting information on non- compliance with the provisions of the Risk Management • Standard ISO 9001:2008 and ISO Code of Corporate Ethics, initiating and Internal 9001:2015 quality management procedures to consider disputes system over the violation of the provisions Control Standards that define approaches of the Code of Corporate Ethics and to quality management, including a participating in their settlement. process approach to managing risks One of the duties of the Ombudsman is In 2010, the Company introduced that affect product quality. to submit to the Board of Directors an a risk management system based annual report on compliance with the on global best practices and the • Regulatory documents on risk requirements of the Code of Corporate requirements of Samruk-Kazyna JSC. management and internal control Ethics. 102-11 of Samruk-Kazyna, JSC. In 2018, the Ombudsman investigated 17 complaints in relation to social The company is guided by the and labour disputes and unethical following international standards RISK MANAGEMENT behaviour. and practices in the field of risk On 8 February 2018, Bolat Abzhaparuly management and internal control. The Company’s activities involve various Zhylkyshiev, was appointed 102-12 risks and, therefore, an effective risk- asOmbudsman of the Company by management system is a fundamental decision of the Board of Directors of • COSO internal control integrated element of the Company’s business NAC Kazatomprom JSC (No. 1/18). model (2013) and its development strategy. Accurate Mr Zhylkyshiev graduated from A revised version of the 1992 and timely identification, assessment, the Kazakh Institute of Chemical document, COSO 2013 states that monitoring and response to risks allow Technology with a degree in the internal control is a process that an effective decision-making process at Organisation and Planning of Building depends on people at all levels of all levels of management and ensure Materials, specialising in mechanical the organisation (not just senior the achievement of the Company’s engineering and construction materials. management) and should be aimed strategic goals and key performance He began his career as master of a brick at achieving the Company’s business indicators. factory, later becoming chief mechanic goals. The Risk management Department at Promstroimaterialy Trust, Shymkent. is responsible for the Company’s risk He has subsequently worked as an • COSO enterprise risk management management. Key risk-management instructor for the Dzerzhinsky District integrated model (2004, amended in issues are first reviewed, approved Party Committee, as Secretary of the 2017) (includes an integrated model or agreed by the Risk Management Party Bureau of the Shymkent oils and and applied methods) Committee, under the supervision fats factory, as Deputy Chairman of the A conceptual model that focuses on of the Management Board. Separate

126 | Annual Report 2018 Structure of corporate risk management system structural units responsible for the organisation of risk management have been formed, or risk managers have been appointed in the Company’s SHAREHOLDERS subsidiaries and affiliates. Detailed information on the structure, participants and responsibilities of SAMRUK-KAZYNA, JSC members of the risk-management FREE FLOAT – 14.92% system is provided in the Company’s 85.08% SHARES risk management policy, which can be found on the corporate website. Kazatomprom’s risk culture is created through the involvement of all key departments and stakeholders, as well as the effective exchange of information in the risk-management process INTERNAL AUDIT BOARD OF SECRETARY between the Board of Directors, the SERVICE DIRECTORS Management Board and the Company’s divisions. Corporate training in risk management and internal control is organised for heads of department and other employees with risk responsibility, AUDIT Compliance in addition to an annual round-table COMMITTEE Service discussion with employees responsible for enterprise risk management.

Risk management committee MANAGEMENT BOARD

Structural RISK-OFFICER division 1

Structural division 2

Structural division responsible for risk management activity

Structural division N

NAC Kazatomprom JSC | 127 4. Corporate Governance and Ethics

MAIN RISKS AND OPTIMISATION According to the Company risk register for 2018, there were 27 risks: MEASURES

All identified risks are divided into 5 risks five main categories, in line with the in the red zone methodology of the COSO enterprise 6 risks risk management integrated model: in the orange zone strategic, financial, operational, investment and legal. 9 risks in the yellow zone The Company approves risk registers and maps of subsidiaries and affiliates 7 risks on an annual basis. Kazatomprom’s risk in the green zone map is divided into zones of influence and likelihood. Main risk map of the Company as of 31 December 2018, based on the results of residual risk assessment

5

О-1, О-7 4 O-4 0-8, I-5

3 F-2 IMPACKT

2 C-2 O-6

1

1 2 3 4 5

PROBABILITY

128 | Annual Report 2018 Primary risks and risk management measures

Risk Name Activities

С-2 Unauthorised strikes by • Interaction with local executive bodies employees and demonstrations by • Monitoring of compliance with labour legislation the local population at subsidiary • Provision of awareness-rising for the population through mass media, press conferences, public and affiliate locations hearings • Monitoring of compliance with the corporate action plan for providing production staff with decent social and working conditions

О-1 Sales-price reduction for uranium • Monitoring of the global uranium market • Contracts with the THK trading company for purchase of uranium products • Creating a supply-demand model adapted to market conditions

О-4 Lack of implementation of the • Uranium market research uranium production sales plan • Long-term, short-term and medium-term contracts on finished production merchandising (including the THK trading company) • Careful selection of contractors, analysing and negotiating terms of contracts • Monitoring of execution of contract terms by contractors.

О-6 Delayed implementation • Identification and registration of project risks and development of preventative measures for of planned operational transformation programme projects transformation measures • Monitoring of the implementation of the transformation programme

О-7 Occupational injuries • Meetings on development of the measures to prevent the recurrence of accidents • Scheduled inspections of entities for compliance with the provisions of legislative and normative acts on labour protection, industrial safety • Recording of potentially dangerous situations, analysis of root causes of accidents • Implementation of a “behavioural audit” process in Company’s entities

О-8 Lack of implementation of the • Actively work with shareholders of reorganised enterprises (t a road map, attracting consultants Company’s asset restructuring to conduct financial, economic, legal analysis, identify risks; developing reorganisation models, plan risk-reduction measures; creating and participating in working groups, conducting periodic online meetings etc.)

F-2 Credit risk in relation to • Moving funds to financially reliable banks of the Republic of Kazakhstan; counterparty banks • Redistribution of bank limits for Company enterprises • Control over the temporary placement of monetary resources in the most financially reliable banks of the Republic of Kazakhstan

I-5 Negative impact of deviations • Monitoring of compliance with consolidated investment from investing activities • Control over the timing of contracts performance and project implementation plans • Monitoring the implementation of the projects controlled by the Company (medium-sized and major projects)

The Company conducts activities aimed production, financial, administrative Practices have been implemented at preventing risks and reducing the and operational indicators. for analysing and assessing the risks consequences of risks. Reports are Steps have been taken to limit involved in investment projects, issued regularly on the implementation risks. The level of risk appetite is as well as other issues brought to of preventive measures associated with determined annually and approved management’s attention. the risk register. by the Board of Directors to control Every quarter, the Risk-management Key risk indicators are identified for exposure to potential negative financial Department reports to the Management the weekly monitoring of primary consequences and possible reduction Board and the Board of Directors on risks risks. The Company’s ‘Situation in the Company’s enterprise value. that have occurred, the preventative Centre’ information system plays a Tolerance levels are defined for all risks and reactive measures undertaken to significant role in this regard, allowing and limits are placed on second-tier minimise risk, on projected risks and on management to see the status of all banks. the status of financial risks.

NAC Kazatomprom JSC | 129 4. Corporate Governance and Ethics

INTERNAL CONTROL QUALITY MANAGEMENT residents for tax purposes; (2) are SYSTEM SYSTEM not residents for tax purposes in any other jurisdiction; and (3) do not have The organisation of the Company’s To improve production efficiency, a permanent establishment in the internal control system includes the competitiveness and export potential, Republic of Kazakhstan with which development of a management system as well as the quality of its products the ownership of shares or GDRs is capable of reacting promptly to process and services, Kazatomprom regulates related (Holders from the UK). In risks, controlling both main and the activities of its subsidiaries and addition, this review (1) only considers supplementary processes, as well as affiliates with regard to standardisation, tax implications for Holders from everyday operations. metrology and quality compliance the United Kingdom who own shares The Company’s internal controls are (management of testing laboratories). and GDRs as fixed capital, and do not aimed at preventing risks in three key Quality control of finished products consider tax implications that may be areas of activity: the preparation of is carried out by testing laboratories relevant to certain other categories financial and management reports, certified in accordance with ST RK ISO/ of Holders from the United Kingdom, compliance with the requirements of IEC 17025. The quality management such as dealers; (2) it is assumed that legislation and internal regulations, of the products is based on the the UK holder does not directly or and improvements in the effectiveness regulatory and technical support for indirectly control 10 percent or more of processes within the Company’s the production of each enterprise. of the company’s voting shares; (3) it operating activities. In Kazatomprom’s subsidiaries and is assumed that the holder of the GDR Kazatomprom’s internal control system affiliates, quality management systems has a beneficial right to basic shares is designed according to the COSO have been introduced in line the ISO and dividends on such shares; and internal control integrated model 9000 series of international standards. (4) does not consider tax implications and consists of five interdependent 102-12 for UK Holders, which are insurance components: companies, investment companies, • Control environment; Kazatomprom applies a corporate charities, or retirement funds. This • Risk assessment; standardisation system. Currently, there review is a general guide, and it is not • Control procedures; are over 60 developed and approved intended and should not be considered • Information and its transfer; and corporate standards, which include by specific Holders from the UK as • Monitoring. subsystems and sets of business legal and tax advice. Accordingly, The guidelines for Kazatomprom’s standards. investors should consult with their tax internal control system are posted on advisors on the overall tax implications, the Company’s website. including the implications of acquiring, Within the internal control system owning and disposing of shares or framework, the Company carries out 4.14 GDRs in accordance with UK law and the following activities on a regular the practice of the UK Government’s basis: Information on tax and customs fees in their particular • Operational efficiency testing of taxation in the case. control procedures for the business processes of the Company’s structural United Kingdom Income Tax From The Source Of divisions; Payment • Diagnostics of the development This review is based on UK Assuming that income from the GDR of the internal control system in legislation and the practices of the does not have a source in the UK, such subsidiaries and affiliates through UK Government’s tax and customs income should not be taxed at the self-assessment by subsidiaries and administrations as of the date of this source of payment to the UK. Payment affiliates, as well as through visits to document, each of which may vary, of dividends on shares will not be taxed subsidiaries and affiliates. possibly taking retroactive effect. at the UK source of payment. Unless otherwise indicated, this review concerns only some of the effects Taxation Of Dividends of UK taxation on persons who are A holder from the UK receiving a the absolute beneficial owners of dividend on shares or GDRs may be shares or GDRs and who (1) are UK required to pay UK income or corporate

130 | Annual Report 2018 tax (depending on the case) on the from the alienation of a share in shares Even if a document formalizing a gross amount of the dividend paid or GDRs, is transferred or deemed to transaction or containing an agreement before deducting Kazakhstan taxes be transferred to the UK. In particular, on the transfer of one or more shares at the source of payment, taking into transactions with GDRs on the London or GDRs, (i) is signed in the UK and/ account the existence of any amount Stock Exchange may lead to a transfer or (ii) concerns any property located in Kazakhstan tax at the source of profits, which, accordingly, will be in the UK, or an action committed of payment. A UK holder who is a subject to UK capital gains tax. An or committed in the UK, then in resident individual in the UK will pay individual is a holder of shares or GDRs practice there should be no need to UK income tax on a dividend paid on who ceases to be a resident or does pay stamp duty on the declared value shares or GDRs, which is subject to not reside in the UK for tax purposes of such a document in the UK, if such actual exemption from taxation on the for less than five years and alienates a document is not required for any first GBP 5,000 of all dividends (“zero such shares or GDRs for such a period. purpose in the UK. If the need arises to dividend rate”) received for the relevant despite the fact that during the pay stamp duty on the declared value tax year, including dividends received alienation he was not a resident and in the UK, then it may be necessary from any other investment in shares did not live in the UK. A UK holder who to pay interest and penalties. Since for the same tax year. A UK holder is a is a legal entity will pay a UK corporate GDRs refer to securities whose value resident individual who is not resident tax on any taxable income from the sale is not expressed in pounds sterling, in the UK and is entitled to and select of shares or GDRs. the stamp duty on the “document to UK taxation based on the transfer of bearer” should not be paid either for funds (and, where necessary, paying Action Of Kazakhstan Taxes At The the issue of GDRs or for the transfer of the transfer fee), will pay UK income Source Of Payment securities that are transferred through tax on the dividend paid on shares or Payment of dividends on shares and GDRs. Assuming that shares (i) are not GDRs, to the extent that the dividend is GDRs is subject to Kazakhstani tax at registered in the registry located in the transferred or deemed to be transferred the source of payment. A holder from UK, or (ii) are not combined with shares to the UK. A holder from the UK who is the UK, a resident individual, should issued by a UK-registered company, a UK resident company for tax purposes have the right to offset Kazakhstani tax the share transfer agreement or GDRs should not be subject to corporate tax withheld from such payments at the should not be subject to EGOS. on dividends paid on shares or GDRs, source of payment against UK income except in cases where certain rules tax, in accordance with the procedure against tax evasion apply to him. for calculating the amount of offset in the UK. UK shareholders, who are UK Taxation Upon Alienation resident companies, usually do not pay Or Deemed Alienation corporate tax on dividends paid and will, Disposal of UK Holder’s shares in stocks thus, usually not be able to require it to or GDRs may result in taxable income be deducted from any Kazakhstani taxes or allowable deduction for taxation of at the source. taxable income in the UK, depending on the position of the Holder from the Stamp Duties And Stamp Duties UK and subject to tax exemption. A Equivalent Tax (SDET) holder from the United Kingdom who Assuming that the document is a resident individual and resides in formalizing the transaction or the United Kingdom will be required containing an agreement on the to pay a UK capital gains tax on taxable transfer of one or more shares or income when disposing of a share in GDRs (i) has not been signed in the UK shares or GDRs. A holder from the UK or (ii) does not concern any property who is a non-UK resident individual located in the UK or an act committed who is eligible for and selects taxation or committed in the UK (which may in the UK based on a transfer of funds include participation in payments (and, where necessary, paying a transfer to bank accounts in the UK), such a fee) will pay UK capital gains tax to the document should not be subject to extent, in which taxable income derived stamp duty on the declared value.

NAC Kazatomprom JSC | 131 4. Corporate Governance and Ethics

4.15 Before the Auditor is engaged by the Company to provide services that may External Audit affect the independence of the Auditor, prior approval of the Audit Committee 542,080 For 2017-2019, the external auditor is required. For any such potential KZT million of NAC Kazatomprom JSC is services, the Audit firm is required to PricewaterhouseCoopers LLP. Based provide to NAC Kazatomprom JSC its the amount of payment on the decision of the Board of rationale explaining why obtaining for audit services of Samruk-Kazyna NWF JSC, dated 12 an approval will not jeopardize the PricewaterhouseCoopers LLP May 2017, NAC Kazatomprom, JSC and independence of the Auditor. In PricewaterhouseCoopers LLP entered accordance with the Company’s Policy into a contract on the procurement of in the area of engagement of audit audit services for the audit of financial firms, the total fees for non-audit statements under IFRS for 2017, 2018 services provided to the Group is and 2019. PricewaterhouseCoopers LLP limited to no more than 70% of the also served as auditor of the company average of the fees paid for the last during the period 2014–2016. three consecutive financial years for On 19 February 2019 a meeting of the audit services to the Group. Decisions Board of Directors of the Company was taken by the Audit Committee on non- held, which approved the Policy of NAC audit services provided by audit firm, Kazatomprom JSC on engagement of hereof shall be submitted to the Board audit firms. The updated Policy has of Directors of NAC Kazatomprom JSC been amended in terms of the rotation for information. of the lead audit partner, providing The non-audit services received from that, subject to Audit Committee the Auditor may entail a threat of approval, after five consecutive years conflict of interest where the actual the lead audit partner may serve for or perceived loss of independence of an additional two years (that person the Auditor can only be reduced to may serve no more than seven years an acceptable level by the Company’s in total). In the case of such a decision, refusal to receive such services from an the NAC Kazatomprom JSC will disclose audit firm or the Company’s refusal to this fact to Shareholders in its relevant receive the services of an audit firm for public releases together with the the audit of its financial statements. reasons. For details on full circumstances for The amount of payment for audit non-audit services, see clause 9.4 of services of PricewaterhouseCoopers Policy on engagement of audit firms. LLP under the above contract is KZT https://kazatomprom.kz/en/page/ 542,080,000 (five hundred forty two dokumenti million eighty thousand), including VAT. In accordance with contract No. 664/ NAK-17, dated 3 October 2017, during October 2017, PricewaterhouseCoopers LLP provided services in relation to conducting a performance management (CIMA P1) seminar for employees of NAC Kazatomprom JSC for a total of KZT 830,480 (eight hundred thirty thousand four hundred eighty), including VAT.

132 | Annual Report 2018 5 ABOUT THIS REPORT

102-50, 102-51

102-52, 102-54

Eighth Integrated Annual Report of NAC Kazatomprom JSC since 20111.

Includes data for the period between 1 January 2018 and 31 December 2018, inclusive, as well as previous periods and forecasts in order to reflect the dynamic of change in the indicators.

Discloses basic data in accordance with the laws of the Republic of Kazakhstan, internal requirements and regulations of the Company and international practices of corporate governance.

Prepared in accordance with the “basic” application of the GRI Sustainability Reporting Standards.

1 The 2017 integrated report of Kazatomprom was not made public due to LSE restrictions on disclosure during the Company’s IPO in 2018. The integrated report of Kazatomprom for 2016 was published in August 2017.

102-51

NAC Kazatomprom JSC | 133 5. About this Report

5.1 Principles for Defining Report Content and Subject

Limitations 102-46

When drawing up this Report, the (where applicable) and indicated the No paraphrases or other wordings Company was guided by the following reporting period. The Report includes different to the wordings used in principles for defining the Report’s financial and non-financial data on previous reports are present in this content, as recommended by GRI all subsidiaries and affiliates of the Report. Standards (Global Reporting Initiative): Company. 102-48 102-45 • Interaction with stakeholders Stakeholders’ opinions served as a Financial indicators have been basis for defining essential subjects expressed in the national currency to be disclosed in the Report. of the Republic of Kazakhstan, Detailed information is provided KZT (tenge), and correspond to later in this section. the audited consolidated financial statements (in accordance with IFRS • Sustainability context standards), a full version of which This Report discloses the Company’s is provided in Appendix and on activities in the broad context Kazatomprom’s website. of development and impact on 102-7 society. Issues of the Company’s economic, environmental and The Report reflects financial social responsibility are considered and non-financial activities of in detail. The Report is in line Kazatomprom that are connected with a ‘basic’ application of GRI with projects both in its country Sustainability Reporting Standards. of residence, the Republic of Kazakhstan, and abroad. • Materiality Non-financial indicators are mainly In this Report, the Company discloses disclosed with respect to the information on subjects that have a subsidiaries and affiliates in which significant influence on stakeholders the Company’s interest is 50% or and which significantly impact more. economies, environment and society. 102-45 The list of essential subjects and procedures for their definition are The following principles “Interaction provided later in this section. with Stakeholders” and “Materiality” were used mainly at the stage of • Completeness determining the content of the report The Company has made every and its structure. The principles effort to fully disclose information of the “Sustainability Context” and on the results of its activities, to “Completeness” were applied at the reflect clearly Boundary of topics stage of collecting data on relevant of the Report and separate subjects topics and presenting information.

134 | Annual Report 2018 5.2 Essential Subjects

The Company has analysed all of powder, production of nuclear fuel 305 Emissions the subjects proposed by the GRI components, uranium reconversion 306 Effluents and waste

Sustainability Reporting Standards as well as access to enrichment. 307 Environmental compliance and also the industry sector In addition, the Group is currently 308 Supplier environmental assessment recommendations (Sector Disclosure building a nuclear fuel plant — fuel Guidelines for Mining and Metals assemblies used by nuclear power Social

Sectors GRI). Opinions of stakeholders plants. 401 Employment have also been analysed and expert 402 Labour/management relations appraisals of the Company’s economic, • КАP 2: Global uranium markets environmental and social impact have The key factor affecting the financial 403 Occupational health and safety been taken into consideration. results of the Group is the uranium 404 Training and education In 2017, representatives of the Company products sales price. The indicator 405 Diversity and equal opportunities and its key stakeholders were asked reveals the main trends in the to evaluate both GRI topics and uranium market. 406 Non-discrimination Company-specific topics for materiality. 407 Freedom of association and collective According to the results of the survey, a • КАP 3: Business transformation bargaining materiality matrix was compiled. When This indicator describes activities 408 Child labour developing the concept of the Report within the Company’s Transformation 409 Forced or compulsory labour for 2018, the matrix was updated by Programme. 410 Security practices the Company’s working group for the preparation of this Integrated Report. • КАP 4: Development of mineral 411 Rights of indigenous peoples Materiality has been defined according resources base 412 Human rights assessment to a subject’s influence on stakeholders The indicator reveals the growth 413 Local communities and the Company’s economic, of mineral reserves, reflecting the 414 Supplier social assessment environmental or social impact within results of the survey works. this subject. 415 Public policy

102-46 The full list of the subjects considered, 416 Customer health and safety as well as selected essential subjects, is 417 Marketing and labelling In addition to the subjects proposed as follows: by the GRI Sustainability Reporting 418 Customer privacy Standards, the Company has included Economic 419 Socioeconomic compliance additional subjects that required 201 Economic performance mandatory disclosure, regardless of KAP 202 Market presence stakeholder opinion. Such subjects and 52. Place in the nuclear fuel cycle (NFC) 203 Indirect economic impacts indicators are indicated as KAP1, KAP2, 53. Global uranium markets KAP3 and KAP4 in this Report. 204 Procurement practices 54. Business transformation 205 Anti-corruption Indicators Additionally Provided 55. Development of raw material base by the Company: 206 Anti-competitive behaviour

• КАP 1: Place in the Nuclear Fuel Cycle Environmental Description of the Group’s 301 Materials participation in the stages of the nuclear fuel cycle. These steps 302 Energy include the production of uranium 303 Water

and uranium treatment to dioxide 304 Biodiversity

NAC Kazatomprom JSC | 135 5. About this Report

Selected essential subjects Results related to the definition of materiality of subjects are presented in 5.0 the diagram below: 52 202 201 102-47 306 All of the essential subjects listed are 4.0 53 important for the Company (within 403 the organisation) and for stakeholders 204 54 404 (outside the organisation). Impacts of 305 the reporting entity are provided in this 405 203 3.0 401 307 55 report. 302 303 103-1

The list of stakeholders and the means of interaction with them are presented 2.0 in a separate section of this Report. COMPANY IMPACT MATERIALITY IMPACT COMPANY

1.0

0 1.0 2.0 4.0 4.0 5.0

IMPACT ON STAKEHOLDERS

Economic Environmental Social KAP Additional topics/indicators disclosed by the company 201 Economic performance 302 Energy 401 Employment 52 Place in the nuclear fuel cycle (NFC)

202 Market presence 303 Water 403 Occupational health and 53 Global uranium markets safety

203 Indirect economic impacts 305 Emissions 404 Training and education 54 Business transformation

204 Procurement practices 306 Effluents and waste 405 Diversity and equal 55 Development of raw opportunities material base

307 Environmental compliance

136 | Annual Report 2018 5.3 5.4 Standards External and Guidelines Verification

This Report discloses basic data in Kazatomprom has engaged a third accordance with the laws of the party on a competitive basis to Republic of Kazakhstan, the Company’s confirm the compliance of information internal regulations and practices, and presented in this Report with GRI international practices of corporate Standards. The Company cooperates governance. When drawing up the with the organisation that verifies the Report we considered the following: Report on a contractual basis. External • Law of the Republic of Kazakhstan conclusions with respect to information No.415-II, dated 13 May 2003, on joint on sustainable development for stock companies; compliance with the requirements of • Rules for the publication of a GRI Standards are given in the Annex depositary of financial statements, to this Report. Prior to publication, the stock-market information on Report is to be approved by the Board corporate events, financial of Directors of NAC Kazatomprom JSC. statements and audit reports, lists 102-56 of affiliated persons of joint stock companies, as well as information on the total amount of remuneration of the members of executive bodies at year end on Internet resources, as approved by Decree of the Management of the National Bank of the Republic of Kazakhstan No.26, dated 28 January 2016; • GRI Sustainability Reporting Standards; • Information Disclosure Rules of Joint-Stock Company National Atomic Company Kazatomprom (approved by decision of the Management Board No. 155, dated 26 May 2016); • Corporate Governance Code of Sovereign Wealth Fund Samruk- Kazyna Joint Stock Company, as approved by the Resolution of the Government of the Republic of Kazakhstan No.1403, dated 5 November 2012, as amended by the Decree of the Government of the Republic of Kazakhstan No.239, dated 15 April 2015.

NAC Kazatomprom JSC | 137 5. About this Report

Conclusion on the results of an independent assurance of 2018 public integrated annual report of National Atomic Company Kazatomprom JSC

Nexia Pacioli Limited Liability Company (Nexia Pacioli LLC) TIN 7729142599; KPP 770601001; OGRN 1027739428716 Tel.: +7 (495) 640-64-52; E-mail: [email protected]; www.pacioli.ru 2 Malaya Polyanka str., Moscow, 119180, Russia

The conclusion beneficiaries

Management of the National Atomic Company Kazatomprom JSC.

Audit subject

Information of 2018 public integrated annual report of National Atomic Company Kazatomprom JSC in Russian (hereinafter – the Report).

Criteria

The requirements of the Global Reporting Initiative Sustainability Reporting Standards (GRI Standards) to the “Baseline” application.

Management responsibility

The Company’s management is responsible for preparing and presenting the public integrated annual report in compliance with all related procedures and requirements, and specifically the requirements to internal control system. This responsibility includes the organization and support of internal control system, which the management considers necessary to prepare the Report, by ensuring the absence of material misstatements due to frauds or errors. This responsibility also includes the selection and application of relevant legal requirements, as well as development of internal documents, KPIs and appropriate measure methods used for the purposes of the Report preparation.

Auditor’s responsibility

We have performed the audit in accordance with the International Standard on Assurance Engagements 3000 (Revised) “Assurance Engagements Other than Audits or Reviews of Historical Financial Information” as approved by the Order of the Minister of Finance of Russia No.2n dated 09.01.2019 (ISAE 3000). Our responsibility comprises obtaining sufficient and appropriate evidence in order to form a limited assurance conclusion that the Report does not contain material misstatements due to frauds or errors. As part of the limited audit, in order to form a conclusion, the auditor shall reduce the applicable risk to an acceptably low level given the circumstances in place.

138 | Annual Report 2018 Within our engagement performed in accordance with IASA 3000, we apply professional judgment and maintain professional skepticism throughout the entire audit process. In addition, we perform the following procedures: • identify and evaluate the risks of the Report material misstatement due to frauds or errors; elaborate and implement the procedures in response to such risks; obtain evidence that is sufficient and appropriate to serve as the basis for our conclusion formation. The risk of non-detecting material misstatement due to frauds is higher that the risk of non-detecting material misstatement due to errors, since the frauds may include collusion, forgery, intentional omission, misrepresentation of information, or actions to avoid internal control system; • obtain understanding of internal control system that is relevant to engagement in order to elaborate the procedures appropriate to the circumstances, rather than to form the conclusion on the customer’s internal control system; • assess the appropriateness of applied policies, internal documents and calculation methodologies, the reasonability of assessments and corresponding disclosures prepared by the management. We communicate with the personnel responsible for the corporate governance, by informing them of, inter alia, the planned scope and deadlines of engagement and significant remarks on the engagement results.

Assurance standards and level

The assurance is performed in accordance with the International Standard on Assurance Engagements ISAE 3000 (revised) “Assurance Engagements other than Audits or Reviews of Historical Financial Information” (ISAE 3000). The engagement provides limited assurance regarding the 2018 public integrated annual report of National Atomic Company Kazatomprom JSC.

Methodology

We have undertaken the following actions in assurance process: • selective interviewing of the National Atomic Company Kazatomprom JSC top management, as well as specialists involved in the preparation of the public integrated annual report of National Atomic Company Kazatomprom JSC; • analysis of documentation, including internal regulatory documents related to the economic, social and environmental areas of corporate social responsibility and sustainable development; • sampling verification of documents, data and processes used to prepare the public integrated annual report; • examination of the information on the National Atomic Company Kazatomprom JSC activities, including in the field of sustainable development, posted on the website www.kazatomprom.kz; • selective examination of mass media information about the National Atomic Company Kazatomprom JSC; • assessment of compliance with GRI 101 (2016) standard in terms of requirements to the principles of determining the report content and ensuring its quality; • assessment of compliance with GRI 103 (2016) standard in terms of requirements to management approaches information disclosure; • assessment of compliance with GRI 102 (2016), 201 (2016), 202 (2016), 203 (2016), 204 (2016), 302 (2016), 303 (2018), 305 (2016), 306 (2016), 307 (2016), 401 (2016), 402 (2016), 403 (2016), 404 (2016), 405 (2016) standards in terms of requirements to reporting elements stated in the GRI Index, as well as thematic requirements to management approaches information disclosure.

Findings

On the basis of the implemented procedures and obtained evidence, in our opinion, during the preparation of 2018 public integrated annual report, National Atomic Company Kazatomprom JSC complied in all significant respects with the requirements of the GRI Sustainable Development Reporting Standards (GRI Standards) to the “Baseline” application. At the same time, we should note significant changes in the framework of consolidation of individual indicators disclosure in view of MAEC-Kazatomprom LLP asset disposal in the reporting period. National Atomic Company Kazatomprom JSC did not perform a retrospective recalculation of indicators for the preceding periods, confining itself to remarks provided for each disclosed indicator regarding the inclusion of MAEC-Kazatomprom LLP performance information in the consolidation framework. As a result, it is difficult for the stakeholders to analyze changes in the National Atomic Company Kazatomprom JSC performance indicators.

NAC Kazatomprom JSC | 139 5. About this Report

Inherent limitations

Without changing our opinion, we should note the presence of inherent limitations specific to assurance associated with the selective verification. As a result, it is conceivable that frauds, errors or violations may remain undetected. Only 2018 data was assured. The assurance did not cover forward-looking statements, statements expressing opinions, beliefs and intentions. On-site audit procedures were limited to visits to the National Atomic Company Kazatomprom JSC headquarters in Nur-Sultan, Republic of Kazakhstan. The assurance was performed solely in relation to the Russian version of 2018 public integrated annual report in Word format. We did not have any opportunity to certify the fact that the final version of public integrated annual report including all annexes was publicly available due to the preceding signing of this conclusion. Moreover, we should note that the Assurance is prepared for the management of the National Atomic Company Kazatomprom JSC only, as part of the engagement agreed with them, and cannot be used for other purposes.

Recommendations

It is advisable to disclose indicators in the context of target values and plans for the future. To increase the indicators disclosure level for which the GRI indicators requirements are not taken into account in full. Taking into account the global scope of the National Atomic Company Kazatomprom JSC, we recommend considering possible inclusion of provisions supporting additional international guidelines in the field of responsible business, such as the UN Global Compact and the UN Sustainable Development Goals until 2030 when preparing subsequent public annual reports.

Independence and competence statement

Nexia Pacioli LLC is an independent audit and consulting company which complies with independence and other ethical requirements provided in the Rules of Independence for Auditors and Audit Companies and Code of Professional Ethics for auditors in the Russian Federation based on the fundamental principles of honesty, objectivity, professional competence and due care, confidentiality and professional conduct. The company fulfills the requirements of the International Standard on Quality Control 1 “Quality control in audit organizations performing audit and reviews of financial statements, other assurance and related services engagements». Thus, Nexia Pacioli LLC maintains a comprehensive quality control system, which is approved by the documented policies and procedures on compliance with ethical requirements, professional standards and applicable legislative and regulatory requirements. Nexia Pacioli LLC is a member of the Self-regulatory organization of auditors “Commonwealth” Association, included in the Register of auditors and audit organizations of the said self-regulatory organization of auditors on October 28, 2016 under the primary registration number 11606052374. The team of specialists who audited the Public Annual Report of the National Atomic Company Kazatomprom JSC involved competent employees of Nexia Pacioli LLC who had undergone special training on GRI Guidelines, AA1000 series standards, ISO 26000:2010 standard, having many years of experience in providing consulting services in the field of public non-financial reporting, assurances in accordance with ISAE 3000. The Lead Auditor has a unified auditor qualification certificate, the team includes the specialist having current CSAP certificate from Accountability organization.

CEO S. Romanova April 30, 2019

140 | Annual Report 2018 6 INFORMATION FOR SHAREHOLDERS

Website Number of shares issued and outstanding Information about the Company, including a description of activities, press releases, annual and interim reports, is available on the corporate website: www.kazatomprom.kz 15% Shareholder requests Shareholders of the Company may send requests re absentee voting, dividends, notification of changes in personal data and other similar issues to the registrar/depositary of the Company:

• Holders of ordinary shares: Central Securities Depository, JSC, Almaty, 28, Samal-1 micro- district; +7 (727) 355 47 61 85%

• Holders of Global Depositary Receipts (GDRs): Citibank, NA at: 388 Greenwich 38.9 mln Street, New York, NY 10013, Shares/free float GDRs United States, tel: + 1-212-816-6622 + 1-917-533-7887 220.45 mln Samruk-Kazyna shares

(1) Shares of the Company and global depositary receipts circulating on the Astana International Exchange (AIX), and global depositary receipts on the London Stock Exchange (LSE). One GDR corresponds to one ordinary share.

NAC Kazatomprom JSC | 141 7. Contact Information 7 CONTACT INFORMATION

National Atomic Company Kazatomprom Joint Stock Company 102-3, 102-5, 102-1

17/12, E-10 Str., Nur-Sultan, Republic of Kazakhstan Tel: +7 7172 55-13-98 Fax: +7 7172 55-13-99 E-mail: [email protected]

Website: www.kazatomprom.kz

If you have questions, comments and proposals concerning this Report, or if you would like to get a printed version, please contact the following employees of NAC Kazatomprom JSC: 102-53

Public Relations Auditors Torgyn Mukayeva PricewaterhouseCoopers, LLP Tel: +7 7172 45 81 69 34, Al-Farabi av., build. A, floor 4 E-mail: [email protected] А25D5F6, Almaty, Kazakhstan Giles Reed (Powerscourt – London) Tel: +7 727 330 3200 Tel.: + 44 20 3328 9381 www.pwc.com/kz E-mail: [email protected] Depository bank Investor Relations (requests from Citibank, N.A. institutional investors) 388 Greenwich Street, New York, Cory Cos NY 10013, USA, Tel: +7 7172 45 81 69 Tel: +1-212-816-6622/+1-917-533-7887 E-mail: [email protected]

Corporate secretary Maira Tnymbergenova Tel.: +7 7172 45 81 63 E-mail: [email protected]

142 | Annual Report 2018 CONSOLIDATED FINANCIAL

STATEMENTS 102-45

International Financial Reporting Standards Consolidated Financial Statements for the year ended 31 December 2018 and Independent Auditor’s Report

Contents

Independent Auditor’s Report 144

Consolidated Financial Statements 153 Consolidated Statements of Profit or Loss and Other Comprehensive Income 153 Consolidated Statements of Financial Position 154 Consolidated Statements of Cash Flows 156 Consolidated Statements of Changes in Equity 157

Notes to the Consolidated Financial Statements 158

NAC Kazatomprom JSC | 143 Consolidated Financial Statements

Independent Auditor’s Report

PricewaterhouseCoopers LLP 34 Al-Farabi Ave., A25D5F6 Almaty, Kazakhstan Т: +7 (727) 330 3200, F: +7 (727) 244 6868, www.pwc.com/kz

To the Shareholders and the Board of Directors of National Atomic Company Kazatomprom JSC

OUR OPINION

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of National Atomic Company Kazatomprom JSC (the “Company”) and its subsidiaries (together - the “Group”) as at 31 December 2018, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS).

What we have audited The Group’s consolidated financial statements comprise: • the consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2018; • the consolidated statement of financial position as at 31 December 2018; • the consolidated statement of cash flows for the year then ended; • the consolidated statement of changes in equity for the year then ended; and • the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information.

BASIS FOR OPINION

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code). We have fulfilled our other ethical responsibilities in accordance with the IESBA Code.

144 | Annual Report 2018 OUR AUDIT APPROACH

Overview

Overall Group materiality: Kazakhstani Tenge (“KZT”) 4,000 million, which represents 5% of profit before tax adjusted for net gain from business combinations and net gain from reversal of impairment Materiality losses.

• We conducted full scope audit work at the Company, 11 significant Group scoping subsidiaries and 8 joint arrangements in-Kazakhstan and one subsidiary in Switzerland. • Our audit scope addressed 99% of the Group’s revenues and 95% of the Group’s absolute value of underlying profit before tax. Key audit matters • Impairment loss and its reversal - property, plant and equipment and other non-current assets related to uranium mining activities • Accounting for business combinations • Accounting for environmental obligations

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

Materiality The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, if any, both individually and in aggregate on the consolidated financial statements as a whole.

Overall Group materiality KZT 4,000 million

How we determined it 5% of profit before tax adjusted for net gain from business combinations and net gain from reversal of impairment losses.

Rationale for the materiality We chose profit before tax as the benchmark because, in our view, it benchmark applied is the benchmark against which the performance of the Group is most commonly measured by users, and is a generally accepted benchmark. We further adjusted it for net gain from business combinations and net gain from reversal of impairment losses which are significant one-off items considered separately in our audit. We chose 5% which is consistent with quantitative materiality thresholds used for profit- oriented companies in this sector.

NAC Kazatomprom JSC | 145 Consolidated Financial Statements

Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matter How our audit addressed the key audit matter

Impairment loss and its reversal - property, plant and equipment and other non-current assets related to uranium mining activities

Refer to Notes 4 and 13 to the consolidated financial statements Our procedures included: The carrying value of the Group’s assets related to uranium • We obtained, understood and evaluated management’s mining activities has been impacted by sustained volatility in impairment models. We involved our valuation experts uranium prices and by changes in the assessment of uranium to assist in the evaluation of the methodology and reserves. The Group management performed an analysis assumptions used in the models, such as uranium prices, of existence of impairment indications (and indications discount rates, inflation rates, country specific risk rates of reversals) of these assets as at 31 December 2018 which and foreign exchange rates to external market data. revealed that: • We compared operating and future capital expenditure • No indications of impairment were identified as of that and reserve life data to the latest approved mine plans and date: (a) uranium prices increased over 2018, above budgets. forecasts in prior year (the Group used pricing forecasts • We compared the key assumptions used within the developed by Ux Consulting Company); (b) uranium reserves impairment models to the historic performance of the remained stable in 2018 and for a number of mines respective CGUs. increased from 2017 (per JORC report by SRK Consulting Inc). • We evaluated the forecast uranium prices incorporated into • Impairment indications that gave rise to the impairment the Group’s impairment testing including comparison to losses at Karamurun, Kanzhugan and Zarechnoe in 2017 available market data. no longer existed as of 31 December 2018. Accordingly, • We evaluated the competency and objectivity of the Group has recognised full reversal of those previously independent expert who produced the reserve estimates recorded impairment losses in 2018. No reversal was used in the valuations by considering their professional recognised at Uvanas and South Moinkum as cost of qualifications, experience and use of industry accepted production on these mines remains to be higher than sales methodology. price. The Group defines each uranium site or connected • We performed a sensitivity analysis over the key sites as separate cash-generating unit (CGU) for the assumptions in order to assess their potential impact on purposes of the impairment analysis and testing. impairment results and ranges of possible outcomes of The future cash flows use forward looking estimates which the recoverable amounts. We examined management’s are inherently difficult to determine with precision. There is assessment of the degree to which uranium prices also a level of judgement applied in determining the other key would need to reduce in isolation from other changes in inputs. assumptions, before an impairment arises on these CGUs. We focused on this area because of the significant judgment • We assessed compliance with the requirements of IFRS involved in the impairment analysis and calculation of of the related disclosures in the consolidated financial recoverable amount of each CGU, and the significant carrying statements. value of the assets in scope of the test. As a result of performing the above procedures, we have not identified any circumstances that would lead to material adjustments to the carrying value of assets related to uranium mining activities, recorded in the accompanying consolidated financial statements, or to the related disclosures.

146 | Annual Report 2018 Key audit matter How our audit addressed the key audit matter

Business combinations

Refer to Notes 4 and 45 to the consolidated financial statements Our procedures included: In 2018, the Group had completed the following business • We evaluated management judgement as to existence of combinations: control, joint control or significant influence that impacted • JV Inkai LLP classification of the investments, the accounting methods Effective 1 January 2018 the Group increased its interest in applied (consolidation or equity method) and timing of the JV Inkai LLP from 40% to 60% and obtained control over the transactions. Our audit work included: review of charter, investee. The valuation of the Group’s acquired identifiable shareholders’ and other agreements, minutes of meetings assets and liabilities was performed by an independent and correspondence with counterparties and authorities, appraiser. subsurface use contracts, accounting memorandums, The Group recognised net gain of KZT 95,929 million representations by management and lawyers, enquiries of from business combination, comprising bargain purchase management and others. gain of KZT 37,283 million, the excess of the fair value of • We assessed the competence, capabilities and objectivity of the investment in associate at date of acquisition over the external valuation experts appointed by management its carrying value of KZT 37,461 million, recycled foreign and evaluated the reasonableness of their conclusions in currency translation reserve of KZT 21,174 million and relation to the key assumptions used. consideration of KZT 11 million, in profit or loss for the year. • We involved our valuation experts to assist in the • Karatau LLP and JV Akbastau JSC evaluation of the methodology and assumptions used in In 2018, the Group changed classification of its 50% interests the valuation reports, such as uranium prices, discount in Karatau LLP and JV Akbastau JSC from joint venture to rates, inflation rates, country specific risk rates and foreign joint operations, which was accounted for as a business exchange rates to external market data. combination. The change in classification was triggered • We compared the key assumptions used in the by amendments in the agreements with the other joint valuation reports, such as future production and timing, venture partner. Acquired identifiable assets and liabilities macroeconomic data to observable market data and reserve were recognised using the acquisition method under IFRS reports. 3 on the basis of valuation reports by an independent • We involved our accounting technical specialists to assist appraiser. in the review of the accounting treatment for business The Group recognised net gain of KZT 217,583 million from combinations and the Group’s disclosures relating to the business combination, comprising the excess of the fair business combinations in notes 4 and 45 to the consolidated value of the investments in joint ventures prior to the financial statements against the requirements of the business combination over their carrying value, in profit or relevant accounting standards. loss for the year, and a goodwill of KZT 43,329 million in the Based on the evidence obtained, we found that the consolidated statement of financial position. key assumptions and methodologies used were within • Baiken-U LLP, Kyzylkum LLP and JV Khorasan-U LLP a reasonable range of expectations. Additionally, we In December 2018, the Group completed a transaction to concurred with management’s assessment of control, joint acquire 40.05% of the shares of Energy Asia (BVI) Limited control and significant influence. and a 16.02% participatory interest in the chartered capital of JV Khorasan-U LLP from Energy Asia Holdings (BVI) Limited. As a result of this transaction, the Group’s ownership interest in Baiken-U LLP, Kyzylkum LLP and JV Khorasan-U LLP increased to 52.5%, 50% and 50% respectively - at 31 December 2017 those ownership interests were 14.45%, 33-98% and 33.98%, respectively.

NAC Kazatomprom JSC | 147 Consolidated Financial Statements

Key audit matter How our audit addressed the key audit matter

(continued) As at 31 December 2018, the Group had obtained control over Baiken-U LLP through majority in the voting rights and the representation in the Supervisory Board. The Group has applied provisional amounts for the acquired assets and liabilities as the assessment of fair value for the business combination was not complete at the end of the reporting period. The Group maintained significant influence over Kyzylkum LLP and JV Khorasan-U LLP at 31 December 2018. The Group concluded that as at that date no control was obtained over JV Khorasan-U LLP pending shareholders’ approval of changes in the charter of the investee that will enable the Group to exercise the majority of votes. The Group has continued to account for its interests in these entities using the equity method.

The purchase consideration for the acquisition of and the value of previously held interests in Baiken-U LLP, Kyzylkum LLP and JV Khorasan- U LLP were KZT 15,480 million above the provisional (carrying) value, of which estimated KZT 15,215 million represented goodwill and KZT 265 million were capitalised to the cost of investments in associates.

We focused on this area because any assessment of the purchase price allocation, the fair valuation of assets and liabilities, and the identification and valuation of intangible assets can be inherently subjective and involve significant judgement.

148 | Annual Report 2018 Key audit matter How our audit addressed the key audit matter

Accounting for environmental obligations

Refer to Note 4 to the consolidated financial statements Our procedures included: The Group incurs obligations to close, restore and rehabilitate • We assessed the work of the Group’s internal and external its sites. These obligations are split into two broad categories: experts in identifying rehabilitation activities against (a) for mining (uranium) assets, governed by respective legislative requirements and any public statements of subsurface use contracts, and (b) for non-mining assets, intention and assessed their timing and likely cost. We governed by applicable general legislation and Group policies. evaluated their methodology against industry practice and At 31 December 2018, the Group has recognised provisions for requirements of the applicable subsurface use contracts site restoration of KZT 29,607 million. and our understanding of the business. This area was considered significant to the current year audit • We considered the appropriateness and consistency of the for the following reasons: data used in the Group’s future cost estimates between • Changes in local laws and regulations and management’s different uranium sites. We also evaluated the competency expected approach to restoration and rehabilitation could and objectivity of the experts based on their professional have a material impact on these provisions. While for qualifications, experience and use of industry accepted uranium sites the quantum and timing of future costs are methodology. governed by the respective subsurface use contracts and are • We also assessed whether the Group’s current policies based on estimates by an independent engineer, for non- and management public statements create a constructive mining sites management assesses the existence, scope and obligation. quantum of obligations based on Group internal polices • We evaluated the key economic assumptions used in and interpretation of local law. the calculation of significant closure and rehabilitation • Management’s explicit public statements of intention to provisions, including the discount rate applied to calculate remediate may create constructive obligations which need the net present value of the provision and foreign exchange to be provided for, despite above not necessarily being a rates used in translating the future obligations. legal obligation. • The assumptions were compared against market observable • The calculation of these provisions requires management data including risk free rates. judgement in estimating future costs, given the unique • We assessed the Group’s disclosures relating to the nature of each site and the potential associated obligations. environmental obligations in notes 4 and 36 to the These calculations also require management to determine consolidated financial statements against the requirements an appropriate rate to discount future costs back to their of the relevant accounting standards and found them to be net present value. adequate. • The majority of the Group’s assets are long life, which As a result, we considered the level of closure and increases the estimation uncertainty relating to future cash rehabilitation provisioning to be acceptable. flows. • The judgement required to estimate such costs is further compounded by the fact that the restoration and rehabilitation of each site is relatively unique and there has been limited restoration and rehabilitation activity and historical precedent against which to benchmark estimates of future costs; and • Environmental obligations may not be adequately disclosed in the consolidated financial statements. Closure and rehabilitation provisions was a key audit matter due to the significant size relative to the Group’s financial position and the level of judgement applied by us in evaluating management’s estimates of the quantum and timing of future costs.

NAC Kazatomprom JSC | 149 Consolidated Financial Statements

How we tailored our Group audit scope We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls and the industry in which the Group operates. The Group’s major production facilities and uranium sites are located in the Republic of Kazakhstan. The Group’s trading activities are carried out primarily out of Kazakhstan, as well as a trading company set up in Switzerland. The Group operates through 6 mining subsidiaries (under 14 subsurface use contracts), of which 5 are audited by PwC network firms, and 8 mining jointly controlled entities and associates (under 12 subsurface use contracts), of which 1 is audited by PwC network firms. The audit scope also included 5 significant non-mining subsidiaries, audited by PwC network firms. Based on our continuing assessment, we included in our group audit scope 25 components, including 8 components audited by other auditors. In order to achieve appropriate audit coverage of the audit risks and of each individually significant component of the Group, including each segment and group function: • Significant components were subject to either a full scope audit, specified risk-focused audit procedures of specific account balances, or Group level procedures. Our selection was based on the relative significance of the entities within the Group or specific risks identified. The components within the scope of our work accounted for the following percentages of the Group’s measures(i);

GROUP PROFIT BEFORE GROUP TOTAL REVENUE % TAX % ASSETS % 1 10 1

8 Full scope audits 10 Other auditors’ work

Out of scope

99 85 91

(1) Presented as a percentage of the Group’s consolidated result at 31 December 2018.

Audit instructions set out the significant audit areas, materiality thresholds (which ranged from KZT 81 million to KZT 2,146 million) and specific reporting requirements. The Group audit team directed the work undertaken by component auditors, through a combination of related inter-office and inter¬firm reporting, regular interaction on audit and accounting matters, periodic site visits and review of specific audit work papers. By performing the procedures above at the components in combination with additional procedures performed at Group level, we have obtained sufficient and appropriate audit evidence regarding the consolidated financial statements as a whole that provides a basis for our opinion.

OTHER INFORMATION

Management is responsible for the other information. The other information comprises the annual report but does not include the consolidated financial statements and our auditor’s report thereon. The Group’s complete Annual report is expected to be made available to us after the date of this auditor’s report. Our opinion on the consolidated financial statements does not cover the other information and we will not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information

150 | Annual Report 2018 identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. When we read the Annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.

RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED FINANCIAL STATEMENTS

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process.

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

NAC Kazatomprom JSC | 151 Consolidated Financial Statements

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The certified auditor responsible for the audit resulting in this independent auditor’s report is Azamat Konratbaev.

Almaty, Kazakhstan 5 March 2019

Approved: Signed:

Dana Inkarbekova Managing Director PricewaterhouseCoopers LLP Azamat Konratbaev (General State License from the Ministry Audit Partner of Finance of the Republic of Kazakhstan (The Association of Charted Certified Accountants №000005 of 21 October 1999) Certificate №00770863 of 8 May 2003)

Signed:

Svetlana Belokurova Statutory Auditor (Qualified Auditor’s Certificate №00000357 dated 21 February 1998)

152 | Annual Report 2018 Consolidated Statement of Profit or Loss and Other Comprehensive Income

In millions of Kazakhstani Tenge Note For the For the year ended year ended 31 December 2018 31 December 2017 (restated) Revenue 9 436,632 277,046 Cost of sales 10 (313,817) (209,934) Gross profit 122,815 67,112 Distribution expenses 11 (10,530) (4,316) General and administrative expenses 12 (34,805) (30,194) Reversal of impairment losses on non-financial assets 13 15,128 526 Impairment losses on non-financial assets 13 (5,848) (24,210) Net impairment losses on financial assets 13 (3,770) (3,728) Loss from disposal of subsidiary 46 (511) - Net foreign exchange gain/(loss) 15 7,250 (805) Net gain from business combinations 45 313,517 - Other income 14 1,242 114,907 Other expenses 15 (5,849) (6,278) Finance income 17 3,949 5,815 Finance costs 17 (12,672) (8,933) Share of results of associates 25 22,786 22,007 Share of results of joint ventures 26 (4,743) 22,107 Profit before tax 407,959 154,010 Income tax expense 18 (28,797) (17,287) Profit from continuing operations 379,162 136,723 Profit from discontinued operations 46 1,104 2,431 PROFIT FOR THE YEAR 380,266 139,154 Other comprehensive income Items that may be subsequently reclassified to profit or loss: Exchange differences arising on translation of entities with foreign functional currency (21,118) 383 Items that will not be reclassified to profit or loss: Net gain from investments in equity securities at fair value through other comprehensive 14,509 - income Remeasurements of post-employment benefit obligations 23 113 Share in other comprehensive loss of equity method investments 5 (189) Other comprehensive (loss)/income for the year (6,581) 307 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 373,685 139,461 Profit for the year attributable to: ·· Owners of the Company 372,176 138,527 ·· Non-controlling interest 8,090 627 Profit for the year 380,266 139,154 Total comprehensive income attributable to: ·· Owners of the Company 365,664 138,837 ·· Non-controlling interest 8,021 624 Total comprehensive income for the year 373,685 139,461 Earnings per share from continuing operations attributable to the owners of the Company, 19 1,431 525 basic and diluted (rounded to Tenge) Earnings per share attributable to the owners of the Company, basic and diluted (rounded 19 1,435 534 to Tenge)

These consolidated financial statements were approved by management on 5 March 2019.

NAC Kazatomprom JSC | 153 Consolidated Financial Statements

Consolidated Statement of Financial Position

In millions of Kazakhstani Tenge Note 31 December 2018 31 December 2017 ASSETS Non-current assets Intangible assets 20 69,314 8,009 Property, plant and equipment 21 171,352 122,175 Mine development assets 22 118,302 43,530 Mineral rights 23 363,373 2,004 Exploration and evaluation assets 24 23,609 5,608 Investments in associates 25 88,866 101,746 Investments in joint ventures 26 40,442 74,818 Other investments 27 619 1,726 Accounts receivable 28 13 140 Deferred tax assets 18 7,552 6,836 Term deposits 31 13 - Financial derivative asset 9 1,369 - Loans to related parties 32 13,245 20,302 Other non-current assets 29 20,847 24,125 918,916 411,019 Current assets Accounts receivable 28 94,477 58,085 Prepaid income tax 4,366 5,493 VAT recoverable 29,799 24,182 Inventories 30 170,261 169,675 Term deposits 31 205 8,472 Loans to related parties 32 10,373 - Cash and cash equivalents 33 128,819 239,936 Other current assets 29 18,322 18,396 456,622 524,239 Assets of disposal groups classified as held for sale 47 5,578 2,774 462,200 527,013 TOTAL ASSETS 1,381,116 938,032 EQUITY Share capital 34 37,051 37,051 Additional paid-in capital 4,420 4,785 Reserves 21 (2,229) Retained earnings 789,563 586,998 Equity attributable to shareholders of the Company 831,055 626,605 Non-controlling interest 131,955 14,571 TOTAL EQUITY 963,01 641,176

These consolidated financial statements were approved by management on 5 March 2019.

154 | Annual Report 2018 Consolidated Statement of Financial Position (continued)

In millions of Kazakhstani Tenge Note 31 December 2018 31 December 2017 LIABILITIES Non-current liabilities Loans and borrowings 35 16,270 38,910 Finance lease liabilities 350 294 Accounts payable 37 777 582 Provisions 36 32,885 22,688 Deferred tax liabilities 18 77,670 4,443 Employee benefits 954 1,247 Other non-current liabilities 38 5,825 7,711 134,731 75,875 Current liabilities Loans and borrowings 35 183,420 82,374 Finance lease liabilities 129 125 Provisions 36 187 189 Accounts payable 37 51,534 112,642 Other tax and compulsory payments liabilities 10,711 4,168 Employee benefits 147 173 Income tax liabilities 977 5,618 Other current liabilities 38 30,319 14,349 277,424 219,638 Liabilities of disposal groups classified as held for sale 47 5,951 1,343 TOTAL LIABILITIES 418,106 296,856 TOTAL EQUITY AND LIABILITIES 1,381,116 938,032

These consolidated financial statements were approved by management on 5 March 2019.

NAC Kazatomprom JSC | 155 Consolidated Financial Statements

Consolidated Statements of Cash Flows

In millions of Kazakhstani Tenge Note For the year ended For the year ended 31 December 2018 31 December 2017 OPERATING ACTIVITIES Cash receipts from customers 556,151 435,199 VAT refund 23,403 18,849 Interest received 2,003 3,025 Payments to suppliers (442,030) (373,006) Payments to employees (45,856) (43,213) Cash flows from operating activities 93,671 40,854 Income tax paid (28,642) (13,069) Interest paid (6,702) (4,430) NET CASH FROM OPERATING ACTIVITIES 58,327 23,355 INVESTING ACTIVITIES Acquisition of property, plant and equipment (23,578) (14,913) Proceeds from disposal of property, plant and equipment 76 749 Advance paid for property, plant and equipment (881) (5,461) Acquisition of intangible assets (2,606) (628) Acquisition of mine development assets (23,917) (12,011) Acquisition of exploration and evaluation assets (8,215) (2,775) Proceeds from exercise of put option 14 - 173,719 Cash and cash equivalents of disposed subsidiary (1,218) - Proceeds from disposal of subsidiary 46 17,942 2 Placement of term deposits and restricted cash (8,525) (12,095) Redemption of term deposits and restricted cash 8,666 55,216 Repayment of loans to related parties - 8 Acquisition of interest in controlled entities net of cash acquired (2,852) (91) Acquisition of interest in associates and joint ventures (8,415) (2,687) Dividends received from associates, joint ventures and other investments 12,773 36,486 Other 471 56 NET CASH (USED IN)/FROM INVESTING ACTIVITIES (40,279) 215,575 FINANCING ACTIVITIES Proceeds from loans and borrowings 35 100,547 52,793 Proceeds from bonds issued 35 70,000 - Repayment of loans and borrowings 35 (147,734) (61,410) Dividends paid to the controlling shareholder 34 (161,661) (65,849) Dividends paid to non-controlling interest (273) (19) Other (151) (396) NET CASH USED IN FINANCING ACTIVITIES (139,272) (74,881) Net (decrease)/increase in cash and cash equivalents (121,245) 164,049 Cash and cash equivalents at the beginning of the year 239,936 75,052 Effect of exchange rate fluctuations on cash and cash equivalents 10,128 835 Change in impairment provision for cash and cash equivalents (21) - CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 33 128,819 239,936

These consolidated financial statements were approved by management on 5 March 2019.

156 | Annual Report 2018 Consolidated Statements of Changes in Equity

In millions of Kazakhstani Tenge Attributable to the shareholders of the Company

Share capital Reserves Retained Additional Total Non- Total earnings paid-in capital controlling equity interest Balance at 1 January 2017 36,785 18,061 495,732 4,785 555,363 12,467 567,830 Profit for the year - - 138,527 - 138,527 627 139,154 Foreign currency translation difference - 386 - - 386 (3) 383 Remeasurements of post-employment - - 113 - 113 - 113 benefit obligations Share of other comprehensive loss in - - (189) - (189) - (189) equity method investments Total comprehensive income for the year - 386 138,451 - 138,837 624 139,461 Dividends declared - - (65,849) - (65,849) (205) (66,054) Contribution to share capital 266 - - - 266 - 266 Change in non-controlling interest - - (2,012) - (2,012) 1,685 (327) Transfers between reserves - (20,676) 20,676 - - - - Balance at 31 December 2017 37,051 (2,229) 586,998 4,785 626,605 14,571 641,176 Adoption of IFRS 9 (Note 5) - 2,701 (1,889) - 812 (21) 791 Adjusted balance at 1 January 2018 37,051 472 585,109 4,785 627,417 14,550 641,967 Profit for the year - - 372,176 - 372,176 8,090 380,266 Net gain from investments in equity - 14,509 - - 14,509 - 14,509 securities at FVOCI (Note 45) Foreign currency translation difference - (451) (20,676) - (21,127) 9 (21,118) Remeasurements of post-employment - - 15 - 15 8 23 benefit obligations Share of other comprehensive loss in - - 91 - 91 (86) 5 equity method investments Total comprehensive income for the year - 14,058 351,606 - 365,664 8,021 373,685 Dividends declared (Note 34) - - (161,661) - (161,661) (635) (162,296) Contribution to share capital - - - (365) (365) - (365) Transfer of revaluation reserve on - (14,509) 14,509 - - - - investments in equity securities at FVOCI to retained earnings upon disposal Business combinations (Note 45) - - - - - 110,019 110,019 BALANCE AT 31 DECEMBER 2018 37,051 21 789,563 4,420 831,055 131,955 963,010

These consolidated financial statements were approved by management on 5 March 2019.

Yussupov M.B. Kozha-Akhmet D.A. Kaliyeva Z.G. Chief Financial Officer Financial Controller Chief Accountant

NAC Kazatomprom JSC | 157 Consolidated Financial Statements

1. Kazatomprom Group and its Operations

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) for the year ended 31 December 2018 for JSC National Atomic Company Kazatomprom (the “Company”) and its subsidiaries (hereinafter collectively referred to as “the Group” or “JSC NAC Kazatomprom”). The Company is a joint stock company set up in accordance with regulations of the Republic of Kazakhstan. The Company was established pursuant to the Decree of the President of the Republic of Kazakhstan on the establishment of National Atomic Company Kazatomprom No. 3593, dated 14 July 1997, and the Decree of the Government of the Republic of Kazakhstan on National Atomic Company Kazatomprom Issues No. 1148 dated 22 July 1997, as a closed joint stock company with a 100% government shareholding. As at 31 December 2017, 100% of the Company’s shares were held by the government via National Welfare Fund Samruk-Kazyna (hereinafter “Samruk-Kazyna JSC”). On 13 November 2018, Samruk-Kazyna JSC offered 38,903,491 shares including global depositary receipts, or GDRs, representing 15% of the Company’s share capital in a dual-listing offering on the London Stock Exchange (LSE) and the Astana International Exchange (AIX). Each GDR represents an interest in one share. The offer price was USD11.60 per GDR and Tenge 4,322.74 per common share, respectively. As of 31 December 2018, 85% of the Company’s shares are held by Samruk-Kazyna JSC and 15% by other shareholders. The Company’s registered address is 10 Kunayev Street, Astana, the Republic of Kazakhstan. The principal place of business is the Republic of Kazakhstan. The Group’s principal activities include production of uranium and sale of uranium products. The Group is one of the leading uranium producing companies of the world. The Group is also involved in mining of rare and rare-earth metals; manufacture and sale of beryllium and tantalum products and development of high technologies. JSC NAC Kazatomprom is an entity representing interests of the Republic of Kazakhstan at the initial stages of the nuclear fuel cycle. The Group is a participant in a number of associates and joint ventures which make a significant contribution to its profit (Notes 25 and 26). The Group’s revised development strategy is focused on a return to the core business of uranium mining and its value chain components in order to ensure long term value growth. Production volumes are optimised according to market conditions and sales capabilities will be enhanced, both of which reflect the Group’s shift to a market centric focus. As at 31 December 2018, the Group was a party to the following contracts on production and exploration of uranium:

Mine/area Stage Contract date Contract term Subsurface user Service company Kanzhugan Production 27.11.1996 25 years Kazatomprom- SaUran LLP - Uvanas Production 27.11.1996 25 years Kazatomprom- SaUran LLP - Mynkuduk, East lot Production 27.11.1996 25 years Kazatomprom- SaUran LLP - Moinkum, lot 1 (South) (south part) Production 26.09.2000 20 years Kazatomprom-SaUran LLP - Mynkuduk, Central lot Production 08.07.2005 28 years DP Ortalyk LLP - Mynkuduk, West lot Production 08.07.2005 30 years Appak LLP - North and South Karamurun Production 15.11.1996 25 years RU-6 LLP - Moinkum, lot 3 (Central) (north part) Production 31.05.2010 31 years Company Kazatomprom- SaUran LLP Inkai, block 1 Production 13.07.2000 45 years JV Inkai LLP - Inkai, blocks 2, 3 Exploration 25.06.2018 4 years Company - Zhalpak Exploration 31.05.2010 12 years DP Ortalyk LLP - North Khorasan, block 2 Production 01.03.2006 48 years Baiken-U LLP - Budenovskoe, block 2 Production 08.07.2005 35 years Karatau LLP Budenovskoe, block 1 Production 20.11.2007 30 years JV Akbastau JSC - Budenovskoe, blocks 3, 4 Production 20.11.2007 31 years JV Akbastau JSC -

At 31 December 2018 the Group comprises more than 30 entities (2017: 40), including associates and joint ventures, located in 6 regions of the Republic of Kazakhstan: South Kazakhstan (from 19 June 2018 – Turkestan) region, East Kazakhstan region, Kyzylorda region, Akmola region, Pavlodar region and Almaty region. At 31 December 2018 the aggregate number of employees of the Group exceeded 21 thousand (2017: 25 thousand) people. Presented below are significant changes in the Group structure during the year.

158 | Annual Report 2018 JV Inkai LLP In December 2017, the Group and Cameco completed restructuring of JV Inkai LLP (Note 45). Under the terms of the agreement, effective from 1 January 2018 the Group increased its interest in JV Inkai LLP from 40% to 60% and obtained control over the investee. The Group has accounted for its increased ownership of JV Inkai LLP using the acquisition method under IFRS 3 on the basis of a valuation report by an independent appraiser (Note 45). The Group consolidates JV Inkai LLP from 1 January 2018.

JV Akbastau JSC and Karatau LLP In 2018, the Group and Uranium One Inc. signed a number of agreements related to Karatau LLP and JV Akbastau JSC (Note 45). As a result, these joint ventures were classified as joint operations under IFRS 11 with effect from 1 January 2018. The Group ceased recognition of investments in joint ventures and recognised its share in joint operations by proportionate consolidation of the entities’ assets, liabilities, revenue and expenses during the year ended 31 December 2018. The Group has accounted for this change in classification as a business combination under IFRS 3 and IFRS 11.

Baiken-U LLP, Kyzylkum LLP, JV Khorasan-U LLP In December 2018, the Group completed a transaction to acquire 40.05% of the shares of Energy Asia (BVI) Limited and a 16.02% participatory interest in the chartered capital of JV Khorasan-U LLP from Energy Asia Holdings (BVI) Limited. As a result of this transaction, the Group’s ownership interest in Baiken-U LLP, Kyzylkum LLP and JV Khorasan-U LLP increased to 52.5%, 50% and 50% respectively (Note 45) – at 31 December 2017 those ownership interests were 14.45%, 33.98% and 33.98%, respectively. As at 31 December 2018, the Group had obtained control over Baiken-U LLP through majority of the voting rights and representation in the Supervisory Board. The Group has applied provisional amounts for the acquired assets and liabilities as the assessment of fair value for the business combination was not complete at the end of the reporting period. The Group maintained significant influence over Kyzylkum LLP and JV Khorasan-U LLP at 31 December 2018. The Group concluded that as at that date no control was obtained over JV Khorasan-U LLP pending shareholders’ approval of changes in the charter of the investee that will enable the Group to exercise the majority of votes. The Group has continued to account for its interests in these entities using the equity method.

MAEK-Kazatomprom LLP On 25 June 2018, the Group signed an agreement with Samruk-Kazyna JSC for sale of 100% interest in MAEK-Kazatomprom LLP (Note 46). The disposal was completed in July 2018 upon receipt of government consent. In these consolidated financial statements MAEK-Kazatomprom LLP is presented as a discontinued operation.

Sale of assets under Privatisation plan In accordance with the Government Decree of the Republic of Kazakhstan No. 1141 «On privatisation program 2016-2020» dated 30 December 2015 the Group has an intention to dispose of certain non-core assets, including the KazPV project: «Astana Solar» LLP, «Kazakhstan Solar Silicon» LLP and «MK KazSilicon» LLP. The disposal of these entities is expected in 2019, and accordingly the Group has presented assets and liabilities of this disposal group as held for sale at 31 December 2018 (Note 47). On 25 June 2018, the Group signed an agreement with Samruk-Kazyna JSC for the sale of its 100% interest in Kazakhstan Nuclear Electric Stations JSC (Note 41). The disposal was completed in June 2018. In October 2018, the Group completed the sale of its 100% interest in JV Sareco LLP (Note 41) to Tau-Ken Samruk JSC, a related entity of Samruk-Kazyna JSC.

NAC Kazatomprom JSC | 159 Consolidated Financial Statements

2. Operating Environment of the Group

The economy of the Republic of Kazakhstan continues to display characteristics of an emerging market and is particularly sensitive to prices for oil and gas and other commodities, which constitute major parts of the country’s exports. These characteristics include, but are not limited to, the existence of a national currency that is not freely convertible outside of the country and a low level of market liquidity of debt and equity securities. Ongoing political tension in the region and volatility of exchange rates have caused and may continue to cause negative impacts on the economy of the Republic of Kazakhstan, including decreases in liquidity and creation of difficulties in attracting international financing. On 20 August 2015, the National Bank and the Government of the Republic of Kazakhstan issued a resolution to discontinue supporting the exchange rate of Tenge and to implement new monetary policy, which is based upon an inflation targeting regime, cancellation of exchange rate trading band and transition to a free floating exchange rate. However, the National Bank’s exchange rate policy allows it to intervene to prevent dramatic fluctuations of the Tenge exchange rate and to ensure financial stability. As at the date of issuance of these consolidated financial statements the official exchange rate of the National Bank of the Republic Kazakhstan was Tenge 376.65 per USD 1, compared to Tenge 384.20 per USD 1 as at 31 December 2018 (31 December 2017: 332.33 Tenge per USD 1). Uncertainty exists in relation to the exchange rate of Tenge, future action of the National Bank and the Government of the Republic of Kazakhstan, and the impact of other factors on the economy of the Republic of Kazakhstan. In September 2018, Standard & Poors, the international rating agency affirmed the long-term foreign and local currency sovereign credit rating of Kazakhstan (ВВВ-) and the short-term foreign and local currency sovereign credit ratings (A-3), and the Kazakhstan national scale (kzAAA). The outlook is stable (long-term ratings). The stable outlook is supported by the government’s strong balance sheet, built on past budgetary surpluses accumulated in the National Fund of the Republic of Kazakhstan and also by liquid external assets exceeding relatively low government debt over the next two years. An increase in oil production, low unemployment and rising wages supported a modest growth of the economy in 2018. This operating environment has a significant impact on the Group’s operations and financial position. Management is taking necessary measures to ensure sustainability of the Group’s operations. However, the future effects of the current economic situation are difficult to predict and management’s current expectations and estimates could differ from actual results. Additionally, the mining sector in the Republic of Kazakhstan is still impacted by political, legislative, fiscal and regulatory developments. The prospects for future economic stability in the Republic of Kazakhstan are largely dependent upon the effectiveness of economic measures undertaken by the Government, together with legal, controlling and political developments, which are beyond the Group’s control. Management is unable to predict the extent and duration of changes in the Kazakhstani economy, nor quantify their impact, if any, on the Group’s financial position in future. Management believes it is taking all the necessary measures to support the sustainability and growth of the Group’s business in the current circumstances.

3. Significant Accounting Policies

Basis of preparation These consolidated financial statements have been prepared in accordance with IFRS under the historical cost convention, as modified by the initial recognition of financial instruments based on fair value and by the revaluation of financial instruments categorised at fair value through profit or loss (“FVTPL”) and at fair value through other comprehensive income (“FVOCI”). The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. Apart from the accounting policy changes resulting from the adoption of IFRS 9 and IFRS 15 effective from 1 January 2018, these policies have been consistently applied to all the periods presented, unless otherwise stated. The principal accounting policies in respect of financial instruments and revenue recognition applied until 31 December 2017 are presented in Note 48. The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4.

160 | Annual Report 2018 Presentation currency These consolidated financial statements are presented in millions of Kazakhstani Tenge (“Tenge”), unless otherwise stated.

Consolidation (i) Consolidated financial statements Subsidiaries are those investees, including structured entities, that the Group controls because the Group (i) has power to direct the relevant activities of the investees that significantly affect their returns, (ii) has exposure, or rights, to variable returns from its involvement with the investees, and (iii) has the ability to use its power over the investees to affect the amount of the investor’s returns. The existence and effect of substantive rights, including substantive potential voting rights, are considered when assessing whether the Group has power over another entity. For a right to be substantive, the holder must have a practical ability to exercise that right when decisions about the direction of the relevant activities of the investee need to be made. The Group may have power over an investee even when it holds less than the majority of the voting power in an investee. In such a case, the Group assesses the size of its voting rights relative to the size and dispersion of holdings of the other vote holders to determine if it has de-facto power over the investee. Protective rights of other investors, such as those that relate to fundamental changes of the investee’s activities or applied only in exceptional circumstances, do not prevent the Group from controlling an investee. Subsidiaries are consolidated from the date on which control is transferred to the Group (acquisition date) and are deconsolidated from the date on which control ceases. The acquisition method of accounting is used to account acquisition of subsidiaries other than those acquired from parties under common control. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The Group measures non-controlling interest that represents present ownership interest and entitles the holder to a proportionate share of net assets in the event of liquidation on a transaction by transaction basis, either at: (a) fair value, or (b) the non-controlling interest’s proportionate share of net assets of the acquiree. Goodwill is measured by deducting the net assets of the acquiree from the aggregate of the consideration transferred for the acquiree, the amount of non-controlling interest in the acquiree and the fair value of an interest in the acquiree held immediately before the acquisition date. Any negative amount (“negative goodwill” or a “bargain purchase”) is recognised in profit or loss, after management reassesses whether it identified all the assets acquired and all the liabilities and contingent liabilities assumed and reviews the appropriateness of their measurement. The consideration transferred for the acquiree is measured at the fair value of the assets given up, equity instruments issued and liabilities incurred or assumed, including the fair value of assets or liabilities from contingent consideration arrangements, but excludes acquisition related costs such as advisory, legal, valuation and similar professional services. Transaction costs related to the acquisition of and incurred for issuing equity instruments are deducted from equity; transaction costs incurred for issuing debt as part of the business combination are deducted from the carrying amount of the debt and all other transaction costs associated with the acquisition are expensed. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated; unrealised losses are also eliminated unless the cost cannot be recovered. The Company and all of its subsidiaries use uniform accounting policies consistent with the Group’s policies. When necessary amounts reported by subsidiaries have been adjusted to conform with the Group’s accounting policies. Non-controlling interest is that part of the net results and of the equity of a subsidiary attributable to interests which are not owned, directly or indirectly, by the Group. Non-controlling interest forms a separate component of the Group’s equity.

(ii) Purchases and sales of non-controlling interests The Group applies the economic entity model to account for transactions with owners of non-controlling interest in transactions that do not result in a loss of control. Any difference between the purchase consideration and the carrying amount of non- controlling interest acquired is recorded as a capital transaction directly in equity. The Group recognises the difference between sales consideration and the carrying amount of non-controlling interest sold as a capital transaction in the consolidated statements of changes in equity.

NAC Kazatomprom JSC | 161 Consolidated Financial Statements

3. Significant Accounting Policies (continued)

(iii) Purchases of subsidiaries from parties under common control Purchases of subsidiaries from parties under common control are accounted for using the predecessor values method. Under this method the consolidated financial statements of the combined entity are presented as if the businesses had been combined from the beginning of the earliest period presented or, if later, the date when the combining entities were first brought under common control. The assets and liabilities of the subsidiary transferred under common control are at the predecessor entity’s carrying amounts. The predecessor entity is considered to be the highest reporting entity in which the subsidiary’s IFRS financial information was consolidated. Related goodwill inherent in the predecessor entity’s original acquisitions is also recorded in these consolidated financial statements. Any difference between the carrying amount of net assets, including the predecessor entity’s goodwill, and the consideration for the acquisition is accounted for in these consolidated financial statements as an adjustment to retained earnings within equity.

(iv) Associates Associates are entities over which the Group has significant influence (directly or indirectly), but not control, generally accompanying a shareholding of between 20 and 50 percent of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. Dividends received from associates reduce the carrying value of the investment in associates. Other post-acquisition changes in the Group’s share of net assets of an associate are recognised as follows: (i) the Group’s share of profits or losses of associates is recorded in the consolidated profit or loss for the year as the share of results of associates, (ii) the Group’s share of other comprehensive income is recognised in other comprehensive income and presented separately, (iii) other changes in the Group’s share of the carrying value of net assets of associates are recognised in profit or loss within the share of results of associates. However, when the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

(v) Joint arrangements The Group is a party of joint arrangement when it exercises joint control over arrangement by acting collectively with other parties and decisions about the relevant activities require unanimous consent of the parties sharing control. The joint arrangement is either a joint operation or a joint venture depending on the contractual rights and obligations of the parties to the arrangement. In relation to interest in joint operations the Group recognises: (i) its assets, including its share of any assets held jointly, (ii) liabilities, including its share of any liabilities incurred jointly, (iii) revenue from the sale of its share of the output arising from the joint operation, (iv) its share of the revenue from the sale of the output by the joint operations, and (v) its expenses, including its share of any expenses incurred jointly. The Group’s interests in joint ventures are accounted for using the equity method and are initially recognised at cost. Dividends received from joint ventures reduce the carrying value of the investment in joint ventures. Other post-acquisition changes in the Group’s share of net assets of joint ventures are recognised as follows: (i) the Group’s share of profits or losses of joint ventures is recorded in the consolidated profit or loss for the year as share of result of joint ventures, (ii) the Group’s share of other comprehensive income is recognised in other comprehensive income and presented separately, (iii) other changes in the Group’s share of the carrying value of net assets of joint ventures are recognised in profit or loss within the share of result of joint ventures. When the Group’s share of losses in a joint venture equals or exceeds its interests in the joint ventures (which includes any long- term interests that, in substance, form part of the Group’s net investment in the joint ventures), the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint ventures. The Group’s share of joint venture’s other comprehensive income or loss is recognised in other comprehensive income in the Group’s consolidated financial statements.

162 | Annual Report 2018 Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Group.

(vi) Disposals of subsidiaries, associates or joint ventures When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity, are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate.

Foreign currency translation The functional currency of each of the Group’s consolidated entities is the currency of the primary economic environment in which the entity operates. The functional currency of the Company and its Kazakhstan subsidiaries, and the Group’s presentation currency, is the national currency of Kazakhstan, Kazakhstani Tenge. Exchange restrictions and currency controls exist in relation of converting Tenge into other currencies. Currently, Tenge is not freely convertible outside of the Republic of Kazakhstan. Monetary assets and liabilities are translated into each entity’s functional currency at the official exchange rate at the respective end of the reporting period. Foreign exchange gains and losses resulting from the settlement of the transactions and from the translation of monetary assets and liabilities into each entity’s functional currency at year-end official exchange rates are recognised in profit or loss. Translation at year-end does not apply to non-monetary items that are carried at historic costs. Loans between Group entities and related foreign exchange gains or losses are eliminated upon consolidation. However, where the loan is between Group entities that have different functional currencies, the foreign exchange gain or loss cannot be eliminated in full and is recognised in the consolidated profit or loss, unless the loan is not expected to be settled in the foreseeable future and thus forms part of the net investment in foreign operation. In such a case, the foreign exchange gain or loss is recognised in other comprehensive income. The results and financial position of each Group entity are translated into the presentation currency as follows: • assets and liabilities for each statements of financial position are translated at the closing rate at the end of the respective reporting period; • income and expenses are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); • components of equity are translated at the historic rate; • all resulting exchange differences are recognised in other comprehensive income. When control over a foreign operation is lost, the exchange differences recognised previously in other comprehensive income are reclassified to profit or loss for the year as part of the gain or loss on disposal. On partial disposal of a subsidiary without loss of control, the related portion of accumulated currency translation differences is reclassified to non-controlling interest within equity. At 31 December 2018 the principal rate of exchange used for translating foreign currency balances was USD 1 = 384.20 Tenge (2017: USD 1 = 332.33 Tenge).

Revenue recognition Revenue is income arising in the course of the Group’s ordinary activities. Revenue is recognised in the amount of transaction price. Transaction price is the amount of consideration to which the Group expects to be entitled in exchange for transferring control over promised goods or services to a customer, excluding the amounts collected on behalf of third parties. Revenue is recognised net of discounts, returns and value added taxes, export duties, other similar mandatory payments.

NAC Kazatomprom JSC | 163 Consolidated Financial Statements

3. Significant Accounting Policies (continued)

(i) Revenue from sales of goods (uranium, tantalum, beryllium, niobium and other products) Sales are recognised when control of the good has transferred, being when the goods are delivered to the customer, the customer has full discretion over the goods, and there is no unfulfilled obligation that could affect the customer’s acceptance of the goods. Delivery occurs when the goods have been delivered to the specific location, the risks of obsolescence and loss have been transferred to the customer, and either the customer has accepted the goods in accordance with the contract, the acceptance provisions have lapsed, or the Group has objective evidence that all criteria for acceptance have been satisfied. Revenue from the sales with discounts is recognised based on the price specified in the contract, net of the estimated volume discounts. Accumulated experience is used to estimate and provide for the discounts, using the expected value method, and revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur. No element of financing is deemed present as the sales are made with an average credit term of 30-90 days, which is consistent with market practice. A receivable is recognised when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due. Delivery of uranium, tantalum and beryllium products vary depending on the individual terms of a sale contract usually in accordance with the Incoterms classification. Delivery of uranium products occurs: at the date of physical delivery in accordance with Incoterms or at the date of book-transfer to account with convertor specified by customer. Book-transfer operation represents a transaction whereby uranium account balance of the transferor is decreased with simultaneous allocation of uranium to the transferee’s uranium account with the same specialised conversion / reconversion entity.

(ii) Sales of services (transportation, drilling and other) The Group may provide services under fixed-price and variable price contracts. Revenue from providing services is recognised in the accounting period in which the services are rendered. For fixed-price contracts, revenue is recognised based on the actual service provided to the end of the reporting period as a proportion of the total services to be provided because the customer receives and uses the benefits simultaneously. Where the contracts include multiple performance obligations, the transaction price is allocated to each separate performance obligation based on the stand-alone selling prices. Where these are not directly observable, they are estimated based on expected cost plus margin. Estimates of revenues, costs or extent of progress toward completion are revised if circumstances change. Any resulting increases or decreases in estimated revenues or costs are reflected in profit or loss in the period in which the circumstances that give rise to the revision become known by management. In case of fixed-price contracts, the customer pays the fixed amount based on a payment schedule. If the services rendered by the Group exceed the payment, a contract asset is recognised. If the payments exceed the services rendered, a contract liability is recognised. If the contract includes variable consideration, revenue is recognised only to the extent that it is highly probable that there will be no significant reversal of such consideration.

(iii) Financing components The Group does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the Group does not adjust any of the transaction prices for the time value of money.

(iv) Barter transactions and mutual cancellations A portion of sales and purchases are settled by mutual cancellations, barter or non-cash settlements. These transactions are generally in the form of direct settlements by dissimilar goods and services from the final customer (barter), cancellation of mutual balances or through a chain of non-cash transactions involving several companies. Sales and purchases that are expected to be settled by mutual settlements, barter or other non-cash settlements are recognised based on the management’s estimate of the fair value to be received or given up in non-cash settlements. The fair value is determined with reference to observable market information.

164 | Annual Report 2018 Non-cash transactions have been excluded from the cash flow statement. Investing and financing activities and the total of operating activities represent actual cash flows.

Interest income Interest income is recorded for all debt instruments, other than those at FVTPL, on an accrual basis using the effective interest method. This method defers, as part of interest income, all fee received between the parties to the contract that are an integral part of the effective interest rate, all other premiums or discounts. Interest income on debt instruments at FVTPL calculated at nominal interest rate is presented within ‘finance income’ line in profit or loss. Fees integral to the effective interest rate include origination fees received or paid by the Group relating to the creation or acquisition of a financial asset, for example, fees for evaluating creditworthiness, evaluating and recording guarantees or collateral, negotiating the terms of the instrument and for processing transaction documents. For financial assets that are originated or purchased credit-impaired, the effective interest rate is the rate that discounts the expected cash flows (including the initial expected credit losses) to the fair value on initial recognition (normally represented by the purchase price). As a result, the effective interest is credit-adjusted. Interest income is calculated by applying the effective interest rate to the gross carrying amount of financial assets, except for (i) financial assets that have become credit impaired (Stage 3), for which interest revenue is calculated by applying the effective interest rate to their AC, net of the ECL provision, and (ii) financial assets that are purchased or originated credit impaired, for which the original credit-adjusted effective interest rate is applied to the AC.

Income taxes Income taxes have been provided for in the consolidated financial statements in accordance with legislation enacted by the end of the reporting period. The income tax charge/(credit) comprises current tax and deferred tax and is recognised in profit or loss for the year, except if it is recognised in other comprehensive income or directly in equity because it relates to transactions that are also recognised, in the same or a different period, in other comprehensive income or directly in equity. Current tax is the amount expected to be paid to, or recovered from, the taxation authorities in respect of taxable profits or losses for the current and prior periods. Taxable profits or losses are based on estimates if consolidated financial statements are authorised prior to filing relevant tax returns. Taxes other than on income are recorded within operating expenses. Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or a liability in a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit. Deferred tax liabilities are not recorded for temporary differences on initial recognition of goodwill, and subsequently for goodwill which is not deductible for tax purposes. Deferred tax balances are measured at tax rates enacted at the end of the reporting period, which are expected to apply to the period when the temporary differences will reverse or the tax loss carry forwards will be utilised. Deferred tax assets and liabilities are netted only within the individual companies of the Group. Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is probable that the temporary difference will reverse in the future and there is sufficient future taxable profit available against which the deductions can be utilised. The Group controls the reversal of temporary differences relating to taxes chargeable on dividends from subsidiaries or on gains upon their disposal. The Group does not recognise deferred tax liabilities on such temporary differences except to the extent that management expects the temporary differences to reverse in the foreseeable future. The Group’s uncertain tax positions are reassessed by management at the end of each reporting period. Liabilities are recorded for income tax positions that are determined by management as more likely than not to result in additional taxes being levied if the positions were to be challenged by the tax authorities. The assessment is based on the interpretation of tax laws that have been enacted by the end of the reporting period, and any known court or other rulings on such issues. Liabilities for penalties, interest and taxes other than on income are recognised based on management’s best estimate of the expenditure required to settle the obligations at the end of the reporting period.

NAC Kazatomprom JSC | 165 Consolidated Financial Statements

3. Significant Accounting Policies (continued)

Property, plant and equipment (i) Recognition and measurement of property, plant and equipment Property, plant and equipment are stated at cost, less accumulated depreciation and provision for impairment, where required. Cost comprises purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates, and any costs directly attributable to bringing the asset to the location and condition necessary for its intended use. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads. The individual significant parts of an item of property, plant and equipment (components), whose useful lives are different from the useful life of the given asset as a whole are depreciated individually, applying depreciation rates reflecting their anticipated useful lives. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Specialised spare parts and servicing equipment with a significant initial value and a useful life of more than one year are recognised as an item of property, plant and equipment. Other spare parts and auxiliary equipment are recognised as inventories and accounted for in profit and loss for the year as retired. Costs of minor repairs and day-to-day maintenance are expensed when incurred. Cost of replacing major parts or components of property, plant and equipment items are capitalised and the replaced part is retired. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in profit or loss for the year.

(ii) Depreciation Land is not depreciated. Depreciation of items within buildings category that are used in extraction of uranium and its preliminary processing is charged on a unit-of-production (UoP) method in respect of items for which this basis best reflects the pattern of consumption. Depreciation on other items of property, plant and equipment is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives:

Useful lives in years Buildings 10 to 50 Machinery and equipment 3 to 50 Vehicles 3 to 10 Other 3 to 20

Each item’s estimated useful life depends on its own useful life limitations and/or term of a subsurface use contract and the present assessment of economically recoverable reserves of the mine property at which the item is located. The residual value of an asset is the estimated amount that the Group would currently obtain from the disposal of the asset less the estimated costs of disposal, if the asset was already of the age and in the condition expected at the end of its useful life. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

Mine development assets Mine development assets are stated at cost, less accumulated depreciation and provision for impairment, where required. Mine development assets comprise the capitalised costs of pump-in and pump-out well drilling, main external tying of the well with surface piping, equipment, measuring instruments, ion-exchange resin, estimated site restoration and other development costs. Mine development assets are amortised at the mine or block level using the unit-of-production method. Unit-of-production rates are based on proved reserves estimated to be recovered from mines (blocks) using existing facilities and operating methods. The estimate of proved reserves is based on reserve reports which are integral part of each subsoil use contract. These reserve reports are incorporated into feasibility models which are approved by the government and detail the total proven reserves and estimated scheduled extraction by year. Since 2017, the Group uses reserve reports prepared by an independent consultant (Note 4).

166 | Annual Report 2018 Intangible assets (i) Recognition and measurement of intangible assets The Group’s intangible assets other than goodwill have definite useful lives and primarily include capitalised production technology development costs, computer software, patents, and licences. Acquired computer software licences and patents are initially measured at costs incurred to acquire and bring them to use.

(ii) Amortisation of intangible assets Intangible assets are amortised using the straight-line method over their useful lives:

Useful lives in years Licences and patents 3 to 20 Software 1 to 14 Other 2 to 15

If impaired, the carrying amount of intangible assets is written down to the higher of value in use and fair value less costs to sell.

(iii) Goodwill Goodwill is carried at cost less accumulated impairment losses, if any. The Group tests goodwill for impairment at least annually and whenever there are indications that goodwill may be impaired. Goodwill is allocated to the cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the business combination. Such units or groups of units represent the lowest level at which the Group monitors goodwill and are not larger than an operating segment. Gains or losses on disposal of an operation within a cash-generating unit to which goodwill has been allocated include the carrying amount of goodwill associated with the disposed operation, generally measured on the basis of the relative values of the disposed operation and the portion of the cash-generating unit which is retained.

(iv) Research and development costs Research expenditure is recognised as an expense when incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and costs can be measured reliably. Other development expenditures are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs with a finite useful life that have been capitalised are amortised from the commencement of the commercial production of the product on a straight-line basis over the period of its expected benefit.

Mineral rights Mineral rights are stated at cost, less accumulated depreciation and provision for impairment, where required. The capitalised cost of acquisition of mineral rights comprises subscription bonus, commercial discovery bonus, the cost of subsurface use rights and capitalised historical costs. The Group is obliged to reimburse historical costs incurred by the government in respect of licensing areas prior to licence being issued. These historical costs are recognised as part of the acquisition cost with a corresponding liability equal to the present value of payments made during the licence period. Mineral rights are amortised using unit-of-production method based upon proved reserves commencing when uranium first starts to be extracted. The estimate of proved reserves is based on reserve reports, which are integral part of each subsoil use contract. These reserve reports are incorporated into feasibility models, which are approved by the government and detail the total proven reserves and estimated scheduled extraction by year. Since 2017, the Group uses reserve reports prepared by an independent consultant (Note 4).

Exploration and evaluation assets Exploration and evaluation assets are measured at cost less provision for impairment, where required. The Group classifies exploration and evaluation assets as tangible or intangible according to the nature of the assets acquired.

NAC Kazatomprom JSC | 167 Consolidated Financial Statements

3. Significant Accounting Policies (continued)

Exploration and evaluation assets comprise the capitalised costs incurred after the Group has obtained the legal rights to explore a specific area and prior to proving that viable production is possible and include geological and geophysical costs, the costs of exploratory wells and directly attributable overheads associated with exploration activities. Activities prior to the acquisition of the natural resources rights are pre-exploration. All pre-exploration costs are expensed as incurred and include such costs as design work on operations, technical and economical assessment of a project, and overheads associated with the pre-exploration. A decision on termination or extension of a subsurface use contract upon expiry of the exploration and evaluation period is subject to success of the exploration and evaluation of mineral resources and the Group’s decision whether or not progress to the production (development) stage. Tangible exploration and evaluation assets are transferred to mine development assets upon demonstration of commercial viability of uranium production and amortised using unit-of-production method based upon proved reserves. Once commercial reserves (proved or commercial reserves) are found, intangible exploration and evaluation assets are transferred to mineral rights. Accordingly, the Group does not amortise exploration and evaluation assets before commercial reserves (proved or commercial reserves) are found. If no commercial reserves are found, exploration and evaluation assets are expensed. Exploration and evaluation assets are tested by the Group for impairment whenever facts and circumstances indicate assets’ impairment. An impairment loss is recognised for the amount by which exploration and evaluation assets’ carrying amount exceeds their recoverable amount. The recoverable amount is higher of the exploration and evaluation assets’ fair value less costs to sell and their value in use. One or more of the following facts and circumstances indicate that the Group should test its exploration and evaluation assets for impairment (the list is not exhaustive): • the period for which the Group has the right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed; • substantive expenditure on further exploration for and evaluation of mineral reserves in the specific area is neither budgeted nor planned; • exploration for and evaluation of mineral reserves in the specific area have not led to the discovery of commercially viable quantities of mineral reserves and the Group has decided to discontinue such operations in the specific area; • sufficient data exist to indicate that, although development works in the specific area are likely to proceed, the carrying amount of the exploration and evaluation assets is unlikely to be recovered in full resulting from efficient development or by sale.

Impairment of non-financial assets The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, management estimates the recoverable amount, which is determined as the higher of an asset’s fair value less costs to sell (the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date) and its value in use (being the net present value of expected future cash flows of the relevant cash-generating unit). In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the future cash flow estimates have not been adjusted. If it is not possible to estimate the recoverable amount of the individual asset, the Group determines the recoverable amount of the cash-generating unit to which the asset belongs. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Basis for determination of cash-generating units is presented in Note 4. The estimates used for impairment reviews are based on detailed life of mine plans and operating budgets, modified as appropriate to meet the requirements of IAS 36 “Impairment of Assets”. Future cash flows are based on: • estimates of the volumes of the reserves for which there is a high degree of confidence of economic extraction; • future production and sales quantities; • future commodity prices (assuming the current market prices will revert to the Group’s assessment of the long term average price, generally over a period of three to five years); and • future costs of production and other operating and capital expenditures.

168 | Annual Report 2018 If the carrying amount of the asset exceeds its recoverable amount, the asset is impaired and an impairment loss is charged to profit and loss for the year so as to reduce the carrying amount in the consolidated statements of financial position to its recoverable amount. An impairment loss recognised for an asset in prior years is reversed where appropriate if there has been a change in the estimates used to determine the asset’s value in use or fair value less costs to sell. This reversal is recognised in profit and loss for the year, and is limited to the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognised in prior years.

Non-current assets classified as held for sale Non-current assets and disposal groups (which may include both non-current and current assets) are classified in the consolidated statements of financial position as ‘non-current assets held for sale’ if their carrying amount will be recovered principally through a sale transaction (including loss of control of a subsidiary holding the assets) within twelve months after the reporting period. Assets are reclassified when all of the following conditions are met: (a) the assets are available for immediate sale in their present condition; (b) the Group management approved and initiated an active programme to locate a buyer; (c) the assets are actively marketed for sale at a reasonable price; (d) the sale is expected within one year; and (e) it is unlikely that significant changes to the plan to sell will be made or that the plan will be withdrawn. Non-current assets or disposal groups classified as held for sale in the current period’s consolidated statements of financial position are not reclassified or re-presented in the comparative statements of financial position to reflect the classification at the end of the current period. A disposal group is a group of assets (current or non-current) to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction. Goodwill is included if the disposal group includes an operation within a cash-generating unit to which goodwill has been allocated on acquisition. Non-current assets are assets that include amounts expected to be recovered or collected more than twelve months after the reporting period. If reclassification is required, both the current and non-current portions of an asset are reclassified. Held for sale disposal groups as a whole are measured at the lower of their carrying amount and fair value less costs to sell. Held for sale property, plant and equipment are not depreciated. Reclassified non-current financial instruments are not subject to write down to the lower of their carrying amount and fair value less costs to sell. Liabilities directly associated with the disposal group that will be transferred in the disposal transaction are reclassified and presented separately in the consolidated statements of financial position.

Discontinued operations A discontinued operation is a component of the Group that either has been disposed of, or that is classified as held for sale, and: (a) represents a separate major line of business or geographical area of operations; (b) is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or (c) is a subsidiary acquired exclusively with a view to resale. Earnings and cash flows of discontinued operations, if any, are disclosed separately from continuing operations with comparatives being re-presented.

Financial instruments Key measurement terms Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The best evidence of fair value is the price in an active market. An active market is one in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. Fair value of financial instruments traded in an active market is measured as the product of the quoted price for the individual asset or liability and the number of instruments held by the entity. This is the case even if a market’s normal daily trading volume is not sufficient to absorb the quantity held and placing orders to sell the position in a single transaction might affect the quoted price.

NAC Kazatomprom JSC | 169 Consolidated Financial Statements

3. Significant Accounting Policies (continued)

Valuation techniques such as discounted cash flow models or models based on recent arm’s length transactions or consideration of financial data of the investees are used to measure fair value of certain financial instruments for which external market pricing information is not available. Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level one are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii) level two measurements are valuations techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) level three measurements are valuations not based on solely observable market data (that is, the measurement requires significant unobservable inputs). Transfers between levels of the fair value hierarchy are deemed to have occurred at the end of the reporting period.

(i) Transaction costs Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. An incremental cost is one that would not have been incurred if the transaction had not taken place. Transaction costs include fees and commissions paid to agents (including employees acting as selling agents), advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs.

(ii) Amortised cost Amortised cost (“AC”) is the amount at which the financial instrument was recognised at initial recognition less any principal repayments, plus accrued interest, and for financial assets less any allowance for expected credit losses (“ECL”). Accrued interest includes amortisation of transaction costs deferred at initial recognition and of any premium or discount to the maturity amount using the effective interest method. Accrued interest income and accrued interest expense, including both accrued coupon and amortised discount or premium (including fees deferred at origination, if any), are not presented separately and are included in the carrying values of the related items in the consolidated statement of financial position.

(iii) The effective interest method The effective interest method is a method of allocating interest income or interest expense over the relevant period, so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the gross carrying amount of the financial instrument. The effective interest rate discounts cash flows of variable interest instruments to the next interest repricing date, except for the premium or discount which reflects the credit spread over the floating rate specified in the instrument, or other variables that are not reset to market rates. Such premiums or discounts are amortised over the whole expected life of the instrument. The present value calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate. For assets that are purchased or originated credit impaired (“POCI”) at initial recognition, the effective interest rate is adjusted for credit risk, i.e. it is calculated based on the expected cash flows on initial recognition instead of contractual payments.

Financial instruments – initial recognition Financial instruments at FVTPL are initially recorded at fair value. All other financial instruments are initially recorded at fair value adjusted for transaction costs. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which can be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose inputs include only data from observable markets. After the initial recognition, an ECL allowance is recognised for financial assets measured at AC and investments in debt instruments measured at FVOCI, resulting in an immediate accounting loss. All purchases and sales of financial assets that require delivery within the time frame established by regulation or market convention (“regular way” purchases and sales) are recorded at trade date, which is the date on which the Group commits to deliver a financial asset. All other purchases are recognised when the entity becomes a party to the contractual provisions of the instrument.

170 | Annual Report 2018 Financial assets – classification and subsequent measurement (i) Measurement categories The Group classifies financial assets in the following measurement categories: FVTPL, FVOCI and AC. The classification and subsequent measurement of debt financial assets depends on: (i) the Group’s business model for managing the related assets portfolio and (ii) the cash flow characteristics of the asset. (ii) Business model The business model reflects how the Group manages the assets in order to generate cash flows – whether the Group’s objective is: (i) solely to collect the contractual cash flows from the assets (“hold to collect contractual cash flows”,) or (ii) to collect both the contractual cash flows and the cash flows arising from the sale of assets (“hold to collect contractual cash flows and sell”) or, if neither of (i) and (ii) is applicable, the financial assets are classified as part of “other” business model and measured at FVTPL. Business model is determined for a group of assets (on a portfolio level) based on all relevant evidence about the activities that the Group undertakes to achieve the objective set out for the portfolio available at the date of the assessment. Factors considered by the Group in determining the business model include the purpose and composition of a portfolio, past experience on how the cash flows for the respective assets were collected, how risks are assessed and managed, how the assets’ performance is assessed and how managers are compensated. (iv) Cash flow characteristics Where the business model is to hold assets to collect contractual cash flows or to hold contractual cash flows and sell, the Group assesses whether the cash flows represent solely payments of principal and interest (“SPPI”). Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are consistent with the SPPI feature. In making this assessment, the Group considers whether the contractual cash flows are consistent with a basic lending arrangement, i.e. interest includes only consideration for credit risk, time value of money, other basic lending risks and profit margin. Where the contractual terms introduce exposure to risk or volatility that is inconsistent with a basic lending arrangement, the financial asset is classified and measured at FVTPL. The SPPI assessment is performed on initial recognition of an asset and it is not subsequently reassessed.

Financial assets – reclassification Financial instruments are reclassified only when the business model for managing the portfolio as a whole changes. The reclassification has a prospective effect and takes place from the beginning of the first reporting period that follows after the change in the business model. The entity did not change its business model during the current and comparative period and did not make any reclassifications. Financial assets impairment – credit loss allowance for ECL The Group assesses, on a forward-looking basis, the ECL for debt instruments measured at AC and FVOCI and for the exposures arising from loan commitments and financial guarantee contracts, for contract assets. The Group measures ECL and recognises Net impairment losses on financial and contract assets at each reporting date. The measurement of ECL reflects: (i) an unbiased and probability weighted amount that is determined by evaluating a range of possible outcomes, (ii) time value of money and (iii) all reasonable and supportable information that is available without undue cost and effort at the end of each reporting period about past events, current conditions and forecasts of future conditions. Debt instruments measured at AC and contract assets are presented in the consolidated statement of financial position net of the allowance for ECL. For loan commitments and financial guarantees, a separate provision for ECL is recognised as a liability in the consolidated statement of financial position. For debt instruments at FVOCI, changes in amortised cost, net of allowance for ECL, are recognised in profit or loss and other changes in carrying value are recognised in OCI as gains less losses on debt instruments at FVOCI. The Group applies a three stage model for impairment, based on changes in credit quality since initial recognition. A financial instrument that is not credit-impaired on initial recognition is classified in Stage 1. Financial assets in Stage 1 have their ECL measured at an amount equal to the portion of lifetime ECL that results from default events possible within the next 12 months or until contractual maturity, if shorter (“12 Months ECL”). If the Group identifies a significant increase in credit risk (“SICR”) since initial recognition, the asset is transferred to Stage 2 and its ECL is measured based on ECL on a lifetime basis, that is, up until contractual maturity but considering expected prepayments, if any (“Lifetime ECL”). Refer to Note 42 for a description of how the Group determines when a SICR has occurred. If the Group determines that a financial asset is credit-impaired, the asset is transferred to Stage 3 and its ECL is measured as a Lifetime ECL. The Group’s definition of credit impaired assets and definition of default is explained in Note 42.

NAC Kazatomprom JSC | 171 Consolidated Financial Statements

3. Significant Accounting Policies (continued)

For financial assets that are purchased or originated credit-impaired (“POCI Assets”), the ECL is always measured as a Lifetime ECL. Note 42 provides information about inputs, assumptions and estimation techniques used in measuring ECL, including an explanation of how the Group incorporates forward-looking information in the ECL models.

Financial assets – write-off Financial assets are written-off, in whole or in part, when the Group exhausted all practical recovery efforts and has concluded that there is no reasonable expectation of recovery. The write-off represents a derecognition event. Indicators that there is no reasonable expectation of recovery include (i) court decision, (ii) liquidation of entity from which financial asset was acquired, (iii) overdue period of 3 years and more.

Derivative financial instruments Derivative financial instruments are carried at their fair value. All derivative instruments are carried as assets when fair value is positive and as liabilities when fair value is negative. Changes in the fair value of derivative instruments are included in profit or loss for the year. The Group does not apply hedge accounting. Certain derivative instruments embedded in financial liabilities and other non-financial contracts are treated as separate derivative instruments when their risks and characteristics are not closely related to those of the host contract.

Financial assets – derecognition The Group derecognises financial assets when (a) the assets are redeemed or the rights to cash flows from the assets otherwise expire or (b) the Group has transferred the rights to the cash flows from the financial assets or entered into a qualifying pass- through arrangement whilst (i) also transferring substantially all the risks and rewards of ownership of the assets or (ii) neither transferring nor retaining substantially all the risks and rewards of ownership but not retaining control. Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose additional restrictions on the sale.

Financial assets – modification The Group sometimes renegotiates or otherwise modifies the contractual terms of the financial assets. The Group assesses whether the modification of contractual cash flows is substantial considering, among other, the following factors: any new contractual terms that substantially affect the risk profile of the asset, significant change in interest rate, change in the currency denomination, new collateral or credit enhancement that significantly affects the credit risk associated with the asset or a significant extension of a loan when the borrower is not in financial difficulties. If the modified terms are substantially different, the rights to cash flows from the original asset expire and the Group derecognises the original financial asset and recognises a new asset at its fair value. The date of renegotiation is considered to be the date of initial recognition for subsequent impairment calculation purposes, including determining whether a SICR has occurred. The Group also assesses whether the new loan or debt instrument meets the SPPI criterion. Any difference between the carrying amount of the original asset derecognised and fair value of the new substantially modified asset is recognised in profit or loss, unless the substance of the difference is attributed to a capital transaction with owners. In a situation where the renegotiation was driven by financial difficulties of the counterparty and inability to make the originally agreed payments, the Group compares the original and revised expected cash flows to assets whether the risks and rewards of the asset are substantially different as a result of the contractual modification. If the risks and rewards do not change, the modified asset is not substantially different from the original asset and the modification does not result in derecognition. The Group recalculates the gross carrying amount by discounting the modified contractual cash flows by the original effective interest rate (or credit-adjusted effective interest rate for POCI financial assets), and recognises a modification gain or loss in profit or loss.

Financial liabilities – measurement categories Financial liabilities are classified as subsequently measured at AC, except for (i) financial liabilities at FVTPL: this classification is applied to derivatives, financial liabilities held for trading (e.g. short positions in securities), contingent consideration recognised by an acquirer in a business combination and other financial liabilities designated as such at initial recognition and (ii) financial guarantee contracts and loan commitments.

172 | Annual Report 2018 Financial liabilities – derecognition Financial liabilities are derecognised when they are extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires). An exchange between the Group and its original lenders of debt instruments with substantially different terms, as well as substantial modifications of the terms and conditions of existing financial liabilities, are accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. The terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective interest rate, is at least 10% different from the discounted present value of the remaining cash flows of the original financial liability. In addition, other qualitative factors, such as the currency that the instrument is denominated in, changes in the type of interest rate, new conversion features attached to the instrument and change in loan covenants are also considered. If an exchange of debt instruments or modification of terms is accounted for as an extinguishment, any costs or fees incurred are recognised as part of the gain or loss on the extinguishment. If the exchange or modification is not accounted for as an extinguishment, any costs or fees incurred adjust the carrying amount of the liability and are amortised over the remaining term of the modified liability. Modifications of liabilities that do not result in extinguishment are accounted for as a change in estimate using a cumulative catch up method, with any gain or loss recognised in profit or loss, unless the economic substance of the difference in carrying values is attributed to a capital transaction with owners.

Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position only when there is a legally enforceable right to offset the recognised amounts, and there is an intention to either settle on a net basis, or to realise the asset and settle the liability simultaneously. Such a right of set off (a) must not be contingent on a future event and (b) must be legally enforceable in all of the following circumstances: (i) in the normal course of business, (ii) in the event of default and (iii) in the event of insolvency or bankruptcy.

Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less. Cash and cash equivalents are carried at AC because: (i) they are held for collection of contractual cash flows and those cash flows represent SPPI, and (ii) they are not designated at FVTPL. Restricted balances are excluded from cash and cash equivalents for the purposes of the cash flow statement. Balances restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period are included in other non-current assets.

Trade and other receivables Trade and other receivables are recognised initially at fair value and are subsequently carried at amortised cost using the effective interest method.

Inventories Inventories are recorded at the lower of cost and net realisable value. The cost of inventory is determined on the weighted average basis. The cost of finished goods and work in progress comprises raw material, direct labour, other direct costs and related production overheads (based on the normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and selling expenses.

Prepayments Prepayments are carried at cost less provision for impairment. A prepayment is classified as non-current when the goods or services relating to the prepayment are expected to be obtained after one year, or when the prepayment relates to an asset which will itself be classified as non-current upon initial recognition. Prepayments to acquire assets are transferred to the carrying amount of the asset once the Group has obtained control of the asset and it is probable that future economic benefits associated with the asset will flow to the Group. Other prepayments are written off to profit or loss when the goods or services relating to the prepayments are received. If there is an indication that the assets, goods or services relating to a prepayment will not be received, the carrying value of the prepayment is written down accordingly and a corresponding impairment loss is recognised in profit or loss for the year. Non- current prepayments are not discounted.

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3. Significant Accounting Policies (continued)

Value added tax Value added tax (VAT) related to sales is payable to the tax authorities when goods are shipped or services are rendered. Purchase VAT can be offset against sales VAT upon the receipt of a tax invoice from a supplier. Tax legislation allows the settlement of VAT on a net basis. Accordingly, VAT related to sales and purchases unsettled at the reporting date is stated in the consolidated statements of financial position on a net basis separately for each consolidated entity. Recoverable VAT is classified as non-current if its settlement is not expected within one year after the reporting period. Non-current VAT is not discounted.

Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. Any excess of the fair value of consideration received over the par value of shares issued is recorded as share premium in equity. Additional paid-in capital primarily represents capital contributions made by non-controlling interests in excess of their ownership.

Dividends Dividends are recorded as a liability and deducted from equity in the period in which they are declared and approved. Any dividends declared after the reporting period and before the financial statements are authorised for issue are disclosed in the subsequent events note.

Operating leases Where the Group is a lessee in a lease which does not transfer substantially all the risks and rewards incidental to ownership from the lessor to the Group, the total lease payments are charged to profit or loss for the year on a straight-line basis over the lease term. The lease term is the non-cancellable period for which the lessee has contracted to lease the asset together with any further terms for which the lessee has the option to continue to lease the asset, with or without further payment, when at the inception of the lease it is reasonably certain that the lessee will exercise the option.

Finance lease liabilities Where the Group is a lessee in a lease which transferred substantially all the risks and rewards incidental to ownership to the Group, the assets leased are capitalised in property, plant and equipment at the commencement of the lease at the lower of the fair value of the leased asset and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of future finance charges, are included in borrowings. The interest cost is charged to profit or loss over the lease period using the effective interest method. The assets acquired under finance leases are depreciated over their useful life or the shorter lease term, if the Group is not reasonably certain that it will obtain ownership by the end of the lease term.

Loans and borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred and are subsequently carried at AC using the effective interest method. Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial time to get ready for intended use or sale (qualifying assets) are capitalised as part of the costs of those assets. The commencement date for capitalisation is when (a) the Group incurs expenditures for the qualifying asset; (b) it incurs borrowing costs; and (c) it undertakes activities that are necessary to prepare the asset for its intended use or sale. Capitalisation of borrowing costs continues up to the date when the assets are substantially ready for their use or sale. Capitalisation of borrowing costs continues up to the date when the assets are substantially ready for their use or sale. The Group capitalises borrowing costs that could have been avoided if it had not made capital expenditure on qualifying assets. Borrowing costs capitalised are calculated at the Group’s average funding cost (the weighted average interest cost is applied to the expenditures on the qualifying assets), except to the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset. Where this occurs, actual borrowing costs incurred on the specific borrowings less any investment income on the temporary investment of these borrowings are capitalised.

174 | Annual Report 2018 Preference shares Preference shares, which are mandatorily redeemable on a specific date, are classified as liabilities. The dividends on these preference shares are recognised in the statement of profit or loss and other comprehensive income as interest expense.

Provisions for liabilities and charges Provisions for liabilities and charges are non-financial liabilities of uncertain timing or amount. They are accrued when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. The Group’s provisions include site restoration, environment protection and other provisions (Note 36).

Provisions for assets retirement obligations Assets retirement obligations are recognised when it is probable that the costs would be incurred and those costs can be measured reliably. Asset retirement obligations include the costs of rehabilitation and costs of liquidation (demolition of buildings, constructions and infrastructure, dismantling of machinery and equipment, transportation of the residual materials, environmental clean-up, monitoring of wastes and land restoration). Provision for the estimated costs of liquidation, rehabilitation and restoration are established and charged to the cost of property, plant and equipment or mine development assets in the reporting period when an obligation arises from the respective land disturbance in the course of mine development or environment pollution, based on the discounted value of estimated future costs. Movements in the provisions for assets retirement obligations, resulting from updated cost estimates, changes to the estimated term of operations and revisions to discount rates are capitalised within property, plant and equipment or mine development assets. These amounts are then depreciated over the lives of the assets to which they relate using the depreciation methods applied to those assets. Provisions for asset retirement obligations do not include any additional obligations which are expected to arise from future disturbances. The costs are estimated on the basis of a closure and restoration plan. The cost estimates are calculated annually during the course of the operations to reflect known developments, including updated cost estimates revised subsoil use terms and estimated lives of operations, and are subject to formal reviews on a regular basis. Although the final cost to be incurred is uncertain, the Group estimates its costs based on feasibility and engineering studies using current restoration standards and techniques for conducting restoration and retirement works. The amortisation or “unwinding” of the discount applied in establishing the net present value of provisions is charged to profit and loss in each reporting period. The amortisation of the discount is disclosed as finance costs.

Financial guarantees Financial guarantees require the Group to make specified payments to reimburse the holder of the guarantee for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. Financial guarantees are initially recognised at their fair value, which is normally evidenced by the amount of fees received. This amount is amortised on a straight line basis over the life of the guarantee. At the end of each reporting period, the guarantees are measured at the higher of (i) the amount of the loss allowance for the guaranteed exposure determined based on the expected loss model and (ii) the remaining unamortised balance of the amount at initial recognition. In addition, an ECL loss allowance is recognised for fees receivable that are recognised in the consolidated statement of financial position as an asset.

Trade and other payables Trade payables are accrued when the counterparty performs its obligations under the contract and are recognised initially at fair value and subsequently carried at amortised cost using the effective interest method.

Employee benefits (i) Long-term employee benefits The Group entities provide long-term employee benefits to employees in accordance with the provisions of the collective agreement. The agreements provide for financial aid for employees’ disability, retirement, funeral aid and other payments to the Group’s employees. The entitlement to some benefits is usually conditional on the employee remaining employed until the retirement age and the completion of a minimum service period. The Group does not have any funded post-employment plans. Liability recognised at each reporting date represents the present value of the plan liabilities. Actuarial gains and losses arising in the year are taken to the profit or loss for the year.

NAC Kazatomprom JSC | 175 Consolidated Financial Statements

3. Significant Accounting Policies (continued)

For this purpose, actuarial gains and losses comprise both the effects of changes in actuarial assumptions and experience adjustments arising because of differences between the previous actuarial assumptions and what has actually occurred. Actuarial gains and losses on post-employment obligations such as experience adjustments and the effects of changes in actuarial assumptions recognised in other comprehensive income in the period occurred. Other movements in the present value of the plan liabilities are also recognised in the profit or loss for the year, including current service cost. The most significant assumptions used in accounting for defined benefit obligations are the discount rate, staff turnover and the mortality assumptions. The discount rate is used to determine the net present value of future liabilities and each year the unwinding of the discount on those liabilities is charged to profit or loss for the year. The mortality assumption is used to project the future stream of benefit payments, which is then discounted to arrive at a net present value of liabilities. Employee benefits, including financial aid for employees’ disability and funeral aid to the Group’s employees and other payments, are considered as other long-term employee benefits. The expected cost of these benefits is accrued over the period of employment using the same accounting methodology as used for the defined benefit plan. These obligations are valued annually by independent qualified actuaries.

(ii) Payroll expense and related contributions Wages, salaries, contributions to pension and social insurance funds, paid annual leave and sick leave, bonuses, and non- monetary benefits are accrued in the year in which the associated services are rendered by the employees of the Group. In accordance with the legal requirements of the Republic of Kazakhstan, the Group withholds pension contributions from employees’ salary and transfers them into the united pension fund. Upon retirement of employees, all pension payments are administered by the united pension fund.

Earnings per share Earnings per share are determined by dividing the profit or loss attributable to owners of the Company by the weighted average number of participating shares outstanding during the reporting year adjusted for share split.

Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the Group’s chief operating decision maker. The chief operating decision-maker is responsible for allocating resources and assessing performance of the operating segments. Reportable segments whose revenue, result or assets are ten percent or more of all the segments are reported separately.

Changes in presentation of financial statements Discontinued operation As disclosed in Note 46, in these consolidated financial statements MAEK-Kazatomprom LLP was classified as a discontinued operation. Earnings and cash flows from discontinued operations are presented separately from continuing operations both for current and comparative periods. Comparative information was restated accordingly. The financial information in relation to restatement made is presented below:

176 | Annual Report 2018 In millions of Kazakhstani Tenge 2017 Adjustment 2017 (as originally presented) restated Revenue 336,517 (59,471) 277,046 Cost of sales (263,864) 53,930 (209,934) Gross profit 72,653 (5,541) 67,112 Distribution expenses (4,858) 542 (4,316) General and administrative expenses (32,274) 2,080 (30,194) Impairment losses (27,415) 3 (27,412) Net foreign exchange loss (768) (37) (805) Other income 115,111 (204) 114,907 Other expenses (6,768) 490 (6,278) Finance income 5,888 (73) 5,815 Finance costs (9,067) 134 (8,933) Share of results of associates 22,007 - 22,007 Share of results of joint ventures 22,107 - 22,107 Profit before tax 156,616 (2,606) 154,010 Income tax expense (17,462) 175 (17,287) Profit from continuing operations 139,154 (2,431) 136,723 Profit from discontinued operation - 2,431 2,431 PROFIT FOR THE YEAR 139,154 - 139,154

4. Critical Accounting Estimates and Judgements in Applying Accounting Policies

The Group makes estimates and assumptions that affect the amounts recognised in the financial statements and the carrying amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management also makes certain judgements, apart from those involving estimations, in the process of applying the accounting policies. Judgements that have the most significant effect on the amounts recognised in the financial statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include:

Fair value measurement for business combinations (estimates) In accordance with IFRS 3 Business Combinations, the Group measures the identifiable assets and the liabilities and contingent liabilities acquired through a business combination at their acquisition-date fair values. Fair values are determined on the basis of external appraisal report (unless the accounting for the business combination is not complete at the end of the reporting period, in that case provisional values are used). The determination of fair values involves significant assumptions and judgement over future cash flows and other inputs used in the valuation. The purchase price related to a business combination is allocated to the underlying acquired assets and liabilities based on their estimated fair values at the time of acquisition. The allocation process is inherently subjective and impacts the amounts assigned to individually identifiable assets and liabilities. As a result, the purchase price allocation impacts reported assets and liabilities and future net earnings due to the impact on future depreciation and amortisation expense and impairment tests. Fair value measurements applied in accounting for business combinations had a significant impact on the Group’s profit for the year ended 31 December 2018. The net gain from business combinations in 2018 totalled Tenge 313,517 million (2017: nil). Further information on business combinations is presented in Note 45.

NAC Kazatomprom JSC | 177 Consolidated Financial Statements

4. Critical Accounting Estimates and Judgements in Applying Accounting Policies (continued)

Ore reserves (estimates) Uranium reserves are a critical component of the Group’s projected cash flow estimates that are used to assess the recoverable values of assets and to determine depreciation and amortisation expense. In 2018 and 2017, the Group engaged SRK Consulting (UK) Limited (hereinafter SRK) to assess the Group’s reserves and resources in accordance with the Australasian Code for reporting on geological exploration works, mineral resources and ore reserves (2012) (hereinafter JORC Code). Reserves and resources valuation was carried out as of 31 December 2018 and 31 December 2017, respectively. SRK has reviewed all of the key information upon which the most recent (31 December 2018 and 31 December 2017, respectively) reported mineral resource and ore reserve statements for the mining assets of JSC NAC Kazatomprom are based. SRK has not independently re-calculated mineral resource and ore reserve estimates for the Group’s operations but has rather reviewed the quantity and quality of the underlying data and the methodologies used to derive and classify the estimates as reported by the Group and made an opinion on these estimates including the tonnes of uranium planned to be exploited in the most up to date life of mine plans. Based on this review, SRK has derived mineral resource and ore reserve statements according to the guidelines and terminology proposed in the JORC Code. SRK’s resource statements are confined to those areas that both have the potential to be mined economically and which are currently being considered for mining. SRK report contains an assessment of the tonnes of uranium contained in ore which has the potential to be extracted by the existing and planned mining operations (the mineral resource), and also the tonnes of uranium contained in ore currently planned to be extracted as envisaged by the respective LoM plans (the ore reserve). The Group used reserves data according to the SRK report for calculation of impairment of long-term assets and UoP depreciation for each of the Group’s mines.

Impairment of non-financial assets (estimates) At the end of each reporting period, management assesses whether there is any indication of impairment of individual assets (or cash-generating units). If any such indication exists, management estimates the recoverable amount, which is determined as the higher of an asset’s fair value less costs to sell and its value in use. An impairment loss is recognised for the amount by which carrying amount exceeds recoverable amount. The Group tests goodwill for impairment at least annually. The calculation of value in use requires management to make estimates regarding the Group’s future cash flows. The estimation of future cash flows involves significant estimates and assumptions regarding commodity prices (uranium and other products), the level of production and sales, discount rates, growth rates, operating costs and other factors. The impairment review and calculations are based upon assumptions that are consistent with the Group’s business plans. Due to its subjective nature, these estimates could differ from future actual results of operations and cash flows; any such difference may result in impairment in future periods which would decrease the carrying value of the respective asset.

Goodwill Refer to Note 20 for details of the Group’s impairment testing for goodwill at 31 December 2018.

Assets related to uranium production Assets related to uranium mines include property, plant and equipment, mine development assets, mineral rights, exploration and evaluation assets, investments in associates, investments in joint ventures, and other investments. For the purpose of impairment testing assets are grouped at the lowest levels for which there are separately identifiable cash inflows that are largely independent of the cash inflows from other assets or groups of assets (termed as ‘cash-generating units’). The Group has identified each mine (contract territory) as a separate cash-generating unit unless several mines are technologically connected with single processing plant in which case the Group considers such mines as one cash-generating unit.

At 31 December 2018: At 31 December 2018, management performed an analysis of impairment indications of assets (cash-generating units) related to uranium production. No indications of impairment were identified as of that date: (a) uranium prices increased over 2018, above forecasts in prior year; (b) uranium reserves remained stable in 2018 and for number of mines increased per the JORC report by SRK, as explained below.

178 | Annual Report 2018 The Group considered whether there have been favourable events or changes in circumstances that would indicate impairment losses previously recognised no longer exist or may have decreased. Decrease in reserves at 31 December 2017 and other factors (refer below) were considered as impairment indications that resulted in impairment losses on Kanzhugan, Karamurun, Zarechnoe and Semizbay mines being recognised in 2017. As these indications reversed at 31 December 2018, the Group reestimated the recoverable amount and recognised reversal of impairment losses on these cash generating units (Note 13). No reversal was recognised on Uvanas and South Moinkum CGUs as cost of production on these mines remains to be higher than sales price. The principal assumptions used by management for calculation of value in use as at 31 December 2018 are: • average annual uranium prices are based upon the forecast by an independent source Ux Consulting LLC, published in the fourth quarter of 2018 (Mid Price Midpoint), reduced by 10%:

2019 2020 2021 2022 2023-2030

Average price of U3O8 28.92 30.37 31.21 31.76 32.47-47.39 per pound (in USD)

• forecasted periods and volumes of uranium production and sales have regard to annual production volumes set in the subsurface use contracts and the life of mine plans; • operating and capital expenditures for 2019-2023 are consistent with the approved 5-year budget of the Group; • operating and capital expenditures after 2023 will increase at the long-term inflation rate of 2.0% per annum; • discount rates of 11.87-12.92% per annum; and • forecast long-term exchange rate at Tenge 370 per US Dollar 1. Presented below is the sensitivity analysis disclosing possible impairment losses at reasonably possible changes of principal assumptions (with all other parameters held constant) for assets (cash-generating units): • decrease in average forecast annual uranium prices across the forecast horizon for 10% or 20% does not result in impairment loss; • forecast production decrease by 10% also does not result in impairment loss. At 31 December 2017: At 31 December 2017, the Group identified that impairment indications of assets (or cash-generating units) related to uranium production existed for Uvanas, Kanzhugan, South Moinkum, Karamurun, Semizbay, Irkol, East Mynkuduk and Zarechnoye. The impairment indications included a decrease in reserves following change to JORC assessment and other factors, such as field depletion or high production costs. Management performed impairment tests for these assets (cash-generating units) and at 31 December 2017 recognised impairment losses for Uvanas, Kanzhugan, South Moinkum, Karamurun, Semizbay and Zarechnoye, as the recoverable amounts were less than their carrying amounts (Note 13). The principal assumptions used by management for calculation of value in use as at 31 December 2017 were: • average annual uranium prices are based upon the forecast by Ux Consulting LLC, published in the fourth quarter of 2017 (Mid Price Midpoint), reduced by 10%:

2018 2019 2020 2021 2022 2023-2030

Average price of U3O8 23.45 22.6 22.8 24.6 26.7 31.3 - 45.6 per pound (in USD)

• forecasted periods and volumes of uranium production and sales corresponded to annual production volumes set in the subsurface use contracts; these volumes had been adjusted by management in connection with the plans for production cut and limited to reserves determined in accordance with the JORC code per SRK report; • operating and capital expenditures for 2018-2022 were consistent with the approved 5-year budget of the Group; • operating and capital expenditures after 2022 increased at the long-term inflation rate of 4-6% per annum; • discount rate was 9.57-12.1 per annum; • forecast of long-term exchange rate was based on IHS Global Insight. Presented below is the sensitivity analysis disclosing impairment losses at reasonably possible changes of principal assumptions (with all other parameters held constant) for assets (cash-generating units) where impairment indications were identified: • decrease in average annual uranium prices over the forecast horizon by:

NAC Kazatomprom JSC | 179 Consolidated Financial Statements

4. Critical Accounting Estimates and Judgements in Applying Accounting Policies (continued)

% decrease Impairment loss, million Tenge 10% 38,368 20% 40,549

Provision for asset retirement obligations (estimates) Mining assets In accordance with environmental legislation and the subsurface use contracts, the Group has a legal obligation to remediate damage caused to the environment from its operations and to decommission its mining assets and waste polygons and restore landfill sites after closure of mining activities. Provision is made based upon the net present values of estimated site restoration and retirement costs as soon as the obligation arises from past mining activities. The provision for asset retirement obligations is estimated based upon the Group’s interpretation of current environmental legislation in the Republic of Kazakhstan and the Group’s related programme for liquidation of subsurface use consequences on the contracted territory and other operations supported by the feasibility study and engineering research in accordance with the applicable restoration and retirement standards and techniques. Asset retirement obligations for mining assets as of 31 December 2018 were assessed by the independent consultant SRK Consulting based on data provided by the Group. The scope of works, set by the legislation and covered by SRK calculation, included removal of the facilities and infrastructure (production, injection and monitoring wells, technological units of acidification and distribution of solutions (TUZ), pipelines, access roads, technological sites, polygons, buildings and other facilities) and subsequent land rehabilitation. Provisions for asset retirement obligations are subject to potential changes in environmental regulatory requirements and the interpretation of the legislation. Provisions for mining assets and waste polygons retirement obligations are recognised when there is a certainty of incurring of such liabilities and when it is possible to measure the amounts reliably. Significant judgments used in such estimations include the estimate of discount rate and the amount and timing of future cash flows. The discount rate is applied to the nominal costs the management expects to spend on mining site restoration in the future. Management’s estimates based on current prices are inflated using the expected long-term inflation rate of 5.30% in 2018 (2017: 5.40%), and subsequently discounted using rate that reflects the current market estimates of the time value of money and those risks specific to the liability not reflected in the best estimate of the costs. The discount rate is based on a risk-free rate determined as interest rates on government bonds with the same maturity as the subsoil use contracts of the Group. The discount rate used by the Group’s companies for calculation of the provision as at 31 December 2018 is 7.45% (2017: 9.06%). At 31 December 2018, the carrying value of the site restoration provision was Tenge 29,607 million (2017: Tenge 19,939 million) (Note 36). Management estimates that reasonably possible changes in key assumptions would not lead to significant changes in the recorded site restoration provision.

Decommissioning, maintaining and dismantling of reactor BN-350 On 3 July 2018, the Group sold its 100% interest in MAEK Kazatomprom LLP to Samruk-Kazyna JSC (Note 46). That entity has a utilities business and owns a non-operating BN-350 nuclear reactor. In accordance with the sales and purchase agreement, in relation to its period of ownership of MAEK, the Group: • is not liable for any liabilities associated with the reactor unless caused by the Group’s gross negligence or intentional guilty actions; and • may be responsible for financial and environmental liabilities that may be identified in future periods relating to the utilities business. Management believes that the Group has no obligations under this agreement at 31 December 2018 and, accordingly, no liability is recognised in these consolidated financial statements. Decommissioning of the Ulba plant facility Management has assessed whether the Group has an obligation for decommissioning and dismantling of the production facility of Ulba Metallurgical Plant JSC (Note 41) and concluded that the Group has no legal obligation to decommission this facility at the end of its useful life.

180 | Annual Report 2018 In addition, management considered the extent to which the Group’s policies and statements may have created a constructive obligation to decommission this production facility and concluded that no liability should be recorded as: • Radiation contamination of the facility is limited and the costs involved in remediation are not significant. • In the event of discontinuance of production activities, the Group will not have an obligation to liquidate buildings and other infrastructure. In addition, the possibility exists of redeployment of the production facilities to alternative uses. • Timely inspections, surveys, repair work to reduce physical damage and maintain the normal level of performance of structures and engineering equipment can extend the useful life of the facility for an indefinite period. These factors together with the extended periods over which the Group’s uranium reserves are available to be mined mean that it is not practical to estimate a reliable closure date for the UMP production facility. In the event of future changes in environmental legislation or its interpretation, as well as the Group’s policy, obligations may arise which could require recognition as liabilities in the financial statements.

Tax and transfer pricing legislation (judgements) Kazakhstan tax and transfer pricing legislation is subject to varying interpretations (Note 39).

Swap transactions (judgements) The Group sells part of its uranium products under swap transactions with separate agreements with the same counterparty simultaneously, being for delivery and purchase of the same volume of uranium for the same price at different delivery points. Effectively, this results in the exchange of own uranium (produced or purchased from the Group’s entities) with purchased uranium. Normally, under a swap transaction, the Group delivers physical uranium to one destination point, and purchases the same volume of uranium at a third party converter for sale to end customers. Swap transactions are entered into primarily to reduce transportation costs for uranium delivery from Kazakhstan to end customers. Despite the fact that swap agreements are not formally related to each other, management concluded that these transactions are in substance linked and would not have occurred on an isolated basis, driven by the existing market demand and supply forces. In management’s view, supply of the same volume of homogeneous product (uranium) for the same price represents an exchange of products, which should be presented on a net basis in the consolidated financial statements, reflecting the economic substance of the transaction. Interpretation of terms and approach to the accounting for swap transactions requires judgement. In 2017, the Group did not recognise sales revenue from swap transactions of Tenge 57,177 million, cost of sales of Tenge 52,532 million and adjusted the inventory balance by Tenge 4,645 million. In 2018, the Group did not recognise sales revenue from swap transactions of Tenge 65,052 million, cost of sales of Tenge 68,112 million and adjusted the inventory balance by Tenge 1,585 million.

5. Adoption of New and Revised Standards

Adoption of IFRS 9 Financial Instruments The Group adopted IFRS 9, Financial Instruments, from 1 January 2018. The Group elected not to restate comparative figures and recognised any adjustments to the carrying amounts of financial assets and liabilities in opening retained earnings as of the date of initial application of the standards. Consequently, the revised requirements of IFRS 7, Financial Instruments: Disclosures, have only been applied to the current period. The comparative period disclosures are consistent with disclosures made in the prior year. The significant new accounting policies applied in the current period are described in Note 3. Accounting policies applied prior to 1 January 2018 and applicable to the comparative information are disclosed in Note 48. The following table reconciles the carrying amounts of each class of financial asset as previously measured in accordance with IAS 39 and the new amounts determined upon adoption of IFRS 9 on 1 January 2018.

NAC Kazatomprom JSC | 181 Consolidated Financial Statements

5. Adoption of New and Revised Standards (continued)

In millions of Kazakhstani Tenge Measurement category Carrying value Effect of adopting IFRS 9 Carrying value under IAS 39 under IFRS 9 — IAS 39 IFRS 9 – 31 December Remeasurement 1 January 2018 2017 ECL Other Cash and cash equivalents L&R AC 239,936 (201) - 239,735 Corporate bonds AFS AC 598 - - 598 Total investments in debt securities 598 - - 598 Term deposits with original maturities L&R AC 8,472 (109) - 8,363 of more than three months Total term deposits 8,472 (109) - 8,363 Corporate shares AFS FVOCI 1,128 - 2,701 3,829 Total investments in equity securities 1,128 - 2,701 3,829 Trade and other receivables L&R AC 58,085 (394) - 57,691 Loans to related parties L&R AC 20,302 (57) - 20,245 Restricted cash L&R AC 4,619 (98) - 4,521 Other L&R AC 18,396 (132) - 18,264 Total other financial assets 101,402 (681) - 100,721 Other items (919) (1,910) 2,701

(a) Cash and cash equivalents All classes of cash and cash equivalents as disclosed in Note 33 were reclassified from loans and receivables (“L&R”) measurement category under IAS 39 to AC measurement category under IFRS 9 at the adoption date of the standard. The ECLs for cash and cash equivalents balances were insignificant.

(b) Investments in equity securities The Group has elected to irrevocably designate some investments in a portfolio of non-trading equity securities as at FVOCI as permitted under IFRS 9. IFRS 9 does not provide an exemption to measure investments in unquoted equity securities at cost. The Group remeasured all such investments at fair value on adoption of IFRS 9 and classified as FVTPL or designated as at FVOCI.

Reconciliation of provision for impairment at 31 December 2017 and credit loss allowance at 1 January 2018 The following table reconciles the prior period’s closing provision for impairment measured in accordance with the incurred loss model under IAS 39 to new credit loss allowance measured in accordance with the expected loss model under IFRS 9 at 1 January 2018:

In millions of Kazakhstani Tenge Provision under Effect Credit loss IAS 39 or IAS 37 at allowance under 31 Dec 2017 Reclassi-fication to Reclassi-fication to Remeasu-rement IFRS 9 FVTPL FVOCI from incurred to at 1 January 2018 expected loss Loans and receivables measurement category ·· Due from other banks - - - (109) (109) ·· Cash and cash equivalents - - - (201) (201) ·· Trade receivables (1,731) - - (394) (2,125) ·· Loans given to related parties (11,545) - - (57) (11,602) ·· Other current assets (4,367) - - (132) (4,499) ·· Other non-current assets (6,018) - - (98) (6,116) ·· Guarantees obligations - - - (541) (541) ·· Other items - - - (378) (378)

182 | Annual Report 2018 At 31 December 2017, all of the Group’s financial liabilities were carried at AC. There were no changes to the classification and measurement of financial liabilities.

Adoption of IFRS 15 Revenue from Contracts with Customers The Group elected to apply the practical expedient available for the simplified transition method. The Group applies IFRS 15 retrospectively only to contracts that were not completed at the date of initial application (1 January 2018). The adoption of IFRS 15 resulted in no adjustment to the consolidated financial statements. The following amended standards became effective for the Group from 1 January 2018, but did not have any material impact on the Group: • Amendments to IFRS 2 Share-based Payment (issued on 20 June 2016 and effective for annual periods beginning on or after 1 January 2018). • Amendments to IFRS 4 ‒ Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (issued on 12 September 2016 and effective, depending on the approach, for annual periods beginning on or after 1 January 2018 for entities that choose to apply temporary exemption option, or when the entity first applies IFRS 9 for entities that choose to apply the overlay approach). • Annual Improvements to IFRSs 2014-2016 cycle ‒ Amendments to IFRS 1 an IAS 28 (issued on 8 December 2016 and effective for annual periods beginning on or after 1 January 2018). • IFRIC 22 Foreign Currency Transactions and Advance Consideration (issued on 8 December 2016 and effective for annual periods beginning on or after 1 January 2018). • Amendments to IAS 40 – Transfers of Investment Property (issued on 8 December 2016 and effective for annual periods beginning on or after 1 January 2018).

6. New Accounting Pronouncements

Certain new standards and interpretations have been issued that are mandatory for annual periods beginning on or after 1 January 2019, and which the Group has not early adopted. IFRS 16, Leases (issued on 13 January 2016 and effective for annual periods beginning on or after 1 January 2019). The new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. All leases result in the lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. Accordingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee accounting model. Lessees will be required to recognise: (a) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and (b) depreciation of lease assets separately from interest on lease liabilities in the statement of profit or loss and other comprehensive income. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. The group will apply the estimate to the calculation of the asset in the form of the right of use on the lease, previously classified as an operating lease in accordance with subparagraph (ii) of paragraph (b) of paragraph C8 of IFRS 16 Leases, in an amount equal to the lease liability. The transition to the new standard will have an impact on the Group’s subsidiaries, which previously classified the leased assets as operating leases, since the Group applied the leasing rules when accounting for leased assets. As at 31 December 2018 the Group has non-cancellable lease commitments of Tenge 261 million. Of these commitments, approximately Tenge 44 million relate to short-term leases which will be recognised on a straight-line basis as expense in profit or loss. A reconciliation of the operating lease commitments to the recognised liability is as follows:

NAC Kazatomprom JSC | 183 Consolidated Financial Statements

6. New Accounting Pronouncements (continued)

In millions of Kazakhstani Tenge 31 December 2018 / 1 January 2019 Total future minimum lease payments for non-cancellable operating leases 218 ·· Future lease payments that are due in periods subject to lease extension options that - are reasonably certain to be exercised ·· Future variable lease payments that are based on an index or a rate - ·· Effect of discounting to present value (76) TOTAL LEASE LIABILITIES 142

For the remaining lease commitments the Group expects to recognise right-of-use assets of approximately Tenge 142 million on 1 January 2019, lease liabilities of Tenge 142 million. • Sale or Contribution of Assets between an Investor and its Associate or Joint Venture – Amendments to IFRS 10 and IAS 28 (issued on 11 September 2014 and effective for annual periods beginning on or after a date to be determined by the IASB). • IFRIC 23 Uncertainty over Income Tax Treatments (issued on 7 June 2017 and effective for annual periods beginning on or after 1 January 2019). • Prepayment Features with Negative Compensation – Amendments to IFRS 9 (issued on 12 October 2017 and effective for annual periods beginning on or after 1 January 2019). • Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures (issued on 12 October 2017 and effective for annual periods beginning on or after 1 January 2019). • Annual Improvements to IFRSs 2015-2017 cycle ‒ amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 (issued on 12 December 2017 and effective for annual periods beginning on or after 1 January 2019). • Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement” (issued on 7 February 2018 and effective for annual periods beginning on or after 1 January 2019). • Amendments to the Conceptual Framework for Financial Reporting (issued on 29 March 2018 and effective for annual periods beginning on or after 1 January 2020). • Definition of a business – Amendments to IFRS 3 (issued on 22 October 2018 and effective for acquisitions from the beginning of annual reporting period that starts on or after 1 January 2020). • Definition of materiality – Amendments to IAS 1 and IAS 8 (issued on 31 October 2018 and effective for annual periods beginning on or after 1 January 2020). Unless otherwise described above, the new standards and interpretations are not expected to affect significantly the Group’s consolidated financial statements.

184 | Annual Report 2018 7. Segment Information

Operating segments are components that engage in business activities that may earn revenues or incur expenses, whose operating results are regularly reviewed by the chief operating decision maker (CODM) and for which discrete financial information is available. The CODM is the person or group of persons who allocates resources and assesses the performance for the entity. The CODM has been identified as the Management Board of the Group headed by the CEO.

(a) Description of products and services from which each reportable segment derives its revenue The Group is a vertically integrated business involved in the production chain of end products – from geological exploration, mining of uranium and nuclear fuel production, to marketing and auxiliary services (transportation and logistics, procurement, research and other). The Group is organised on the basis of three main business segments: • Uranium – uranium mining and processing from the Group’s mines, purchases of uranium from joint ventures and associates, external sales and marketing of produced and purchased uranium. This segment includes the Group’s share in the net results of joint ventures and associates engaged in uranium production, as well as the Group’s head office (JSC NAC Kazatomprom); • Energy – production and sales of electricity, heating power, industrial, drinking and hot water in Mangistau region. Energy segment sales were made to external parties only. Energy segment comprised results and operations of MAEK-Kazatomprom LLP (Note 46); • UMP (Ulba Metallurgical Plant JSC) – production and sales of products containing beryllium, tantalum and niobium, hydrofluoric acid and by-products, processing of uranium on tolling basis for the Group’s uranium entities and production and marketing of uranium powders and tablets to external markets. The revenues and expenses of some of the Group’s subsidiaries, which primarily provide services to the uranium segment (such as drilling, transportation, security and geological), are not allocated to the results of this operating segment. These Group’s businesses are not included within reportable operating segments as their financial results do not meet the quantitative threshold. The results of these and other minor operations are included in the “Other” caption.

(b) Factors that management used to identify the reportable segments The Group’s segments are strategic business units that focus on different customers. They are managed separately because of the differences in the production processes, the nature of products produced and required marketing and investment strategies. Segment financial information reviewed by the CODM includes: • information about income and expenses by business units (segments) based on IFRS figures on a quarterly basis; • assets and liabilities as well as capital expenditures by segment on a quarterly basis; • operating data (such as production and inventory volumes) and revenue data (such as sales volumes per type of product, average sales price) are also reviewed by the CODM on a monthly and quarterly basis.

(c) Measurement of operating segment profit or loss, assets and liabilities The CODM evaluates performance of each segment based on gross and net profit. Segment financial information is prepared on the basis of IFRS financial information and measured in a manner consistent with that in these consolidated financial statements. Revenues from other segments include transfers of raw materials, goods and services from one segment to another, amount is determined based on market prices for similar goods.

NAC Kazatomprom JSC | 185 Consolidated Financial Statements

7. Segment Information (continued)

(d) Information about reportable segment profit or loss, assets and liabilities Segment information for the reportable segments for the years ended 31 December 2018 and 2017 is set out below:

In millions of Kazakhstani Tenge Uranium Energy UMP Other Eliminations Total

2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 External revenue 366,040 205,187 - - 39,181 32,793 31,411 39,066 - - 436,632 277,046 Revenues from other segments 739 416 - - 3,796 4,691 47,768 41,232 (52,303) (46,339) - - Cost of sales (258,202) (151,318) - - (28,554) (28,946) (77,012) (75,293) 49,951 45,623 (313,817) (209,934) Gross profit 108,577 54,285 - - 14,423 8,538 2,167 5,005 (2,352) (716) 122,815 67,112 Impairment losses, net of impairment 8,343 (21,888) - - (5,409) (814) 2,576 (6,349) - 1,639 5,510 (27,412) reversals Gain from business acquisition 313,517 ------313,517 - Gain on exercise of put option - 107,714 ------107,714 Share of results of associates and joint 25,695 40,395 - - (204) (150) (7,448) 3,869 - - 18,043 44,114 ventures Net foreign exchange gain / (loss) 6,818 2,701 - - 2,115 34 (1,683) (3,534) - (6) 7,250 (805) Finance income 3,529 9,799 - - 234 304 1,416 225 (1,230) (4,513) 3,949 5,815 Finance expense (8,806) (8,856) - - (396) (364) (4,058) (2,862) 588 3,149 (12,672) (8,933) Income tax (expense) / benefit (26,274) (16,726) - - (2,069) (1,363) (454) 292 - 510 (28,797) (17,287) Profit / (loss) for the year from 396,519 146,700 - - 3,141 1,424 (17,745) (9,842) (2,753) (1,559) 379,162 136,723 continuing operations Profit for the year from discontinued - - 1,104 2,431 ------1,104 2,431 operations Profit for the year 396,519 146,700 1,104 2,431 3,141 1,424 (17,745) (9,842) (2,753) (1,559) 380,266 139,154 Depreciation and amortisation charge (34,968) (11,783) - - (1,475) (1,368) (4,613) (4,711) 251 3,416 (40,805) (14,446) Investments in associates and joint 102,562 144,978 - 2,818 6,885 5,287 19,861 23,481 - - 129,308 176,564 ventures Total reportable segment assets 1,283,841 742,378 - 38,585 75,519 72,738 92,558 105,262 (76,380) (23,705) 1,375,538 935,258 Assets of disposal groups classified as - - - - - 5,578 2,774 - - 5,578 2,774 held for sale Total assets 1,283,841 742,378 - 38,585 75,519 72,738 98,136 108,036 (76,380) (23,705) 1,381,116 938,032 Total reportable segment liabilities 452,966 232,913 - 18,008 12,024 9,033 23,659 82,844 (76,494) (47,285) 412,155 295,513 Liabilities of disposal groups classified ------5,951 1,343 - - 5,951 1,343 as held for sale Total liabilities 452,966 232,913 - 18,008 12,024 9,033 29,610 84,187 (76,494) (47,285) 418,106 296,856 Capital expenditure 52,202 24,262 - 3,770 3,173 2,507 4,024 7,688 - - 59,399 38,227

Capital expenditure represents additions to non-current assets other than financial instruments, deferred tax assets, post- employment benefits assets and rights arising under insurance contracts.

(e) Analysis of revenues by products and services The Group’s revenues are analysed by products and services in Note 9. Information about finance income and costs is disclosed in Note 17.

186 | Annual Report 2018 NAC Kazatomprom JSC | 187 Consolidated Financial Statements

7. Segment Information (continued)

(f) Geographical information The Group’s main assets are located in the Republic of Kazakhstan. Distribution of the Group’s sales between countries on the basis of the customer’s country of domicile was as follows:

In millions of Kazakhstani Tenge 2018 2017 China 127,629 131,635 India 79,612 16,482 United Kingdom (including Jersey and Cayman Islands) 72,569 4,785 Kazakhstan 34,018 41,688 USA 34,282 19,153 Canada 27,935 - France 22,131 22,201 Japan 4,112 - Ukraine 7,061 15,064 Russia 5,051 35 Netherlands 4,871 3,217 Germany 2,305 4,053 South Korea 700 9,636 Other countries 14,356 9,097 TOTAL CONSOLIDATED REVENUES 436,632 277,046

Major customers The Group has a group of customers under common control that accounts for more than 10% of the Group’s consolidated revenue. This revenue in the amount of Tenge 111,012 million (2017: 123,754 Tenge million) is reported under the Uranium segment.

8. Balances and Transactions with Related Parties

Parties are generally considered to be related if the parties are under common control or if one party has the ability to control the other party or can exercise significant influence or joint control over the other party in making financial and operational decisions. In considering each possible related party relationship, management has regard to the substance of the relationship, not merely the legal form. Entities under common control include companies under control of Samruk-Kazyna JSC. Transactions with other government owned entities are not disclosed when they are entered into in the ordinary course of business with terms consistently applied to all public and private entities, when they are not individually significant, if the Group’s services are provided on standard terms available for all customers, or where there is no choice of supplier of such services as electricity transmission services and telecommunications.

188 | Annual Report 2018 At 31 December 2018, the outstanding balances with related parties were as follows:

In millions of Kazakhstani Tenge Accounts receivable and Dividends receivable Loans given Accounts payable and other assets (Note 29) (Note 32) other liabilities (Notes 28, 29) (Notes 37, 38) Associates 2,580 8,659 23,618 12,560 Joint ventures 4,719 - - 2,041 Entities under common control 199 - - 563 Parent - - - 479 Associates of the Parent 18 - - 4,046 TOTAL 7,516 8,659 23,618 19,689

Transactions with related parties for the year ended 31 December 2018 were as follows:

In millions of Kazakhstani Tenge Sale of goods Dividends Purchase of Dividends to the Finance Finance and services received goods and Parent income costs (Notes 25, 26) services (Note 34) Associates 13,678 7,885 58,130 - 4,081 613 Joint ventures 7,896 - 11,765 - 16 - Entities under common control 9,107 - 27,431 - 5,735 980 Parent - - - 161,661 - 58 Associates of the Parent 110 - 3,787 - - - Other 918 - 32,265 - 1 - TOTAL 31,709 7,885 133,378 161,661 9,833 1,651

At 31 December 2017, the outstanding balances with related parties were as follows:

In millions of Kazakhstani Tenge Accounts receivable and Dividends receivable Loans given Accounts payable and other assets (Note 29) (Note 32) other liabilities (Notes 28, 29) (Notes 37, 38) Associates 3,189 13,707 20,302 39,196 Joint ventures 2,981 - - 21,989 Entities under common control 186 - - 8,778 Associates of the Parent 49 - - 1,607 Other 340 - - 16,246 TOTAL 6,745 13,707 20,302 87,816

NAC Kazatomprom JSC | 189 Consolidated Financial Statements

8. Balances and Transactions with Related Parties (continued)

Transactions with related parties for the year ended 31 December 2017 were as follows:

In millions of Kazakhstani Tenge Sale of goods Dividends Purchase of Dividends to the Finance income Finance costs and services received goods and Parent (Notes 25, 26) services (Note 34) Associates 16,243 21,244 66,026 - 2,621 1,254 Joint ventures 13,233 22,942 49,169 - 517 11 Entities under common control 17,630 - 44,694 - - - Parent - - - 65,849 - - Associates of the Parent 108 - 193 - - - Other 2,428 - 31,449 - 2 - TOTAL 49,642 44,186 191,531 65,849 3,140 1,265

In 2018 and 2017 other related parties included Baiken-U LLP (Notes 27 and 45). Key management personnel is represented by personnel with authority and responsibility in planning, management and control of the Group’s activities, i.e. members of the Management Board and the Board of Directors of the Company. The table below represents remuneration of key management personnel, in particular members of the Management Board and Independent Directors of the Company.

In millions of Kazakhstani Tenge 2018 2017

Expense Accrued liability Expense Accrued liability Short-term benefits Salaries and bonuses 932 67 660 43 TOTAL 932 67 660 43

9. Analysis of Revenue by Category

All of Group’s revenue represents revenue from contracts with customers where performance obligations are satisfied at a point of in time. Analysis of revenue by category under revenue recognition guidance effective prior to 1 January 2018:

In millions of Kazakhstani Tenge 2018 2017 Sales of uranium products 368,325 207,788 Sales of beryllium products 17,364 13,224 Sales of tantalum products 14,333 12,871 Sales of purchased goods 9,424 11,655 Sales of materials and other goods 8,465 8,516 Sales of other services 8,342 8,018 Drilling services 6,803 9,950 Transportation services 2,887 3,895 Research and development 291 748 Sales of photovoltaic cells 398 381 TOTAL REVENUE 436,632 277,046

190 | Annual Report 2018 Sales contract with Yellow Cake plc On 10 May 2018, the Group and Yellow Cake plc signed a framework agreement relating to the sale and purchase of U3O8, including the initial delivery by the Group of 3,112 tons in July 2018 and an option for Yellow Cake plc to purchase additional quantities in each of the years 2019 through 2027. The Group has an option to purchase from Yellow Cake plc quantities of U3O8 at a discount to market price when the uranium spot price exceeds a certain threshold (above USD 37.5 per pound of U3O8). The contract contains an embedded derivative being the option held by the Group to repurchase uranium at a discount to market price if market price reaches a certain level, as described above. The Group recognised this derivative as a financial asset at fair value though profit or loss. The initial value of the derivative estimated by the Group at Tenge 819 million represented part of consideration received for the uranium sale. Subsequent revaluation of the derivative is recognised in profit or loss under IFRS 9. The fair value of the derivative at 31 December 2018 was Tenge 1,369 million. The revaluation gain of Tenge 413 million was recognised within finance income (Note 17). Foreign exchange gain comprised Tenge 137 million. This derivative falls under the level 3 of the fair value hierarchy. Furthermore, this agreement contemplates the delivery by the Group of further uranium shipments in the quantity representing the aggregate price of up to US Dollar 100 million annually, at market related prices, for at least another nine years, subject to various conditions.

10. Cost of Sales

In millions of Kazakhstani Tenge 2018 2017 Materials and supplies 202,817 143,771 Depreciation and amortisation 39,866 13,623 Wages and salaries 24,024 22,830 Taxes other than income tax 22,033 10,552 Processing and other services 10,354 5,052 Transportation expenses 3,490 2,570 Maintenance and repair 3,021 2,144 Utilities 1,581 1,432 Rent expenses 233 238 Research and development 80 53 Other 6,318 7,669 TOTAL COST OF SALES 313,817 209,934

NAC Kazatomprom JSC | 191 Consolidated Financial Statements

11. Distribution Expenses

In millions of Kazakhstani Tenge 2018 2017 Shipping, transportation and storing 7,275 2,868 Wages and salaries 950 484 Commissions 637 242 Materials and supplies 221 169 Rent 106 85 Depreciation and amortisation 67 65 Other 1,274 403 TOTAL DISTRIBUTION EXPENSES 10,53 4,316

12. General and Administrative Expenses

In millions of Kazakhstani Tenge 2018 2017 Wages and salaries 17,809 16,556 Consulting and information services 4,488 3,150 Social contribution - Turkestan region 2,000 - Impairment of accounts receivable 1,743 19 Taxes other than income tax 1,526 723 Rent 1,166 1,086 Depreciation and amortisation 808 696 Business trip expenses 687 568 Maintenance and repair 575 502 Training expenses 440 347 Tax fines and penalties 340 184 Materials and supplies 297 217 Corporate events 252 621 Communication 238 215 Research expenses 230 32 Utilities 163 145 Security 148 146 Insurance 145 50 Bank charges 89 83 Entertainment expenses 75 49 Stationery 73 58 Impairment of receivables on uranium repackaging - 2,99 Other 1,513 1,757 TOTAL GENERAL AND ADMINISTRATIVE EXPENSES 34,805 30,194

192 | Annual Report 2018 13. Impairment Losses and Reversal of Impairment Losses

The Group recognised in profit or loss the reversal of previously recognised impairments for the following assets:

In millions of Kazakhstani Tenge Note 2018 2017 Financial assets 905 - Investments in associates 25 6,556 - Inventories 30 4,341 416 Mine development assets 22 3,933 - Property, plant and equipment 21 292 76 Other assets 6 34 Non-financial assets 15,128 526 TOTAL REVERSAL OF IMPAIRMENT LOSSES 16,033 526

The total impairment losses recognised by the Group were as follows:

In millions of Kazakhstani Tenge Note 2018 2017 Financial assets 4,675 3,728 Property, plant and equipment 21 2,533 2,651 VAT recoverable 1,607 3,136 Inventories 30 1,238 5,118 Mine development assets 22 165 4,954 Investments in joint ventures 26 21 32 Intangible assets 20 4 1,598 Investments in associates 25 - 6,556 Other assets 280 165 Non-financial assets 5,848 24,210 TOTAL IMPAIRMENT LOSSES 10,523 27,938

At 31 December 2018: impairment reversals were recognised for the following cash generating units (or assets):

In millions of Kazakhstani Tenge Property, Financial Mine Investments Inventories Other assets Total plant and assets develop-ment in associates equipment assets Karamurun - - 554 - - - 554 Kanzhugan - - 3,364 - - - 3,364 Central Moinkum - - - - 1,480 - 1,480 South Moinkum - - - - 477 - 477 East Mynkuduk - - - - 13 - 13 Uvanas - - 12 - 853 - 865 Zhalpak - - - - 396 - 396 Production of photovoltaic modules - - - - 715 - 715 JV Zarechnoye LLP (Note 25) - - - 6,556 - - 6,556 Intangible assets - - - - - 5 5 Other 292 905 3 - 407 1 1,608 TOTAL REVERSAL OF IMPAIRMENT 292 905 3,933 6,556 4,341 6 16,033 LOSSES

NAC Kazatomprom JSC | 193 Consolidated Financial Statements

13. Impairment Losses and Reversal of Impairment Losses (continued)

At 31 December 2018: impairment losses were recognised for the following cash generating units (assets):

In millions of Kazakhstani Tenge Property, Mine Financial VAT Inventories Other assets Total plant and develop-ment assets recoverable equipment assets Production of photovoltaic modules 1,526 - - 1,607 - - 3,133 South Moinkum - 165 - - - - 165 Uvanas - - - - 50 - 50 North Inkai - - - - 456 - 456 Deposits at Tsesna Bank - - 4,224 - - - 4,224 Baiterek SRT 342 - - - - - 342 Investments in joint ventures - - - - - 21 21 Intangible assets - - - - - 4 4 Other 665 - 451 - 732 280 2,128 TOTAL IMPAIRMENT LOSSES 2,533 165 4,675 1,607 1,238 305 10,523

Karamurun, Kanzhugan and Zarechnoye As disclosed in Note 4, management identified that impairment indications that gave rise to the impairment losses at Karamurun, Kanzhugan and Zarechnoye in 2017 no longer existed as of 31 December 2018. Accordingly, the Group has recognised full reversal of those previously recorded impairment losses in 2018 (after taking account of depreciation and amortisation that would have been charged if no impairment had occurred).

At 31 December 2017: impairment losses were recognised for the following cash-generating units (or assets):

In millions of Kazakhstani Tenge Property, Mine Other non- VAT Inventories Intangible Total plant and development current recoverable write down to assets equipment assets assets net realisable value Karamurun - 698 - - - - 698 Uvanas - 10 - - 557 - 567 Кanzhugan - 4,246 - - - - 4,246 South Moinkum - - - - 639 - 639 Central Moinkum - - - - 677 - 677 Production of silicon of solar quality, - - - 1,534 253 - 1,787 silicon slices and photovoltaic slices Production of photovoltaic modules 1,075 - - - 806 - 1,881 Long-term deposit at Kazinvestbank - - 337 - - - 337 JSC Baiterek SRT 61 - - - - - 61 JV Zarechnoye LLP (Note 25) - - 6,556 - - - 6,556 Goodwill of ТТК LLP (Note 20) - - - - - 1,515 1,515 Deposits at bank RBK JSC (Note 27) - - 3,391 - - - 3,391 Other 1,515 - 197 1,602 2,186 83 5,583 TOTAL IMPAIRMENT LOSSES 2,651 4,954 10,481 3,136 5,118 1,598 27,938

194 | Annual Report 2018 South Moinkum, Uvanas, Kanzhugan, Karamurun, Zarechnoye, Semizbay Management considered that a decrease in reserves under JORC and other circumstances were indications of impairment of these cash-generating units (Note 4). The recoverable amount of the cash-generating units was determined on a value in use basis. The recoverable amount of Karamurun mine was Tenge 2,706 million, Uvanas and Kanzhugan mines was nil. The applied discount rate was 12.1%.

Production of photovoltaic modules Deviation from revised plans and further decrease in sales were considered by management as indications of further impairment of the cash-generating unit which was fully impaired in 2016. The recoverable amount of the cash-generating unit was nil and determined as value in use. The applied discount rate was 12.8%.

14. Other Income

In millions of Kazakhstani Tenge 2018 2017 Fines and penalties 169 961 Gain on exercise of put option - 107,714 Gain on transfer of subsoil use right to charter capital - 5,726 Gain on disposal of property, plant and equipment - 422 Other 1,073 84 TOTAL OTHER INCOME 1,242 114,907

Investments in Toshiba Nuclear Energy Holdings (US) Inc and Toshiba Nuclear Energy Holdings (UK) Ltd In October 2007, the Group invested into Toshiba Nuclear Energy Holdings US, Inc. (TNEH-US) and Toshiba Nuclear Energy Holdings UK Ltd (TNEH-UK), by acquiring 10% Class A ordinary shares for a total amount of USD 540,000 thousand (TNEH-US USD 400,000 thousand and TNEH-UK USD 140,000 thousand). Simultaneously with the acquisition of the interest in TNEH-US and TNEH-UK, the Group entered into a put option agreement (the “Put Option”) with Toshiba Corporation, the parent company of TNEH-US and TNEH-UK. At the end of 2012 the Group and Toshiba Corporation signed an agreement that extended the Group’s right to exercise the Put Option from 1 October 2017 until 28 February 2018. The Put Option gave the Group a right to sell its shares in TNEH-US and TNEH-UK to Toshiba Corporation for 100% of the original price paid, which equals to USD 540,000 thousand for the first 67% of shares, and for 90% of the original price paid for the remaining 33% of shares, resulting in the price of the Put Option to be equal to USD 522,180 thousand. On 29 March 2017, Westinghouse Electric Company LLC (a subsidiary of TNEH-US and TNEH-UK) filed for bankruptcy for protection against creditors, asset restructuring and subsequent sale on competitive basis in order to settle its debts to creditors. On 2 October 2017, the Group delivered a written Put Exercise notice to Toshiba Corporation of its exercise of the put right in accordance with the put option agreement. During October-November 2017, according to the Kazakhstan legislation, the Group received necessary corporate approvals for exercise of the put option right, sale of shares in TNEH-US and TNEH- UK and withdrawal from the shareholders list. On 25 December 2017, the Group entered into a share transfer agreement with Toshiba Corporation, whereby the Group transferred the right and the title to all its shares in TNEH-US and TNEH-UK to Toshiba Corporation, and received cash payment of USD 522,180 thousand (Tenge 173,719 million). The Group recognised a gain of Tenge 107,714 million in profit and loss from exercise of the put option for the difference between the consideration received and the carrying amount of the investments accounted at cost. From 25 December 2017, the Group is no longer a shareholder of TNEH-US and TNEH-UK.

NAC Kazatomprom JSC | 195 Consolidated Financial Statements

15. Other Expenses and Net Foreign Exchange Gain / (Loss)

In millions of Kazakhstani Tenge 2018 2017 Non-recoverable VAT 2,614 1,629 Loss on suspension of production 799 717 Social expenses 730 2,521 Depreciation and amortisation 64 62 Loss on disposal of non-current assets - 791 Other 1,642 558 TOTAL OTHER EXPENSES 5,849 6,278

Net foreign exchange gain / (loss)

In millions of Kazakhstani Tenge 2018 2017 Foreign exchange (loss) / gain on financing activities, net (14,467) (1,848) Foreign exchange gain on operating activities, net 21,717 1,043 TOTAL FOREIGN EXCHANGE (LOSS) / GAIN, NET 7,250 (805)

16. Personnel Costs

In millions of Kazakhstani Tenge 2018 2017 Wages and salaries 57,379 55,666 Social tax and social contributions 6,034 6,163 TOTAL PERSONNEL COSTS 63,413 61,829

196 | Annual Report 2018 17. Finance Income and Costs

In millions of Kazakhstani Tenge 2018 2017 Interest income calculated using the effective interest rate Loans at AC 1,280 2,307 Term deposits 1,083 2,447 Cash and cash equivalents 985 908 Other similar income Financial derivative asset (Note 9) 413 - Other 188 153 TOTAL FINANCE INCOME 3,949 5,815 Finance costs Interest expense on loans and borrowings 8,558 5,491 Unwinding of discount on provisions 2,385 1,267 Loss on conversion of foreign currency 1,130 290 Dividend expense on preference shares 53 53 Loss from remeasurement of financial assets 30 1,223 Unwinding of discount on other financial liabilities - 286 Other 516 323 TOTAL FINANCE COSTS 12,672 8,933

18. Income Tax Expense

(a) Components of income tax expense Income tax expense recorded in profit or loss comprises the following:

In millions of Kazakhstani Tenge 2018 2017 Current income tax 31,412 20,292 Deferred income tax (2,615) (3,005) TOTAL INCOME TAX EXPENSE 28,797 17,287

NAC Kazatomprom JSC | 197 Consolidated Financial Statements

18. Income Tax Expense (continued)

(b) Reconciliation between the tax expense and profit or loss multiplied by applicable tax rate The income tax rate applicable to the majority of the Group’s profits in 2018 and 2017 is 20%. A reconciliation between the expected and the actual taxation charge is provided below:

In millions of Kazakhstani Tenge 2018 2017 Profit before tax 407,959 154,010 Theoretical tax charge at statutory tax rate of 20% 81,592 30,802 Tax effect of items which are not deductible or assessable for taxation purposes: Unrecognised deferred tax asset on impairment losses 5,583 2,331 Non-deductible expenses 6,023 8,087 Current period tax losses for which no deferred tax asset is recognised 1,120 188 Share of results of joint ventures 949 (4,421) Transfer pricing adjustment 191 509 Prior periods adjustments (938) 717 Income which is exempt from taxation (1,012) (253) Share of results of associates (4,557) (4,401) Net gain from business combinations not subject to tax (62,703) - Excess profit tax - 5,609 Non-taxable gain from exercise of put option - (21,543) Other items 2,549 (338) INCOME TAX EXPENSE 28,797 17,287

Disposal of investments in 2017 relates to non-taxable gain from the exercise of a put option in the amount of Tenge 107,714 million (Note 14). As at 31 December 2018 and 2017, the Group did not recognise a deferred tax asset on impairment losses as management did not consider it probable that future taxable profit would be available against which the deduction could be utilised.

(c) Deferred taxes analysed by type of temporary difference Differences between IFRS and statutory taxation regulations in Kazakhstan give rise to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and their tax bases.

198 | Annual Report 2018 The tax effect of the movements in these temporary differences is detailed below at 20%.

In millions of Kazakhstani Tenge 1 January 2018 Credited / (charged) Business Discontinued 31 December 2018 to profit or loss combinations operations (Note 45) Tax effect of deductible / (taxable) temporary differences Property, plant and equipment, (5,734) (1,189) (77,135) 2,330 (81,728) intangible assets and mineral rights Accounts receivable 698 (371) (122) (251) (46) Loans and borrowings (165) 131 2 - (32) Provisions 1,140 115 179 (38) 1,396 Accrued liabilities 890 17 302 (126) 1,083 Tax losses carried forward 1,267 (654) 233 (402) 444 Taxes 514 501 234 (216) 1,033 Other assets 3,655 4,100 136 (243) 7,648 Other liabilities 128 (35) 5 (14) 84 2,393 2,615 (76,166) 1,040 (70,118) RECOGNISED DEFERRED TAX ASSET 6,836 (315) 1,091 (60) 7,552 RECOGNISED DEFERRED TAX (4,443) 2,930 (77,257) 1,100 (77,670) LIABILITIES

Management estimates that deferred tax assets of Tenge 1,840 million in 2018 (2017: Tenge 3,105 million) are recoverable after more than twelve months after the end of the reporting period. Investments in subsidiaries, associates and joint ventures will be recovered primarily through dividends. Dividends from subsidiaries, associates and joint ventures are not taxable, accordingly the Group did not recognise deferred tax on undistributed earnings from investments. The tax effect of the movements in the temporary differences for the year ended 31 December 2017 is:

In millions of Kazakhstani Tenge 1 January 2017 Credited / 31 December 2017 (charged) to profit or loss Tax effect of deductible / (taxable) temporary differences Property, plant and equipment and intangible assets (6,412) 678 (5,734) Accounts receivable 854 (156) 698 Loans and borrowings (311) 146 (165) Accounts payable (192) 192 - Provisions 961 179 1,140 Accrued liabilities 799 91 890 Tax losses carried forward 1,270 (3) 1,267 Taxes 768 (254) 514 Other assets 1,709 1,946 3,655 Other liabilities 110 18 128 (444) 2,837 2,393 RECOGNISED DEFERRED TAX ASSET 4,299 2,537 6,836 RECOGNISED DEFERRED TAX LIABILITIES (4,743) 300 (4,443)

NAC Kazatomprom JSC | 199 Consolidated Financial Statements

18. Income Tax Expense (continued)

In the context of the Group’s structure, tax losses of different Group companies may not be offset against current tax liabilities and taxable profits of other Group companies and, accordingly, taxes may accrue even where there is a consolidated tax loss. Therefore, deferred tax assets and liabilities are offset only when they relate to the same taxable entity. The Group has unrecognised deferred tax assets in respect of unused tax loss carry forwards of Tenge 5,022 million in 2018 (2017: Tenge 4,002 million) and impairment losses of Tenge 16,445 million in 2018 (2017: Tenge 10,862 million). The tax loss carry forwards expire as follows:

In millions of Kazakhstani Tenge 2018 2017 2024 560 660 2025 2,478 2,478 2026 676 676 2027 188 188 2028 1,120 - TOTAL UNRECOGNISED DEFERRED TAX ASSET ON TAX LOSSES 5,022 4,002

19. Earnings per Share

Basic earnings per share is calculated by dividing the profit or loss attributable to owners of the Company by the number of ordinary shares in issue during the year (Note 34). The Company has no dilutive potential ordinary shares; therefore, the diluted earnings per share equals the basic earnings per share. Earnings per share from continuing operations is calculated as follows:

2018 2017 Profit from continuing operations for the year attributable to owners of the Company (in 371,072 136,096 millions of Kazakhstani Tenge) Profit for the year for the year attributable to owners of the Company (in millions of 372,176 138,527 Kazakhstani Tenge) Number of ordinary shares (in thousands) 259,357 259,357

Earnings per share from continuing operations attributable to the owners of the Company, 1,431 525 basic and diluted (rounded to Tenge) Earnings per share attributable to the owners of the Company, basic and diluted (rounded 1,435 534 to Tenge)

200 | Annual Report 2018 20. Intangible Assets

In millions of Kazakhstani Tenge Licences and Software Goodwill Other Total patents At 1 January 2017 Cost 939 1,772 10,110 1,393 14,214 Accumulated amortisation and (476) (1,172) (4,944) (505) (7,097) impairment CARRYING VALUE 463 600 5,166 888 7,117 Additions 788 161 1,515 2 2,466 Additions under finance leases 136 - - - 136 Disposals - (42) - (103) (145) Amortisation charge (396) (215) - (82) (693) Impairment - - (1,515) (84) (1,599) Recovery of impairment - 13 - - 13 Loss of control over subsidiary - - - (12) (12) Transfers from / (to) property, plant - 750 - (36) 714 and equipment (Note 21) Transfers from assets held for sale - - - 12 12 At 31 December 2017 Cost 1,851 2,371 11,625 944 16,791 Accumulated amortisation and (860) (1,104) (6,459) (359) (8,782) impairment CARRYING VALUE 991 1,267 5,166 585 8,009 Additions 489 144 - - 633 Additions from business combinations 142 325 58,543 - 59,010 (Note 45) Additions under finance leases 443 - - - 443 Amortisation charge (257) (330) - (80) (667) Impairment (4) - - - (4) Recovery of impairment - 3 - 2 5 Loss of control over subsidiary (9) (14) - - (23) Transfers from property, plant and - 1,831 - 78 1,909 equipment (Note 21) Transfers to assets held for sale - (1) - - (1) At 31 December 2018 Cost 2,571 4,532 70,168 1,022 78,293 Accumulated amortisation and (776) (1,307) (6,459) (437) (8,979) impairment CARRYING VALUE 1,795 3,225 63,709 585 69,314

NAC Kazatomprom JSC | 201 Consolidated Financial Statements

20. Intangible Asset (continued)

Goodwill impairment test (i) Central Mynkuduk, JV Akbastau JSC, Karatau LLP and Baiken-U LLP Goodwill of Tenge 5,166 million at 31 December 2018 and 2017 is attributable to one cash-generating unit related to subsurface use operations at Central Mynkuduk mine. Goodwill of Tenge 58,543 million at 31 December 2018 is attributable to cash-generating units related to subsurface use operations at JV Akbastau JSC, Karatau LLP and Baiken-U LLP (Note 45). The recoverable amount was determined on a value in use basis from forecast cash flows over the term of subsurface use contracts. Forecast cash flows are based on the approved volume of proven reserves, estimated volumes of production and sales over a life of mine plan approved by management, using a discount rate of 12.33% (2017: 12.1%). Production volumes are consistent with those agreed with the competent authority and SRK report (Note 4) and are based on the production capacity of the cash-generating units. Key assumptions used in calculations include forecast prices, period direct costs and capital expenditures. Sales prices used in developing forecast cash flows were determined using an independent official source Ux Consulting LLC published in the fourth quarter of 2018. Direct costs are based on approved budgets for 2019-2023 and growth of 2-3% which approximates long-term average growth rates. The estimated values in use significantly exceed the carrying amounts of the cash-generating units and therefore even reasonably possible changes in key assumptions would not lead to impairment losses being recognised.

(ii) MKS Transhipment Base In December 2017, the Group purchased an operating unit for reloading and storage of contaminated chemical cargo in Shieli province in Kazakhstan (hereinafter referred to as the MKS Transhipment Base). The cost of acquisition of the MKS Transhipment Base was Tenge 4,276 million. Management concluded that the MKS Transhipment Base represented a business rather than a group of assets, and therefore, its acquisition was accounted for as a business acquisition in accordance with IFRS 3. Goodwill of Tenge 1,515 million was impaired to profit or loss in 2017 (Note 13).

202 | Annual Report 2018 21. Property, Plant and Equipment

Movements in the carrying amount of property, plant and equipment were as follows:

In millions of Kazakhstani Tenge Land Buildings Machinery Vehicles Other Construction Total and in progress equipment At 1 January 2017 Cost 361 96,011 75,678 14,005 5,434 39,812 231,301 Accumulated depreciation and impairment - (30,719) (43,747) (7,711) (3,177) (28,612) (113,966) CARRYING AMOUNT 361 65,292 31,931 6,294 2,257 11,200 117,335 Additions 9 3,470 3,211 1,190 629 12,211 20,720 Transfers - 2,716 3,163 240 95 (6,214) - Depreciation charge - (4,636) (5,237) (1,149) (502) - (11,524) Impairment loss (Notes 4, 13) - (1,624) (289) (33) (6) (711) (2,663) Reversal of impairment losses recognised - - 20 1 7 13 41 in prior periods Disposals (10) (274) (63) (18) (19) (48) (432) Transfer from / (to) inventories - - 10 - - (29) (19) Transfers from / (to) intangible assets - - 36 - - (750) (714) (Note 20) Transfers from / (to) non-current assets - 2 (1) (7) - - (6) held for sale Changes in estimates - (566) - - - - (566) Translation to presentation currency - - - 2 1 - 3 At 31 December 2017 Cost 360 100,308 81,301 15,699 6,015 49,519 253,202 Accumulated depreciation and - (35,928) (48,520) (9,179) (3,553) (33,847) (131,027) impairment CARRYING AMOUNT 360 64,380 32,781 6,520 2,462 15,672 122,175 Additions 135 14,922 5,435 1,105 680 15,018 37,295 Additions from business combinations 1 27,989 21,191 1,585 713 4,102 55,581 (Note 45) Transfers - 2,667 2,960 348 430 (6,405) - Depreciation charge - (4,807) (6,321) (1,366) (711) - (13,205) Impairment loss (Notes 4, 13) (39) (703) (759) (488) (18) (526) (2,533) Reversal of impairment losses recognised - 10 72 - 20 190 292 in prior periods Disposals (12) (25) (69) (56) (25) (18) (205) Disposal of subsidiary (52) (5,540) (10,299) (472) (1,109) (8,298) (25,770) Transfer from / (to) inventories - - (32) 6 (16) 46 4 Transfers from / (to) intangible assets - - - - 1 (1,910) (1,909) (Note 20) Transfers from / (to) non-current assets - (25) (1) 2 (20) 2 (42) held for sale Changes in estimates - (66) (107) - - - (173) Transfer to mine development assets - - - - - (162) (162) (Note 22) Translation to presentation currency - - - 3 1 - 4 At 31 December 2018 Cost 393 132,633 78,953 22,703 4,911 19,498 259,091 Accumulated depreciation and - (33,831) (34,102) (15,516) (2,503) (1,787) (87,739) impairment CARRYING AMOUNT 393 98,802 44,851 7,187 2,408 17,711 171,352

NAC Kazatomprom JSC | 203 Consolidated Financial Statements

21. Property, Plant and Equipment (continued)

Depreciation expense of Tenge 12,030 million in 2018 (2017: Tenge 10,231 million) was charged to cost of sales, Tenge 71 million (2017: Tenge 74 million) to distribution expenses, Tenge 426 million (2017: Tenge 476 million) to administrative expenses and Tenge 182 million (2017: Tenge 66 million) to other expenses. The remaining depreciation expense in the amount of Tenge 496 million in 2018 (2017: Tenge 677 million) is included to finished goods, work-in-process and other lines. At 31 December 2018, construction in progress included technical modernisation of UMP JSC of Tenge 3,966 million, construction of technological road to Zhalpak field of Tenge 1,295 million and IT projects of JSC NAC Kazatomprom of Tenge 4,408 million. IT projects of JSC NAC Kazatomprom include capitalised costs of Digital Mine project of Tenge 1,599 million (2017: Tenge 1,018 million) and SAP ERP implementation of Tenge 2,184 million (Tenge 951 million). Implementation of the Digital Mine is completed at one of the Group’s entities during 2018. In 2019, the Group plans to replicate the system at all other mining entities. In 2018, the Group completed implementation of SAP ERP at the head office and one of the subsidiaries and recognised an intangible asset of Tenge 782 million tenge. At 31 December 2018, the Group had contractual capital expenditure commitments in respect of property, plant and equipment totalling Tenge 2,091 million (2017: Tenge 1,890 million). Borrowing costs capitalised in the reporting period were Tenge 110 million in 2018 (2017: Tenge 212 million). The average capitalisation rate in 2018 was 3.41% (2017: 3.22%). At 31 December 2018, the gross carrying value of fully depreciated property, plant and equipment still in use was Tenge 16,732 million (2017: Tenge 10,582 million). Depreciation and amortisation charged on long-term assets for the years ended 31 December are as following:

In millions of Kazakhstani Tenge 2018 2017 Property, plant and equipment 13,205 11,524 Mine development assets 19,251 11,023 Intangible assets 667 693 Mineral rights 12,578 191 TOTAL ACCRUED DEPRECIATION AND AMORTISATION 45,701 23,431

Depreciation and amortisation charged to profit or loss for the years ended 31 December are as following:

In millions of Kazakhstani Tenge 2018 2017 Cost of sales 39,866 13,623 General and administrative expenses 808 696 Distribution expenses 67 65 Other expenses 64 62 TOTAL DEPRECIATION AND AMORTISATION CHARGED TO PROFIT OR LOSS 40,805 14,446

204 | Annual Report 2018 22. Mine Development Assets

In millions of Kazakhstani Tenge Field preparation Site restoration costs Ion exchange resin Total At 1 January 2017 Cost 66,298 7,062 4,887 78,247 Accumulated depreciation and (33,178) (1,921) (1,466) (36,565) impairment CARRYING AMOUNT 33,120 5,141 3,421 41,682 Additions 11,308 - - 11,308 Transfers to exploration and - - (32) (32) evaluation assets (Note 24) Transfers from inventory 896 - 764 1,660 Depreciation charge (10,052) (726) (245) (11,023) Impairment loss (4,955) - - (4,955) Reversal of impairment losses 39 5 - 44 recognised in prior periods Changes in accounting estimates - 4,846 - 4,846 At 31 December 2017 Cost 65,843 11,728 5,359 82,930 Accumulated depreciation and (35,487) (2,462) (1,451) (39,400) impairment CARRYING AMOUNT 30,356 9,266 3,908 43,530 Additions 18,896 - 876 19,772 Additions from business combinations 53,549 823 6,196 60,568 (Note 45) Transfers from inventory 4,140 - 602 4,742 Transfer from property, plant and 1 - 161 162 equipment (Note 21) Depreciation charge (17,356) (1,235) (660) (19,251) Reversal of impairment losses 3,930 3 - 3,933 recognised in prior periods Impairment loss (165) - - (165) Changes in accounting estimates - 5,011 - 5,011 At 31 December 2018 Cost 154,565 14,754 13,710 183,029 Accumulated depreciation and (61,214) (886) (2,627) (64,727) impairment CARRYING AMOUNT 93,351 13,868 11,083 118,302

Estimated site restoration costs are capitalised when the Group recognises a provision for site restoration. The carrying value of the provision and site restoration assets is reassessed at each reporting period end (Notes 4 and 36).

NAC Kazatomprom JSC | 205 Consolidated Financial Statements

23. Mineral Rights

In millions of Kazakhstani Tenge At 1 January 2017 Cost 9,593 Accumulated amortisation and impairment (7,302) CARRYING AMOUNT 2,291 Additions 90 Amortisation charge (191) Change in accounting estimate (186) At 31 December 2017 Cost 9,183 Accumulated amortisation and impairment (7,179) CARRYING AMOUNT 2,004 Additions 7 Additions from business combinations (Note 45) 373,942 Transfer to assets held for sale (2) Amortisation charge (12,578) At 31 December 2018 Cost 376,215 Accumulated amortisation and impairment (12,842) CARRYING AMOUNT 363,373

24. Exploration and Evaluation Assets

In millions of Kazakhstani Tenge Tangible assets Intangible assets Total AT 1 JANUARY 2017 2,747 724 3,471 Additions 3,626 17 3,643 Disposals (83) (24) (107) Transfers from mine development assets (Note 22) 32 - 32 Proceeds from test production (1,644) - (1,644) Changes in accounting estimates - 213 213 AT 31 DECEMBER 2017 4,678 930 5,608 Additions 2,663 152 2,815 Additions from business acquisitions (Note 45) 13,131 2,357 15,488 Transfer to assets held for sale (4) - (4) Disposal of subsidiary (37) (2) (39) Transfer to inventory (251) (8) (259) AT 31 DECEMBER 2018 20,180 3,429 23,609

206 | Annual Report 2018 25. Investments in Associates

The table below summarises the movements in the carrying amount of the Group’s investment in associates:

In millions of Kazakhstani Tenge 2018 2017 Carrying value at 1 January 101,746 107,773 Share of results of associates 22,786 22,007 Additions from business combinations (Note 45) 6,522 - Reversal of impairment / (impairment) 6,556 (6,556) Disposals (Note 45) (40,389) - Dividends received from associates (7,885) (21,244) Effect of translation to presentation currency - (234) Other (470) - CARRYING VALUE AT 31 DECEMBER 88,866 101,746

The Group’s interests in its principal associates were as follows:

Country of Principal 2018 2017 incorporation activities % ownership In millions of % ownership In millions of interest held/ Tenge interest held/ Tenge % of voting % of voting rights rights JV KATKO LLP Kazakhstan Extraction, 49% 49,704 49% 38,504 processing and export of uranium products JV South Mining Chemical Company Kazakhstan Extraction, 30% 7,290 30% 5,029 LLP processing and export of uranium products JV Zarechnoye JSC Kazakhstan Extraction, 49.98% 9,705 49.98% 1,947 processing and export of uranium products Kaustik JSC Kazakhstan Supply of caustic soda 40% 3,517 40% 3,775 JV Betpak Dala LLP Kazakhstan Extraction, - - 30% 1,949 processing and export of uranium products JV Khorasan-U LLP Kazakhstan Extraction, 50% 11,458 33.98% 5,259 processing and export of uranium products

JV SKZ Kazatomprom LLP Kazakhstan Production of 9.89% 710 9.89% 720 sulphuric acid JV Rosburmash LLP Kazakhstan Geological 49% 346 49% 553 exploration ZhanaKorgan-Transit LLP Kazakhstan Transportation 40% 140 - - Kyzylkum LLP Kazakhstan Extraction, 50% 5,996 30% 3,621 processing and export of uranium products JV Inkai LLP Kazakhstan Extraction, - - 40% 40,389 processing and export of uranium products TOTAL INVESTMENTS IN 88,866 101,746 ASSOCIATES

In 2018, JV Betpak Dala LLP was liquidated.

NAC Kazatomprom JSC | 207 Consolidated Financial Statements

25. Investments in Associates (continued)

Summarised financial information for 2018 in respect of each of the Group’s material associates is set out below. The summarised financial information below represents amounts shown in the associates’ financial statements prepared in accordance with IFRS, adjusted by the Group for equity accounting purposes.

In millions of Kazakhstani Tenge Kyzylkum LLP JV KATKO LLP JV Inkai LLP JV South Mining Chemical JV Zarechnoye JSC JV Khorasan-U LLP Other Total Company LLP Current assets 10,411 60,478 - 29,386 9,644 20,124 5,145 135,188 Including cash 8,752 34,794 - 5,390 1,264 4,700 995 55,895 Non-current assets 29,851 62,657 - 39,261 16,507 25,160 23,772 197,208 TOTAL ASSETS 40,262 123,135 - 68,647 26,151 45,284 28,917 332,396 Current liabilities (12,017) (6,450) - (36,346) (5,508) (20,825) (6,619) (87,765) Including financial liabilities net of trade and other (10,154) - - (529) (2,743) (17,441) (1,799) (32,666) accounts payable and provisions Non-current liabilities (16,303) (9,778) - (7,630) (1,309) (1,231) (14,497) (50,748) Including financial liabilities net of trade and other (15,333) - - (4,469) - - (13,572) (33,374) accounts payable and provisions Incl. loan from the Company (15,333) ------(15,333) TOTAL LIABILITIES (28,320) (16,228) - (43,976) (6,817) (22,056) (21,116) (138,513) NET ASSETS 11,942 106,907 - 24,671 19,334 23,228 7,801 193,883 Group’s share of net assets of associates 5,971 52,385 - 7,402 9,663 11,614 667 87,702 Unrealised profit in the Group - (2,749) - (112) - (353) - (3,214) Other movements 25 - - - 42 197 (392) (128) Goodwill - 68 - - - - 4,438 4,506 CARRYING VALUE OF INVESTMENTS IN ASSOCIATES 5,996 49,704 - 7,290 9,705 11,458 4,713 88,866 Total revenue 13,689 71,441 - 54,056 16,646 31,020 16,369 203,221 Depreciation and amortisation (738) (13,665) - (5,662) (3,529) (4,279) (895) (28,768) Finance income 900 12 - 240 82 203 528 1,965 Finance costs (3,497) (1,137) - (254) (224) (48) (864) (6,024) Foreign exchange gain / (loss) (1,712) 4,190 - 1,909 (362) 417 (527) 3,915 (Impairment) / reversal of impairment (66) - - 4 (3) - (65) Income tax (1,014) (7,522) - (6,063) (803) (1,655) (365) (17,422) Profit / (loss) for the year 136 28,092 - 24,916 2,820 7,656 (726) 62,894 TOTAL COMPREHENSIVE INCOME / (LOSS) 55 28,092 - 24,844 2,820 7,656 (726) 62,741 Other 27 (2,565) - 496 57 923 - (1,062) Dividends received - - - 5,617 199 - 2,069 7,885

208 | Annual Report 2018 NAC Kazatomprom JSC | 209 Consolidated Financial Statements

25. Investments in Associates (continued)

Summarised financial information for 2017 in respect of each of the Group’s material associates is set out below. The summarised financial information below represents amounts shown in the associates’ financial statements prepared in accordance with IFRS, adjusted by the Group for equity accounting purposes.

In millions of Kazakhstani Tenge JV Betpak Dala LLP Kyzylkum LLP JV KATKO LLP JV Inkai LLP JV South Mining Chemical JV Zarechnoye JSC JV Khorasan-U LLP Other Total Company LLP Current assets 6,519 7,877 39,270 28,850 27,585 7,935 19,391 6,306 143,733 Including cash 1,623 132 1,359 1,036 1,254 684 2,106 575 8,769 Non-current assets - 29,700 62,572 130,998 36,450 15,663 23,986 26,755 326,124 TOTAL ASSETS 6,519 37,577 101,842 159,848 64,035 23,598 43,377 33,061 469,857 Current liabilities (21) (3,072) (15,152) (43,551) (42,686) (5,679) (26,862) (6,948) (143,971) Including financial liabilities net of - - (360) (38,955) (4,625) (2,813) (17,499) (1,611) (65,863) trade and other accounts payable and provisions Non-current liabilities - (22,269) (7,875) (11,720) (2,562) (876) (892) (15,807) (62,001) Including financial liabilities net of - (21,179) - (45) - - - (14,614) (35,838) trade and other accounts payable and provisions Incl. loan from the Company - (21,179) ------(21,179) TOTAL LIABILITIES (21) (25,341) (23,027) (55,271) (45,248) (6,555) (27,754) (22,755) (205,972) NET ASSETS 6,498 12,236 78,815 104,577 18,787 17,043 15,623 10,306 263,885 Group’s share of net assets of 1,949 3,671 38,620 41,831 5,636 8,518 5,308 1,644 107,177 associates Unrealised profit in the Group - - (184) (1,442) (607) (57) (49) - (2,339) Impairment - - - - - (6,556) - - (6,556) Other movements - (50) - - - 42 - (1,034) (1,042) Goodwill - - 68 - - - - 4,438 4,506 CARRYING VALUE OF INVESTMENTS 1,949 3,621 38,504 40,389 5,029 1,947 5,259 5,048 101,746 IN ASSOCIATES Total revenue - 17,604 65,426 37,449 51,181 14,657 28,138 19,749 234,204 Depreciation and amortisation - (734) (14,331) (9,597) (7,458) (3,510) (4,418) (1,892) (41,940) Finance income 22 58 511 64 159 25 134 83 1056 Finance costs - (2,234) (1211) (177) (167) (97) (81) (1,514) (5,481) Foreign exchange gain / (loss) - 182 (311) 70 (19) 142 132 112 308 Impairment - - - (612) - 27 6 54 (525) Income tax (1) (1,697) (6,246) (2,728) (5,086) (260) (421) (109) (16,548) Profit / (loss) for the year (1,221) 5,685 19,148 9,036 18,724 797 1,741 1,413 55,323 TOTAL COMPREHENSIVE INCOME (1,221) 5,685 19,148 9,036 18,724 797 1,741 1,413 55,323 / (LOSS) Other - - 112 (678) 177 502 250 - 363 Dividends received - - 10,834 - 9,023 1,089 - 298 21,244

210 | Annual Report 2018 NAC Kazatomprom JSC | 211 Consolidated Financial Statements

26. Investments in Joint Ventures

The table below summarises the movements in the carrying amount of the Group’s investment in joint ventures:

In millions of Kazakhstani Tenge 2018 2017 Carrying value at 1 January 74,818 66,862 Contributions to charter capital 2,487 8,413 Additions 896 - Share of other comprehensive income of joint ventures 5 44 Disposals (Note 45) (32,523) - Share of results of joint ventures (4,743) 22,107 Effect of translation to presentation currency (232) 366 Impairment of investments in joint ventures (21) (32) Dividends received from joint ventures - (22,942) Other (245) - CARRYING VALUE AT 31 DECEMBER 40,442 74,818

212 | Annual Report 2018 The Group’s interests in its principal joint ventures were as follows:

Country of Principal activity 2018 2017 incorporation % owner-ship In millions of % owner-ship In millions of interest held Tenge interest held Tenge Semizbay-U LLP Kazakhstan Extraction, processing 51.00% 12,675 51.00% 10,037 and export of uranium products TsOU JSC Russia Production of advanced 50.00% 10,678 50.00% 16,787 uranium products Ulba TVS LLP Kazakhstan Construction of heat 51.00% 6,885 51.00% 5,287 assembly units plant JV Budenovskoe LLP Kazakhstan Extraction, processing 51.00% 5,732 51.00% 5,719 and export of uranium products Uranenergo LLP Kazakhstan Transfer and distribution 79.45% 2,839 58.90% 2,818 of electricity, grid operations SKZ-U LLP Kazakhstan Production of sulphuric 49.00% 1,633 49.00% 1,625 acid

JV Akbastau JSC Kazakhstan Extraction, processing - - 50.00% 17,887 and export of uranium products Karatau LLP Kazakhstan Extraction, processing - - 50.00% 14,637 and export of uranium products JV UKR TVS CJSC Ukraine Production of nuclear 33.33% - 33.33% 21 fuel Ulba Conversion LLP Kazakhstan Construction of - - 50.96% - conversion plant in Kazakhstan TOTAL INVESTMENTS IN JOINT 40,442 74,818 VENTURES

NAC Kazatomprom JSC | 213 Consolidated Financial Statements

26. Investments in Joint Ventures (continued)

Summarised financial information on respect of the Group’s material joint ventures is set out below. The summarised financial information below represents amounts shown in the joint ventures’ financial statements prepared in accordance with IFRS, adjusted by the Group for equity accounting purposes.

In millions of Kazakhstani Tenge Karatau LLP JV Akbastau JSC Semizbay-U LLP TsOU JSC Other Total

2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 Current assets - 14,306 - 18,326 9,851 11,921 8,464 13,179 17,784 18,166 36,099 75,898 Including cash - 743 - 3,027 812 177 5,192 12,239 10,394 7,299 16,398 23,485 Non-current assets - 26,108 - 21,503 18,541 15,104 113,872 124,690 53,433 46,225 185,846 233,63 TOTAL ASSETS - 40,414 - 39,829 28,392 27,025 122,336 137,869 71,217 64,391 221,945 309,528 Current liabilities - (9,132) - (2,199) (7,522) (12,088) (13,469) (23,381) (8,473) (7,597) (29,464) (54,397) Including financial liabilities net of - (4,470) - - (4,600) (9,497) (8,856) (6,050) (5,340) (4,590) (18,796) (24,607) trade and other accounts payable and provisions Non-current liabilities - (829) - (1,156) (4,065) (2,883) (87,511) (80,914) (17,943) (19,936) (109,519) (105,718) Including financial liabilities net of - - - - - (47) (87,511) (80,914) (17,917) (19,926) (105,428) (100,887) trade and other accounts payable and provisions TOTAL LIABILITIES - (9,961) - (3,355) (11,587) (14,971) (100,980) (104,295) (26,416) (27,533) (138,983) (160,115) NET ASSETS - 30,453 - 36,474 16,805 12,054 21,356 33,574 44,801 36,858 82,962 149,413 Group’s share of net assets of joint - 15,227 - 18,237 8,570 6,147 10,678 16,787 24,249 19,243 43,497 75,641 ventures Share in accumulated unrecognised ------(5,742) (2,376) (5,742) (2,376) losses Goodwill - - - - 4,105 4,105 - - (1,397) (1,397) 2,708 2,708 Impairment ------(21) - (21) - Unrealised profit in the Group - (590) - (350) - (215) - - - - - (1,155) CARRYING VALUE OF INVESTMENTS - 14,637 - 17,887 12,675 10,037 10,678 16,787 17,089 15,470 40,442 74,818 IN JOINT VENTURES Total revenue - 43,615 - 31,939 20,915 20,789 3,410 58,495 14,238 16,055 38,563 170,893 Depreciation and amortisation - (4,630) - (3,422) (2,981) (4,557) (3) (2) (1,200) (1,248) (4,184) (13,859) Finance income - 72 - 523 77 67 12,274 193 194 264 12,545 1,119 Finance costs - (107) - (128) (543) (742) (4,722) (4,721) (743) (665) (6,008) (6,363) Foreign exchange gain / (loss) - (100) - (172) (941) (81) (16,976) 4,655 - 103 (17,917) 4,405 Impairment - (97) - - 1,721 (3,639) - - - (4,134) 1,721 (7,870) Income tax - (5,593) - (3,865) (747) 330 2,961 5 540 (171) 2,754 (9,294) Profit / (loss) for the year - 19,289 - 15,045 4,828 (1,725) (11,755) 7,892 (2,039) (1,150) (8,966) 39,351 Other - 1,062 - 1,732 215 - - - (70) - 145 2,794 Dividends received - 11,861 - 10,766 - 315 - - - - - 22,942

214 | Annual Report 2018 NAC Kazatomprom JSC | 215 Consolidated Financial Statements

26. Investments in Joint Ventures (continued)

The above joint ventures are accounted using the equity method in the consolidated financial statements. In 2018, Ulba Conversion LLP was liquidated. Together with the Chinese company China General Nuclear Power Corporation (CGNPC), the Group is involved in the construction of a fuel assembly plant in Kazakhstan to supply Chinese nuclear power plants with up to 200 tons per annum of enriched uranium (Ulba TVS LLP). Construction is expected to be completed in 2019 with operations to commence in 2020. In December 2015, the Company and CGNPC established a joint venture entity with 51% and 49% respective interests, which entity is responsible for construction and operation of the plant. Management regularly evaluates whether the Group exercises control, joint control or significant influence over investees including subsidiaries, associates and joint ventures. Management applies judgement in this evaluation, including: (a) determination of availability of power that gives to the Group ability to direct the relevant activities of the investees that significantly affect their returns, and (b) determination of ability to use its power over the investees to affect the amount of the investor’s returns. Management concluded that the Group does not have the ability to use its power to exercise control over Uranenergo LLP. Accordingly, this investment is classified as an investment in a joint venture.

27. Other Investments

In millions of Kazakhstani Tenge 2018 2017 Baiken-U LLP - 1,022 Other 619 704 TOTAL OTHER INVESTMENTS 619 1,726

Baiken-U LLP Investment in Baiken-U LLP represented 5% interest in equity of the investee. In December 2018, the Group obtained control over Baiken-U LLP (Notes 41 and 45).

Other Other investments include bonds issued in 2017 by Special Financial Company DSFK LLP (DSFK). These bonds were received as a result of restructuring of the Group’s deposits held at the bank RBK JSC. The bonds mature in 15 years from the issue date and have an annualised interest rate of 0.01%. The bonds are partially secured by a guarantee issued by the parent company of DSFK for a period of 5 years. The bonds are recognised by the Group at fair value, estimated based on the value of the guarantee and a discount rate of 13% per annum.

216 | Annual Report 2018 28. Accounts Receivable

In millions of Kazakhstani Tenge 2018 2017 Trade accounts receivables from related parties 13 - Other receivables 7 141 Provision for impairment of other receivables (7) (1) TOTAL NON-CURRENT NET ACCOUNTS RECEIVABLE 13 140 Trade accounts receivable 91,094 53,217 Trade accounts receivable from related parties 3,277 5,997 Total gross trade accounts receivable 94,371 59,214 Provision for impairment of trade receivables (90) (1,246) Provision for impairment of trade receivables from related parties (49) (52) TOTAL CURRENT NET TRADE ACCOUNTS RECEIVABLE 94,232 57,916 Other accounts receivable 607 595 Other accounts receivable from related parties 2 7 Total gross other accounts receivable 609 602 Provision for impairment of other receivables (364) (433) Total net other accounts receivable 245 169 TOTAL CURRENT ACCOUNTS RECEIVABLE 94,477 58,085

Information on the Group’s exposure to credit and currency risks and provision for impairment for accounts receivable is disclosed in Note 42.

29. Other Assets

In millions of Kazakhstani Tenge 2018 2017 Non-current Restricted cash 10,552 4,377 Long-term inventories 6,483 7,349 Prepaid expenses 1,343 674 Advances for non-current assets 1,276 10,430 Loans to employees 869 898 Advances to related parties 324 397 TOTAL OTHER NON-CURRENT ASSETS 20,847 24,125

Current Dividends receivable from related parties 8,659 13,707 Advances to related parties for goods and services 3,949 396 Advances for goods and services 2,760 2,813 Prepaid insurance 833 162 Prepaid taxes other than income tax 737 291 Restricted cash 490 242 Due from employees 482 414 Prepaid expenses 412 355 Other - 16 TOTAL OTHER CURRENT ASSETS 18,322 18,396

NAC Kazatomprom JSC | 217 Consolidated Financial Statements

29. Other Assets (continued)

Financial assets within other current and non-current assets include restricted cash, loans to employees and dividends receivable. Other current and non-current assets are non-financial assets. Non-current inventories include stock of enriched uranium which is held by the Group since inception for future use after commissioning of new facilities for production of uranium pellets. Management does not plan to use these inventories in operational activity during the year after the reporting date. In accordance with the terms of its subsurface use contracts, the Group transfers cash to long-term bank deposits to finance site restoration activities. As at 31 December 2018 the balance of restricted cash on the long-term bank deposits related to financing of future site restoration activities amounted to Tenge 10,522 million (2017: Tenge 4,377 million).

30. Inventories

In millions of Kazakhstani Tenge 2018 2017 Finished goods and goods for resale 130,157 140,533 Work-in-process 19,768 17,563 Raw materials 13,728 14,520 Fuel 1,875 889 Materials in processing 1,226 762 Spare parts 720 819 Other materials 5,459 2,842 Provision for obsolescence and write-down to net realisable value (2,672) (8,253) TOTAL INVENTORIES 170,261 169,675

Movements in the provision for obsolescence are as follows:

In millions of Kazakhstani Tenge 2018 2017

Balance at 1 January (8,253) (4,232) Accrual of provision during the year (1,238) (5,125) Reversal of provision during the year 4,341 424 Inventory write off during the year 425 680 Transfer to assets held for sale 2,733 - Additions from business combinations (680) - BALANCE AT 31 DECEMBER (2,672) (8,253)

218 | Annual Report 2018 31. Term Deposits

In millions of Kazakhstani Tenge 2018 2017 Non-current Kazakhstani bank 13 - TOTAL NON-CURRENT TERM DEPOSITS 13 - CURRENT

Kazakhstani banks 205 8,230 Local subsidiary banks of foreign banks - 242 TOTAL CURRENT TERM DEPOSITS 205 8,472

Interest rates on term deposits held by the Group as at 31 December 2018 vary from 0% to 9.5% per annum (2017: from 0.01% to 10.5% per annum). Information on the Group’s exposure to interest rate risk and sensitivity analysis of relevant financial assets and financial liabilities is disclosed in Note 42.

32. Loans to Related Parties

In millions of Kazakhstani Tenge 2018 2017 Non-current Kyzylkum LLP 13,399 20,302 Provision for impairment (154) - TOTAL NON-CURRENT LOANS TO RELATED PARTIES 13,245 20,302

Current Kyzylkum LLP 10,373 - TOTAL CURRENT LOANS TO RELATED PARTIES 10,373 -

The weighted average annual interest rate on loans to related parties in 2018 was 8.5% (2017: 8.5%). Internal assigned credit rating is B. In 2010, the Group provided an interest-bearing long-term loan to Kyzylkum LLP with maturity to 2024. The loan is collateralised by the property of Kyzylkum LLP. JV Khorasan-U LLP is a co-borrower of the loan to Kyzylkum LLP and is a guarantor of the loan.

33. Cash and Cash Equivalents

In millions of Kazakhstani Tenge 2018 2017 Current bank accounts 125,959 234,845 Demand deposits 2,847 5,053 Cash in hand 31 38 Provision for impairment (18) - TOTAL CASH AND CASH EQUIVALENTS 128,819 239,936

NAC Kazatomprom JSC | 219 Consolidated Financial Statements

34. Share Capital

At 31 December 2018 the total number of authorised and paid ordinary shares is 259,356,608 (2017: 37,050,944). On 17 August 2018, the National Bank of the Republic of Kazakhstan registered the split of the total number of issued (paid) shares of the Company in the ratio of 1 to 7. As a result of this increase, the number of announced and issued (paid) common shares of the Company was 259,356,608 shares, which, as on 31 December 2018 remained unchanged. In November 2018, Samruk-Kazyna JSC as a selling shareholder placed 15% of the Company’s shares (equivalent to) 38,903,491 shares / global depositary receipts on the London Stock Exchange (LSE) and the Astana International Exchange (AIX). As of 31 December 2018, Samruk-Kazyna JSC is the controlling shareholder of the Group and owns 85% of the issued ordinary shares. Each ordinary share carries one vote. Dividends declared and paid during the year were as follows:

In millions of Kazakhstani Tenge 2018 2017 Dividends payable at 1 January - - Dividends declared during the year 135,012 65,849 Dividends declared for prior periods 26,649 - Dividends paid during the year (161,661) (65,849) DIVIDENDS PAYABLE AT 31 DECEMBER - - DIVIDENDS DECLARED PER SHARE, IN TENGE 624 254

35. Loans and Borrowings

In millions of Kazakhstani Tenge 2018 2017 Non-current Bank loans 16,270 38,557 Non-bank loans - 353 TOTAL NON-CURRENT LOANS AND BORROWINGS 16,270 38,910

Current Bank loans 74,159 82,374 Non-bank loans 35,726 - Bonds issued 73,535 - TOTAL CURRENT LOANS AND BORROWINGS 183,42 82,374

On 19 January 2015, the Group signed an agreement for an unsecured syndicated loan with five banks for a total amount of USD 450 million. The purpose of the syndicated loan was to refinance bonds issued in 2010 and which were repaid in 2015. The loan is repayable by equal instalments starting from September 2015 until June 2019 and bears interest at variable rates. The Group is also required to maintain a ratio of financial liabilities to EBITDA of not more than 3.5 to 1 and a ratio of financial liabilities to equity of not more than 1 to 1. On 11 October 2018, the Group issued bonds indexed to US Dollar with a fixed 4.6% coupon rate in the amount of Tenge 70,000 million for replenishment of working capital requirements according with Kazakhstani legislation. The bonds are repayable in November 2019.

220 | Annual Report 2018 Non-bank loans are mainly related to a loan obtained from Netherland International Uranium B.V. (NIU) by JV Inkai LLP which entity is consolidated from 1 January 2018 (Note 45). In accordance with loan agreement, in case of failure to fulfill or improper execution of the loan agreement by JV Inkai LLP, NIU has the right to demand pledge of the licenses, the resource use contracts and other assets, according to request of NIU. As of December 31, 2018, there was no such requirement under the loan agreement from the side of the NIU. Information about the Group’s loans and borrowings is presented as follows:

In millions of Kazakhstani Tenge Currency Maturity 2018 2017 Bank loans Mizuho Bank, Limited US Dollar 2020 38,433 - Citibank Kazakhstan JSC US Dollar 2019 30,744 - Syndicated loan US Dollar 2019 21,252 55,126 Societe Generale US Dollar 2018 - 23,319 The Bank of Tokyo-Mitsubishi UFJ. Ltd Euro 2024 - 16,977 Citibank Kazakhstan JSC US Dollar 2018 - 9,816 Kazkommertsbank JSC Tenge 2020 - 4,233 Natixis Bank US Dollar 2022 - 3,420 Citibank Kazakhstan JSC Euro 2018 - 3,344 Fortebank JSC US Dollar 2018 - 3,335 Halyk Bank JSC Tenge 2018 - 1,361 TOTAL BANK LOANS 90,429 120,931 Non-bank loans Netherlands International Uranium US Dollar 2019 35,085 - B.V. Kozhema-Katko-Demeu Tenge 2024 641 353 TOTAL NON-BANK LOANS 35,726 353 Bonds issued Forte bank US Dollar 2019 73,535 - TOTAL BONDS ISSUED 73,535 -

In 2018, the Group’s weighted average interest rate on fixed interest rate loans was 5.61% (2017: 6.29%) and on floating interest rate loans was 4.05% (2017: 3.47%)

NAC Kazatomprom JSC | 221 Consolidated Financial Statements

35. Loans and Borrowings (continued)

Reconciliation of debt The table below shows an analysis of the debt amount and changes in the Group’s liabilities arising from financing activities for each of the periods presented:

In millions of Kazakhstani Tenge Loans and borrowings Financial lease liabilities Total Debt at 31 December 2016 127,765 164 127,929 Proceeds from loans and borrowings 52,793 - 52,793 Repayment of loans and borrowings (61,410) (69) (61,479) Interest accrued 4,944 17 4,961 Interest paid (4,414) (16) (4,430) Foreign currency translation 1,810 - 1,810 Other non-cash changes (204) 323 119 Debt at 31 December 2017 121,284 419 121,703 Proceeds from loans and borrowings 100,547 - 100,547 Issue of bonds 70,000 - 70,000 Repayment of loans and borrowings (147,734) (151) (147,885) Additions from business combinations (Note 45) 41,19 - 41,190 Interest accrued 8,503 55 8,558 Interest paid (6,653) (49) (6,702) Foreign currency translation 16,547 - 16,547 Disposal of subsidiaries (4,365) - (4,365) Other non-cash changes 371 205 576 DEBT AT 31 DECEMBER 2018 199,690 479 200,169

The Group’s loan agreements with banks include covenants, pursuant to which the Group must comply with applicable laws and regulations, cannot create or permit any security over its assets or dispose assets, unless allowed by the loan agreements, and must obtain the lenders’ approval for any acquisitions, mergers and disposals. The Group may also sell uranium for non-military purposes and only to customers residing in countries which signed the Nuclear Non-Proliferation Treaty and are members of the International Agency on Nuclear Energy. In addition, the Group must maintain certain key financial covenants based on the Group’s consolidated financial information, such as the debt to equity ratio and debt to EBITDA ratio. Management believes that the Group complies with all applicable covenants as of 31 December 2018 and 31 December 2017.

222 | Annual Report 2018 36. Provisions

In millions of Kazakhstani Tenge Compensation for Environmental Site restoration Other Total occupational deceases protection At 1 January 2017 Non-current 369 2,733 14,187 31 17,32 Current 97 - 1 - 98 TOTAL 466 2,733 14,188 31 17,418 Provision for the year (58) 96 - 3 41 Unwinding of discount 32 185 1,049 1 1,267 Recovered - - (8) - (8) Disposals - - (175) - (175) Provision used (93) (1) - - (94) Change in estimates - (457) 4,885 - 4,428 At 31 December 2017 Non-current 254 2,46 19,939 35 22,688 Current 93 96 - - 189 TOTAL 347 2,556 19,939 35 22,877 Provision for the year 49 - 44 2 95 Unwinding of discount 31 192 2,161 1 2,385 Disposals - - (356) - (356) Additions from business combinations - - 3,534 - 3,534 Provision used (90) (3) (233) - (326) Change in estimates - 345 4,514 - 4,859 Currency translation - - 4 - 4 At 31 December 2018 Non-current 246 2,994 29,607 38 32,885 Current 91 96 - - 187 TOTAL 337 3,09 29,607 38 33,072

Provision for compensation for occupational diseases In accordance with Articles 939, 943 and 944 of the Civil Code of the Republic of Kazakhstan, the Group is required to pay compensation for occupational diseases and disability arising during the period of employment, or during retirement as a result of disease or disability occurring due to former work conditions. In determining the amount of the provision, the Group management bases their estimates on the number of persons currently entitled to the compensation, the estimated duration of payments and the average annual payments to various categories of employees based on their relative salaries extrapolated for the estimated future rates of disease and disability during the expected lifetime of current and former employees. As at 31 December 2018, the undiscounted amount of the estimate is Tenge 535 million (2017: Tenge 607 million). This estimate has been recognised at present value using a discount rate of 7.45% (2017: 9.06%), being a risk free rate as the future cash flows reflect risks specific to the liability, and inflation rate of 5.3% (2017: 5.4%).

NAC Kazatomprom JSC | 223 Consolidated Financial Statements

36. Provisions (continued)

Provision for environmental protection The Group, pursuant to the legislation of the Republic of Kazakhstan on environmental protection, is required to dispose radioactive waste and to decommission and dispose polluted property, plant and equipment. As at 31 December 2018, the undiscounted value of the estimated costs to comply with this legislation was Tenge 48,988 million (2017: Tenge 64,826 million). A substantial part of environmental protection expenses pertains to years 2068-2073. In view of the long-term nature of reclamation liabilities, there is uncertainty concerning the actual amount of expenses that will be incurred. In computing the provision for environmental protection the Group used a discount rate of 7.45% in 2018 (2017: 9.06%), being a risk free rate as the future cash flows reflect risks specific to the liability, and inflation rate of 5.30% in 2018 (2017: 5.40%). When determining the amount of the environmental provision, Group management used assumptions and assessments based on the experience of decommissioning and clean-up work of a similar nature carried out in 2000-2017, and considered the input provided by both in-house engineers and professional advisors based on their best interpretation of the current environmental legislation.

Provision for restoration of mine sites The Group estimates the site restoration costs for each mine operated by the Group. The undiscounted estimated cost of reclamation activities in 2018 is Tenge 87,572 million (2017: Tenge 40,939 million). The amount of provision for asset retirement obligations was calculated using current prices (the prices effective at the reporting date) for expenditures to be incurred and then inflated using the forecast inflation rate effective for the period until the settlement of obligations (5.3% for the period 2019- 2038). The present value at 31 December 2018 has been estimated using a discount rate of 7.45% (2017: 9.06%), which is a risk free nominal rate as the future cash outflows reflect risk specific to the liability. In view of the long-term nature of reclamation liabilities, there is uncertainty concerning the actual amount of expenses that will be incurred in performing site restoration activities for each mine (Note 4). Changes in estimates occur due to annual revision of costs for site liquidation including newly drilled wells, sand traps and other facilities subject to subsequent liquidation. In accordance with the terms of the subsurface use agreements the Group places cash in long-term bank deposits to finance future site restoration activities. As at 31 December 2018, the accumulated transfers to restricted deposits amounted to Tenge 15,667 million (2017: Tenge 8,903 million). Key assumptions, in addition to the discount rate noted above, which serve as the basis for determining the carrying value of the provision for reclamation of mine sites provision are as follows: • there is a high probability that the Group will proceed to development and production stages for its fields which are currently under exploration. The Group publicly announced about the plans to increase number of uranium mines as a part of the Group’s long-term plan. The strategic plan was approved by the Government of Kazakhstan. These facts set out a constructive obligation for the Group to recognise the site restoration provision for all mining and exploration licenses; • the expected term for future cash outflows for the mine sites is based on the life of the mines. A substantial part of expenditures is expected to occur in 2019-2034, at the end of the life of the mine; and • forecasted inflation rate is 5.30% per annum in 2018 (2017: 5.40%).

224 | Annual Report 2018 37. Accounts Payable

In millions of Kazakhstani Tenge 2018 2017 Trade accounts payable 777 573 Total non-current financial accounts payable 777 573 Other accounts payable - 9 Total non-current other accounts payable - 9 TOTAL NON-CURRENT ACCOUNTS PAYABLE 777 582 Trade accounts payable 30,525 24,979 Trade accounts payable to related parties 19,165 83,712 Total current financial accounts payable 49,690 108,691 Other accounts payable 1,844 3,951 Total current other accounts payable 1,844 3,951 TOTAL CURRENT ACCOUNTS PAYABLE 51,534 112,642

The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 42.

38. Other Liabilities

In millions of Kazakhstani Tenge 2018 2017

Non-current Advances received 3,260 3,261 Historical costs liabilities 1,442 1,749 Deferred income 738 856 Preferred shares 265 265 Issued financial guarantees 89 96 Advances received from related parties 17 1,450 Other 14 34 TOTAL NON-CURRENT OTHER LIABILITIES 5,825 7,711

Current Liability under joint operations 16,995 - Accrued unused vacation payments and bonuses 5,416 4,460 Advances received 2,253 2,120 Wages and salaries payable 1,990 2,620 Historical costs liabilities 1,423 818 Social contributions payable 824 963 Issued financial guarantees 422 48 Dividends payable to other participants 244 253 Deferred income 142 102 Advances received from related parties 28 2,654 Other 582 311 TOTAL CURRENT OTHER LIABILITIES 30,319 14,349

NAC Kazatomprom JSC | 225 Consolidated Financial Statements

38. Other Liabilities (continued)

In accordance with the terms of the subsurface use contracts the Group is required to reimburse the historical costs related to the geological research and other costs incurred by the Republic of Kazakhstan for exploration of the contractual territories before the transfer of subsurface use rights to the Group. In accordance with tax legislation, the historical costs are to be reimbursed to the Government via quarterly payments over a 10 year period, beginning from the date of commercial extraction of uranium. The liability represents the discounted cash flow of estimated future payments. The discount rate applied for historical costs denominated in USD was 3.3% and 7% for historical costs denominated in Tenge.

39. Contingencies and Commitments

Legal proceedings From time to time and in the normal course of business, claims against the Group may be received. Management concluded that no material losses will be incurred in respect of any such claims at 31 December 2018 and 2017.

Tax legislation The tax environment in the Republic of Kazakhstan is subject to change and inconsistent application and interpretations. In particular, existing subsurface use contracts do not have tax stability from 1 January 2009 and tax liabilities are computed under common regime. This could result in unfavourable changes to subsurface users’ tax positions, including those of the Group. Non-compliance with Kazakhstani law and regulations as interpreted by the Kazakhstani authorities may lead to the assessment of additional taxes, penalties and interest. Kazakhstani tax legislation and practice is in a state of continuous development, and therefore is subject to varying interpretations and frequent changes, which may be retroactive. In some cases, in order to determine the tax base, tax legislation refers to IFRS provisions, while interpretation of relevant provisions of IFRS by Kazakhstan’s tax authorities may differ from accounting policies, judgments and estimates used by management in preparation of these consolidated financial statements, which may lead to additional tax liabilities. Tax periods remain open to retroactive review by the Kazakhstan tax authorities for five years. The Group management believes that its interpretation of the relevant legislation is appropriate and the Group’s tax position will be sustained. Detailed information on pending tax disputes and assessments is presented below in this Note. In the opinion of the Group management, no material losses will be incurred in respect of existing and potential tax claims in excess of provision that have been made in these consolidated financial statements.

(a) Transfer pricing legislation Under law on transfer pricing international transactions are subject to state control. This law prescribes Kazakhstani companies to maintain and, if required, to provide economic rationale and method of the determination of prices used in international transactions, including existence of the documentation supporting the prices and differentials. Additionally, differentials could not be applied to the international transactions with companies registered in off-shore countries. In case of deviation of transaction price from market price the tax authorities have the right to adjust taxable items and to impose additional taxes, fines and interest penalties. Regardless of the inherent risks that the tax authorities may question transfer pricing policy of the Group related to the law on transfer pricing, the management of the Group believes that it will be able to sustain its position in case if transfer pricing policy of the Group will be challenged by the tax authorities. From 1 January 2009 the Group self-assesses additional income tax to reflect market prices. The amount of recognised liability in 2018 is Tenge 191 million (2017: Tenge 509 million) (Note 18).

(b) Complex tax inspections of the Group entities In 2014, tax authorities completed a complex tax inspection of JV KATKO LLP, the Group’s associate, for the years 2009-2012 which resulted in that entity being assessed for additional taxes, fines and penalties. These assessments were appealed by the entity and during the 2017 and 2018 years JV KATCO LLP paid amounts to settle certain of the assessments. At 31 December 2018, an

226 | Annual Report 2018 amount of Tenge 1,960 million remains outstanding and it is considered that such amount will not be payable due to expected changes in legislation and the subsoil use contract. Accordingly, no liability has been recognised in these consolidated financial statements of the Group.

Insurance The Kazakhstani insurance industry is in development, and many forms of insurance protection common in other countries are not available yet. The Group does not have full insurance coverage for its manufacturing plants, including damages caused by the cease of production or obligations incurred to third parties in connection with damages caused to the property or the environment resulting from accidents or operations.

Environmental obligations As at the reporting date management concluded that the Group has no legal or constructive obligation to finance dismantlement and rehabilitation of BN-350 reactor (including UPN unit) and Ulba plant facilities (Note 4).

Guarantees Guarantees are irrevocable assurances that the Group will make payments in the event that another party cannot meet its obligations. The maximum exposure to credit risk under financial guarantees, provided to secure financing of certain related parties, at 31 December 2018 is Tenge 13,935 million (2017: Tenge 14,732 million).

Compliance with covenants The Group is subject to certain covenants related primarily to its loans and borrowings (Note 35). Non-compliance with covenants may result in negative consequences for the Group including increase in cost of borrowing. The Group complies with all applicable covenants in 2018 and 2017.

Subsurface use commitments The Group has capital commitments under subsurface use contracts annual minimum working programmes in the amount of Tenge 30,948 million in 2018 (2017: Tenge 4,927 million).

40. Non-controlling Interest

The following table provides information about each significant subsidiary that has non-controlling interest that is material to the Group at 31 December 2018:

Name Country of incorporation Ownership rights held by Profit or loss attributable Accumulated non- and principal place of non-controlling interest to non-controlling controlling interest business interest Ulba Metallurgical Plant JSC Kazakhstan 9.82% 30 6,399 Appak LLP Kazakhstan 35% 1,533 8,031 JV Inkai LLP Kazakhstan 65% 7,457 84,133 Baiken-U LLP Kazakhstan 47.5% - 33,298

The following table provides information about each significant subsidiary that has non-controlling interest that is material to the Group at 31 December 2017:

Name Country of incorporation Ownership rights held by Profit or loss attributable Accumulated non- and principal place of non-controlling interest to non-controlling controlling interest business interest Ulba Metallurgical Plant JSC Kazakhstan 9.82% 155 6,369 Appak LLP Kazakhstan 35% 620 7,121

NAC Kazatomprom JSC | 227 Consolidated Financial Statements

40. Non-controlling Interest (continued)

The summarised financial information of these subsidiaries is as follows:

In millions of Kazakhstani Tenge Ulba Metallurgical Appak LLP JV Inkai LLP Baiken-U LLP Plant JSC

2018 2017 2018 2017 2018 2017 2018 2017 Current assets 38,282 38,798 14,373 16,212 57,052 - 42,141 - Non-current assets 40,499 37,008 13,252 14,367 228,651 - 32,624 - Current liabilities (6,150) (3,510) (2,306) (8,643) (42,747) - (2,792) - Non-current liabilities (5,903) (5,523) (2,376) (1,579) (35,334) - (1,872) - Equity, incl. 66,728 66,773 22,941 20,357 207,622 - 70,101 - Equity attributable to the Group 60,329 60,404 14,910 13,236 123,489 - 36,803 - Non-controlling interest 6,399 6,369 8,031 7,121 84,133 - 33,298 - Revenue 42,977 37,484 18,927 16,718 55,146 - - - Depreciation and amortisation (1,475) (1,301) (2,177) (2,316) (10,85) - - - Finance income 199 277 164 269 43 - - - Finance costs (360) (336) (720) (617) (1,755) - - - Income tax expense (2,069) (1,363) (1,424) (1,586) (5,049) - - - Net foreign exchange gain/(loss) 2,115 34 445 (181) (3,963) - - - Impairment losses (5,409) (858) (991) (118) (456) - - - Profit for the year 353 1,464 4,379 1,770 15,905 - - - Profit attributable to the owners of the 322 1,309 2,846 1,150 8,448 - - - Company Profit attributable to non-controlling 31 155 1,533 620 7,457 - - - interest Profit for the year 353 1,464 4,379 1,770 15,905 - - - Other comprehensive income / (loss) 99 (34) 3 17 (217) - - - TOTAL COMPREHENSIVE INCOME 452 1,430 4,382 1,787 15,688 - - - FOR THE YEAR Net cash inflow / (outflow) from: ·· operating activities 3,365 2,775 9,726 (2,679) 26,678 - - - ·· investing activities (1,593) 314 (964) (2,377) (7,520) - - - ·· financing activities (386) (2,204) (5,065) 3,437 (9,025) - - - NET CASH INFLOW / (OUTFLOW) 1,386 885 3,697 (1,619) 10,133 - - -

228 | Annual Report 2018 41. Principal Subsidiaries

These consolidated financial statements include the following subsidiaries:

Principal activity Ownership

2018 2017 MAEK-Kazatomprom LLP (Note 46) Production, transfer and sales of electric power and heat, production and - 100% sales of potable, technical and distilled water, transportation of sea water and gas Kazatomprom-Damu LLP Consulting services on the Group’s investment activity 90% 90% (Kazatomprom-Demeu LLP) KAP-Technology JSC Communication services 100% 100% Korgan Kazatomprom LLP Security services 100% 100% Appak LLP Exploration, extraction and initial processing of uranium ore 65% 65% Ulba Metallurgical Plant JSC Production and processing of uranium materials, production of rare 90.18% 90.18% metals and semiconductor materials Volkovgeologiya JSC Exploration and research of uranium reserves, drilling services, 90% 90% monitoring of radiation level and environment conditions High Technology Institute LLP Research, project, development and engineering consulting services 100% 100% Kyzyltu LLP Exploration, extraction and processing of molybdenum-copper ores with 76% 76% uranium content JV Sareco LLP Ore enrichment, hydro-metallurgical production of rare metals - 100% concentrates, chemical production of rare metals МК KazSilicon LLP Production and sale of metallurgical and polycrystalline silicon, recycling 100% 100% of silicon production waste Kazakhstan Solar Silicon LLP Production of silicon of solar quality, silicon slices and photovoltaic slices 100% 100% Astana Solar LLP Production of photovoltaic modules 100% 100% DP Ortalyk LLP Production services, processing to chemical uranium concentrate and 100% 100% mine development services RU-6 LLP Exploration, production and preliminary processing of uranium ore 100% 100% Kazatomprom-SaUran LLP Exploration, production and preliminary processing of uranium ore 100% 100% Geotechnoservice LLP Development of mining works plans, mining projects, geophysical - 100% research Trade and Transportation Company Procurement and transportation services 99.9999% 99.9999% LLP Kazakhstan Nuclear Electric Stations Implementation of project on construction and operation of nuclear - 100% JSC electric station Kazakatom TH AG Marketing function for sale of uranium, investment and administration of 100% 100% finances, goods and rights JV Inkai LLP (Note 45) Exploration, production, processing and sale of uranium products 60% - Baiken-U LLP (Note 45) Exploration, production, processing and sale of uranium products 52.5% - Power System International Limited Commercial and investment activity 100% 100% (PSIL)

In 2016, the Company established a subsidiary Kazakatom TH AG in Switzerland. The share capital of Kazakatom TH AG of Tenge 339 million was fully paid, of which Tenge 270 million was paid in 2017. All other subsidiaries are incorporated and operate in Kazakhstan. In 2018, the Group sold MAEK-Kazatomprom LLP and Kazakhstan Nuclear Electric Stations JSC to Samruk-Kazyna JSC and JV Sareco LLP to Tau-Ken Samruk JSC.

NAC Kazatomprom JSC | 229 Consolidated Financial Statements

42. Financial Risk Management

Accounting policies and disclosures in respect of financial instruments are applied to the following classes of financial instruments:

In millions of Kazakhstani Tenge Note 2018 2017 Financial assets Current bank accounts 33 125,941 234,845 Trade accounts receivable 28 94,245 57,916 Loans to related parties 32 23,618 20,302 Dividends receivable from related parties 29 8,659 13,707 Restricted cash 29 11,042 4,619 Demand deposits 33 2,847 5,053 Financial derivative asset 9 1,369 - Loans to employees 29 869 898 Term deposits 31 218 8,472 Other investments 27 619 1,726 Other accounts receivable 28 245 309 Cash in hand 33 31 38 TOTAL FINANCIAL ASSETS 269,703 347,885 Financial liabilities Bank loans 35 90,429 120,931 Bonds issued 35 73,535 - Trade accounts payable 37 50,467 109,264 Non-bank loans 35 35,726 353 Historical costs liabilities 38 2,865 2,567 Other accounts payable 37 1,844 3,960 Finance lease liabilities 479 419 Preferred shares 38 265 265 Dividends payable to other participants 38 244 253 Issued financial guarantees 38 89 96 TOTAL FINANCIAL LIABILITIES 255,943 238,108

The risk management function within the Group monitors financial risks, operational risks and legal risks. Financial risk comprises market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk. The primary objectives of the Group’s financial risk management function are to establish risk limits, and then ensure that exposure to risks stays within these limits. Risk management policies and systems are regularly analysed for the need of revision due to changes in market conditions and the Group operations. The primary objective of the Group’s operational and legal risk management functions is to establish and monitor compliance with approved policies and procedures. This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s policy for management of capital. Further quantitative disclosures are included throughout these consolidated financial statements. The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Management Board has established a Risk Management Committee, which is responsible for developing and monitoring the Group’s risk management policies. The committee reports regularly to the Management Board and the Board of Directors on its activities.

230 | Annual Report 2018 Credit risk The Group has exposure to credit risk, which is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Exposure to credit risk arises as a result of the Group’s sales of products on credit terms and other transactions with counterparties giving rise to financial assets. Financial assets, which potentially expose the Group to credit risk, consist mainly of trade and other receivables, cash and cash equivalents, term deposits and loans to employees and related parties. The Group’s maximum exposure to credit risk by class of assets is reflected in the carrying amounts of financial assets in the statements of financial position and the nominal amount of financial guarantees (Note 39). The credit risk on cash and cash equivalents and term deposits is limited, because the counterparties are banks with highest available (in Kazakhstan) credit ratings assigned by international credit rating agencies. The table below shows credit ratings of banks where the Group had accounts as at 31 December 2018:

In millions of Kazakhstani Tenge Rated Standard & Poor’s В Rated Standard & Poor’s C Other Total Restricted cash 10,552 - 490 11,042 Term deposits 218 - - 218 Current bank accounts 113,705 - 12,236 125,941 Demand deposits 2,847 - - 2,847 TOTAL 127,322 - 12,726 140,048

The table below shows credit ratings of banks where the Group had accounts as at 31 December 2017:

In millions of Kazakhstani Tenge Rated Standard & Poor’s В Rated Standard & Poor’s C Other Total Restricted cash 3,451 3 1,165 4,619 Term deposits 8,472 - - 8,472 Current bank accounts 230,035 2,793 2,017 234,845 Demand deposits 5,008 45 - 5,053 TOTAL 246,966 2,841 3,182 252,989

The Group applies the simplified approach permitted in IFRS 9 to measure expected credit losses which uses a lifetime expected loss allowance for all trade and other receivables. To measure the expected credit losses, trade and other receivables have been grouped based on shared credit risk characteristics and the days past due. The expected loss rates are based on the payment profiles of sales over a period of 24 month before 31 December 2018 or 1 January 2018 respectively and the corresponding historical credit losses experienced within this period. The historical loss rates are not adjusted to reflect forward-looking information on macroeconomic factors because those factors do not significantly affect the risk profile. The expected environment in the near future (12 months) is identical to the environment reflected in the time series used to estimate the parameters of expected credit losses.

NAC Kazatomprom JSC | 231 Consolidated Financial Statements

42. Financial Risk Management (continued)

The credit loss allowance for trade and other receivables is determined according to provision matrix presented in the table below. The provision matrix is based the number of days that an asset is past due.

In % of gross value Loss rate Gross carrying amount Lifetime ECL Trade receivables ·· - current 0.04% 94,044 (39) ·· - less than 30 days overdue 2.07% 245 (5) ·· - 30 to 90 days overdue - - - ·· - 91 to 180 days overdue - - - ·· - 181 to 360 days overdue - - - ·· - over 360 days overdue 100% 95 (95) Total trade receivables (gross carrying amount) 94,384 Credit loss allowance (139) TOTAL TRADE RECEIVABLES FROM CONTRACTS 94,245 WITH CUSTOMERS (CARRYING AMOUNT)

The following table explains the changes in the credit loss allowance for trade and other receivables under simplified ECL model between the beginning and the end of 2018 as well as impairment provision for trade and other receivables during 2017:

In millions of Kazakhstani Tenge Trade accounts receivable Other accounts receivable

Provision at 1 January 2017 1,761 467 Provision for the year 66 4 Reversal (13) (1) Amounts written-off (516) (37) Provision at 31 December 2017 1,298 433 Change in accounting estimates 393 1 Provision for the year 229 56 Discontinued operation (1) (38) Transfer to assets held for sale (203) Income from business combinations 21 Reversal (459) (1) Amounts written-off (58) (80) PROVISION AT 31 DECEMBER 2018 139 371

The Group’s exposure to credit risk in respect of trade accounts receivable is influenced mainly by the individual characteristics of each customer. The demographics of the Group’s customer base, including the default risk of the industry and country, in which customers operate, has less of an influence on credit risk. The Group is exposed to concentrations of credit risk. Approximately 69% of the Group’s revenue for 2018 (75% of trade receivables as of 31 December 2018) is attributable to sales transactions with seven main customers (2017: 54% of Group’s revenues (29% of trade receivables)). The Group defines counterparties as having similar characteristics if they are related entities. The Group applies a credit policy under which each new customer is analysed individually for creditworthiness before the Group’s standard payment and delivery terms and conditions are offered. The Group does not require collateral in respect of trade and other receivables. The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:

232 | Annual Report 2018 In millions of Kazakhstani Tenge 2018 2017 India 53,430 411 Canada 11,398 - China 11,348 17,570 USA 6,886 3,702 European Union 5,772 18,394 Kazakhstan 4,217 16,128 Japan 859 1,421 Russia 114 243 Other 221 47 TOTAL 94,245 57,916

The most significant customers of the Group in 2018 were China Nuclear Energy Industry Corporation, Yellow Cake plc, Directorate of Purchase & Stores (India), CGNPC Uranium Resources Company Limited, China Uranium Resources Company Limited, CAMECO Europe Ltd, Electricite de France (2017: China Nuclear Energy Industry Corporation, Urangeselschaft mbH, CNNC International (HK) Limited, CGNPC Uranium Resources Company Limited, HOKKAIDO Electric Power Company Inc., CAMECO Europe Ltd, A&R Merchants Inc). As at 31 December 2018 the aggregate balance receivable from these customers was Tenge 70,709 million (2017: Tenge 39,751 million). The average credit period on sales of goods is 30 days. No interest is charged on receivables for the first 30 days from the date of the invoice. Thereafter, interest is charged on the outstanding balance at the refinancing rate set by the National Bank of the Republic of Kazakhstan, which is 9.25% in 2018 (2017: 10.25%). Balances not past due and not impaired relate to a number of independent customers for whom there is no recent history of delay in payments. The provision for impairment is recognised for receivables with delays in collection. The ageing of the trade receivables is as follows:

In millions of Kazakhstani Tenge 2018 2017

Trade accounts receivable Other accounts receivable Trade accounts receivable Other accounts receivable Not past due and not impaired 94,205 245 55,844 169 Past due but nor impaired Past due for 0-30 days 16 - 582 - Past due for 31-120 days 24 - 1,326 - Past due for more than 120 days - - 164 - Total past due but not impaired 40 - 2,072 - Past due and impaired Past due for more than 120 days 139 371 1,298 433 Total past due and impaired 139 371 1,298 433 Provision for impairment (139) (371) (1,298) (433) TOTAL 94,245 245 57,916 169

Credit risk exposure in respect of loans to related parties (Note 32) and loans to employees (Note 29) arises from possibility of non-repayment of provided funds. For loans to joint ventures and associates and employees the Group manages the credit risk by requirement to provide collateral in lieu of borrowers’ property. Borrowers do not have a credit rating.

NAC Kazatomprom JSC | 233 Consolidated Financial Statements

42. Financial Risk Management (continued)

Expected Credit Loss (ECL) measurement Measurement of ECLs is a significant estimate that involves determination methodology, models and data inputs. The following components have a major impact on credit loss allowance: definition of default, SICR, probability of default (“PD”), exposure at default (“EAD”), and loss given default (“LGD”), as well as models of macro-economic scenarios. The Group regularly reviews and validates the models and inputs to the models to reduce any differences between expected credit loss estimates and actual credit loss experience. The Group used supportable forward looking information for measurement of ECL, primarily an outcome of its own macro- economic forecasting model. Several assumptions that are easily interpretable were selected for analysis: GDP growth rate, inflation rate, exchange rate and economic indicator. Final macroeconomic function includes only inflation assumption. Forward-looking information is included in parameters of PD within the next 12 months after the reporting date. The most significant forward looking assumptions that correlate with ECL level and their assigned weights were as follows at 31 December 2018:

Variable Assumption for:

2018 2019 2020 2021 2022 2023 Inflation rate 6.2 7.2 6.3 6.4 4.2 3.7

Liquidity risk Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Group is exposed to daily calls on its available cash resources. Liquidity risk is managed by the corporate finance and treasury department of the Group. Management monitors monthly rolling forecasts of the Group’s cash flows. The Group seeks to maintain a stable funding base primarily consisting of borrowing, trade and other payables and debt securities. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities as they fall due, under both normal and stressful conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group invests available cash funds in diversified portfolios of liquid assets, in order to be able to respond quickly to unforeseen liquidity requirements. The Group ensures that it has sufficient cash on demand to meet expected operational expense or financial obligations which excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. Below is a summary of the Group’s undrawn borrowing facilities and available cash and cash equivalents, including current term deposits, which are the important instruments in managing the liquidity risk:

In millions of Kazakhstani Tenge 2018 2017 Current term deposits 3,052 13,525 Current bank accounts 125,959 234,845 Undrawn borrowing facilities 85,485 35,177 TOTAL 214,496 283,547

The table below shows liabilities at the reporting date by their remaining contractual maturity. The amounts disclosed in the maturity table are the contractual undiscounted cash flows. Such undiscounted cash flows differ from the amount included in the statements of financial position because the statement of financial position amount is based on discounted cash flows.

234 | Annual Report 2018 When the amount payable is not fixed, the amount disclosed is determined by reference to the conditions existing at the end of the reporting period. Foreign currency payments are translated using the spot exchange rate at the end of the reporting period. The following are the contractual maturities of financial liabilities at 31 December 2018:

In millions of Kazakhstani Tenge Carrying Contractual On demand From 1 to 3 From From 1 to 5 Over value cash flows and less than months 3 months to years 5 years 1 month 1 year Bank loans 90,429 92,367 30,974 16,913 27,739 16,741 - Non-bank loans 35,726 36,261 128 19,551 16,582 - - Bonds issued 73,535 76,428 - - 76,428 - - Trade accounts payable 50,467 50,467 - 49,690 - 777 - Other accounts payable 1,844 1,844 - 1,844 - - - Historical costs liabilities 2,865 3,197 - 194 581 2,422 - Finance lease liabilities 479 479 - 29 100 350 - Issued financial guarantees 89 13,935 - 13,935 - - - Preferred shares 265 265 - - - 265 - Dividends payable to other participants 244 244 - 244 - - - TOTAL 255,943 275,487 31,102 102,400 121,430 20,555 -

The following are the contractual maturities of financial liabilities at 31 December 2017:

In millions of Kazakhstani Tenge Carrying Contractual On demand From 1 to 3 From From 1 to 5 Over value cash flows and less than months 3 months to years 5 years 1 month 1 year Bank loans 120,931 136,644 32,823 12,886 48,982 38,046 3,907 Non-bank loans 353 353 - - - - 353 Trade accounts payable 109,264 109,264 - 108,691 - 573 - Other accounts payable 3,960 3,960 - 3,951 - 9 - Historical costs liabilities 2,567 2,803 - 204 614 1,985 - Finance lease liabilities 419 462 - 22 120 320 - Issued financial guarantees 96 14,732 - 14,732 - - - Preferred shares 265 265 - - 265 - - Dividends payable to other participants 253 253 - 253 - - - TOTAL 238,108 268,736 32,823 140,739 49,981 40,933 4,26

Maximum contractual cash outflows under guarantees are disclosed in Note 39.

NAC Kazatomprom JSC | 235 Consolidated Financial Statements

42. Financial Risk Management (continued)

Market risk The Group has exposure to market risks. Market risk is the risk that changes in market prices will have a negative impact on the Group’s income or the value of its financial instrument holdings. Market risks arise from open positions in (a) foreign currencies, (b) interest bearing assets and liabilities and (c) equity products, all of which are exposed to general and specific market movements. The objective of market risk management is to monitor and control market risk exposures within acceptable limits, while optimising the return on investments. Management sets limits on the value of risk that may be accepted, which is monitored on a daily basis. However, the use of this approach does not prevent losses outside of these limits in the event of more significant market movements. Sensitivities to market risks included below are based on a change in a factor while holding all other factors constant. In practice this is unlikely to occur and changes in some of the factors may be correlated – for example, changes in interest rate and changes in foreign currency rates.

Currency risk The Group is exposed to currency risk on sales, purchases and borrowings which are denominated in currencies other than the functional currency. Borrowings are denominated in currencies that match the cash flows generated by operating entities in the Group. Therefore, in most cases, economic hedging is achieved without derivatives. In respect of other monetary assets and liabilities denominated in foreign currencies, the Group ensures that its net exposure is kept to an acceptable level by planning future expenses taking into consideration the currency of payment. The Group is mainly exposed to the risk of USD currency fluctuations. The Group’s exposure to currency risk was as follows:

In millions of Kazakhstani Tenge 2018 2017

Denominated in US Dollars Trade accounts receivable 72,988 46,474 Loans to related parties* 13,399 20,302 Current bank accounts 77,526 212,119 Demand deposits 1 1,937 Term deposits 151 7,586 Other assets 156 Total assets 164,221 288,418 Bank and non-bank loans (125,514) (95,016) Bonds issued (73,535) Trade accounts payable (4,072) (14,410) Historical costs liabilities (2,392) (1,125) Total liabilities (205,513) (110,551) NET EXPOSURE TO CURRENCY RISK (41,292) 177,867

* - loans to related parties are denominated in Tenge, but are subject to indexation for changes in USD/Tenge exchange rate.

A 14% weakening and 10% strengthening of Tenge against USD as at 31 December 2018 (2017: 10% weakening and 10% strengthening) would increase/(decrease) equity and profit or loss by the amounts shown below.

In millions of Kazakhstani Tenge 2018 2017 US Dollar strengthening by 14% (2017: 10%) (4,625) 14,230 US Dollar weakening by 10% (2017: 10%) 3,303 (14,230)

236 | Annual Report 2018 Movements of Tenge against USD above represent reasonably possible changes in market risk estimated by analysing annual standard deviations based on the historical market data for 2018.

Price risk on uranium products The Group is exposed to the effect of fluctuations in the price of uranium, which is quoted in USD on the international markets. The Group prepares an annual budget based on future uranium prices. Uranium prices historically fluctuate and are affected by numerous factors outside of the Group’s control, including, but not limited to: • demand for uranium used as fuel by nuclear power stations; • depleting levels of secondary sources such as recycling and blended down highly enriched stocks available to close the gap of the excess demand over supply; • impact of regulations by the International Agency on Nuclear Energy; • other factors related specifically to uranium industry. At the end of the reporting period there was no significant impact of commodity price risk on the Group’s financial assets and financial liabilities.

Interest rate risk Changes in interest rates impact loans and borrowings by changing either their fair value (fixed rate debt) or their future cash flows (floating rate debt). At the time of raising new loans or borrowings, management uses its judgement to decide whether it believes that a fixed or a floating rate would be more favourable to the Group over the expected period until maturity. As at 31 December 2018 approximately 37% (2017: 21%) of the Groups borrowings have a fixed interest rate. At the reporting date, the interest rate profile of the Group’s interest-bearing financial instruments was:

In millions of Kazakhstani Tenge 2018 2017

Fixed rate instruments Restricted cash 11,042 4,619 Term deposits 218 8,472 Loans to related parties 23,618 20,302 Demand deposits 2,847 5,053 Bank loans - (25,906) Bonds issued (73,535) Non-bank loans (641) (353) Net position (36,451) 12,187 Floating rate instruments Bank loans (90,429) (95,025) Non-bank loans (35,085) - NET POSITION (125,514) (95,025)

Fair value sensitivity analysis for fixed rate instruments The Group does not account for any fixed rate financial assets and financial liabilities at fair value through profit or loss. Therefore a change in interest rates at the reporting date would not affect profit or loss. However, fixed rate financial assets and financial liabilities are exposed to fair value risk from change in interest rates. Reasonably possible changes in interest rates do not significantly affect fair values of those financial assets and financial liabilities.

NAC Kazatomprom JSC | 237 Consolidated Financial Statements

42. Financial Risk Management (continued)

Future cash flows sensitivity analysis for floating rate instruments An increase (decrease) in interest rates of 50 (15) basis points in 2018 (2017: increase of 70 and decrease of 8 basis points) at the reporting date would have decreased (increased) equity and profit or loss by the amounts shown below. These amounts represent management’s assessment of reasonably possible changes in the interest rates based upon current interest rates and the current economic environment. This analysis assumes that all other variables, in particular foreign currency rates, remain constant and that balances due were outstanding for the year.

In millions of Kazakhstani Tenge 2018 2017 Increase of 50 basis points (2018), 70 basis points (2017) (502) (528) Decrease of 15 basis points (2018), 8 basis points (2017) 151 60

Fair values versus carrying amounts With the exception of instruments specified in the following table, the Group believes that the carrying value of financial assets and financial liabilities are recognised in the consolidated financial statements approximate their fair value due to their short- term nature:

In millions of Kazakhstani Tenge 2018 2017

Carrying value Fair value Carrying value Fair value Financial liabilities Bank loans 90,429 90,429 120,931 112,028 Non-bank loans 35,726 35,655 353 198 Bonds issued 73,535 73,535 - - Historical costs liabilities 2,865 2,255 2,567 2,019 TOTAL 202,555 201,874 123,851 114,245

In assessing fair values, management used the following major methods and assumptions: (a) for interest free financial liabilities and financial liabilities with fixed interest rate, financial liabilities were discounted at effective interest rate which approximates the market rate; (b) for financial liabilities with floating interest rate, the fair value is not materially different from the carrying amount because the effect of the time value of money is immaterial.

Capital management The Group’s policy is to maintain a strong capital base so as to safeguard the Group’s ability to continue as a going concern, to maintain investor, creditor and market confidence, to provide returns for shareholder, to maintain an optimal capital structure to reduce the cost of capital, and to sustain future development of the business. Capital includes all capital and reserves of the Group as recorded in the consolidated statements of financial position. The Group monitors the following indicators: • financial stability, or measures of loan management, determining the degree of borrowing funds utilisation; • profitability, determining cumulative effects of liquidity, asset and capital management as a result of business activities. The Group’s internal quantitative capital management targets are similar to externally imposed requirements.The Group’s controlling shareholder approved the policy on borrowings and financial sustainability management, which is aimed to manage financial risks by adopting common principles and rules of debt management and financial sustainability for non-financial organisations. In order to evaluate the financial stability of the Group, the following key financial ratios are used, which have not changed since 2015: • the debt to equity ratio of not greater than 1; • the debt ratio to earnings before interest, taxes, depreciation and amortisation (Debt/EBITDA) of not greater than 3.5. The Group has complied with all externally imposed capital requirements during 2018 and 2017, including covenants associated with borrowing facilities (Note 35).

238 | Annual Report 2018 43. Fair Value Disclosures

Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level one are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii) level two measurements are valuations techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) level three measurements are valuations not based on observable market data (that is, unobservable inputs). Management applies judgement in categorising financial instruments using the fair value hierarchy. If a fair value measurement uses observable inputs that require significant adjustment, that measurement is a Level 3 measurement. The significance of a valuation input is assessed against the fair value measurement in its entirety.

Assets and liabilities not measured at fair value but for which fair value is disclosed Estimates of all assets and liabilities not measured at fair value but for which fair value is disclosed, except bonds, are level 3 of the fair value hierarchy. The fair values in level 3 of the fair value hierarchy were estimated using the discounted cash flows valuation technique. The fair value of floating rate instruments that are not quoted in an active market was estimated to be equal to their carrying amount. The fair value of unquoted fixed interest rate instruments was estimated based on estimated future cash flows expected to be received discounted at current interest rates for new instruments with similar credit risks and remaining maturities.

Financial assets carried at amortised cost The fair value of floating rate instruments is normally their carrying amount. Estimate of all financial assets carried at amortised cost is level 3 measurement. The estimated fair value of fixed interest rate instruments is based on estimated future cash flows expected to be received discounted at current interest rates for new instruments with similar credit risks and remaining maturities. Discount rates used depend on the credit risk of the counterparty.Liabilities carried at amortised cost Fair values of other liabilities were determined using valuation techniques. The estimated fair value of fixed interest rate instruments with stated maturities were estimated based on expected cash flows discounted at current interest rates for new instruments with similar credit risks and remaining maturities. The fair value of liabilities repayable on demand or after a notice period (“demandable liabilities”) is estimated as the amount payable on demand, discounted from the first date on which the amount could be required to be paid. The discount rates used ranged from 3.3% p.a. to 6.3% p.a. depending on the length and currency of the liability.

44. Presentation of Financial Instruments by Measurement Category

For the purposes of measurement, IFRS 9 Financial Instruments classifies financial assets into the following categories: (a) financial assets at FVTPL; (b) debt instruments at FVOCI, (c) equity instruments at FVOCI and (c) financial assets at AC. Financial assets at FVTPL have two sub-categories: (i) assets mandatorily measured at FVTPL, and (ii) assets designated as such upon initial recognition or subsequently. All of the Group’s financial assets as of 31 December 2018 fell into the category AC, except for the financial derivative asset, classified as FVTPL (Note 9). For the purposes of measurement at 31 December 2017, IAS 39 Financial Instruments: Recognition and Measurement, classified financial assets into the following categories: (a) L&R; (b) AFS financial assets; (c) financial assets HTM and (d) financial assets at FVTPL (“FVTPL”). Financial assets at FVTPL had two sub-categories: (i) assets designated as such upon initial recognition, and (ii) those classified as held for trading. All of the Group’s financial assets at 31 December 2017 fell in the L&R category, except for certain investments classified as AFS financial assets (Note 5). As of 31 December 2018 and 2017, all of the Group’s financial liabilities were carried at AC.

NAC Kazatomprom JSC | 239 Consolidated Financial Statements

45. Business Combinations

As described in Note 1, a number of significant changes in the Group’s structure occurred during the year ended 31 December 2018, including business combination transactions which resulted in a recorded net gain of KZT 313,517 million (2017: nil) as follows:

In millions of Kazakhstani Tenge JV Inkai LLP Fair value of the investment in associate at date of acquisition 77,850 Less: carrying value of the investment in associate at date of acquisition (40,389) Transfer of foreign currency translation reserve 21,174 Bargain purchase gain arising from the acquisition 37,283 Cash consideration 11 Net gain from business combination – Inkai LLP 95,929 JV Akbastau JSC and Karatau LLP Fair value of the investments in joint ventures prior to the business combination 250,107 Less: carrying value of the investments in joint ventures (32,524) Net gain from business combination – JV Akbastau LLP and Karatau LLP 217,583 Other 5 TOTAL NET GAIN FROM BUSINESS COMBINATIONS RECOGNISED IN PROFIT OR LOSS 313,517

JV Inkai LLP In December 2017, the Group and Cameco completed restructuring of JV Inkai LLP. Under the terms of the agreement, effective from 1 January 2018 the Group increased its interest in JV Inkai LLP from 40% to 60% and obtained control over the investee (Note 25). The Group obtained control through its ability to cast a majority of votes in the general meeting of shareholders and the supervisory board when making decisions over the relevant activities of the investee. As a result of this acquisition transaction, there will be an increase in the Group’s share of uranium production and expected improvement in the profitability of operations through increased production and sales. The acquisition-date fair value of the total purchase consideration and its components are as follows:

In millions of Kazakhstani Tenge Cash consideration paid 11 Net liabilities from pre-existing relationships (21,271) Total purchase consideration (21,260) Fair value of the investment in associate prior to the acquisition 77,850 TOTAL PURCHASE CONSIDERATION AND FAIR VALUE OF PREVIOUSLY HELD INTEREST 56,590 IN THE ACQUIREE

The cash consideration paid by the Group was based on the book value of the share in the charter capital. The Group facilitated the signing of an addendum to the subsoil use contract with the competent authority allowing extension of the contract period (until 2045) and increase in annual production volume (to 4,000 tons of uranium per year).The difference between the purchase consideration and net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities is termed ‘bargain purchase gain’, as presented in the table below, which was recognised immediately in profit or loss for the period less the deferred tax effect.

240 | Annual Report 2018 Management assessed whether the acquisition contained an element of a transaction with the government as a shareholder requiring the gain or its part to be recognised in equity. Given that the agreement was beneficial for both parties and that there was already an agreement in place where Cameco committed to give up 20% of JV Inkai LLP to obtain additional mining rights, management concluded that the gain should be recognised in profit or loss rather than equity. Additional mining rights were granted to JV Inkai LLP only after the normal due process was followed in relation to governmental grants of such rights, rather than being directly contributed by the government outside of the normal course of business. Details of the assets and liabilities acquired and bargain purchase gain arising as of 1 January 2018 are as follows:

In millions of Kazakhstani Tenge Справедливая стоимость Cash and cash equivalents 1,036 Accounts receivable 19,063 Inventories 5,579 Prepaid income tax 2,313 Mineral rights 159,934 Property, plant and equipment 32,671 Mine development assets and exploration and evaluation assets 43,582 Other assets 4,830 Loans and borrowings (38,955) Accounts payable (4,596) Deferred tax liability (32,162) Other liabilities (1,390) Fair value of identifiable net assets acquired (before elimination of intra-group balances) 191,905 Less: elimination of intra-group balances (21,271) Fair value of identifiable net assets acquired 170,634 Less: non-controlling interest (76,761) Less: bargain purchase gain arising from the acquisition (37,283) TOTAL PURCHASE CONSIDERATION AND PREVIOUSLY HELD INTEREST IN THE 56,590 ACQUIREE

The valuation of identifiable assets and liabilities was performed by an independent professional appraiser. Based on the valuation, the assets value increased by Tenge 109,160 million to fair value, mainly due to valuation of the subsoil use (mineral) right, as a result of which the carrying value increased from Tenge 6,185 million to Tenge 159,934 million. The value of property, plant and equipment and mine preparation works decreased by Tenge 27,151 million and Tenge 15,485 million, respectively. The non-controlling interest represents a share in the net assets of the acquiree attributable to owners of the non-controlling interest. The non-controlling interest was determined based on proportionate share of the acquiree’s net assets’ fair value. Deferred tax of KZT 21,832 million was recorded on the excess of the fair value over the carrying value. As of 1 January 2018, the Group had net liabilities with JV Inkai amounting to KZT 21,271 million comprising payables of Tenge 18,846 million under an uranium purchase agreement, advances received of Tenge 524 million, long-term advances received for the road use right of Tenge 2,701 million, and receivables of Tenge 800 million under supply contracts. The acquired subsidiary contributed revenue of Tenge 25,625 million (excluding sales to JSC NAC Kazatomprom) and profit of Tenge 18,643 million to the Group for the period from 1 January 2018 to 31 December 2018.

NAC Kazatomprom JSC | 241 Consolidated Financial Statements

45. Business Combinations (continued)

Karatau LLP, JV Akbastau JSC The Group and Uranium One Inc each hold a 50% interest in Karatau LLP and JV Akbastau JSC. In 2018, the Group and Uranium One Inc signed agreements that formalised their obligation to purchase all production of the investees on equitable terms, as well as to provide financing to the joint arrangement in proportion to their ownership interests. As a result of these agreements, both parties have effective rights to the assets and obligations for the liabilities of the investees. Accordingly, starting from 1 January 2018 the entities have been classified as joint operations. The Group recognised its direct right in joint assets, liabilities, income and expenses in proportion to its 50% ownership interest in these consolidated financial statements on a line by line basis. Until 2018, investments in Karatau LLP (50% interest) and JV Akbastau JSC (50% interest) were accounted for using the equity method. In accordance with IFRS 11, the change in classification of Karatau LLP and JV Akbastau JSC from joint venture to joint operations was accounted for as a business combination. Accordingly, the acquired assets and liabilities are recognised using the acquisition method under IFRS 3. The acquisition-date fair value of the total purchase consideration and its components are as follows:

In millions of Kazakhstani Tenge JV Akbastau JSC Karatau LLP Total Cash consideration paid - - - Liabilities from pre-existing relationships (5,333) (3,205) (8,538) Total purchase consideration (5,333) (3,205) (8,538) Value of investments in the joint ventures prior to 110,837 139,270 250,107 acquisition TOTAL PURCHASE CONSIDERATION AND 105,504 136,065 241,569 PREVIOUSLY HELD INTEREST IN THE JOINT VENTURES

The valuation of identifiable assets and liabilities was performed by an independent professional appraiser. The difference between the consideration transferred and the net fair value of the acquiree’s identifiable assets and liabilities assumed and contingent liabilities led to recognition of ‘goodwill’, as presented in the table below. Deferred tax was recognised as ‘excess of the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of the business combination’.

242 | Annual Report 2018 Presented below is the information on the fair value of acquired assets, liabilities assumed (proportionate 50% share) and resultant goodwill of JV Akbastau JSC:

In millions of Kazakhstani Tenge Fair value Cash and cash equivalents 1,513 Accounts receivable 5,924 Inventories 1,206 Mineral rights 91,790 Property, plant and equipment 4,425 Mine development assets and exploration and evaluation assets 6,273 Other assets 1,385 Deferred tax liability (18,520) Accounts payable (780) Other liabilities (899) Fair value of identifiable net assets acquired (before elimination of intra-group balances) 92,317 Less: elimination of intra-group balances (5,333) Fair value of identifiable net assets acquired 86,984 Goodwill arising from the acquisition 18,520 TOTAL PURCHASE CONSIDERATION AND PREVIOUSLY HELD INTEREST IN THE JOINT 105,504 VENTURES

Based on the valuation, the assets value of JV Akbastau JSC increased by Tenge 92,600 million to fair value, mainly due to valuation of the subsoil use (mineral) right, as a result of which the carrying value increased from Tenge 95 million to Tenge 91,790 million. The value of property, plant and equipment increased by Tenge 905 million. Deferred tax of Tenge 18,520 million was recorded on the excess of the fair value over the carrying value was the main reason for recording the goodwill. As of 1 January 2018, the Group had payables to JV Akbastau JSC of Tenge 5,420 million under uranium purchase agreement and receivables of Tenge 87 million under supply contracts.

NAC Kazatomprom JSC | 243 Consolidated Financial Statements

45. Business Combinations (continued)

Presented below is the information on the fair value of acquired assets, liabilities assumed (proportionate 50% share) and arising goodwill of Karatau LLP:

In millions of Kazakhstani Tenge Fair value Cash and cash equivalents 372 Accounts receivable 4,977 Inventories 1,716 Mineral rights 123,268 Property, plant and equipment 7,167 Mine development assets and exploration and evaluation assets 6,134 Other assets 616 Deferred tax liability (24,809) Loans and borrowings (2,235) Accounts payable (2,087) Other liabilities (658) Fair value of identifiable net assets acquired (before elimination of intra-group balances) 114,461 Less: elimination of intra-group balances (3,205) Fair value of identifiable net assets acquired 111,256 Goodwill arising from the acquisition 24,809 TOTAL PURCHASE CONSIDERATION AND PREVIOUSLY HELD INTEREST IN THE JOINT 136,065 VENTURES

Based on the valuation, the assets value of Karatau LLP increased by Tenge 124,123 million to fair value, mainly due to valuation of the subsoil use (mineral) right, as a result of which the carrying value increased from Tenge 61 million to Tenge 123,270 million. The value of property, plant and equipment increased by Tenge 914 million. Deferred tax of Tenge 24,809 million was recorded on the excess of the fair value over the carrying value and was the main reason for recording the goodwill. As of 1 January 2018, the Group had payables to Karatau LLP of Tenge 4,027 million under uranium purchase agreement and receivables of Tenge 822 million under supply contracts.

Baiken-U LLP, Kyzylkum LLP and JV Khorasan-U LLP In 2006, JSC NAC Kazatomprom sold 95% and 40% of its interests in Baiken-U LLP and Kyzylkum LLP respectively. As a result, the Group lost control over these entities. In 2014, the Group initiated a claim in the British Virgin Islands against the following defendants: Power System International Limited (hereinafter referred to as PSIL), Swinton Investment and Finance S.A. and certain individuals, for recognition of its rights for shares in an offshore based entity that owned interests in Baiken-U LLP and Kyzylkum LLP. On 28 September 2017, as a result of negotiations, the parties signed an agreement, under which the defendants transferred to the Group 99.91% of shares in PSIL, which held an indirect interest in Baiken-U LLP and Kyzylkum LLP. The remaining 0.09% shares in PSIL were also transferred to the Group by Nynco Limited in accordance with an order of the High Justice Court of Wales and England. Thus, from October 2017 the Group became the sole shareholder of PSIL, registered in the British Virgin Islands. After conclusion of the agreement and transfer of ownership over PSIL to JSC NAC Kazatomprom, the legal proceedings in the British Virgin Islands were terminated. On 3 September 2018, JSC NAC Kazatomprom, PSIL, Marubeni Corporation, Energy Asia Holdings Ltd (EAHL) and Energy Asia (BVI) Limited (EAL) signed a settlement deed agreement. According to the agreement, each of the parties discharge in full all claims, which they may have against each and any their respective associates. The agreement also envisaged increases in (recovery of) the Group’s underlying interests in JV Khorasan-U LLP, Baiken-U LLP and Kyzylkum LLP in exchange for a lump-sum cash consideration.

244 | Annual Report 2018 Baiken-U LLP, Kyzylkum LLP and JV Khorasan-U LLP (continued) In December 2018, the Group finalised a settlement deed to complete the acquisition of 40.05% of the shares of Energy Asia (BVI) Limited and a 16.02% participatory interest in the chartered capital of JV Khorasan-U LLP from Energy Asia Holdings (BVI) Limited. As a result of this transaction: • the Group’s ownership interest in Baiken-U LLP, Kyzylkum LLP and JV Khorasan-U LLP increased to 52.5%, 50% and 50% respectively (Note 45) – at 31 December 2017 those ownership interests were 14.45%, 33.98% and 33.98%, respectively. • the Group obtained control over Baiken-U LLP through having majority of the voting rights and representation in the Supervisory Board. The Group has applied provisional amounts for the acquired assets and liabilities as the accounting for the business combination was not complete at the end of the reporting period. • the Group maintained significant influence over Kyzylkum LLP and JV Khorasan-U LLP. The Group concluded that as at 31 December 2018 no control was obtained over JV Khorasan-U LLP pending shareholders’ approval of changes in the charter of the investee that will enable the Group to exercise the majority of votes.

Baiken-U LLP The acquisition-date fair value of the total purchase consideration and its components are as follows:

In millions of Kazakhstani Tenge Cash consideration paid 34,193 Net liabilities from pre-existing relationship (10,286) Total consideration transferred 23,907 Investment in Baiken-U LLP prior to the acquisition, 5% 6,168 Interest in Baiken-U LLP via PSIL/EAL prior to the acquisition, effective 9.45% 11,657 TOTAL PURCHASE CONSIDERATION AND FAIR VALUE OF PREVIOUSLY HELD INTEREST 41,732 IN THE ACQUIREE

Consideration transferred by the Group under the terms of the settlement deed was allocated to the acquisition transactions of Baiken-U LLP, Kyzylkum LLP and JV Khorasan-U LLP based on their relative provisional fair values. Prior to the acquisition, the Group’s investments in Baiken-U LLP were re-measured to fair value, following the requirements of IFRS 9. Liabilities from pre-existing relationship represent receivables of Baiken-U LLP from the Group, mainly for delivery of uranium. The Group is currently assessing the fair value of the identifiable assets acquired and the liabilities and contingent liabilities assumed in the acquisition of the entity under IFRS 3 Business Combinations. The valuation is being performed by an independent appraiser and has not been completed as of the date of these consolidated financial statements. Information on the acquired assets and liabilities assumed and resultant goodwill was based on the carrying values at 31 December 2018. The difference between the consideration transferred and the acquiree’s identifiable assets, liabilities assumed and contingent liabilities led to recognition of goodwill, as presented in the table below.

NAC Kazatomprom JSC | 245 Consolidated Financial Statements

45. Business Combinations (continued)

In millions of Kazakhstani Tenge Carrying (provisional) value Cash and cash equivalents 28,420 Accounts receivable 11,583 Inventories 2,049 Property, plant and equipment 10,880 Mine development assets and exploration and evaluation assets 19,017 Other assets 2,816 Accounts payable (2,142) Deferred tax liability (675) Other liabilities (1,847) Carrying value of identifiable net assets acquired (before elimination of intra-group 70,101 balances) Less: elimination of intra-group balances (10,286) Carrying value of identifiable net assets acquired 59,815 Goodwill arising from the acquisition 15,215 Less: non-controlling interest (33,298) TOTAL PURCHASE CONSIDERATION AND PREVIOUSLY HELD INTEREST 41,732 IN THE ACQUIREE

Presented below is the effect of re-measurement of the investment in Baiken-U LLP prior to the acquisition:

In millions of Kazakhstani Tenge Fair value of the investment in Baiken-U LLP prior to the acquisition 17,856 Less: carrying value of the investment in Baiken-U LLP (3,347) TOTAL NET GAIN FROM INVESTMENTS IN EQUITY SECURITIES AT FVOCI RECOGNISED 14,509 IN OTHER COMPREHENSIVE INCOME

Kyzylkum LLP Consideration paid for Kyzylkum LLP (allocated proportionately to provisional fair values) and corresponding increase in the value of investment is presented below:

In millions of Kazakhstani Tenge Cash consideration paid 2,010 Total consideration transferred 2,010 Interest in Kyzylkum LLP via PSIL/EAL prior to the acquisition, effective 3.98% 455 Total purchase consideration and fair value of previously held interest in Kyzylkum LLP 2,465 Provisional fair value of acquired 20% (based on carrying value of net assets) (2,388) GOODWILL ARISING FROM ACQUISITION CAPITALISED TO THE COST OF INVESTMENT 77

The Group’s effective share in Kyzylkum LLP via EAL was 3.98% (9.95% of 40% EAL’s share in Kyzylkum LLP).

246 | Annual Report 2018 JV Khorasan-U LLP Consideration paid for JV Khorasan-U LLP (allocated proportionately to provisional fair values) and corresponding increase in the value of investment is presented below:

In millions of Kazakhstani Tenge Cash consideration paid 3,909 Total consideration transferred 3,909 Provisional fair value of acquired 16.02% (based on carrying value of net assets) (3,721) GOODWILL ARISING FROM ACQUISITION CAPITALISED TO THE COST OF INVESTMENT 188

46. Discontinued Operations

On 25 June 2018, the Group signed an agreement for the sale of its 100% interest in MAEK-Kazatomprom LLP to Samruk-Kazyna JSC. Government consent to the sale was granted and disposal completed on 3 July 2018. Since the operations of MAEK- Kazatomprom LLP represented a separate major line of business, it is presented in these consolidated financial statements as a discontinued operation. The consolidated statement of profit or loss and other comprehensive income for the comparative period was restated accordingly. The consideration for the sale was Tenge 17,853 million. The carrying amount of net assets disposed was Tenge 17,497 million. Income from disposal of subsidiary amounted to Tenge 356 million. On 3 July 2018, the Group sold its 100% interest in MAEK Kazatomprom LLP to Samruk-Kazyna JSC. That entity has a utilities business and owns a non-operating BN-350 nuclear reactor (Note 4). An analysis of the result and cash flows of discontinued operation is as follows:

In millions of Kazakhstani Tenge Period from 1 January 2018 Year ended to disposal date 31 December 2017 Revenue 31,800 59,471 Expenses (30,329) (56,865) Profit before tax 1,471 2,606 Income tax expense (367) (175) PROFIT FROM DISCONTINUED OPERATION 1,104 2,431 Cash flows from operating activities (532) 1,985 Cash flows from investing activities (509) (1,145) Cash flows from financing activities (772) 344 Effect of exchange rate fluctuations on cash and cash equivalents (16) 1 Net (decrease)/increase in cash and cash equivalents (1,829) 1,185 Earnings per share from discontinued operation 4 9

NAC Kazatomprom JSC | 247 Consolidated Financial Statements

46. Discontinued Operations (continued)

According to the valuation performed by an independent appraiser the selling price of MAEK-Kazatomprom LLP approximates the carrying amount of net assets (at the date of valuation).

In millions of Kazakhstani Tenge Property, plant and equipment 25,566 Accounts receivable 4,725 Inventories 2,243 Other assets 1,469 Total assets 34,003 Accounts payable (4,809) Other liabilities (7,332) Borrowings (4,365) Total liabilities (16,506) Net assets 17,497 Consideration transferred (17,853) INCOME FROM DISPOSAL OF SUBSIDIARY 356

47. Assets Classified as Held for Sale

The assets classified as held for sale primarily include Kyzyltu LLP (classified as held for sale as of 31 December 2017), and the KazPV project entities being: Astana Solar LLP, Kazakhstan Solar Silicon LLP, MK KazSilicon LLP:

In millions of Kazakhstani Tenge Kyzyltu LLP KazPV Other Total Mining assets 2,270 2 - 2,272 Property, plant and equipment 553 - - 553 Other non-current assets 83 5 24 112 Total non-current assets 2,906 7 24 2,937 Cash and cash equivalents 2 462 - 464 Accounts receivable 535 273 - 808 Inventories 184 878 - 1,062 Other current assets 289 18 - 307 Total current assets 1,010 1,631 - 2,641 Total assets of disposal groups 3,916 1,638 24 5,578 classified as held for sale as of 31 December 2018 Accounts payable (3,244) (88) - (3,332) Other current liabilities (1,812) (412) - (2,224) Other non-current liabilities (90) (305) - (395) Total liabilities of disposal groups (5,146) (805) - (5,951) classified as held for sale as of 31 December 2018 NET LIABILITIES (1,230) 833 24 (373)

248 | Annual Report 2018 48. Accounting Policies Before 1 January 2018

Financial instruments (i) Key measurement terms Depending on their classification financial instruments are carried at fair value, cost, or amortised cost as described below. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The best evidence of fair value is the price in an active market. An active market is one in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. Fair value of financial instruments traded in an active market is measured as the product of the quoted price for the individual asset or liability and the number of instruments held by the entity. This is the case even if a market’s normal daily trading volume is not sufficient to absorb the quantity held and placing orders to sell the position in a single transaction might affect the quoted price. Valuation techniques such as discounted cash flow models or models based on recent arm’s length transactions or consideration of financial data of the investees are used to measure fair value of certain financial instruments for which external market pricing information is not available. Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level one are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii) level two measurements are valuations techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) level three measurements are valuations not based on solely observable market data (that is, the measurement requires significant unobservable inputs). Transfers between levels of the fair value hierarchy are deemed to have occurred at the end of the reporting period. Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition and includes transaction costs. Measurement at cost is only applicable to investments in equity instruments that do not have a quoted market price and whose fair value cannot be reliably measured and derivatives that are linked to, and must be settled by, delivery of such unquoted equity instruments. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. An incremental cost is one that would not have been incurred if the transaction had not taken place. Transaction costs include fees and commissions paid to agents (including employees acting as selling agents), advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs. Amortised cost is the amount at which the financial instrument was recognised at initial recognition less any principal repayments, plus accrued interest, and for financial assets less any write-down for incurred impairment losses. Accrued interest includes amortisation of transaction costs deferred at initial recognition and of any premium or discount to the maturity amount using the effective interest method. Accrued interest income and accrued interest expense, including both accrued coupon and amortised discount or premium (including fees deferred at origination, if any), are not presented separately and are included in the carrying values of the related items in the consolidated statements of financial position. The effective interest method is a method of allocating interest income or interest expense over the relevant period, so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the net carrying amount of the financial instrument. The effective interest rate discounts cash flows of variable interest instruments to the next interest repricing date, except for the premium or discount which reflects the credit spread over the floating rate specified in the instrument, or other variables that are not reset to market rates. Such premiums or discounts are amortised over the whole expected life of the instrument. The present value calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate.

NAC Kazatomprom JSC | 249 Consolidated Financial Statements

48. Accounting Policies Before 1 January 2018 (continued)

(ii) Classification of financial assets Financial assets have the following categories: (a) loans and receivables; (b) available-for-sale financial assets; (c) financial assets held to maturity and (d) financial assets at fair value through profit or loss. Financial assets at fair value through profit or loss have two sub-categories: (i) assets designated as such upon initial recognition, and (ii) those classified as held for trading. Derivative financial instruments are carried at their fair value. All derivative instruments are carried as assets when fair value is positive and as liabilities when fair value is negative. Changes in the fair value of derivative instruments are included in profit or loss for the year. The Group does not apply hedge accounting. Certain derivative instruments embedded in other financial instruments are treated as separate derivative instruments when their risks and characteristics are not closely related to those of the host contract. Loans and receivables are unquoted non-derivative financial assets with fixed or determinable payments other than those that the Group intends to sell in the near term. All other financial assets are included in the available-for-sale category.

(iii) Classification of financial liabilities Financial liabilities have the following measurement categories: (a) held for trading which also includes financial derivatives and (b) other financial liabilities. Liabilities held for trading are carried at fair value with changes in value recognised in profit or loss for the year (as finance income or finance costs) in the period in which they arise. Other financial liabilities are carried at amortised cost.

(iv) Initial recognition of financial instruments All financial instruments are initially recorded at fair value plus transaction costs. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which can be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose inputs include only data from observable markets. All purchases and sales of financial assets that require delivery within the time frame established by regulation or market convention (“regular way” purchases and sales) are recorded at trade date, which is the date on which the Group commits to deliver a financial asset. All other purchases are recognised when the entity becomes a party to the contractual provisions of the instrument. (iv) Initial recognition of financial instruments (continued) The Group uses discounted cash flow valuation techniques to determine the fair value of loans to related parties that are not traded in an active market. Differences may arise between the fair value at initial recognition, which is considered to be the transaction price, and the amount determined at initial recognition using a valuation technique. Any such differences are amortised on a straight line basis over the term of the loans to related parties.

(v) Derecognition of financial assets The Group derecognises financial assets when (a) the assets are redeemed or the rights to cash flows from the assets otherwise expire or (b) the Group has transferred the rights to the cash flows from the financial assets or entered into a qualifying pass- through arrangement whilst (i) also transferring substantially all the risks and rewards of ownership of the assets or (ii) neither transferring nor retaining substantially all the risks and rewards of ownership but not retaining control. Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose additional restrictions on the sale.

(vi) Available-for-sale investments Available-for-sale investments are carried at fair value. Interest income on available-for-sale debt securities is calculated using the effective interest method and recognised in profit or loss for the year as finance income. Dividends on available-for-sale equity instruments are recognised in profit or loss for the year as finance income when the Group’s right to receive payment is established and it is probable that the dividends will be collected. All other elements of changes in the fair value are recognised

250 | Annual Report 2018 in other comprehensive income until the investment is derecognised or impaired at which time the cumulative gain or loss is reclassified from other comprehensive income to finance income in profit or loss for the year. If management cannot reliably estimate fair value of its available-for-sale investments in shares the investments are carried at cost. Impairment losses are recognised in profit or loss for the year when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of available-for-sale investments. A significant or prolonged decline in the fair value of an equity security below its cost is an indicator that it is impaired. The cumulative impairment loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that asset previously recognised in profit or loss – is reclassified from other comprehensive income to finance costs in profit or loss for the year. Impairment losses on equity instruments are not reversed and any subsequent gains are recognised in other comprehensive income. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through current period’s profit or loss.

(vii) Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the consolidated statements of financial position only when there is a legally enforceable right to offset the recognised amounts, and there is an intention to either settle on a net basis, or to realise the asset and settle the liability simultaneously. Such a right of set off (a) must not be contingent on a future event and (b) must be legally enforceable in all of the following circumstances: (i) in the normal course of business, (ii) in the event of default and (iii) in the event of insolvency or bankruptcy. Impairment of financial assets carried at amortised cost Impairment losses are recognised in profit or loss when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of the financial asset and which have an impact on the amount or timing of the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. If the Group determines that no objective evidence exists that impairment was incurred for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics, and collectively assesses them for impairment. The primary factors that the Group considers in determining whether a financial asset is impaired are its overdue status and realisability of related collateral, if any. The following other principal criteria are also used to determine whether there is objective evidence that an impairment loss has occurred: • any portion or instalment is overdue and the late payment cannot be attributed to a delay caused by the settlement systems; • the counterparty experiences a significant financial difficulty as evidenced by its financial information that the Group obtains; • the counterparty considers bankruptcy or a financial reorganisation; • there is adverse change in the payment status of the counterparty as a result of changes in the national or local economic conditions that impact the counterparty; or • the value of collateral, if any, significantly decreases as a result of deteriorating market conditions. If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modified because of financial difficulties of the counterparty, impairment is measured using the original effective interest rate before the modification of terms. The renegotiated asset is then derecognised and a new asset is recognised at its fair value only if the risks and rewards of the asset substantially changed. This is normally evidenced by a substantial difference between the present values of the original cash flows and the new expected cash flows. Impairment losses are always recognised through an allowance account to write down the asset’s carrying amount to the present value of expected cash flows (which exclude future credit losses that have not been incurred) discounted at the original effective interest rate of the asset. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account through profit or loss for the year. Uncollectible assets are written off against the related impairment loss provision after all the necessary procedures to recover the asset have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are credited to the impairment loss account within the profit or loss for the year.

NAC Kazatomprom JSC | 251 Consolidated Financial Statements

48. Accounting Policies Before 1 January 2018 (continued)

Revenue recognition Revenues from sales of goods are recognised at the point of transfer of risks and rewards of ownership of the goods. If the Group agrees to transport goods to a specified location, revenue is recognised when the goods are passed to the customer at the destination point. Sales of services are recognised in the accounting period in which the services are rendered, by reference to the stage of completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. Sales are shown net of VAT and discounts. Revenue is measured at the fair value of the consideration received or receivable. When the fair value of goods received in a barter transaction cannot be measured reliably, the revenue is measured at the fair value of the goods or service given up. Delivery of uranium, tantalum and beryllium products vary depending on the individual terms of a sale contract usually in accordance with the Incoterms classification. Delivery of uranium products occurs: at the date of physical delivery in accordance with Incoterms or at the date of book-transfer to account with convertor specified by customer. Book-transfer operation represents a transaction whereby uranium account balance of the transferor is decreased with simultaneous allocation of uranium to the transferee’s uranium account with the same specialised conversion / reconversion entity. Revenues from sales of electricity, heating power and hot water are recognised by the accrual method at the end of each month for electricity, heating power and hot water supplied during the month based on meeting data. Accounting for revenue from sales of electricity, heating power and hot water is split by customer group: households (individuals) and legal entities. Revenue amount is determined based on the tariffs for services approved by the competent authorities and metering data and approved rates of consumption. Interest income is recognised on a time-proportion basis using the effective interest method.

49. Events After the Reporting Period

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 at the supervisory board. As a result, the Group obtained control over JV Khorasan-U LLP from that date. The acquisition-date fair value of the total purchase consideration and its components are as follows:

In millions of Kazakhstani Tenge Cash consideration paid - Liabilities from pre-existing relationships (1,958) Total consideration transferred (1,958) Provisional fair value of the investment in associate prior to the acquisition 11,470 TOTAL PURCHASE CONSIDERATION AND PREVIOUSLY HELD INTEREST IN THE 9,512 ACQUIREE

Liabilities from pre-existing relationship represent payables to JV Khorasan-U LLP from the Group, mainly for delivery of uranium. The Group is currently assessing the fair value of the identifiable assets acquired and the liabilities and contingent liabilities assumed in the acquisition under IFRS 3 Business Combinations. The valuation is being performed by an independent appraiser and has not been completed as of the date of these consolidated financial statements. Information on the acquired assets, liabilities assumed and arising goodwill was based on the carrying (provisional) values.

252 | Annual Report 2018 Details of the assets and liabilities acquired are as follows:

In millions of Kazakhstani Tenge Carrying (provisional) value Cash and cash equivalents 5,088 Accounts receivable 7,523 Inventories 6,180 Prepaid income tax 2 Property, plant and equipment 63 Mine development assets 20,386 Other assets 6,112 Borrowings (17,441) Accounts payable (2,632) Deferred tax liabilities (980) Other liabilities (1,362) Carrying value of identifiable net assets acquired (before elimination of intra-group 22,939 balances) Less: elimination of intra-group balances (1,958) Carrying value of identifiable net assets acquired 20,981 Less: non-controlling interest (11,469) TOTAL PURCHASE CONSIDERATION AND PREVIOUSLY HELD INTEREST 9,512 IN THE ACQUIREE

The non-controlling interest represents a share in the net assets of the acquiree attributable to owners of the non-controlling interest. The non-controlling interest was determined based on proportionate share of the acquiree’s net assets’ value.

NAC Kazatomprom JSC | 253 GRI Index

Index of GRI-Compliant Standards in this Report

GENERAL DISCLOSURES 102-55

GRI index Indicator Report sections/Comments Report page External verification

GRI 101 (2016): FOUNDATION

GRI 102 (2016): GENERAL DISCLOSURES

ORGANISATION PROFILE 102-1 Name of the organization Contact Information 30, 143 

102-2 Activities, brands, products, and Main Products 28  services

102-3 Location of headquarters Contact information 142 

102-4 Location of operations About Kazakhstan 22 

102-5 Ownership and legal form Contact Information 21, 143 

102-6 Markets served Geography and target markets 34 

102-7 Scale of the organization Key Figures 4, 30, 134 

102-8 Information on employees and other Company Staff 75, 77  workers 102-9 Supply chain Geography and target markets 34, 35 

102-10 Significant changes to the organization Company asset structure 30, 34  and its supply chain

102-11 Precautionary Principle or approach Programme Of Sustainable Development, 67, 126  Risk Management And Internal Control

102-12 External initiatives Association membership and international 39, 82, 83, 84,  compliance 126, 130

102-13 Membership of associations Association membership and international 38  compliance

STRATEGY 102-14 Statement from senior decision-maker Statement of the Chair of the Board 8, 10  of Director, Statement of the Chief Executive Officer

ETHICS AND INTEGRITY 102-16 Values, principles, standards, and Corporate governance and ethics 125  norms of behavior Corporate ethics

GOVERNANCE 102-18 Governance structure Corporate governance and ethics 99, 110, 121,  Corporate Governance Structure 122

102-22 Composition of the highest governance Board of Directors 103  body and its committees

102-24 Nominating and selecting the highest Board of Directors 104, 110  governance body (except for the factors of professional qualifications and experience in the field of economic, environmental and social issues)

254 | Annual Report 2018 GRI index Indicator Report sections/Comments Report page External verification

GOVERNANCE (continued) 102-28 Evaluating the highest governance Assessment Of The Activity Of The Board 110  body’s performance Of Directors STAKEHOLDER ENGAGEMENT 102-40 List of stakeholder groups Interaction With The Stakeholders 94 

102-41 Collective bargaining agreements Social Responsibility 76, 80 

102-42 Identifying and selecting stakeholders Interaction With The Stakeholders 93 

102-43 Approach to stakeholder engagement Interaction With The Stakeholders 94, 96 

102-44 Key topics and concerns raised Interaction With The Stakeholders 94, 96 

REPORTING PRACTICE 102-45 Entities included in the consolidated Principles For Defining Report Content 134,144  financial statements And Subject Limitations

102-46 Defining report content and topic Essential Subjects 134, 135  Boundaries

102-47 List of material topics Essential Subjects 136 

102-48 Restatements of information No paraphrases or other wordings different 134  to the wordings used in previous reports are present in this Report

102-49 Changes in reporting Change in Group structure 43 

GENERAL INFORMATION ABOUT THE REPORT 102-50 Reporting period About this Report 133 

102-51 Date of most recent report About this Report 133 

102-52 Reporting cycle About this Report 133 

102-53 Contact point for questions regarding Contact Information 143  the report 102-54 Claims of reporting in accordance with About this Report 133  the GRI Standards

102-55 GRI content index Annexes 256, 258 

102-56 External assurance External verification 137 

NAC Kazatomprom JSC | 255 GRI Index

SPECIFIC DISCLOSURES 102-55

GRI index category Indicator Report sections/Comments Report page External Verification

ECONOMIC

GRI 103 (2016): MANAGEMENT APPROACH 103-1 Explanation of the material topic and its Principles For Defining Report Content 136  Boundary And Subject Limitations

103-2 The management approach and its Sustainable economic development 39, 67  components 103-3 Evaluation of the management approach Assessment Of The Activity Of The 92, 110  Board Of Directors GRI 201 (2016): ECONOMIC PERFORMANCE 201-1 Direct economic value generated and Sustainable economic development 70  distributed

Industry-specific Please specify the countries, which Sustainable economic development 70  additions to the are actual or potential members of the general standard Extractive Industries Transparency Initiative element of (EITI), in which the Company operates reporting

GRI 202 (2016): MARKET PRESENCE 202-1 Ratios of standard entry level wage by Social policy 81  gender compared to local minimum wage Remuneration system

GRI 203 (2016): INDIRECT ECONOMIC IMPACTS 203-1 Infrastructure investments and services Economic Effect In Regions Of 71  supported Operation

GRI 204 (2016): PROCUREMENT PRACTICES 204-1 Proportion of spending on local suppliers Procurement 74 

ENVIRONMENT

GRI 103 (2016): MANAGEMENT APPROACH 103-1 Explanation of the material topic and its Principles For Defining Report Content 136  Boundary And Subject Limitations

103-2 The management approach and its Environmental responsibility 67  components 103-3 Evaluation of the management approach Assessment Of The Activity Of The 110  Board Of Directors

GRI 302 (2016): ENERGY Guidelines for Please specify if the organisation is bound Energy efficiency 87, 88  DMA-b specific by any national, regional or industry-specific to the Subjects standards, regulations or rules related to energy. Give examples of such rules and regulations.

302-1 Energy consumption within the organisation Energy Efficiency 87, 88 

256 | Annual Report 2018 GRI index category Indicator Report sections/Comments Report page External Verification

GRI 303 (2018): WATER AND EFFLUENTS 303-1 Interactions with water as a shared resource Water resources 88 

(As part of the implementation of the ESAP Roadmap, it is planned to carry out a number of activities, including on interaction with stakeholders, to conduct an audit on environmental communications in accordance with the international standard ISO 14063 “Environmental Communications”)

303-2 Management of water discharge-related Water resources 89  impacts 303-3 Water withdrawal Water resources 89 

(Kazatomprom does not take water from «sensitive water bodies»)

303-5 Water consumption Water resources 89 

(The Company only starts implementing this standard «Water and Effluents (2018)» and the calculation of water consumption does not fully comply with the standard yet) GRI 305 (2016): EMISSIONS 305-1 Direct (Scope 1) GHG emissions Direct greenhouse gas emissions 87 

The calculation of indicators for the base year in the Company does not apply. Source of emission factor data: 1. http://zhasyldamu.kz/npa/parnikovye- gazy/kadastr-istochnikov-vybrosov-i- pogloshchenij-parnikovykh-gazov.html 2. http://adilet.zan.kz/rus/docs/ V1700015396

GRI 306 (2016): EFFLUENTS AND WASTE 306-2 Waste by type and disposal method Waste Management 86 

GRI 307 (2016): ENVIRONMENTAL COMPLIANCE 307-1 Non-compliance with environmental laws Environmental Responsibility 85  and regulations

SOCIAL

GRI 103 (2016): MANAGEMENT APPROACH 103-1 Explanation of the material topic and its Principles For Defining Report Content 136  Boundary And Subject Limitations

103-2 The management approach and its Social responsibility 67, 74, 82  components 103-3 Evaluation of the management approach Assessment Of The Activity Of The 110  Board Of Directors

NAC Kazatomprom JSC | 257 GRI Index

SPECIFIC DISCLOSURES (continued) 102-55

GRI index category Indicator Report sections/Comments Report page External Verification

SOCIAL (continued)

GRI 401 (2016): EMPLOYMENT 401-2 Benefits provided to full-time employees Social Responsibility, 80  that are not provided to temporary or part- Social Policy time employees

GRI 402 (2016): LABOR/MANAGEMENT RELATIONS 402-1 Minimum notice periods regarding Social Policy 80  operational changes

GRI 403 (2018): OCCUPATIONAL HEALTH AND SAFETY 403-1 Occupational health and safety management Occupational health and safety 82  system 403-7 Prevention and mitigation of occupational Occupational health and safety 82  health and safety impacts directly linked by business relationships 403-9 Work-related injuries Occupational health and safety 83 

GRI 404 (2016): TRAINING AND EDUCATION 404-1 Average hours of training per year per Social Responsibility 79  employee Company staff

404-2 Programs for upgrading employee skills and Social Responsibility 79, 80  transition assistance programs Company staff

GRI 405 (2016): DIVERSITY AND EQUAL OPPORTUNITY 405-1 Diversity of governance bodies and Social Responsibility 76  employees Company staff

405-2 Ratio of basic salary and remuneration of Social Responsibility, 81  women to men Social Policy

KAZATOMPROM INDICATORS

КAP1 Place in the nuclear fuel cycle (NFC) Business model 12, 135 

КAP2 Global uranium markets Uranium products market 4, 33, 135 

КAP3 Business transformation Business transformation 19, 124, 135  КAP4 Development of mineral resources base Mineral assets and Capital expenditures 32, 52, 135  review

258 | Annual Report 2018 Glossary

Term Definition

CAPEX Capital expenditures, financial investment, appraisal and exploration work

CO2 Carbon dioxide

COSO Internal control – integrated model

EBIT Earnings before interest and taxes

EBITDA Earnings before interest, taxes, depreciation and amortisation

Ratio, expressed as a percentage, of the earnings before interest, taxes, depreciation and amortisation to the sales proceeds, based on EBITDA margin NAC Kazatomprom JSC methods

EDF Électricité de France

EPP Separative work units

ERP Enterprise resource planning

Economic Value Added is an estimate of an enterprise's economic profit after all taxes and payment of the entire capital invested in EVA the enterprise

GRI Global Reporting Initiative

ISO International Organization for Standardization

ISO 14001 International standard Environmental management systems – Requirements with guidance for use

MM Ore mining and metallurgic sector

OHSAS 18001 International standard Occupational Health and Safety Management Systems – Requirements

TREO Total Rare Earth Oxide

U3O8 Triuranium Octoxide

UF6 Uranium hexafluoride

UO2 Uranium dioxide

UO3 Uranium trioxide

NPP Nuclear Power Plant

BWRT Bolotov's wind rotor turbine

RD Railway district

SA Subsidiaries and affiliates

DOSEP Department for Occupational Safety and Environment Protection

PE Producing enterprise

HRD Human Resources Department

CJSC Closed Joint Stock Company

TUO Triuranium Octoxide

IS Information security

IRESCO Irtysh Rare Earths Company

IT Information technologies

ST RKISO/IEC State Standard of the Republic of Kazakhstan 17025 General Requirements for the Competence of Testing and Calibration Laboratories

KazNU Al-Farabi Kazakh National University

NAC Kazatomprom JSC | 259 Glossary

Glossary (continued)

Term Definition

KPI Key performance indicator

IAEA International Atomic Energy Agency

MAEC Mangistau Atomic Energy Combine

Percentage of the cost of labour of citizens of the Republic of Kazakhstan engaged in fulfilment of a purchase contract in the total payroll budget of the contract, and/or percentage of the cost of a share (shares) of local origin determined in a product (products) in Local content accordance with the substantial transformation or finished production criteria by residents of the Republic of Kazakhstan in the total cost of the product (products) under the relevant purchase contract.

MID RK Ministry of Investments and Development of the Republic of Kazakhstan

MC Metallurgical Combine

ME RK Ministry of Energy of the Republic of Kazakhstan

STC Scientific and Technical Council

SB (BD) Supervisory Board (Board of Directors)

LLC Limited Liability Company

LLP Limited Liability Partnership

GMS General Meeting of Shareholders

OHS Occupational health and industrial safety

GWP Global warming potential

ISL In-situ leaching

RK Republic of Kazakhstan

RF Russian Federation

REM Rare and rare-earth metals

JV Joint venture

OSMS Occupational safety management system

RMS Risk management system

FA Fuel assemblies

HPI Heat pump installations

LLP Limited liability partnership

GWS Goods, works, services

TTC Trade and transport company

UMP Ulba Metallurgical Plant

CRL Central research laboratory

CRME Central research methodical expedition

UEC Uranium Enrichment Centre

SMCC South Mining Chemical Company

SKR South Kazakhstan region

NFC Nuclear fuel cycle

260 | Annual Report 2018