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A former salesman is seeking to turn Kazakhstan into the biggest atomic fuel supplier. By Elliot Blair Smith
Flame-licked doors of a hydrogen furnace clatter open at a Cold War bomb factory in the Altai Mountains of Kazakhstan, spilling a tray of baked metal capsules into the pale winter light. Each enriched-uranium pellet the size of a Brazil nut packs almost as much energy as a ton of coal.
Former cognac and car salesman Mukhtar Dzhakishev says he plans to triple production at the Ulba Metallurgical Plant in Oskemen, a formerly secret city south of Siberia known in Russian as Ust Kamenogorsk.
With 15% of world uranium under his control, Mr Dzhakishev (pronounced Jock-i-shev) is trading domestic mineral rights to joint-venture partners in China, Japan and Russia for the technology he needs to make Kazakhstan the world's biggest supplier of atomic fuel for civilian nuclear reactors. He seeks to become, in effect, the John D. Rockefeller of nuclear power.
''We don't want to be just a sack of uranium,'' says Mr Dzhakishev, 44, president of the state-owned mining enterprise JSC National Atomic Company Kazatomprom, during an interview at his office in Almaty, the Central Asian country's largest city.
He proposes to invest $850 million at the Ulba compound, 61/2 times the plant's projected annual cash flow, according to the state company's 2006 audited financial statement. Mr Dzhakishev says he aims to integrate the four-stage atomic fuel chain at the guarded industrial complex just as Rockefeller once controlled crude oil from wellhead to gasoline tank.
If successful, Kazatomprom would consolidate the market for its 983 million pounds of recoverable uranium deposits, second only to Australia's, and become less reliant on the raw ore's spot-market price by supplying higher-value products needed to fuel the next generation of reactors.
Mr Dzhakishev's plan puts Kazatomprom in direct competition with some of the state enterprise's largest customers and partners, including Areva SA of Paris and OAO Techsnabexport of Moscow, a state-owned nuclear fuel trading company.
Ux Consulting Co of Roswell, Georgia, projects that global nuclear fuel demand will grow 29% to $26.3 billion by 2020. Mr Dzhakishev says he wants a third of that.
''I'm optimistic about Kazatomprom meeting the objectives,'' says Ux Consulting analyst Masha Katsva, who conducted an inspection tour of the state company's mines in April.
Critics say Kazatomprom's nuclear ambitions heighten the dangers posed by the proliferation of bomb-making technology.
Success would also enrich the regime of Mr Dzhakishev's boss, President Nursultan Nazarbayev, a US ally whose government the State Department criticised for ''pervasive corruption,'' restrictions on free speech, prisoner abuse and violence against women in a report on Kazakhstan's human rights released in March.
Mr Dzhakishev already has helped a former college roommate, Mukhtar Ablyazov, profit from growing demand for the country's ore.
In 2005, Mr Ablyazov, 44, a former opposition leader who was imprisoned on corruption charges in 2002 and pardoned by Nazarbayev the following year, obtained title to state-owned uranium deposits by assuming about $1.7 million in debt on the properties, interviews and a Canadian securities filing show.
Later that year, Mr Ablyazov resold the deposits for $350 million to an investment group led by Canadian mining financier Frank Giustra, according to the filings.
Mr Ablyazov, the chairman of the country's second-largest bank, JSC Bank TuranAlem, declined to comment. Mr Dzhakishev confirmed the details of the agreement in an interview and said the central government, not Kazatomprom, deeded the mines.
Kazatomprom has mastered two phases of Mr Dzhakishev's strategic plan: uranium extraction, which accounts for about 46% of the cost of nuclear fuel, according to Ux Consulting, and the production of uranium dioxide fuel pellets, an interim step. Completing his integration strategy would almost double the value of the company's uranium products.
Mr Dzhakishev needs to add conversion, the chemical transformation of uranium to gas, which contributes about 4% of finished nuclear fuel's value. The third stage, enrichment, or conversion of the gas into a radioactive compound suitable for civilian fuel production or nuclear weapons, represents about 30%.
To deflect nuclear proliferation concerns, Mr Dzhakishev says Kazakhstan won't perform enrichment and instead will contract the step to Russia, Mr Dzhakishev says. (About 10% of nuclear fuel's costs are tied up in transport and waste handling.)
Mr Dzhakishev says he plans for the Ulba plant to develop the capacity to manufacture the fuel-rod assemblies that are inserted in a reactor's core, contributing 10% more to the fuel's value. These zircaloy rods, packed with the capsules baked in the hydrogen furnace, unleash atomic reactions that produce heat, create steam and generate electricity.
Last July, Kazatomprom paid $540 million for a 10% stake in Toshiba Corp's Westinghouse Electric Co unit in Monroeville, Pennsylvania, the world's largest provider of nuclear plants and atomic fuel. Mr Dzhakishev says access to Westinghouse technology will help him reach his goal.
Greenpeace International of Amsterdam and the Nuclear Information and Resource Service in Takoma Park, Maryland, criticised the deal in a letter to the US government.
''The sale will undermine efforts to limit nuclear proliferation, and will give sensitive nuclear technology to a brutal, repressive and undemocratic regime,'' the groups wrote.
The US Treasury, which oversees foreign investments, declined to intervene and had no comment for this story.
''Whatever its human rights and corruption record may be, Kazakhstan so far has been practically a model non-proliferation citizen in the international community,'' says Gaukhar Mukhatzhanova, a research associate at the James Martin Centre for Non-proliferation Studies in Monterey, California.
When the Soviet Union collapsed in 1991, Mr Dzhakishev had just finished a Ph.D. in law at the Moscow Physics Engineering Institute and was weighing an offer to lead a police academy back home. Instead, he and friends launched an import sales company.
With no sales training beyond the Russian-language memoirs of former US automobile executive Lee Iacocca and Sony Corp founder Akio Morita, the young men set up a showroom in the windowless basement of a movie theatre in Almaty.
Customers complained that one of their first imports, German shoes, crumbled in their hands. The products were cardboard props used in funeral homes to sheath cadavers' feet.''We had all these paper shoes and threw them away,'' Mr Dzhakishev says with a laugh. The young entrepreneur and his colleagues went on to profit from importing French cognac and cosmetics, Japanese televisions and German BMWs, he says.
In 1998, Mr Dzhakishev says he attended the 35th birthday party of President Nazarbayev's eldest daughter, Dariga.
''What are you doing now?'' Mr Dzhakishev says the president asked him. He had left the trading company to run a liquefied petroleum gas utility. An aide to Mr Nazarbayev called him a few days later, and Mr Dzhakishev found himself running Kazatomprom.
The company owed the government $20 million in taxes and $11.9 million in back wages, and was paying 29% interest on $44 million in bank debt, Mr Dzhakishev says.
The new uranium czar immediately refinanced the borrowings in Europe. In July 1999, he won a lawsuit before the US International Trade Commission, overturning post-Soviet restrictions to gain access to the American market, the world's largest. And he prodded his managers by offering to pay them 30% of any cost savings they achieved.
Uranium's price runup to a peak of $138 a pound in June 2007, from a low of $6.75 in March 2001, has since put the Silk Road country at the front line of the nuclear renaissance. Even after the ore's drop to $69 in May, Kazakhstan has a competitive advantage because its extraction costs are among the world's lowest, about 15% of today's price.
Mr Dzhakishev says global demand for uranium will grow as nuclear powers build new plants. The World Nuclear Association in London says work is under way on at least 63 reactors outside North America and Europe, including 10 in Russia and 17 in China.
Kazatomprom's East Mynkuduk mining site, 1,180 kilometres west of Almaty, demonstrates the mass production that Mr Dzhakishev seeks to achieve.
Workers in bright blue overalls flush uranium from beneath the semi-desert, where camels graze and temperatures range from minus 30 degrees Celsius in winter to 60 degrees Celsius in summer.
''The mining industry has migrated to these places because that's where the opportunities exist,'' says Edward Flood, managing director of investment banking at Haywood Securities Ltd in London.
Open pits, once characteristic of uranium mines, aren't in use. Instead, injection wells dot the steppe, forcing sulfuric acid into subterranean deposits surrounded by groundwater. The ore dissolves into slurry that is pumped into surface-level tanks. Resin beads absorb the uranium and the remainder is returned to the ground. Later, industrial presses squeeze fine, powdery yellowcake from the resin.
East Mynkuduk, which began production in 2002 and reached peak output last year, will generate at least 2.2 million pounds of yellowcake annually for 15 years, 15% of the country's current total, says Aleksandr Chernykh the mine's chief engineer.
The production would be worth $152 million a year at today's prices. Kazakhstan is the ore's third-largest marketer behind Canada and Australia, and says it plans to surpass both by 2010.
Oskemen, about 900 kilometres northeast of Almaty, didn't appear on maps in Soviet times. One reason was the Ulba compound. In 1994, on a secret mission approved by Kazakhstan's government, US planes ferried out enough weapons-grade uranium from the plant to produce 20 nuclear weapons, according to a Defence Department statement at the time.
Mr Dzhakishev says he is now adapting the plant's machinery to supply Westinghouse and other Western reactors.
Beginning in 2009, Kansai Electric Power Co, Japan's second-biggest power generator, in Osaka, and China Guangdong Nuclear Power Group Co, the country's second-largest nuclear utility, based in Shenzhen, will be the first to buy the modified fuel products, according to press releases by the companies.
Both customers also own mining stakes in Kazakhstan.
''If I didn't have fuel-pellet production, I would think three times before making a vertically integrated company,'' Mr Dzhakishev says. ''But since I already have it, I would be a very bad manager not to do this.''
Kazatomprom doesn't yet have the ability to convert yellowcake to uranium hexafluoride gas, or UF6, the second part of the four-stage atomic fuel cycle.
Mr Dzhakishev says his company and Saskatoon, Saskatchewan-based Cameco Corp, the world's largest uranium marketer by capitalisation, are negotiating to build a $100-million conversion unit adjacent to the existing pellet plant. Cameco spokesman Lyle Krahn confirms the talks.
The final step, production of machined nuclear fuel rods, is contingent on the outcome of the sales and diplomacy efforts that occupy Mr Dzhakishev now as he seeks to win customer orders.
Jack Fuller, chief executive of Global Nuclear Fuel Llc, a joint venture of Toshiba and GE-Hitachi Nuclear Energy Inc, in Wilmington, North Carolina, is another customer of the Ulba plant. His company buys enriched uranium powder from Kazatomprom to make its own fuel pellets.
While GE-Hitachi declined to comment on Kazatomprom as a competitor, Mr Fuller says he admires Dzhakishev's ambition.
''He's got this real vision he wants to go to,'' Mr Fuller says. ''How he gets there, and how effective he is, we'll have to wait and see. But he's making some real neat moves right now.'' BLOOMBERG NEWS
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