Uranium mining stocks soared on Wednesday after a surprise hike in extraction taxes in Kazakhstan, the world’s largest uranium-producing country, which BMO Capital Markets said will limit future supply growth.

As Interfax first reported, the government in Kazakhstan introduced a new Mineral Extraction Tax (MET) for uranium, replacing the existing 6% flat rate MET introduced in 2023.

Per the new code, the new MET rate is to increase to 9% from 6% in 2025. However, the biggest change is from 2026 onwards where the Government has introduced a two-tier MET, calculated based on production output and spot uranium prices (see the table below).

According to BMO analyst Alexander Pearce, the new mineral extraction tax “is a surprise given it was increased in 2023.” He also notes that “the new rates are not marginal, thus the new MET penalizes large mining assets with potential MET of up to 20.5% (18% for anything over 4ktU, or ~10.4Mlb U3O8, plus an additional 2.5% if the uranium price is >US$110/lb).

Pearce calculates the potential impact to cash flow and concludes that the new MET could impact Kazatomprom’s NPV10% by 5-10% and 2025 EBITDA by up to 5%, and that “from 2026 onwards the EBITDA impact could be ~8-12%.”

More significantly, however, he warns that the new rates “appear to provide less incentive for Kazatomprom to increase production, in our view, with less penalty for higher uranium prices than production, which could add to support for the uranium price.”

The bottom line is that “with rates as high as 18% linked to production (from 6%) and additional 2.5% linked to uranium prices, there would now appear to be less incentive to increase production in future year” and “while this could have as much as a 5-12% impact to future cash flow, increasing uncertainty over future supply could drive higher uranium prices“

As news of the new tax spread across markets, the top-performing stocks in the S&P/TSX Composite Index on Wednesday are all uranium miners, led by NexGen Energy +6.8%, Denison Mines +6.8% and Cameco +6.6%. US-trader uranium stocks were also all sharply higher, with names such as CCJ, UEC, URA and URNM all soaring.