27 JUNE 2024
GEIGER COUNTER LIMITED
(THE "COMPANY")
RELEASE OF INTERIM REPORT AND
FINANCIAL STATEMENTS
The Directors announce the release
of the lnterim Report and Financial Statements for the period ended
31 March 2024, which are included as an attachment to this
announcement.
http://www.rns-pdf.londonstockexchange.com/rns/2241U_1-2024-6-27.pdf
CHAIRMAN'S STATEMENT
- FOR THE PERIOD ENDED 31 MARCH
2024
Introduction
The six-month period to 31 March
2024 saw the net asset value of the Company increase from 64.66p as
at 30 September 2023 to 70.74p at the end of March giving an
overall return of 9.4% as positive news flow from the uranium
sector supported to the underlying portfolio of equities. The
Company's share price return was more muted however as the share
price rose from 52.0p on 30 September 2023 to 52.50p at the end of
March 2024. The discount to net asset value widened from
19.61% at the start of the period to a figure of 25.8% at the end
of March 2024. The section below titled Share price discount
to NAV provides more details on this.
Investment
News in the uranium sector has
remained supportive throughout the period under review. The COP28
conference provided an international agreement to triple installed
generating capacity by 2050. In addition, the passing of a US House
vote to restrict the importation of Russian-sourced material saw
the bill progress through to the Senate for consideration which was
legally formalised at the end of April this year. A number of other
countries such as Japan, France, Sweden and South Korea agreed to
further extend existing reactor lives and expand generating
capacity. In Asia, China's nuclear roll out continues apace.
With 15 reactors currently already under construction, China's
total nuclear power generation capacity is on track to exceed 100GW
before the end of the decade, with the region overtaking the US as
the largest nuclear power market. Your investment managers have
continued to perform well and their report on pages 9 to 12 sets
out the investment position more fully.
Share price discount to NAV
The Directors and Manager share
concerns expressed by shareholders about the discount to NAV.
The discount has widened significantly since 2022 when the shares
were trading at a premium and the Company was issuing new
shares. The Company had expected some narrowing of the
discount to NAV following the subscription rights allotments in
early May 2024 on the basis that shareholders may have been selling
holdings to fund the take up of the subscription rights, however
that impact has been surprisingly small.
In response, we have engaged in a
program of buy backs to provide liquidity, increase the NAV per
share and ideally narrow the discount. The narrowing is of
course not guaranteed as the provision of liquidity can of course
create new sellers. This is a difficult balance but one we
are actively monitoring. We are in a good position to do this
as the cash raised from the subscription rights issue provides the
capital required without the need to trim positions.
Our trust, though small, has
demonstrated significant growth, with shareholder funds rising from
£8.6 million and a net asset value of 10.18p on 31 March 2020 to
£90.37 million and a net asset value of 70.74p on 31 March 2024.
During this period, we have been vigilant in keeping costs low,
exemplified by reducing the size of the board and leveraging the
manager's broader relationships.
Despite being an actively managed
trust with higher costs than a passive exposure to the Uranium
sector, our Manager's market and stock-specific expertise has added
substantial value over physical ETFs or broader indices. Our
trust's unique and high-conviction positioning differentiates us
from such products.
The Board firmly believes in the
Manager's team world class skills in this niche sector as evidenced
by the recent full uptake of subscription rights by the
directors. It should be noted that the key staff at the
manager have also been building their positions in the
Company
Despite the tremendous growth in NAV
we have seen over the last four years we remain a small trust and
we would like to raise capital. This was the reason we
introduced the Subscription Rights process in 2021. Then and now it
remains very difficult for smaller trusts to raise capital
and the Subscription Rights have provided a valuable mechanism to
do this. As the Company grows the Board will continue to
review whether it makes sense to continue with the Subscription
Rights.
The widening of discounts across the
Investment Trust sector have created significant dislocations in
valuation. Market participants seem slow to recognise the
incredible value opportunity that has been created. While new
players are exploiting these opportunities at the larger, more
liquid end of the market, it's only a matter of time before capital
flows to narrow the gaps in smaller trusts, though this process
requires new capital. Encouraging capital to flows into investment
trusts is hard and it seems to the Board that there really is
structural inertia in the market. The difficulties asset
managers find when investing in niche sectors and the negative
impact of passive investment, which is often just driven by
momentum, are part of the reason for the lack of investor
responsiveness to under-valuation opportunities. We are very
fortunate to have a broad retail base which is helpful to a small
trust and creates relatively good liquidity.
We are committed to positively
impacting our Company's fortunes. The Board and the Manager are
actively working with brokers and PR agents, continually exploring
ways to grow the company and add value for our shareholders. This
process is ongoing, and we are dedicated to leveraging every
opportunity to enhance shareholder value.
Subscription Rights and Share Buybacks
The Company has announced the
results of the 2024 Subscription Rights Exercise. There is a cap of
Euro 8 million on the total value the Company can raise from the
exercise. There was a scaling back exercise done on the basis that
all shareholders are scaled back pro-rata to their Subscription
Rights, whether or not they have sought to exercise such
Subscription Rights. The scaling back factor means that all
shareholders received 70.96% of their entitlement.
On 7 May 2024, 12,314,071 new shares
were issued at a price of 37.74p each as a result of applications
received from shareholders. On 9 May 2024 a further 5,816,025 new
shares were placed into the market at a price of 51.0p per share -
of that amount 37.74p per share was credited to Geiger Counter
Limited with the difference of approximately 13p per share (on the
scaled back calculation) being credited to those shareholders who
did not take up their subscription rights. The Company has also
announced the fourth Subscription Rights Price of 74.58 pence on 1
May 2024. The exercise date for the fourth Subscription Right is
expected to be 30 April 2025.
During the six months under review
the Board has utilised its share buyback powers to repurchase
6,790,543 ordinary shares at a cost of £3.6 million. Since
the end of March the Company has continued to utilise the share
buyback authority and has repurchased a further 4,679,000 shares at
a cost of £2.4 million.
Outlook
This is a very interesting, very
specialist investment at a time of great change in the energy
sector driven by geopolitics and the need to decarbonise. At
the heart of the opportunity are favourable supply and demand
characteristics and the lack of sensitivity to the uranium price on
the cost of nuclear energy generated. The Company is almost
uniquely placed to exploit these unique conditions because of the
skill of Manager's team and we urge patience as in the end value
will out.
Ian
Reeves CBE
Chairman
June 2024
INVESTMENT ADVISER'S REPORT -
FOR THE PERIOD ENDED 31 MARCH 2024
Performance
Over the half-year the
U3O8 spot price rose from $73.1/lb to over
$107/lb before consolidating to end the period at $86.25/lb, a rise
of over 17%. Behind this a number of positive market drivers are
falling into place: first, the market received significant support
from the December COP28 UN climate conference at which there was
unanimous recognition of the core role nuclear power can play in
delivering clean energy with a long-term target set to triple
nuclear generating capacity by 2050 alongside reactor life
extensions; second, the market anticipated a US ban on the
importation of Russian fuel, a development which was officially
voted into law at the end of April this year; and finally, supply
remains tight as illustrated by the substantially lowered
production guidance from Kazakhstan, the largest global producer of
U3O8. Against this backdrop the outlook for
the sector remains extremely favourable and with a focus on
low-cost assets located in western friendly markets, the Fund is
well placed to benefit from greater appreciation of the industry's
strong secular growth prospects.
Equities failed to keep pace with
the improved uranium pricing. The Fund NAV gained 9.4% over the
half year to end-March, in-line with the sterling return of the
Solactive Pure Play Uranium Index.
Market developments underpin strong secular growth
potential
Symbolic of its ever more
influential role in electricity generation, nuclear power received
widespread endorsement from the COP 28 conference with an
international agreement to triple installed generating capacity by
2050. This backing boosted uranium price momentum into the calendar
year-end. The passing of a US House vote to restrict the
importation of Russian-sourced material saw the bill progress
through to the Senate for consideration which was legally
formalised at the end of April this year. Coinciding with a
downgrading of Kazakh production guidance, discussed in more detail
below, this added further impetus to fuel prices which briefly rose
above $106/lb in early February.
Meanwhile favourable policy is being
enacted in the US, Japan, France, Sweden and South Korea, among
others, to further extend existing reactor lives and expand
generating capacity. In the US the most recent White House review
of its nuclear power industry, published in May this year,
highlights proposals to restart some of the 12 mothballed merchant
reactors, offering funding and tax credits allowing them to
effectively compete against subsidised and preferentially treated
renewables. Also indicative of the improved perceptions, the state
of Illinois removed its moratorium on new large-scale reactor
builds and has already passed legislation allowing construction of
Small Modular Reactors (SMRs) of up to 300MW from 2026, a move
which could be emulated by other states. Meanwhile, in Japan,
authorities approved a 20-year life extension for the two
operational reactors at Sendai and also added uranium to its
critical minerals list, making investments eligible for
government-backed funding.
In Asia, China nuclear roll out
continues apace. With 15 reactors currently already under
construction, China's total nuclear power generation capacity is on
track to exceed 100GW before the end of the decade, with the region
overtaking the US as the largest nuclear power market. Latterly
China National Nuclear Power Corporation provided 2024 targets
indicating a +52% year-on-year increase in investment. In India,
the Atomic Energy Commission announced plans to expand nuclear
output to 100GW by 2047, from around 8GW today. While extremely
ambitious, it indicates the potential growth of nuclear power
generation in emerging economies.
New
supply much needed
Having previously flagged production
issues, the Kazakh state uranium producer Kazatomprom reported
disappointing production guidance for 2024 and 2025, which saw the
spot uranium price rise to $107/lb in the first week of February.
Guidance for total production of 21.0-22.5ktU in 2024 (54.6-58.5Mlb
U3O8, on a 100% basis) was ~14% (equivalent
to around 10Mlbs) below its previous output target of provided in
August 2022, and approximately 9% below consensus estimates for
full year production of ~62.1Mlb. Although the company had recently
warned of downside guidance risk due to an ongoing regional
shortage of sulphuric acid and construction delays on newly
developed deposits, the guidance cut was deeper than anticipated.
Given the challenges to the ramp-up in production this year,
achieving output allowable under 2025 Subsoil Use Agreement of
30.5-31.5ktU (79.3-81.9Mlb, 100% production), now looks comfortably
out of reach.
Subsequently, Cameco maintained its
recently lowered production guidance of 18Mlbs each (on a 100%
basis) from both Cigar Lake and McArthur River this year.
Attributable production is expected to be 22.4Mlbs from these
operations with an additional 4.2Mlbs output expected from its 40%
Inkai JV in Kazakhstan. The group also announced that it is
assessing expansion of McArthur River output to 25Mlbs and, as
expected, also flagged the potential to return previous operations
such as Rabbit Lake and US ISR projects to production which
historically averaged annual output of around 11Mlbs and 5Mlbs
respectively. Cameco also provided initial details for extension of
the Cigar mine life to 2031 from 2026 previously, adding 73Mlbs of
resource to reserve.
Elsewhere, much needed downstream
investment is taking place in the nuclear fuel supply chain with
the prospect of further expansion helping address future
bottlenecks. Of note, Honeywell indicated that its US-based
Metropolis conversion facility would reach its expanded output
target by the year-end and that its UF6 output was sold
out until 2029. Similarly, Cameco's production appears to have been
contracted: sales agreements for approximately 27Mlbs pa from
2024-2028 inclusive are comparable to levels of attributable
production over the period implying production is largely spoken
for over the next 5 years. The graph below shows the expected
supply gap.
Demand/buying
Latest data from industry consultant
UxC showed that U3O8 buying exceeded 200Mlbs
during 2023 calendar year. Of this some 180Mlbs is believed to have
been acquired by utilities, the balance by physically backed funds
and other intermediaries, representing the first time in a decade
that utility purchasing has exceeded annual requirements of
approximately 170Mlbs. Within this, longer-term contracting also
reached a decade high of over 150Mlbs, indicative of the increased
necessity to secure future needs given heightened supply-side risks
in light of the recent Niger coup, US ban on Russia fuel imports as
well as the notable production issues limiting Kazakh output.
Mirroring market projections Kazatomprom, with its Q1 results,
flagged expectations for a 21Mlbs supply deficit which could grow
to a 147Mlbs deficit by 2040.
Importantly, in the tightened
environment the balance of pricing power has firmly moved from
utility buyer to seller and in such an environment unhedged
producers are much better positioned to benefit. In this context it
is also worth reiterating that Cameco, having signed significant
forward contracts, appears to have crimped its sensitivity to price
changes: at a U3O8 price of US$100/lb (or
higher), Cameco will realise a price of ~US$58/lb in 2024
increasing to ~$72/lb in 2028.
In addition, it is also noteworthy
that utilities opted to "upflex" U3O8
purchase volumes with the likes of Cameco, reflecting the strong
recent price momentum and the shift in pricing power in favour of
sellers.
Further, coming on the back of the
recent minor downgrades to its production and difficulties in
taking delivery of material from its Inkai JV in Kazakhstan, Cameco
flagged that it had to acquire ~2Mlbs on market, contributing to
the recent U3O8 price spike. This remains an
important consideration limiting the Fund's exposure to Cameco. The
graph below shows the expected demand from utilities that is
uncovered.
Positive outlook and portfolio positioning
Reflected by the near 10% discount
to NAV at which physically backed uranium funds currently trade,
stock performance since February's uranium price high has been
muted despite news flow becoming increasingly more
positive.
Trading at a near 25% discount to
NAV it is difficult to look past the deep value offered by
investment in the Fund which is well placed to benefit from
improving market conditions with a focus on western assets, with
the heavy weighting to Canada's Athabasca basin that hosts the best
geology globally in a politically secure environment.
With Cameco production largely
contracted for the next 5 years utilities will increasingly need to
secure uranium from restarting operations such as Paladin's
Langer Heinrich mine in Namibia and assets owned by UR-Energy, UEC
and Peninsula in the US. Further out development of greenfield
assets such as Nexgen's strategic Rook I project and the
neighbouring Patterson Lake, owned by Fission Uranium together with
Wheeler River/Gryphon owned by Denison will be even more important
in delivering larger quantities of material.
At the time of writing exposure to
restarts such as those mentioned represents around a third of Fund
AuM while exposure to greenfield developments, focussed around
Nexgen in the Western Athabasca along with Denison in on the East
side of the basin is similarly sized. By virtue of more risky asset
location or limited price sensitivity, exposure to producers and
physical material stands at around 18% of AuM at the time of
writing. Elsewhere, in May 2024, the Company participated in an
equity raise in the unquoted position, High Power Exploration
("HPX"), for an amount of US$1.7 million to support its ongoing
development of opereations at the Nimba iron ore mine in
Guinea.
Though Fund performance has latterly
been weighed down by Nexgen's poorly received issue of a $250m
convertible in exchange for 2.7Mlbs U3O8, we
believe the group remains pre-eminently placed in the uranium
sector.
The purchase of such a quantity of
material may considerably improve the group's position in well
advanced project funding negotiations and sales discussions with
utilities. With the convertible resulting in only a modest 4%
increase in the number of shares in issue and the enhanced
flexibility afforded by the transaction appears to have been overly
penalised and we believe the strategic value of this asset will
move back into the spotlight as economies take action to address
long-term energy security.
Elsewhere, removal of the state
moratorium on development of new large scale nuclear reactors by
Illinois not only derisks the outlook for sustained fuel demand
from the region but may portend similar moves to relax restrictions
on the development of new mines in regions such Virginia in the US,
which could also unlock value in assets such as Coles Hill, one of
the largest unmined uranium assets in the US which was recently
acquired by Iso Energy. Exposure to assets such as this along with
other proven exploration management teams represents the balance of
the Fund's investments.
Keith Watson and Robert Crayfourd
New City Investment
Managers
June 2024
Enquiries
Manulife|CQS
|
Craig Cleland
|
T: +44 (0) 20 7201 5368
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Cavendish Capital Markets
Limited
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Tunga Chigovanyika/ Will Talkington
(Corporate Finance)
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T: +44 (0) 20 7220 0557
|
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Daniel Balabanoff / Pauline Tribe
(Sales)
|
T: +44 (0) 20 7220 0500
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R&H Fund Services (Jersey)
Limited
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Jane De Barros
|
T :+44 (0) 1534 825 259
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