Annual Financial Report

RNS Number : 7421K

Geiger Counter Ltd

17 December 2018

 

17 December 2018

GEIGER COUNTER LIMITED
(THE "COMPANY")

RELEASE OF REPORT AND FINANCIAL STATEMENTS

The Directors announce the release of the Annual Report and Financial Statements for the year ended 30 September 2018.

http://www.rns-pdf.londonstockexchange.com/rns/7421K_1-2018-12-17.pdf

CHAIRMAN'S STATEMENT - FOR THE YEAR ENDED 30 SEPTEMBER 2018

I am pleased to report that the Company has seen an improvement in its fortunes since I last wrote to Shareholders in March 2018. Uranium prices in the spot market have rallied sharply and reached a level of US$27.5 at the end of September 2018 which equates to a rise of 35% over our financial year. Uranium equities have started to rise given this favourable background and we saw new vehicles launch in the market to invest in the underlying uranium product.

For the year to 30th September 2018 the Company's net asset value increased by 10 per cent with the Company's share price rising by 20.5 per cent over the year with the premium being 7.4 per cent at the end of September. The Investment Adviser's report on the following page details the favourable changes to market fundamentals which have driven the improvements in the uranium price.

Since the end of March we have seen an improving net asset value and demand for the Company's shares has seen them trade at a consistent premium for the last few months.  In response to this the Company has begun to issue modest amounts of new ordinary shares at a premium. We hope that improving sentiment will see increasing demand for the Company's shares as we try to grow the Company.

The first anniversary of the new Subscription Shares was on 30 November 2018 and 308,388 were issued at a price of 24.98p per share. The next exercise date will be on 29 November 2019 with the exercise price set at 26.17p on that date. The subscription shares are currently trading at a mid-price of 5.125p.

Shareholders have the opportunity each year to vote on the continuation of the Company. Your Board is recommending that Shareholders vote in favour of continuation as we believe that this Company gives shareholders the opportunity to invest in this unique asset class.

Finally, I would like to thank our shareholders for their continued support over recent years and my Board, investment manager and administrators for their sterling efforts over the last twelve months.

George Baird

Chairman

December 2018

INVESTMENT ADVISER'S REPORT - FOR THE YEAR ENDED 30 SEPTEMBER 2018

The spot uranium price rose markedly over the last year, rising 35% to US$27.5/lb by the end of September 2018 and against this positive backdrop the Fund NAV increased 10% over the financial period. This momentum has continued and at the time of writing the uranium price has increased to US$28.9/lb. While the spot uranium price is proving less correlated to weaker sentiment that has affected in broader resource markets, uranium equities were nevertheless caught up with some of the broader market weakness, and the Fund NAV has slipped nearly 3% since the end of September. Given the potential for continued improvement in the uranium price we believe the Fund remains well placed to sustain performance as operational leverage benefits many of the portfolio investments, such as Nexgen who's recently published PEA generates a healthy project IRR of 35% at the current spot uranium price.

Market fundamentals continue to improve

Significant and favourable changes in uranium market fundamentals took place during the year. On the supply side Cameco announced the closure of its McArthur River mine, removing around 8% of global primary mine supply indefinitely, while Kazakhstan announced that it would extend previously announced production cuts for three years, removing an additional 3% of global mine output. Kazakhstan's move to focus on value over volume, as highlighted during its recent IPO, represents an important shift in strategy and is particularly relevant given the country's dominant control over approximately 40% of primary global uranium production, a position more influential than OPEC enjoys in crude oil markets.

On the demand side the impetus behind China's nuclear power industry, underpinned by its Blue Sky Policy, remains very strong with the country's development pipeline expected to deliver one completed reactor, on top of the 45 currently in operation, every two to three months out to 2020 by which time construction of another thirty will be underway. In Japan the re-election of the pro-nuclear Abe government has also re-invigorated momentum for the restart of the region's nuclear power industry with nine reactors now back in operation following the most recent favourable court ruling. Around three times this number are required to fulfil the Abe's energy plans to generate between 20-22% of the country's power from nuclear energy.

Overall global electricity demand growth continues to trend upwards with a rise of 3.1%, an increase of 780TWh[1], in 2017. Within this China continues to lead overall growth rising 360TWh (+6%) during the calendar year with India rising 180TWh (+12%). Illustrating the rising demand, thermal coal and Asian LNG prices increased 16% and 37% over the year, the latter occurring despite Japanese utilities selling LNG cargoes as their nuclear fleet restarts. Such trends improve the cost competitiveness of nuclear power generation in the region with the added benefit of reducing carbon emissions. 

Meanwhile, following the closure of its McArthur operations Cameco will purchase approximately 10-12Mlbs from the spot market in order to offset lost production in 2019, soaking up excess inventories which have weighed on pricing. Interest in physical material has also arisen from newly listed vehicles such as Yellow Cake, a trend which appears to be gathering momentum.

Looking at the US, currently the largest nuclear power market globally, the government is assessing the strategic need to improve domestic self-sufficiency through the uranium supply chain following a petition by two regional operators Ur-Energy and Energy Fuels, both held in the Fund. While this could benefit prices received for US sourced U3O8 and therefore economic returns for regional miners, clarity on US policy could in any event remove uncertainty that has caused a utility buyers strike and unlock pent-up demand.

Elsewhere, there has been increasing resistance to Germany's Energie Wend policy, to transition off nuclear power in favour of renewables, which has failed to deliver promised reductions in carbon emissions and has contributed to a near doubling of domestic energy prices to approximately €0.06/kWh. While it may be too late for

Germany's coalition to moderate policy forcing the premature closure all of the country's nuclear reactors by 2022, this costly exercise highlights the rationale to maintain output from existing nuclear generating capacity, as being shown by

Japan's restart programme and the recently announced agreement to improve its cooperation in nuclear power generation with the USA.

Geiger remains a pure uranium focused vehicle

Mirroring wider market trends to passive investment strategies, the Solactive Global Uranium Index (Global X Uranium ETF) announced that due to limited liquidity of underlying investments it was reweighting its constituents from 100% uranium equities to ~50%, with the balancing constituents including companies such as Barrick Gold, Rio Tinto, BHP, Hyundai Engineering, Mitsubishi Heavy Industries and Macquarie Bank which weighed on the sector in March. While technical selling prompted by the reweighting, which compounded a brief sell-off in the commodity price over summer, offered the opportunity to add to certain investments, the move leaves Geiger Counter as a pure way for investors to gain exposure to the uranium sector.

It is noteworthy that global nuclear power output now exceeds pre-Fukushima levels at over 2,500TWh. As China continues to roll-out reactors, Japan's nuclear renaissance takes hold and increasing physical purchasing lifts demand against a background of shrinking supply we remain very optimistic on the Fund's ability to capitalise on positive outlook for the sector. With significant exposure to US uranium producers we also believe the Fund is well positioned to benefit should US policy makers uphold the petition to encourage greater self-sufficiency from domestic sourced material.

The Fund continues to trade at a premium, as with the physically backed uranium ETF's, and allowing incremental growth in assets under management which we hope will further broaden investor demand at this opportune time.

Robert Crayfourd and Keith Watson

New City Investment Managers

November 2018

For further information, please contact:

Craig Cleland - CQS (UK) LLP - 020 7201 5368

Jane De Barros-Sousa- R&H Fund Services (Jersey) Limited - 01534 825 259

 

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[1] EIA March 2018

 

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