Half-year Report

RNS Number : 3512C

Geiger Counter Ltd

14 June 2019

 

GEIGER COUNTER LIMITED

Date of Announcement: 14/06/2019

http://www.rns-pdf.londonstockexchange.com/rns/3512C_1-2019-6-14.pdf

RELEASE OF INTERIM REPORT AND FINANCIAL STATEMENTS

The Directors announce the release of the Interim Report and Financial Statements for the Six Months to 31 March 2019.

Chairman Statement

Uranium equities were not immune from the sharp falls seen in global equities during the latter part of 2018.We saw falls in equities prices and for a few months the spot price of uranium (as measured by the U308 price) kept stable at around US$28 per pound before falling sharply in March to US$24.95. There are a number of factors at work in the market which the investment managers' report on the following page explains in more detail. Notably the US is currently reviewing its nuclear power requirements with results expected in July 2019; this could have a major impact on uranium demand. Also noteworthy is the fact that China's nuclear power generation rose 18.6% in 2018.  At 294TWh, this accounted for 4.2% of the country's total generation and shows the challenge for the Chinese Government in rolling out Nuclear power to replace coal generation.

There has been a helpful wider voice in favour of nuclear power as illustrated by Bill Gates' 2018 annual newsletter in which he highlighted that nuclear power is "ideal for dealing with climate change, because it is the only carbon-free, scalable energy source that's available 24 hours a day". This echoes recent commentary from several think tanks including China's National Development and Reform Commission Energy Research Institute and European Commission regarding decarbonisation targets.

For the six months to 31^st March 2019 the Company's net asset value fell by 12.2 per cent and the Company's ordinary share price fell by 17.2 per cent over the six months and traded at a small premium of 1.1 per cent at the end of March. The subscription share price was 5.25p at the end of March 2019.

Since the end of March we have seen the net asset value drop slightly although the Company's shares are continuing to trade at a small premium. Your Board would like to thank Shareholders for supporting the continuation of the Company at the recent AGM.

George Baird

Chairman

June 2019

Investment Adviser's Report

The interim period has been one of consolidation for the uranium sector. Following the strong 35% rise in the prior year to end-September 2018 the spot uranium price has declined from its recent high of nearly US$30/lb in December 2018, closing the half year around 9% lower and has since slipped a further 4%. Equity performance has largely mirrored this with a 10% decline in the Fund's NAV to end-March and a further 7% since.

Price declines have largely occurred following commentary from Kazakhstan's state-run producer Kazatomprom, that it expects uranium production volumes from the country to increase by 5% in 2019. Though in-line with its guidance outlined at the time of its IPO in November 2018, against the backdrop of the US 232 investigation which has understandably stymied utility purchasing particularly in the United States, the world's largest consumer, the news has had a disproportionate impact on sentiment. A subsequent update from Cameco that it intended to purchase approximately 7-9Mlbs U₃O₈ in the spot market to meet calendar 2019 sales commitments, slightly less than previous guidance of 10Mlbs similarly contributed to the recent softness. Cameco has subsequently reversed this decision with guidance now steering towards purchases of up to 12Mlbs this year, though the group has yet to meaningfully buy material. Despite such variation in its guidance for 2019, we believe Cameco's spot market purchasing will provide support over the medium term as, without the necessary incentive price to restart operations, a reduction in buying this year will effectively only defer purchases into future years. Indicative of current market paralysis, Cameco has indicated that it only received commitments for approximately one third of its attempted purchases this year at spot prices. 

Despite short term disruption caused by the 232 Petition, we believe revised policy to address US energy security presents opportunity within the sector. Most importantly, given the US drive to maintain energy independence individual state policy has already shifted to encourage extension of the operating lives of the country's existing reactor fleet to sustain nuclear generating capacity.  In this regard New York, Illinois and latterly Ohio, have implemented schemes rewarding nuclear's carbon free status and maintaining nuclear power output.

Consistent with this viewpoint, the US Energy Information Administration provided a sector update highlighting that despite the growth of renewables generating capacity, carbon emissions continued to grow, reaffirming its stance to extend nuclear plant operating lives to safeguard the long term contribution of nuclear power. The EIA statement that "without reactor life extensions stable, carbon free baseload power will continue to reduce markedly" are at the heart of the nuclear power debate. The Paris based IEA stated that renewables investment would have to grow fivefold the next two decades in order to offset the scheduled retirement of nuclear reactors, but that this would not only be hugely expensive, but would also face public resistance and require major power grid investment. We note that variable renewable power on its own does not offer a base load power solution.

Backed-up by commentary from the pro-nuclear US Energy Secretary on the industries green credentials, we expect nuclear power to retain a significant share of US generating capacity having contributed a record 807 TWh in 2018, around a 20% share of the market. Clarity on the country's policy, which may reduce the US dependence on material imported from Russia and Kazakhstan for nearly 50% of its needs, may unlock pent up utility demand when the 232 investigation concludes, currently scheduled mid-July. This could help the uranium price recover in the latter half of 2019 following lacklustre interest in the year-to-date.

The impact of US trade policies on global trade and by extension electricity demand, has weighed more broadly on power generation fuels. However, set against fossil fuel price declines uranium has held up relatively well, as shown below. We believe this reflects the less cyclical nature of underlying uranium demand and also a recognition of its key attribute as a carbon free source of base load power, particularly in regions such as China and increasingly, India. Of note, India was specifically referenced by Kazatomprom as the primary recipient of the country's increased uranium production, testament to India's desire to expand its nuclear power capacity and combat air pollution.

Importantly we believe some modest downwards shift in underfeeding volumes by enrichers has begun to take effect which will, in part, counter the increase in Kazakh production during 2019. We look for this helpful dynamic to continue as enrichment contracts begin to roll off, in similar fashion to the long-term uranium purchase contracts with miners such as Cameco

Robert Crayfourd and Keith Watson

New City Investment Managers

June 2019

 

END

 

 

IR LLFFLRAISLIA