Interim Report and Financial Statements

Geiger Counter Ltd

30 June 2023

 

30 June 2023

GEIGER COUNTER LIMITED
(THE "COMPANY")

RELEASE OF INTERIM REPORT AND FINANCIAL STATEMENTS

The Directors announce the release of the Interim Report and Financial Statements for the period ended 31 March 2023, which are included as an attachment to this announcement.

http://www.rns-pdf.londonstockexchange.com/rns/5554E_1-2023-6-30.pdf

CHAIRMAN'S STATEMENT - FOR THE YEAR ENDED 31 MARCH 2023

Having risen sharply in late 2021 and early 2022 on the back of climate related government policies that recognised the significant benefits of nuclear power in order to meet carbon emission goals, the uranium sector has been more muted over the last 12 months as high inflation and the resultant higher interest rates have weighed on investor risk appetites.   Uranium equities have not been immune  from the wider market background and despite positive news coming from the sector in the form of supportive government  policies towards uranium,  equities involved in the sector have fallen. The investment managers report on pages 7 to 8 sets out the investment position more fully.

The Company's net asset value fell from 47.46p at the start of the financial year in October 2022 to 41.27p as at 31 March 2023 which is a fall of 13.0% for the six month period.  The share price fell from 46.0p to 36.0p over the same period which represents a larger decline of 21.7% as the discount to net asset value widened from 3.1% at the start of the period to 12.9% as at the end of March 2023.

Share Capital

At the end of April 2023, the second Annual Subscription Right event took place and I am sorry to report that the net asset value at that time was substantially below the exercise price of 51.52p and therefore no new shares were issued.   The third Subscription Right price will be 37.74p per share with the expected date being 30 April 2024.

Outlook

Your Board and the Investment Managers remain confident over the long-term outlook for uranium. Pro-nuclear government policies have seen nuclear power being included in most "green" policy frameworks encouraging wider use. The US has made available zero emission credits and nuclear deployment incentives to uranium companies and China is accelerating its new nuclear building programme. In Japan, higher prices for fossil fuels have increased support to restart the nation's nuclear fleet. and momentum is gathering pace in this regard after completion of more stringent reactor upgrades. Expected demand for uranium is higher than the available supply and with such structural impetus, we believe the outlook for nuclear energy is bright.

At the time of writing the Company's net asset value stands at 43.03p and the ordinary share price is 38.00p with the ordinary shares trading at a discount of 13.2%. 

Ian Reeves CBE

Chairman

June 2023

INVESTMENT ADVISER'S REPORT - FOR THE YEAR ENDED 31 MARCH 2023

The six-month period under review has been disappointing for the Fund, as positive news in the uranium sector has not translated into gains in the price of equities involved in developing and producing uranium. The net asset value has declined by 13% over the six months to 31st March 2023. The positive news we refer to is the increasing number of longer-term contracts that have been signed to deliver U3O8 to reactors worldwide. We have also seen China planning to accelerate its new reactor programme and both France and Japan commit to extend the life of their nuclear fleet and add capacity.  At the end of 2022 the US signed several long-term contracts with several US based uranium companies to supply the newly formed US strategic reserves.  Despite this improving background the largest stocks held within the Fund are all showing a negative return over the six months - prices started 2023 on an upwards path but uranium equities were caught up in the poor broader market sentiment in February and March following weakness in the US banking sector.

Shift in opinion underpins nuclear power's structural recovery

Nuclear energy has seen a shift in attitudes to embrace it. The introduction of pro-nuclear government policies alongside this, underpins an incredibly appealing outlook for the nuclear sector's structural recovery, which is still only in its early stages. Furthermore, with related equities caught-up in broader recessionary sentiment it appears an opportune time to invest. Nuclear power has now been included in most "green" policy frameworks encouraging wider use. In the US, currently the largest nuclear power market, zero emission credits and nuclear deployment incentives are now available to utilities under the Inflation Reduction Act, aimed at reducing US emissions by 40% within this decade. This builds on the Civil Nuclear Credit Program and legislation to fund a strategic fuel inventory. Similarly, nuclear power has been included in the EU taxonomy to improve its green credentials. Meanwhile in Japan, recent surveys show popular support to restart the nation's nuclear fleet and momentum is gathering pace in this regard after completion of more stringent reactor upgrades.

Demand outstripping supply

Crucially, acknowledgment of the ability of reactors to operate safely for significantly longer than initially expected has allowed planned reactor decommissioning to be deferred. Typically adding around 20 years to the operating life, such extensions have instantly boosted fuel demand expectations. More significantly new reactors require around 3 times this quantity of fuel for an initial charge and with 59 reactors currently under construction and a further 100 planned, underlying uranium demand is expected to rise by over 50Mlbs (>3% pa) by the end of the decade. Ambitious roll-out plans in developing nations will sustain momentum beyond this timeframe. Commissioning around 8 reactors a year, China is on course to supplant the US as the largest nuclear fuel consumer before 2030, while longer-term plans to build another 150 new domestic reactors by 2035 will see construction accelerate. Standardisation of small modular reactor designs, to reduce upfront reactor build costs, is increasingly appealing and should also accelerate industry growth.

On the supply side, output from the restart of previously mothballed mines has already been absorbed by the market and further greenfield supply will be required to satisfy the widening deficit. As highlighted by Athabasca producer Cameco and developer Nexgen, at least 2-3 more Cigar Lake or Arrow sized and geologically scarce deposits will be required to meet end-of-decade demand. There is mounting pressure to address the future deficit. A further step up in price from current levels will be needed to incentivise this.

In addition, there is a need to insure against supply disruption given highly concentrated fuel production. Notwithstanding potential shocks resulting from operational issues, such as the 2007 Cigar Lake mine flood, the recent energy crisis highlighted an over-reliance on Russia and Kazakh origin fuel by established markets. Akin to OPEC, Kazakhstan and Russia each control over 40% of global uranium mining and enrichment respectively.

While there are no formal sanctions against using fuel sourced from these regions, governments and utilities are increasingly aware of their need to diversify supply. US legislation to establish a strategic reserve is a prime case in point and no wonder given that nuclear power will represent 20-25% of these nation's electricity. This matches the situation in Japan.

Alleviating bottlenecks may spur activity

Consideration also needs to be given to other factors that could spur activity. Notably, downstream bottlenecks in the fuel cycle, particularly conversion, in which uranium is converted from a solid "yellowcake" form into a gaseous "hexafluoride" state, are now being addressed. The ramp-up of facilities in France and the US are crucial to increase capacity of this conversion process step, a necessary precursor to enrichment and then fabrication. Further capacity expansion will be required beyond this. The scheduled return of 20% of France's nuclear capacity, after a further round of safety system checks is completed later this year, is an additional positive driver of the need to create capacity in the fuel cycle.

Outlook

In summary, we believe the improving demand backdrop and limited development of new uranium supply continues to support the sector outlook, as illustrated by revised government policies to encourage a greater contribution from nuclear power in the energy mix.

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

 

END