Annual Financial Report

RNS Number : 2493W

Geiger Counter Ltd

20 December 2021

 

20 December 2021

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 2021. http://www.rns-pdf.londonstockexchange.com/rns/2493W_1-2021-12-20.pdf

CHAIRMAN'S STATEMENT - FOR THE YEAR ENDED 30 SEPTEMBER 2021

It is very pleasing as your Chairman to be able to report on such a tremendous year for your Company. After many years of false dawns, the last year finally saw uranium companies begin to see their true potential. Over the year to 30th September 2021 the net asset value of the Company rose by an astonishing 182 per cent with the share price also going up by 192 per cent.  On behalf of the Board I would thank our investment management team for their hard work in achieving these excellent returns.

When I last wrote to shareholders in June 2021 the Company had seen a dramatic improvement in its fortunes and this has continued in to the second half of our financial year.  Your Board and the investment managers believe there have a number of major factors behind the improvement overall in the sector; firstly, climate related government policies that recognise the significant benefits of nuclear power have at long last been announced around the world in order to meet carbon emission goals. Secondly, uranium purchasing has increased with recent indications that utilities are beginning to sign longer-term contracts which will help sustain the improving trend in U3O8 pricing and the positive momentum in related equity prices. The final major factor has been the additional purchasing of spot uranium material by a number of funds established in the last year.  The investment managers report on pages' 10 to 11 gives more detail on these factors.

Your Board was pleased to see that the ordinary shares traded at a premium to their underlying net asset value for significant periods up until the date of writing. The Company has utilised the share issuance powers granted by shareholders and has issued 15,715,116 new shares from 1 October 2020 to the date of this report which has raised £7.7m of new capital. During the last year the Company has published an Annual Subscription Right document whose terms were approved by shareholders at an EGM held on 26 April 2021. The first Annual Subscription Right will take place on 30 April 2022 and Shareholders will be entitled to subscribe for 1 new share for every 5 they hold at a price of 37.84p per new share. As at the date of writing the Share Price is 57.25p. Shareholders will be sent details of how to subscribe a few weeks before that date.

Your Board and the Investment Managers remain confident that your Company has a portfolio of leading companies involved in the mining and supply of uranium and that attractive opportunities remain available to them. Power output from nuclear generation continues to rise and governments around the world are looking to nuclear power to provide both a base load for energy to supplement renewal sources and to reduce more polluting energy generation such as coal.

Finally after 15 eventful years when it has been a privilege and pleasure to serve as Chairman of Geiger Counter Ltd , I have decided to retire and pass the baton to Professor Ian Reeves CBE who has an outstanding track record and will take over as Chairman in March 2022. I would wish to conclude in thanking all directors, past and present and the team at CQS , R&H and finnCap for their phenomenal support and I am certain that they will lead the fund into a bright new future.

George Baird

Chairman

December 2021

INVESTMENT ADVISER'S REPORT - FOR THE YEAR ENDED 30 SEPTEMBER 2021

Sentiment and momentum has remained strong over the second half of the financial year. Reflecting this the U3O8 spot price has risen 45% from around $31.3/lb at the end of March and currently stands at $45.5/lb, having consolidated from just over $50/lb reached in mid-September. Against the improving backdrop the Fund NAV increased 36% during the six months to end-September and at the time of writing it has risen another 13% since.

After the sector's extended bear market, the improved certainty from pro-nuclear government policies is providing a foundation for utilities to re-engage with mining groups and renew long-term supply contracts which have been run-down since Fukushima. This process has been brought forward by physically backed investment buying, as illustrated by Kazatomprom's term contract announcement in November. Commentary from a number of companies in the Fund's portfolio provides anecdotal evidence that the contracting appetite of western utilities is also beginning to pick-up particularly with term contract prices trading at a discount of nearly $5/lb to prevailing spot market. The trust is well placed to see continued asset growth as this momentum gathers pace.

Price impact from government policy shifts augmented by physical investment

A number of drivers have combined to sustain the positive performance seen this year. One of the most visible drivers to this performance was the Sprott takeover of the physical uranium holding company, Uranium Participation, in May. The rebadged Sprott Physical Uranium Trust (SPUT) subsequently amended its financing structure, instating an "At The Market" financing facility, a mechanism allowing easier equity issuance to retail investors, and began to acquire material on the spot market. This technical difference has proved key, allowing more immediate funding and purchase of U3O8 when the trust trades at a premium to its NAV. SPUT management also stated that they are happy for the trust to trade at a discount, implying that this structure will not simply sell its uranium back onto the market, unlike other ETF vehicles. As such, uranium held by the vehicle will prove more "sticky", with the purchases effectively removing product from the market.

From May to end-November SPUT acquired approximately 23Mlbs of U3O8, equivalent to around 12% of annual utility consumption, and has around $2bn of its $3.5bn funding capacity remaining to invest. At the current spot price this equates to a further 43Mlbs of material. Other physical holding companies are in the wings to follow SPUT's lead with Kazatomprom seeding a holding company with the aim of investing $550m in uranium. Accompanied by opportunistic investments in the commodity by some small uranium mine development companies, these moves have collectively gone a long way to absorbing the perceived, but unquantified, overhang of readily available uranium.

Recognition of nuclear power highlighted by favourable government policy changes

An important fundamental change has taken place around the UN's COP 26 climate conference with the implementation of government policies more favourable towards nuclear power. Coincident with the climate conference the global energy crisis has driven up year-ahead gas and seaborne thermal coal prices, "traditional" fuels used for base load power, by 150% and 50% respectively. Rising energy costs have focused governments' minds on the inherent value of existing base load power generating capacity, but particularly from the low-carbon-emitting nuclear sector. With good reason, established western markets are now keener than ever to maintain nuclear power in the energy mix. Such policies changes have proved extremely beneficial, allowing utilities to invest to sustain output from existing operations while also providing optimism for future development of new capacity.

As example, in the US, currently the largest nuclear power market in the world, the state of Illinois confirmed the nuclear industry would benefit from clean energy legislation. This has allowed operator, Exelon, to firmly commit to maintaining its Byron and Dresden power stations highlighting the improved operating environment for the country's nuclear power sector. Elsewhere, pragmatic discussion regarding the inclusion of nuclear power in broader government policy has taken place in the EU. France notably highlighted that nuclear, which is responsible for over 70% of the country's power output, remains a key pillar of the nation's energy market. As the largest nuclear power generator in Europe France is leading a EU alliance, including nine other pro-nuclear nations, calling for the sector to be included in the zone's clean energy framework and sustainable finance taxonomy. Similarly, and closer to home, the UK October budget provided support for nuclear via substantial funding of £1.7bn, under the newly legislated Nuclear Financing Bill, towards the development of a new large scale reactor at the existing Sizewell power station. Furthermore, alongside this, governments are also allocating funds to develop small modular reactors, which may reduce upfront capital costs and potentially accelerate economies of scale benefits as manufacturing is honed after first-of-a-kind units are delivered from 2026.

Meanwhile, China reiterated the importance of low carbon nuclear power to its energy goals in its latest 5 Year Plan announced earlier this year. Its objectives, to increase domestic generating capacity from 47.5GW at end of 2020 to around 70GW by year-end 2025 and to 180GW by 2035, continue to drive forwards. With 18 reactors currently under construction and a further 37 planned the nation is well on its way to supplanting the US as the largest nuclear market globally within the decade.

Supply security in focus

Recent pro-nuclear policy changes in established markets has significantly improved confidence to look forward to the growing need for new supply to meet expected demand. Augmented by SPUT buying, the recent step-up in the uranium price has latterly seen Kazatomprom announce the signing of a term contract with China and subsequent plans to add 6.5Mlbs of annual uranium production capacity from 2024, potentially rising to 15Mlbs per annum thereafter. We expect the recent price move to have also prompted re-engagement of discussions between utilities and Cameco to allow the restart of the McArthur River mine's 14Mlbs annual production capacity. However, with estimates putting the U3O8 supply deficit considerably higher than these combined increases by 2030, further incremental developments will be required to fill the supply shortfall and also to replace reserves at major operations such Cameco's Cigar Lake whose current reported reserve will be substantially depleted over this time frame. Motivation for a supply response will require further price increases.

With such an outlook the strategic importance of scalable, Tier 1 assets such as those centred around Nexgen's Arrow deposit in Canada will, we believe, become more apparent. These investments remain core to the Fund's positioning. Other low cost, permitted and former producing mines such as those owned by Ur-Energy and Energy Fuels also appear well placed to benefit. These assets may also preferentially benefit given their location in the US, a country which continues to lack any material domestic mine output. As the market absorbs the recent step-up in the uranium price and associated restart of mothballed mine capacity, the Fund has latterly tilted exposure away from physical backed investments such as Yellow Cake, into attractively valued equities such as these which appear to offer a better risk-reward payoff. Investments have also been made into placings to further development of other well understood projects.

Robert Crayfourd and Keith Watson

New City Investment Managers

December 2021

For further information, please contact:

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

Jessica Riley - R&H Fund Services (Jersey) Limited - 01534 825 236

 

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