TIDMGCL TIDMTTM
RNS Number : 6923Q
Geiger Counter Ltd
29 June 2022
29 June 2022
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 Six Months to 31 March 2022.
http://www.rns-pdf.londonstockexchange.com/rns/6923Q_1-2022-6-29.pdf
Chairman Statement
This is my first report as Chairman of your Company and I would
firstly like to thank my predecessor, George Baird, for all of his
wise counsel and commitment to the Company over his tenure.
The Company's net asset value and share price continued to
perform strongly in the six-month period to 31st March 2022. Over
the six months under review the net asset value has increased by
25.9% and the share price rose by 25.0%. The rise in net assets and
share price was driven in the Autumn of 2021 by climate related
government policies following on from the UN COP-26 climate
conference that recognised the significant benefits of nuclear
power in order to meet carbon emission goals. Uranium purchasing
from new funds increased and we saw utilities beginning to sign
longer-term contracts. The tragic events witnessed in February and
the following months in Ukraine saw all forms of energy markets
rise sharply as investors focussed on potential shortages of gas,
oil and coal - uranium prices also rose as Russia is a key supplier
of both U308 and enriched uranium.
Your Board was pleased to see that the ordinary shares traded at
a premium to their underlying net asset value for significant
periods during the period under review. The Company has utilised
the share issuance powers granted by shareholders and has issued
11,730,750 new shares from 1 October 2021 to 31st March 2022 which
has raised GBP6.59 million of new capital. At the end of April
2022, the first Annual Subscription Right event took place and I am
pleased to report that all the available Subscription rights were
either taken up or exercised by the Trustee and 17.4 million new
shares were issued raising GBP6.73 million of new capital. The
Second Subscription Right price will be 51.52p per share with the
exercise date being 2 May 2023.
Your Board and the Investment Managers remain confident over the
long-term outlook for uranium. Rising energy costs, which have
accompanied the global energy crisis, have focused governments'
minds on the inherent value of existing base load power generating
capacity; 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. The EU commission
confirmed the inclusion of Nuclear and Natural Gas in the EU
taxonomy, a classification system that helps investors determine
which economic activities are environmentally sustainable. This
should provide cheaper debt financing options and further support
from governments and green focused capital. Such policy changes
have proved extremely beneficial, allowing utilities to invest and
sustain output from existing operations, while also providing
optimism for future development of new capacity.
There has been some global weakness in the market as of late. At
the time of writing the Company's net asset value stands at 42.80p
and the ordinary share price is 38.0p with the ordinary shares
trading at a discount of 12.63%.
Ian Reeves CBE
Chairman
Investment Adviser's Report
The scramble for energy as economies have unlocked and
exacerbated by tragic event in Ukraine has driven price rises
across the entire fuel complex and exposed significant weaknesses
in energy policies around the world. This has spurred a fundamental
rethink towards the need for a more balanced mix of power
generation. With good reason, governments are now keener than ever
to maintain nuclear power capacity. Given its dominant influence in
energy markets, including nuclear fuel, Russia's aggression has
added urgency on the need to act. Policy 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. The outlook remains extremely
encouraging and the Fund remains well positioned to benefit from
continued momentum with exposure focussed on Tier 1 assets located
in regions such as the Athabasca, together with considerable
exposure to competitive projects in the US, which lacks domestic
production.
Since the beginning of the Fund's financial year the U3O8 spot
price rose from $43.5/lb to a peak of $63.75/lb before seeing some
consolidation and at the time of writing it stands at $47/lb. The
Fund's NAV returns have followed a similar trajectory, ending the
half-year with a gain of almost 25.86% at 57.94p. This compares
favourably to more modest 7% sterling return registered by the
Solactive Uranium Pure Play Index in the same six-month period.
Huge impetus as nuclear becomes central to revised policies
Uranium price trends have followed similar if more extreme moves
in traditional fossil fuels, on which most countries are still
dependent to generate power. Since end-September 2021, year ahead
gas prices in Europe and Asia have risen 55% while those in the US
are up some 88% with an increase in gas exports, especially across
the Atlantic as Europe seeks to reduce its reliance on Russian
imports, providing an incremental boost to US benchmark gas prices.
Thermal coal contracts for September 2023 delivery have seen prices
more than double. Rising energy bills and the knock-on effects of
tight energy supplies on prospective economic growth have raised
awareness of the need to diversify power sources. With fossil fuels
typically representing around two thirds of power station operating
costs prior to the current energy crisis, soaring input price
threaten the profitability of power stations.
As illustration, the theoretical gross margin obtained from a
European gas fired power station, known as the Spark Spread, moved
negative since last summer for year ahead baseload power implying
negative profitability. Adding onto this the cost of carbon
credits, to generate a "Clean Spark Spread", power station
operating losses worsen further still. Clearly this is not
sustainable. With the comparative stability and cost
competitiveness of base load nuclear power becoming significantly
more obvious since the COP26 climate conference last November and
with its ability to fulfil zero emission ambitions, nuclear has
become central to energy policies around the world.
As a result, in Europe, nuclear has been included in the "Green
Deal" taxonomy improving industry access to trillions of Euro's
funding capacity, France has picked up the reigns to champion
nuclear power with many other EU countries such as the Netherlands
seeking to add generating capacity. Closer to home, recently
revised UK policy has also placed considerably more emphasis on the
sector.
Notably, the US has moved decisively to include nuclear in its
green energy policy, with the introduction of production tax
credits which materially levels the playing field with subsidies
received by wind turbine generation. Additionally, the Biden
Administration has also recently announced intentions to add
strategic reserves with a proposal to fund $4.3bn investment in
domestically sourced enriched fuel.
In Asia, the newly elected South Korean President is seeking to
maintain nuclear's 30% share of the country's power generation,
reversing phase out policy of the prior government. In Japan, the
newly appointed Prime Minister's latest draft clean energy strategy
proposal includes "the maximum utilization" of nuclear energy. In
addition to expediting its reactor restart programme, the
government may unveil a proposal later this year aimed at building
new nuclear capacity. Furthermore, local opposition to reactor
restarts in the country, which has acted as a huge drag to the
nation's industry, has also shifted favourably and the latest
approval to restart a reactor in the Shimane prefecture potentially
marks a more positive shift in momentum. Meanwhile China continues
its nuclear drive that will see it overtake the US as the largest
nuclear power market later this decade as its progresses 150
projects in its development pipeline over the next two decades.
This sea change in opinion, particularly in the established
nuclear power markets, has significantly improved confidence and
growth prospects in the sector. Crucially, it has provided a solid
platform for utilities to operate and as a result they have
conspicuously re-engaged in long-term contracting, in recognition
depleting supply and heightened disruption risks particularly given
Russia's dominant influence over around half global uranium supply
and enrichment capacity.
Tight market conditions to persist
Following a period of term-contracting around the turn of the
year, utilities have easily absorbed production from mine restarts
announced by Kazatomprom and latterly by Cameco and Paladin whose
combined output we expect to ramp-up to over 30Mlbs pa in the next
few years. As outlined in our last full year report, estimates put
the U3O8 supply deficit considerably higher than these combined
increases by 2030. Further incremental developments will therefore
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. Utilities will need to resume negotiations for long-term
off-take with developers in order to secure raw material into the
next decade. We expect these off-take price negotiations to be at
much higher level that the $45/lb mid-point achieved in the more
recent round of contracting around the year-end. While Paladin did
not disclose its off-take terms for the restart of its Langer
Heinrich mine, the announcement occurred after the spot uranium
price had touched $60/lb. Incentivising greenfield projects will
require higher prices than this.
Development of additional downstream fuel processing capacity
will be needed alongside this to alleviate future bottlenecks in
the nuclear fuel supply chain. While Honeywell in the US has
announced the 2023 restart of its Illinois conversion facility,
more capacity will be required. Other supply side dynamics are also
playing a part in tightening the market. Of note, the quantity of
uranium in enrichment tails is trending upwards in tandem with
moves in nuclear fuel inputs. With more U3O8 consumed at the front
end of the fuel cycle so less is available as secondary supply from
enrichers.
Portfolio position remains centred on Tier 1 assets
In the current environment the strategic importance of scalable,
Tier 1 assets such as Nexgen's Arrow deposit in Canada will become
increasingly 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, Energy Fuels and UEC also appear
well placed to benefit. As previously stated, these assets may
preferentially benefit given their location in the US, a country
which continues to lack any material domestic mine production.
The Portfolio continues to tilt more towards uranium mine
equities which appear to offer a better risk-reward payoff.
Year-to-date the Fund has continued to invest in these core
holdings. Notable periods of activity occurred in January, with a
pull-back in equities allowing opportunistic investment to pre-empt
the embedded rights issue at end-April. Fortuitously, proceeds from
the rights issue also coincided with another pull-back in sector
equities providing an opportunity to participate in a placing by
Paladin, ahead of its planned mine restart. Growth in the Fund's
asset base has seen considerable dilution of exposure to physically
backed uranium equities and we anticipate this trend will
continue.
The Fund also benefitted from upward revisions to the value of
private holdings which added a 4.9% positive contribution to NAV in
June 2022. Specifically the mark-up following the IPO of metal
explorer Ivanhoe Electric, spun-out of the private listed parent,
HPX, which is also held by the Trust. This substantially offset the
nearly 5% dilution from the rights issue and at the time of writing
the Fund NAV stands at to around 42.80p, equivalent to a 12.1% gain
in the fiscal year-to-date, similar to the 12.1% return achieved by
the Solactive Pure Play Index.
Pragmatic energy policy revisions, which now explicitly include
nuclear power, have considerably improved confidence in the sector
outlook laying a platform for sustained investor returns and we
look forward to continued growth and performance.
Robert Crayfourd and Keith Watson
New City Investment Managers
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END
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