Company Announcements

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 £6.59 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 £6.73 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