TIDMGCL TIDMGCS
RNS Number : 7272V
Geiger Counter Ltd
04 December 2019
4 December 2019
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 2019.
http://www.rns-pdf.londonstockexchange.com/rns/7272V_1-2019-12-4.pdf
CHAIRMAN'S STATEMENT - FOR THE YEARED 30 SEPTEMBER 2019
It has been a disappointing year for followers of the uranium
market. After a promising 2018 where spot prices of uranium rose
and uranium focussed equity prices recovered both the spot price
and uranium equities have fallen sharply in 2019. There have been a
number of setbacks as we have seen increased uranium production
despite lower spot prices and regulatory delays in the US where a
government investigation into the uranium market has stymied market
purchases as power utilities and investors await news.
For the year under review to 30th September 2019 the Company's
net asset value fell by 27 per cent and the Company's ordinary
share price fell by 26 per cent over the year and traded at a
premium of 8 per cent at the end of September. The subscription
share price was 2.50p at the end of September 2019.
Despite the frustration of falls in spot and equity prices both
your Board and the Investment Manager remain confident over the
long-term outlook for uranium. 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
renewable sources and to reduce more polluting energy generation
such as coal. The Investment Manager has a portfolio of leading
companies involved in the mining and supply of uranium and firmly
believes that prices will improve. I would urge Shareholders to
read their report on pages 10 to 11 which goes into more detail on
the prevailing market conditions.
Your Board is encouraged to see that the ordinary shares
continue to trade at a premium to their underlying net asset value.
We are working with our advisers to develop plans to grow the
assets of the Company as we believe that a greater size of assets
will attract more investors into the Company.
I would like to thank Shareholders for their continuing support
and look forward to reporting improved results next year.
George Baird
Chairman
December 2019
INVESTMENT ADVISER'S REPORT - FOR THE YEARED 30 SEPTEMBER
2019
After a positive start to the year, 2019 has proved one of
frustrating consolidation for the uranium sector. Following the
prior year's strong 35 per cent uranium price increase, momentum
remained positive into calendar 2019 with the price of promptly
available material rising a further 6 per cent to stall just below
US$30/lb between November 2018 and February 2019.
Unfortunately, momentum turned negative as the year-long US
government investigation of low cost U(3) O(8) imports, concluded
in July, chose not to restrict overseas supplies and was
subsequently widened into an assessment of the security of inputs
across the entire nuclear fuel cycle. Uncertainty has
understandably stymied utility demand for uranium, especially in
the US. Set against reduced utility purchasing the announcement
from Kazakhstan's state-run producer, that the country would
proceed with plans to increase uranium production by 5 per cent had
a disproportionate impact on sentiment, despite being in-line with
guidance outlined at the time of Kazatomprom's November 2018 IPO.
As a result, earlier price gains unwound and uranium closed the
year to end-September approximately 7 per cent lower, at
US$25.65/lb.
However, despite this year's disruptive developments, we believe
the market fundamentals remain positive. This is perhaps best
summed-up by the most recent biennial market update provided by the
World Nuclear Association ("WNA") that highlights growth in uranium
demand will need additional supply under all scenarios it
considered. The WNA report concluded that "In all scenarios, the
industry needs to at least double projected primary uranium
production including current, idled, under development and planned
prospective projects by 2040" as production from existing mines is
expected to fall sharply from 2035 with one quarter of all mines
considered exhausted by 2040.
Notably, the introduction of more favourable government policies
resulted in WNA projections for nuclear power generation being
revised up for the first time in eight years. In its Reference
Scenario, global nuclear generating capacity is expected to
increase from 398GW in 2018 to 462GW by 2030 while its Lower Case
Scenario was also revised up, with demand expected to remain flat
over the same period. US state legislation to support continued
reactor operation in tandem with extension of reactor operating
licenses by US and French regulators, together with extensive
nuclear expansion plans in China lie behind the improved demand
growth assumptions.
Backing up the WNA's view, in 2018 nuclear power generated
2,563TWh of electricity, up nearly 2.5 per cent on the prior year,
recovering to pre-Fukushima levels with the US accounting for
805TWh of this (at a competitive US$32/MWh) and France almost
380TWh. Against resilient nuclear power output in developed
markets, Asia remains a driver of growth. The latest data from
China's Nuclear Energy Association shows the country produced
253.5TWh of electricity between January and September 2019, up 23
per cent versus the same period in 2018, expanding its share of
China's total power generation to 4.8 per cent from 4.2 per cent in
2017. Given China's clean air policies and low cost, replicable
cookie cutter approach to reactor development the region remains a
key driver of global demand growth with 47 reactors now connected
to the grid, another 12 reactors under construction and 42 more at
the planning stage. Elsewhere, competition from LNG should lessen
as suppliers have reduced gas output to focus on profitable
oil-linked contracts and recent Asian LNG price falls are
reversing.
Decisions by the Trump Administration not to restrict U(3) O(8)
imports and instead conduct a wider Nuclear Fuel Working Group
review, has frustratingly lengthened the period of uncertainty for
utilities and been taken negatively by market participants.
While there is clearly logic to the US undertaking a full review
across the entire uranium fuel cycle in the US, which remains
dependent on imported material and services for its fuel needs to
generate 20 per cent of its electricity, a month's extension to the
review process announced in mid-October took a further toll on the
industry and market sentiment. As a consequence of the ongoing
uncertainty, substantial spot market purchases of circa 6-7Mlbs
U(3) O(8) by Cameco (approximately half its guided 2019 activity)
have yet to materialize as expected having been deferred
into calendar Q4, equivalent to approximately 5% of volumes
traded globally year-to-date. While this has contributed to the 5.6
per cent slip in the spot uranium price since end-September, which
at the time of writing stood at US$24.05/lb, we nevertheless
believe the prospect of such activity reflects current utility
paralysis and that restocking by utilities will be an important
near-term catalyst that can restore positive momentum into 2020.
Latest data of the US Energy Information Administration for 2018
showed utility inventory levels had fallen 10% year over year to
112Mlb U(3) O(8) , equivalent to a typical 2.5 years of demand.
This run down in inventory, occurring despite a pick-up in broader
uranium buying that year, provides some confidence that the limited
purchasing seen this year will reverse as inventories shrink
further.
Crucially, and as previously stated, policies already
implemented in the US and France, two of the largest nuclear power
markets globally, provide evidence of the continued need to retain
nuclear in the energy mix. Indeed, despite France's previous
suggestions that it would de-emphasise nuclear power, press
commentary this October (Le Monde) indicated the government had
asked its major utility EDF to draw up plans to build three new
facilities, having committed to reduce carbon emissions by 50 per
cent by 2050. Such decisions remain at the heart of the nuclear
debate and indicate a softening of the firmly negative investor
sentiment that continues to overshadow the sector. There has also
been helpful commentary regarding the increasing need to
decarbonise, with specific focus on the need for encourage nuclear
as part of the energy mix in the UK as government outlined plans to
reduce its carbon footprint.
The performance of related equities has largely tracked that of
uranium with a 28 per cent reduction in the Fund's NAV in the year
to end-September while further assessment of security across the
broader industry has seen prices decline another 11 per cent since
then. The majority of the Fund NAV pull back over the period
discussed has primarily resulted from sharp falls in the share
prices of companies with assets located in the US, notably the two
petitioning groups Energy Fuels and Ur-Energy. These fell back to
levels seen prior to their lodging of the 232 Petition which had
raised expectations for an increase price and volumes of
domestically sourced material. Though Fund exposure to such
equities was reduced over the March quarter, following their strong
performance prior to the final 232 decision, their declines dragged
on performance. Nevertheless, having reverted to prior valuations
we believe these lower cost, in-situ operations remain attractively
positioned and at the time of writing such equities represent
around 18% of NAV. Nexgen's Tier 1 Arrow project, located in the
established uranium district of Canada, remains a stand out
investment within the sector and is still the largest individual
position in the Fund despite some recent technical slippage in the
share price following its removal from a Canadian equity index.
Focussed on the uranium sector, we believe the Fund is well
placed to benefit from improving prices necessary to bring required
supply into production, as highlighted by the WNA demand
outlook.
The Fund's position in private company High Power Exploration
(HPX), a vehicle backed by mining developer Robert Friedland, saw
some positive news post the end of the financial year, as it agreed
to acquire the Nimba high grade iron project in Guinea, from BHP,
Newmont and Orano. Subsequent to this the company raised $88m in a
an equity placement at a higher valuation than we had the position
marked which led to a material NAV uplift at the end of November,
when the HPX information was made available. This sets the HPX on a
planned IPO timeline, which could provide greater liquidity in 12
months. Whilst the position size is large, this is due to strong
performance and does not mark any intentional deviation from the
Uranium focus of the fund.
Robert Crayfourd and Keith Watson
New City Investment Managers
December 2019
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
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END
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