GCL Geiger Counter Limited

27 JUNE 2024

GEIGER COUNTER LIMITED
(THE "COMPANY")

RELEASE OF INTERIM REPORT AND FINANCIAL STATEMENTS

The Directors announce the release of the lnterim Report and Financial Statements for the period ended 31 March 2024, which are included as an attachment to this announcement.

http://www.rns-pdf.londonstockexchange.com/rns/2241U_1-2024-6-27.pdf

CHAIRMAN'S STATEMENT - FOR THE PERIOD ENDED 31 MARCH 2024

Introduction

The six-month period to 31 March 2024 saw the net asset value of the Company increase from 64.66p as at 30 September 2023 to 70.74p at the end of March giving an overall return of 9.4% as positive news flow from the uranium sector supported to the underlying portfolio of equities. The Company's share price return was more muted however as the share price rose from 52.0p on 30 September 2023 to 52.50p at the end of March 2024.  The discount to net asset value widened from 19.61% at the start of the period to a figure of 25.8% at the end of March 2024.  The section below titled Share price discount to NAV provides more details on this.

Investment

News in the uranium sector has remained supportive throughout the period under review. The COP28 conference provided an international agreement to triple installed generating capacity by 2050. In addition, the passing of a US House vote to restrict the importation of Russian-sourced material saw the bill progress through to the Senate for consideration which was legally formalised at the end of April this year. A number of other countries such as Japan, France, Sweden and South Korea agreed to further extend existing reactor lives and expand generating capacity.  In Asia, China's nuclear roll out continues apace. With 15 reactors currently already under construction, China's total nuclear power generation capacity is on track to exceed 100GW before the end of the decade, with the region overtaking the US as the largest nuclear power market. Your investment managers have continued to perform well and their report on pages 9 to 12 sets out the investment position more fully.

Share price discount to NAV

The Directors and Manager share concerns expressed by shareholders about the discount to NAV.  The discount has widened significantly since 2022 when the shares were trading at a premium and the Company was issuing new shares.  The Company had expected some narrowing of the discount to NAV following the subscription rights allotments in early May 2024 on the basis that shareholders may have been selling holdings to fund the take up of the subscription rights, however that impact has been surprisingly small.

In response, we have engaged in a program of buy backs to provide liquidity, increase the NAV per share and ideally narrow the discount.  The narrowing is of course not guaranteed as the provision of liquidity can of course create new sellers.  This is a difficult balance but one we are actively monitoring.  We are in a good position to do this as the cash raised from the subscription rights issue provides the capital required without the need to trim positions.

Our trust, though small, has demonstrated significant growth, with shareholder funds rising from £8.6 million and a net asset value of 10.18p on 31 March 2020 to £90.37 million and a net asset value of 70.74p on 31 March 2024. During this period, we have been vigilant in keeping costs low, exemplified by reducing the size of the board and leveraging the manager's broader relationships.

Despite being an actively managed trust with higher costs than a passive exposure to the Uranium sector, our Manager's market and stock-specific expertise has added substantial value over physical ETFs or broader indices. Our trust's unique and high-conviction positioning differentiates us from such products.

The Board firmly believes in the Manager's team world class skills in this niche sector as evidenced by the recent full uptake of subscription rights by the directors.  It should be noted that the key staff at the manager have also been building their positions in the Company

Despite the tremendous growth in NAV we have seen over the last four years we remain a small trust and we would like to raise capital.  This was the reason we introduced the Subscription Rights process in 2021. Then and now it remains very difficult for  smaller trusts to raise capital and the Subscription Rights have provided a valuable mechanism to do this.  As the Company grows the Board will continue to review whether it makes sense to continue with the Subscription Rights.

The widening of discounts across the Investment Trust sector have created significant dislocations in valuation.  Market participants seem slow to recognise the incredible value opportunity that has been created.  While new players are exploiting these opportunities at the larger, more liquid end of the market, it's only a matter of time before capital flows to narrow the gaps in smaller trusts, though this process requires new capital. Encouraging capital to flows into investment trusts is hard and it seems to the Board that there really is structural inertia in the market.  The difficulties asset managers find when investing in niche sectors and the negative impact of passive investment, which is often just driven by momentum, are part of the reason for the lack of investor responsiveness to under-valuation opportunities.  We are very fortunate to have a broad retail base which is helpful to a small trust and creates relatively good liquidity.

We are committed to positively impacting our Company's fortunes. The Board and the Manager are actively working with brokers and PR agents, continually exploring ways to grow the company and add value for our shareholders. This process is ongoing, and we are dedicated to leveraging every opportunity to enhance shareholder value.

Subscription Rights and Share Buybacks

The Company has announced the results of the 2024 Subscription Rights Exercise. There is a cap of Euro 8 million on the total value the Company can raise from the exercise. There was a scaling back exercise done on the basis that all shareholders are scaled back pro-rata to their Subscription Rights, whether or not they have sought to exercise such Subscription Rights. The scaling back factor means that all shareholders received 70.96% of their entitlement.

On 7 May 2024, 12,314,071 new shares were issued at a price of 37.74p each as a result of applications received from shareholders. On 9 May 2024 a further 5,816,025 new shares were placed into the market at a price of 51.0p per share - of that amount 37.74p per share was credited to Geiger Counter Limited with the difference of approximately 13p per share (on the scaled back calculation) being credited to those shareholders who did not take up their subscription rights. The Company has also announced the fourth Subscription Rights Price of 74.58 pence on 1 May 2024. The exercise date for the fourth Subscription Right is expected to be 30 April 2025.

During the six months under review the Board has utilised its share buyback powers to repurchase 6,790,543 ordinary shares at a cost of £3.6 million.  Since the end of March the Company has continued to utilise the share buyback authority and has repurchased a further 4,679,000 shares at a cost of £2.4 million.    

Outlook

This is a very interesting, very specialist investment at a time of great change in the energy sector driven by geopolitics and the need to decarbonise.  At the heart of the opportunity are favourable supply and demand characteristics and the lack of sensitivity to the uranium price on the cost of nuclear energy generated.  The Company is almost uniquely placed to exploit these unique conditions because of the skill of Manager's team and we urge patience as in the end value will out.

Ian Reeves CBE

Chairman

June 2024

INVESTMENT ADVISER'S REPORT - FOR THE PERIOD ENDED 31 MARCH 2024

Performance

Over the half-year the U₃O₈ spot price rose from $73.1/lb to over $107/lb before consolidating to end the period at $86.25/lb, a rise of over 17%. Behind this a number of positive market drivers are falling into place: first, the market received significant support from the December COP28 UN climate conference at which there was unanimous recognition of the core role nuclear power can play in delivering clean energy with a long-term target set to triple nuclear generating capacity by 2050 alongside reactor life extensions; second, the market anticipated a US ban on the importation of Russian fuel, a development which was officially voted into law at the end of April this year; and finally, supply remains tight as illustrated by the substantially lowered production guidance from Kazakhstan, the largest global producer of U₃O₈. Against this backdrop the outlook for the sector remains extremely favourable and with a focus on low-cost assets located in western friendly markets, the Fund is well placed to benefit from greater appreciation of the industry's strong secular growth prospects.

Equities failed to keep pace with the improved uranium pricing. The Fund NAV gained 9.4% over the half year to end-March, in-line with the sterling return of the Solactive Pure Play Uranium Index.

Market developments underpin strong secular growth potential

Symbolic of its ever more influential role in electricity generation, nuclear power received widespread endorsement from the COP 28 conference with an international agreement to triple installed generating capacity by 2050. This backing boosted uranium price momentum into the calendar year-end. The passing of a US House vote to restrict the importation of Russian-sourced material saw the bill progress through to the Senate for consideration which was legally formalised at the end of April this year. Coinciding with a downgrading of Kazakh production guidance, discussed in more detail below, this added further impetus to fuel prices which briefly rose above $106/lb in early February.

Meanwhile favourable policy is being enacted in the US, Japan, France, Sweden and South Korea, among others, to further extend existing reactor lives and expand generating capacity. In the US the most recent White House review of its nuclear power industry, published in May this year, highlights proposals to restart some of the 12 mothballed merchant reactors, offering funding and tax credits allowing them to effectively compete against subsidised and preferentially treated renewables. Also indicative of the improved perceptions, the state of Illinois removed its moratorium on new large-scale reactor builds and has already passed legislation allowing construction of Small Modular Reactors (SMRs) of up to 300MW from 2026, a move which could be emulated by other states. Meanwhile, in Japan, authorities approved a 20-year life extension for the two operational reactors at Sendai and also added uranium to its critical minerals list, making investments eligible for government-backed funding.

In Asia, China nuclear roll out continues apace. With 15 reactors currently already under construction, China's total nuclear power generation capacity is on track to exceed 100GW before the end of the decade, with the region overtaking the US as the largest nuclear power market. Latterly China National Nuclear Power Corporation provided 2024 targets indicating a +52% year-on-year increase in investment. In India, the Atomic Energy Commission announced plans to expand nuclear output to 100GW by 2047, from around 8GW today. While extremely ambitious, it indicates the potential growth of nuclear power generation in emerging economies.

New supply much needed

Having previously flagged production issues, the Kazakh state uranium producer Kazatomprom reported disappointing production guidance for 2024 and 2025, which saw the spot uranium price rise to $107/lb in the first week of February. Guidance for total production of 21.0-22.5ktU in 2024 (54.6-58.5Mlb U₃O₈, on a 100% basis) was ~14% (equivalent to around 10Mlbs) below its previous output target of provided in August 2022, and approximately 9% below consensus estimates for full year production of ~62.1Mlb. Although the company had recently warned of downside guidance risk due to an ongoing regional shortage of sulphuric acid and construction delays on newly developed deposits, the guidance cut was deeper than anticipated. Given the challenges to the ramp-up in production this year, achieving output allowable under 2025 Subsoil Use Agreement of 30.5-31.5ktU (79.3-81.9Mlb, 100% production), now looks comfortably out of reach.

Subsequently, Cameco maintained its recently lowered production guidance of 18Mlbs each (on a 100% basis) from both Cigar Lake and McArthur River this year. Attributable production is expected to be 22.4Mlbs from these operations with an additional 4.2Mlbs output expected from its 40% Inkai JV in Kazakhstan. The group also announced that it is assessing expansion of McArthur River output to 25Mlbs and, as expected, also flagged the potential to return previous operations such as Rabbit Lake and US ISR projects to production which historically averaged annual output of around 11Mlbs and 5Mlbs respectively. Cameco also provided initial details for extension of the Cigar mine life to 2031 from 2026 previously, adding 73Mlbs of resource to reserve.

Elsewhere, much needed downstream investment is taking place in the nuclear fuel supply chain with the prospect of further expansion helping address future bottlenecks. Of note, Honeywell indicated that its US-based Metropolis conversion facility would reach its expanded output target by the year-end and that its UF₆ output was sold out until 2029. Similarly, Cameco's production appears to have been contracted: sales agreements for approximately 27Mlbs pa from 2024-2028 inclusive are comparable to levels of attributable production over the period implying production is largely spoken for over the next 5 years. The graph below shows the expected supply gap.

Demand/buying

Latest data from industry consultant UxC showed that U₃O₈ buying exceeded 200Mlbs during 2023 calendar year. Of this some 180Mlbs is believed to have been acquired by utilities, the balance by physically backed funds and other intermediaries, representing the first time in a decade that utility purchasing has exceeded annual requirements of approximately 170Mlbs. Within this, longer-term contracting also reached a decade high of over 150Mlbs, indicative of the increased necessity to secure future needs given heightened supply-side risks in light of the recent Niger coup, US ban on Russia fuel imports as well as the notable production issues limiting Kazakh output. Mirroring market projections Kazatomprom, with its Q1 results, flagged expectations for a 21Mlbs supply deficit which could grow to a 147Mlbs deficit by 2040.

Importantly, in the tightened environment the balance of pricing power has firmly moved from utility buyer to seller and in such an environment unhedged producers are much better positioned to benefit. In this context it is also worth reiterating that Cameco, having signed significant forward contracts, appears to have crimped its sensitivity to price changes: at a U₃O₈ price of US$100/lb (or higher), Cameco will realise a price of ~US$58/lb in 2024 increasing to ~$72/lb in 2028.

In addition, it is also noteworthy that utilities opted to "upflex" U₃O₈ purchase volumes with the likes of Cameco, reflecting the strong recent price momentum and the shift in pricing power in favour of sellers.

Further, coming on the back of the recent minor downgrades to its production and difficulties in taking delivery of material from its Inkai JV in Kazakhstan, Cameco flagged that it had to acquire ~2Mlbs on market, contributing to the recent U₃O₈ price spike. This remains an important consideration limiting the Fund's exposure to Cameco. The graph below shows the expected demand from utilities that is uncovered.

Positive outlook and portfolio positioning

Reflected by the near 10% discount to NAV at which physically backed uranium funds currently trade, stock performance since February's uranium price high has been muted despite news flow becoming increasingly more positive.

Trading at a near 25% discount to NAV it is difficult to look past the deep value offered by investment in the Fund which is well placed to benefit from improving market conditions with a focus on western assets, with the heavy weighting to Canada's Athabasca basin that hosts the best geology globally in a politically secure environment.

With Cameco production largely contracted for the next 5 years utilities will increasingly need to secure uranium from restarting operations such as Paladin's  Langer Heinrich mine in Namibia and assets owned by UR-Energy, UEC and Peninsula in the US. Further out development of greenfield assets such as Nexgen's strategic Rook I project and the neighbouring Patterson Lake, owned by Fission Uranium together with Wheeler River/Gryphon owned by Denison will be even more important in delivering larger quantities of material.

At the time of writing exposure to restarts such as those mentioned represents around a third of Fund AuM while exposure to greenfield developments, focussed around Nexgen in the Western Athabasca along with Denison in on the East side of the basin is similarly sized. By virtue of more risky asset location or limited price sensitivity, exposure to producers and physical material stands at around 18% of AuM at the time of writing. Elsewhere, in May 2024, the Company participated in an equity raise in the unquoted position, High Power Exploration ("HPX"), for an amount of US$1.7 million to support its ongoing development of opereations at the Nimba iron ore mine in Guinea.

Though Fund performance has latterly been weighed down by Nexgen's poorly received issue of a $250m convertible in exchange for 2.7Mlbs U₃O₈, we believe the group remains pre-eminently placed in the uranium sector.

The purchase of such a quantity of material may considerably improve the group's position in well advanced project funding negotiations and sales discussions with utilities. With the convertible resulting in only a modest 4% increase in the number of shares in issue and the enhanced flexibility afforded by the transaction appears to have been overly penalised and we believe the strategic value of this asset will move back into the spotlight as economies take action to address long-term energy security.

Elsewhere, removal of the state moratorium on development of new large scale nuclear reactors by Illinois not only derisks the outlook for sustained fuel demand from the region but may portend similar moves to relax restrictions on the development of new mines in regions such Virginia in the US, which could also unlock value in assets such as Coles Hill, one of the largest unmined uranium assets in the US which was recently acquired by Iso Energy. Exposure to assets such as this along with other proven exploration management teams represents the balance of the Fund's investments.

Keith Watson and Robert Crayfourd

New City Investment Managers

June 2024

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