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2017-06-13 17:22 CEST
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Geiger Counter Ltd : Interim Report and Financial Statements 31 March 2017


Date of Announcement: 13/06/2017


The Directors announce the release of the Interim Report and Financial Statements for the Six Months to 31 March 2017.


During the first few months of the six month period under review there was a sharp rise in the underlying spot price of uranium as the prospect of a production cut in mining from Kazakhstan gave investors hope that uranium mining may become profitable once more. Uranium equities rallied strongly on the back of this news and by mid-February 2017 your Company's NAV had risen some 70 per cent since the start of October 2016. Unfortunately doubts about the continuation of production cuts and sluggish attempts by Japan to restart their nuclear plants put paid to the bullishness of the market and prices fell back towards the end of March.

Despite the sell-off the Company's net asset value rose by 28.4 per cent over the six months with good returns seen from stocks such as NexGen. The Company's share price rose by 44.7 per cent over the six months and as a result the discount contracted to 11.7 per cent at the end of March.

I would like to thank Shareholders for continuing to support the Company and for ensuring that the annual Continuation Vote was passed at the Annual General Meeting in March. Although there has been a fall back recently the sharp rise in share prices and asset values earlier this year reinforces the Board's view that this unique sector is still severely undervalued.

The Board of Geiger  Counter Limited have recently announced that it is reviewing, with its advisers, a potential bonus issue of subscription shares to existing shareholders on the basis of one subscription share for every two existing ordinary shares held on the record date for the bonus issue. We expect to issue a Circular in the near future with full details of this proposal.

George Baird
June 2017


The most significant event to influence the sector during the interim period was the announcement by the Kazakh state-owned uranium mining company, Kazatomprom, in mid-January that it would cut national production by 10% during the calendar year 2017 and that it is willing to make further cuts if necessary to rebalance the market. By implication, nearly all mine production is currently uneconomic. We believe this telling shift to a more commercially minded strategy by the lowest cost and largest global uranium producer, that has a market share of approximately 40%, represents a fundamental turning point that will allow the oversupplied market to rebalance. This move by the market's dominant producer outweighs the prior curtailment already undertaken by commercial western mine operators.

Over the interim period the spot uranium price rose 7% in sterling terms, though behind this improvement there was considerable volatility. Prices initially declined around 20% into December, arguably prompting Kazakhstan's decision to cut output which drove a strong 50% rally to US$26.75/lb by mid-February. Prices subsequently retreated to US$23.25/lb by end-March. NAV performance mirrored this trend. Again helped by the significant weighting to Western Athabasca explorers, notably NexGen, the Fund NAV increased 42.9% over the half-year. This compares to sterling returns of around 31% for both the Solactive Uranium Index and URA equity ETF.

Kazatomprom's strategy is particularly important given the sluggish pace of Japanese reactor restarts since the Fukushima accident in 2011. Latterly, however, news from Japan has been more encouraging with more facilities being approved for reactivation, suggesting restart momentum is improving. An attempt by TEPCO's to extract itself from costly legacy purchase agreements with Canada's largest uranium producer, Cameco, may place greater financial burden on the Japanese government to provide additional funding assistance to foot the potential US$1bn bill should it fail. In-so-doing this may spur further central government efforts to switch reactors back on. Cameco will further curb annual mine output in response to TEPCO's move.

While efforts by TEPCO, which owns the Fukushima facilities, highlight its specific need to reduce its uranium inventory, the broader contracting cycle for the nuclear power industry worldwide will need to accelerate. Currently long-term contracted volumes are around 75% below the levels at the height of the 2005 bull market. As illustrated by the supply curtailment and retrenchment of commercial mine operators over the last two years, high priced legacy contracts signed in the previous bull market are beginning to roll-off but will need to be replaced. A similar situation also exists for enrichment market and an increase in facility utilisation will also act to reduce oversupply.

There still appear to be doubts as to whether Kazakhstan will maintain the cuts beyond the end of this year as illustrated by expectations of market consultant UxC which forecasts only partial supply cuts during the next two years. As a result initial enthusiasm following the Kazakh announcement has dissipated and much of the immediate uranium price improvement has unwound. However, following discussions with consultants that have helped Kazatomprom adopt more commercial practices we believe the region is open to making deeper and longer lasting cuts in order to rebalance the market. In addition we believe a proportion of the region's uranium output may be retained to use as trading inventory, potentially removing immediately available material from the market and providing some relief to spot pricing.

Latterly the LNG market has become increasingly competitive as US shale output rises. Falling LNG prices in Asia may also have weighed on uranium sentiment and spot prices though importantly long-term U3O8 contract prices have remained little changed at US$31/lb and continue to trade at a significant premium to the spot price with a premium provided for longer-term security of supply. Japanese LNG buyers are believed to be pushing hard for lower prices but also shorter, more flexible contracts which may also reflect a requirement for flexibility should momentum on the country's nuclear restart programme improve as recent news suggests. Crucially, Japanese and US installed nuclear power generating costs, as elsewhere, remain competitive with gas power generation at current commodity prices.

China's focus on air quality remains a key long-term driver for uranium demand, as a meaningful source of zero carbon base load power. China's initial focus on closing inefficient coal power stations and metal smelters to reduce chronic air pollution emissions is likely to be a multi decade theme extended by an emerging middle class seeking to improve health and quality of life. Given the population's sensitivity to this issue political impetus to the industry's expansion is likely to remain high. Importantly, in addition to the political motivation to develop nuclear generating capacity China's replicable reactor design is providing significant cost benefits allowing power generation operate at a lower all-in cost per KWh than a comparable coal power station fitted with scrubbers and flue gas desulphurisation to reduce emissions. This is will provide an important competitive foundation for China's future domestic and international expansion plans.

China currently has 36 operating reactors, 21 in construction and more expected to start construction shortly and remains the primary growth driver for nuclear power. China expects to generate 58GWe by 2020-21 and 150GWe by 2030, with 6-8 reactors being approved each year. These are predominantly going to incorporate latest Generation III technology that have longer lives and improved security features relative to previous reactor models that make up the majority of the current global reactor fleet. In addition, China is seeking to establish international export credentials for its capability. As example, China National Nuclear Corporation has now signed contracts to build reactors in Pakistan and Argentina, whilst utility China General Nuclear is working with EDF to progress development of Hinkley Point in the UK. The two main western constructors, Areva and Westinghouse, are currently mired in debt which is stymying their ability to sign new reactor construction contracts. The success of these reactor build outs will provide a stage to showcase the ability of CNNC and CGN to export reactors globally in the future.

Robert Crayfourd and Keith Watson
New City Investment Managers
June 2017

For further information please contact:

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

Lisa Neil - R&H Fund Services (Jersey) Limited - 01534 825 336