Geiger Counter capitalises on booming uranium market

Clean Energy Stocks had a torrid 2023 and haven’t yet recovered this year. Although the theme of ‘energy transition’ is something that is quite embedded in policy-makers minds, the macroeconomic conditions of the past few years have conspired to create a perfect storm for green energy stocks.

Higher borrowing rates, an effect of central banks trying to get a handle on inflation have affected renewable energy projects as many new installations are very reliant on debt capital and capitally intensive up front. Inflation itself has affected developers, who are having to pay more for a still very finite pool of labour and for parts and materials to go into their equipment.

Moreover, in the quest to go sustainable, parts of the industry are being hit by oversupply – especially solar – which is driving down solar prices and while policy-makers are writing up new legislation, that legislation is taking time to pass though government, which has meant that there is something of a bottleneck in new funds, tariffs and orders being fulfilled, starving developers of cash at a time when other factors are putting pressure on their balance sheet.

• IPO Radar: ServiceTitan, Shein, Greatland Gold
• Baker Steel Resources: Veteran team bets on early-stage miners
• Crypto exchange launches app for retail Uranium trading

The transition story isn’t a straight line, and there will be bumps and pitfalls along the way. However, for straight green stocks, the prognosis isn’t looking great for the rest of the year. Nevertheless, the world’s insatiable desire for energy remains unabated, and in many ways is gathering pace. With a large part of the world’s coal fleet decommissioned in the last decade (especially in Europe and North America), but renewable capacity, especially its mass-storage component not yet in a position to replace the deficit at the baseline, an energy gap has arisen between what is being generated and what is demanded.

With Russia and its vast natural gas reserves effectively cut out of the energy market and oil and gas-based power stations facing similar lag time and financing issues to new renewable installations, there is a need for a baseline energy supply that can bridge the gap between ‘old energy’ and significant capacity coming online from ‘new energy’.

Rise of Uranium

This dichotomy has seen a surge in interest in nuclear, and as a result the uranium price has been steadily ticking-up over the past 18-months climbing from a spot price of around USD40 a pound (lb) a year-and-a-half ago, to over USD90/lb. In February uranium was just shy of USD110/lb, the highest it has been since November 2007, when it was climbing down from its record price of USD142.74/lb in June 2007.

Uranium isn’t the most common of minerals, and is found in some fairly remote and inaccessible regions. The world’s largest producer is Kazakhstan, with Kazatomprom the world’s largest producer of raw uranium which The Armchair Trader covered recently when we wrote about uranium trading house, Yellow Cake LON:YCA.

Other national producers are Canada, Namibia, Australia and Uzbekistan. Russia’s Uranium One was a significant uranium producer, but subsequent to the War in Ukraine, was removed from the global supply chain.

Unlike, for example, the gold mining subsector of mining, there is not a plethora of small companies. Kazatomprom alone accounts for nearly a quarter of global supply, with Cameco [NYSE:CCJ] not that far behind, and the other big firms dominated by state-owned corporations, that have smallish public offerings. In the UK, you are fairly limited if you want direct access to the uranium market, with the aforementioned AIM-listed Yellow Cake and fellow AIM-lister, Thor Energy LON:THR being two options. Beyond that you’re in ETF territory.

However one canny uranium play is Geiger Counter [LON:GCL] the GBP115m AUM uranium-focussed investment trust, which has been performing exceptionally well in the Association of Investment Companies’ Commodities & Natural Resources Sector over the past five years.

Run by Keith Watson and Robert Crayfourd of London-based New City Investment Managers, Geiger Counter has been in business since 2006. The fund aims to provide investors with the potential for capital growth through investment primarily in the securities of companies involved in the exploration, development and production of energy, predominantly within the uranium industry. The fund has some flexibility as up to 30% of the value of the company’s investment portfolio may be invested in other resources related companies from outside the energy sector.

Absolute Return Fund

Geiger Counter – being a uranium specialist – doesn’t have a set benchmark or try and correlate with an index. Instead, the fund is managed on an absolute return basis, with Watson and Crayfourd picking stocks that they believe will perform strongly over the longer term and has a global mandate.

Their picks haven’t been bad. Over the last year (to 10th May 2024), Geiger Counter returned +45% (on a share price total return basis), which compared favourably to the AIC Commodities & Natural Resources Sector average of +14.6%. Over five-years Geiger Counter was top dog in sector, with a +193% return versus a sector average of +69.95. Over the last decade Geiger Counter returned +107%.

Although the managers consider that uranium as a commodity will benefit from the longer-term themes such as the Energy Transition story, they are selective in the asset class, trying on a ‘value investing’ basis to identify individual companies that are undervalued by the market, and reduce their exposure to those that are overvalued, which explains why they have historically been underweight Kazatomprom.

Not just equities for Geiger Counter

Although the fund is global in outlook, traditionally the managers have been biased towards North America and Australasia, and although the bulk of the fund is in listed equities, the mangers will also buy a chunk of a target company’s warrants, convertibles and debt, if that allows them to have exposure to that firm (which in a sector dominated by state-owned or state-administered entities is often the best way to gain exposure to the company).

The investment trust is running at a 23% discount to premium and has gearing of 16%. The Jersey-domiciled, closed-ended investment company is feeling pretty bullish about the market. Watson said in a letter to the trust’s shareholders: “[In North America]…the industry appears to benefit from bipartisan political support, helpful state and federal policies, and increased customer demand for reliable and clean energy. We believe this provides confidence to underpin the industry’s growth via existing reactor life extensions and incremental reactor development. Encouragingly, European producer Urenco also announced it had commenced construction work as part of its previously announced enrichment supply expansion plans.”

Geiger Counter top five holdings

The fund’s top-five holdings represent 63.6% of the total portfolio.

Nuclear is still the elephant in the room, but until the renewable sector deals with its current issues and starts delivering baseload power, the world is going to be looking for alternative energy sources. Although nuclear isn’t perfect, it can act as a medium-term bridge and then a complementary technology source to the world’s growing energy requirements.

Geiger Counter has the credentials as a top performer in sector, in fact across the whole AIC All-Funds Universe, Geiger Counter is the third-best performer over five-years and could be at the top of the charts for some time to come if the uranium price maintains its strength.