Geiger Counter offers different way to play uranium

Richard Lockwood had no problem hearing the buzz around uranium, but when he looked out to see different ways to invest in it, the pickings were slim.

“We just manifested what other people were thinking,” Lockwood says about the first uranium-only fund which he co-manages from New City Investment Manager‘s offices in London.

Lockwood, along with Andrew Ferguson, manages Geiger Counter (CGL-L), a fund specialized in uranium companies that is listed on the London Stock Exchange and is currently trading at 56 pence.

“The rationale behind setting this up was to carve out a niche in the market by buying emerging companies a year or so away from production,” he says.

Lockwood concedes that the fund is still smallish managing roughly $32 million but he says the aim is to feel out investor reaction, and hopefully bring the fund up to over $100 million within six months.

One thing that bodes well for his optimism is the gradual thawing of the social and political stigmas that have been attached to uranium and nuclear energy.

“Until Blair spoke on it,” Lockwood says referring to British Prime Minister Tony Blair’s endorsement in May of this year of new nuclear reactors, “you were almost a social pariah to speak on the subject.”

Even without Blair’s backing, nuclear dissenters in England only had to look across the channel to France, Lockwood says, where almost 80% of its energy is coming from reactors without incident. The tide, he says, was bound to change as people came see that no other base-load producing method could offer the zero emissions that nuclear power does.

But Lockwood’s interest in establishing the fund had less to do with breaking social stigmas and more to do with recognizing opportunity. He credits the dramatic turnaround of the company that controls almost all of England’s nuclear power, British Energy (BGY-L), as a big impetus for the idea to establish the fund.

After a complete collapse British Energy rebounded to become a member of the FTSE 100 — the London Stock Exchange’s top 100 list. Lockwood says such strong market support showed him the investment upside of uranium. It was a realization that sent him on a research path well beyond Old Blighty.

“The more we looked into it the more we began to realize how much is being done with nuclear energy around the world,” Lockwood says of his and Ferguson’s research — Lockwood has been in the resource investment game since 1969, Ferguson is a mining engineer with considerable resource investment experience.

Beyond France, Lockwood points to both China and India — who have stated nuclear energy will be a big part of their respective energy strategies going forward — as being key drivers behind strong uranium demand in the near future.

Such increases in demand have many experts predicting further constraints on supply going forward. Already it is estimated that 180 million tonnes of uranium is consumed per year, while only 90 million tonnes is being produced from mining — the remainder coming largely from decommissioned Soviet nuclear warheads.

So how does Geiger Counter allow investors to participate in favourable supply and demand fundamentals?

Lockwood says it’s the funds ability to allow the investor to participate in uranium across the investment spectrum.

While finding smaller company’s that will go into production is a key component of the fund, Lockwood is also bullish on the big producers and lists French giant Areva and Canadian stalwart Cameco (CCO-T, CCJ-N) as two of the funds largest holdings.

And while the security of having established producers as part of a portfolio is an asset for many investors, the real test of the fund will be its ability to pick through the plethora of juniors to find those that will make it into production.

Consensus safe bets Paladin Resources (PDN-T) and SXR Uranium One (SXR-T) are both very close to production and are blessed with management teams awash in experience and expertise. Geiger Counter holds both of the companies.

As for the next tier down, Lockwood called attention to Australian-based Uranex (UNX-A). The company has two uranium targets within Australia, but the most interest is in its 26,000 sq km exploration property in Tanzania. China National Nuclear is in discussions with the company with regards to securing long term uranium supplies from the site. Uranex shares are trading in the 50 range.

And lest investors be wary of a fund that doesn’t offer direct exposure to uranium prices, Geiger Counter’s largest single holding is in Nufcor Uranium (NU-L). Nufcor operates like an exchange traded fund in that it takes large holdings of uranium so that investors can participate should the commodities price continue to surge.

But with the recent rush into uranium the amount of IPO’s for uranium juniors in Canada and Australia has been nothing short of staggering and prices have already gained 35% since January and are currently at US$48.50 per lb. — is there really much more room for growth?

Lockwood clearly thinks there is. While he concedes that the current supply crunch can’t go on forever, he says the lag between supply catching up to demand will be in the five year range.

“I wouldn’t be surprised to see it get up to US$60 a pound by next year,” Lockwood says. “It’s hard to see demand going anywhere but up in the immediate future as we’re seeing a market that isn’t well supplied.”