Geiger Counter. Positive medium-term outlook. Strategy: Diversified global uranium exposure. Outlook: Positive medium-term drivers

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1 Geiger Counter Positive medium-term outlook Investment companies Geiger Counter (GCL) is a specialist fund providing selective diversified exposure to the uranium sector. Apart from a brief recovery at the start of 2014, the uranium sector has been in decline since the Fukushima accident in 2011 after which the uranium price declined steadily due to market oversupply. However, the medium-term outlook appears more positive with production curtailments and forecast growth in nuclear power generation. GCL s NAV total return performance has significantly outperformed the uranium spot price in 2014 and, at the same time, the share price discount has narrowed. The managers are maintaining a relatively defensive positioning but GCL s broad sector exposure should make it well placed to benefit from a potential recovery. 12 months ending Total share price return (%) Total NAV return (%) U3O8 spot price (%) Cameco (%) URAX Index (%) 30/06/ /06/12 (47.8) (51.6) (4.2) (13.1) (31.8) 30/06/13 (33.0) (32.2) (19.2) (1.1) (18.4) 30/06/14 (3.7) (9.6) (36.8) (13.7) (10.2) Note: Twelve-month rolling discrete total return performance. Strategy: Diversified global uranium exposure GCL s investment objective is to generate capital growth through investment primarily in the energy sector. The focus is on maintaining a globally diversified exposure to the uranium industry, although c 10% of the portfolio is invested in other resource-related companies. The managers investment process is primarily based on bottom-up stock selection drawing on industry experience, meetings with management and valuation analysis. This is supported by a top-down overlay considering broader sector trends including political and regulatory developments, currency trends, market liquidity and sentiment. Outlook: Positive medium-term drivers Since the accident at the Fukushima nuclear reactor in March 2011, the uranium sector has been in broad decline and the uranium spot price has declined steadily with the uranium market remaining in surplus. In early 2014, a short-lived recovery was triggered by the publication of Japan s new energy policy, anticipated to be followed by the restart of Japan s 48 nuclear reactors. While sentiment remains negative and there is potential for further near-term weakness in the uranium price, there is a more positive medium-term outlook. Recently announced production curtailments should lead to reduced supply and forecast growth in nuclear power generation capacity over the next years looks set to increase demand. Valuation: Discount narrowed in 2014 Having averaged 18% from 2011 to 2013, GCL s share price discount to NAV narrowed to average 10% in the first half of 2014 demonstrating the effect of modestly positive news. Recently the discount has widened to 21% leaving scope for a significant contraction once positive sentiment returns. 30 July 2014 Price 23.8p Market cap 18.0m AUM 22.5m NAV* 29.9p Discount to NAV 20.6% Yield 0.0% *Adjusted for debt at market value and including income, as at 29 July Ordinary shares in issue 75.6m Code Primary exchange Secondary exchange GCL LSE (SETS QX) Channel Islands SX AIC sector SS: Commodities & Natural Resources Share price/discount performance Share Price Three-year cumulative perf. graph week high/low 33.9p 23.5p NAV* high/low 36.0p 26.9p *Adjusted for debt at market value, excluding income. Gearing Jul/13 Aug/13 Sep/13 Oct/13 Nov/13 Dec/13 Jan/14 Feb/14 Mar/14 Apr/14 May/14 GCL Equity Gross 0.2% Net 0.2% Analysts Gavin Wood +44 (0) Andrew Mitchell +44 (0) investmenttrusts@edisongroup.com Edison profile page Discount Discount (%) Jun/11 Sep/11 Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 Mar/13 Sep/13 Dec/13 Mar/14 GCL Equity U3O8 Spot Price Geiger Counter is a research client of Edison Investment Research Limited

2 Exhibit 1: Company at a glance Investment objective and fund background GCL s investment objective is to deliver attractive returns to shareholders principally in the form of capital growth through investment primarily in the securities of companies involved in the exploration, development and production of energy, predominantly within the uranium industry. Up to 30% of the investment portfolio may be invested in other resource-related companies from outside the energy sector. Recent developments 7 March 2014: Resolution passed at AGM to extend company life by one year to 7 July January 2014: Keith Watson appointed as joint portfolio manager alongside Will Smith. 10 January 2014: Edmond de Rothschild Securities (UK) Limited appointed as corporate broker. Forthcoming Capital structure Fund details AGM March 2015 Ongoing charges 2.96% Group New City Investment Managers Interim results June 2014 Net gearing 0.2% Manager Will Smith & Keith Watson Year end 30 September Annual mgmt fee 1.375% of net assets Address 5th Floor, 33 Chester Street, Dividend paid N/A Performance fee 20% above 8% hurdle London SW1X 7BL Launch date July 2006 Company life Extended to 7 July 2015 Phone +44 (0) Continuation Vote Annual vote Loan facilities See page 7 Website Ongoing charges Share buyback policy and history GCL s management fee was reduced from 2.0% to 1.375% of net assets from GCL s articles permit it to both allot and repurchase its ordinary shares. 1 January Percent Repurchased Allotments Total cost Total proceeds Shareholder base (as at 9 June 2014) Distribution of portfolio by market listing (as at 31 March 2014) No of shares (m) Cost/proceeds ( m) Ruffer (5.4%) Richard Lockwood (4.7%) Miton AM (1.8%) Hawksmoor IM (1.2%) City of London IM (0.4%) Other (86.5%) Canada (54.6%) Australia (26.5%) US (11.3%) Tanzania (1.5%) Zambia (1.2%) Fixed interest (1.9%) Other (3.0%) Top 5 holdings (as at 30 June 2014) Portfolio weight % Company Country Sector 30 June September 2013 Fission Uranium Canada Uranium Denison Mines Canada Uranium Uranium Participation Canada ETF UR-Energy US Uranium Cameco Canada Uranium Top Source: Geiger Counter, Edison Investment Research Geiger Counter 30 July

3 Outlook: Near-term weak, medium-term positive After reaching a peak in February 2011, the uranium (U 3O 8) spot price declined at a fairly steady rate following the accident at the Fukushima nuclear reactor in March This price decline reflects the uranium supply surplus that developed due to the subsequent shutdown of Japan s 54 nuclear reactors (of which six are to be decommissioned) and the limited reaction of uranium producers to the decrease in demand. The majority of uranium trade is conducted through long-term contracts with producers selling direct to utilities and only marginal trading (traditionally less than 20% of supply) occurring in spot markets. Uranium Participation reports that there has been very little spot market trading in 2014 as the majority of demand from utilities has been covered by long-term contracts, and the spot price has fallen below the level considered to be economic for the majority of producers. Market sentiment towards the uranium sector dramatically improved in early 2014, reflected by a 15% rise in the URAX index (comprised of the 10 largest global uranium companies) during February. This was driven by expectations surrounding the publication of Japan s new energy policy following supply curtailment announcements from major global producers and the expiry of the HEU (Highly Enriched Uranium) agreement between Russia and the US in late However, there is no set timetable for the restart of Japan s remaining 48 operational reactors and the World Nuclear Association reports that the process of regulatory clearance for restarting the reactors is expected to take some years. Less encouraging news flow prevailed from April 2014, when the US government Department of Energy published a review of the impact of releasing its excess uranium inventory (representing % of global demand during 2014 to 2023) on commercial markets, which served to highlight the significant level of global inventories. In May 2014, a regional court ruled against the planned restart of two reactors at the Ohi nuclear plant selected as the first Japanese reactors to resume operations. Against the backdrop of an ongoing supply surplus, significant levels of uranium inventories globally and a falling spot price, the market s enthusiasm for uranium equities dissipated rapidly, evidenced by the 24% fall in Cameco s share price over two months from early April. Exhibit 2: World uranium supply and demand World uranium production World nuclear power reactors expected to be operating by Production (kt) Kazakhstan Canada Australia Niger Namibia Uzbekistan Russia USA China Other No. of reactors USA France Japan Russia S. Korea India China Canada UK Ukraine Operable Under construction Planned Proposed Source: World Nuclear Association, Edison Investment Research While uranium market fundamentals appear likely to remain weak in the near term with no major catalysts expected to end the global market oversupply, the medium-term outlook seems more promising. Although contract prices remain higher than the spot price (generally c US$10-20/lb higher historically), they have also been falling, leading to producers curtailing higher-cost operations and reducing global supply. While none of Japan s nuclear reactors are currently in operation, it seems likely that there will be a steady progression of restarts over the next few years and this will combine with scheduled new reactor starts in other countries leading to a sustained rise in global demand. In the near term, there appears to be potential for an improvement in market sentiment arising from increased trading in the spot market, which would be expected to lift prices, as utilities seek to meet their requirements that are not covered by long-term contracts. Geiger Counter 30 July

4 Fund profile: Diversified global uranium exposure GCL is a closed-ended investment company incorporated in Jersey in June 2006 and listed on the Channel Islands Stock Exchange on 7 July The shares also trade on the London Stock Exchange SETS QX trading service. GCL was launched with a five-year life, which is now subject to extension by annual continuation vote and currently runs to 7 July GCL s investment objective is to deliver attractive returns to shareholders principally in the form of capital growth through investment primarily in companies involved in the exploration, development and production of energy and related service companies. The main focus is on companies within the uranium industry but up to 30% of the investment portfolio may be invested in other resource-related companies. There is no formal benchmark but the managers have traditionally compared performance with the uranium spot price and Cameco (a leading global uranium producer). GCL has been managed since launch by natural resources specialist New City Investment Managers (NCIM), owned by CQS, a global multi-strategy asset manager with US$13bn under management. Will Smith was appointed portfolio manager in May 2013, having supported the previous manager since 2008, and Keith Watson was appointed joint portfolio manager in January The fund managers: Will Smith and Keith Watson The managers view: Favouring low-cost producers Despite remaining optimistic over the outlook for improving uranium supply demand fundamentals in the medium term, Keith Watson considers it appropriate to maintain a relatively defensive positioning in the near term, focusing on larger companies producing from low-cost operations. While sector valuations have fallen from the levels reached in early 2014 alongside the declining uranium spot price, he expects uranium price weakness to continue in the near term, weighing on the share prices of higher-cost producers and exploration companies. He has a preference for exposure to in-situ recovery (ISR) producers that operate at the lower end of the industry cost curve. Among ISR producers, he favours those based in the US with multi-year forward contracts with pricing terms appreciably higher than current spot prices enabling them to maintain positive cash generation, such as UR-Energy and Uranerz Energy. UR-Energy increased from 2.3% of the portfolio at 30 September 2013 to 8.4% at 30 June 2014 and is one of the top five holdings. Uranerz Energy increased from 1.9% of the portfolio at 30 September 2013 to 4.9% at 31 March 2014 (holding not disclosed at 30 June 2014). Current uranium spot prices are considered to reflect a lack of trading activity as much as weak supply/demand fundamentals, and declining spot prices have removed any urgency for consumers to sign new purchase contracts. This market dynamic would suggest that any sustained tightening of uranium spot prices could lead to a significant increase in contract activity, which would be likely to lift spot prices further as producers gain a stronger negotiating position. The managers see this scenario as potentially translating into renewed investor interest in the sector with an associated uplift to valuations. Despite being relatively defensively positioned, the managers still see significant upside to the portfolio if there is a turnaround in market sentiment and the sector were to benefit from a re-rating. The managers acknowledge that uranium market fundamentals are currently weak and unlikely to see any significant improvement until the restart of Japan s reactors gets underway with an associated increase in demand. However, they believe that potential further near-term uranium spot price weakness could lead to higher-cost producers making further production cuts, thus improving the supply/demand outlook and raising prospects for a quicker recovery in prices once demand levels start to rise appreciably. In the longer term, the managers also consider that the introduction of more stringent carbon emission controls in China, targeted at reducing chronic air pollution, Geiger Counter 30 July

5 should underpin its nuclear expansion plans, which remain a key element of expectations for increasing global demand over the next years. Asset allocation Investment process: Bottom-up with top-down overlay GCL s investment process is primarily based on bottom-up stock selection supported by a top-down overlay. An assessment of the macroeconomic environment through fundamental research and interaction with CQS trading teams identifies broader themes that are taken into consideration in the stock selection process, including geopolitical concerns, currency trends, market liquidity and sentiment. Stock selection is performed by NCIM s experienced investment team with extensive industry knowledge and is based on management meetings and detailed valuation analysis. A range of valuation metrics are considered to identify undervalued assets and valuations are stresstested at a range of commodity price forecasts. Current portfolio positioning GCL s portfolio is relatively concentrated with exposure to 56 companies as at 30 June 2014 and the top five holdings represented 46% of the portfolio. However, portfolio concentration is lower than at 30 June 2013 when the portfolio comprised 47 holdings and the top five investments constituted 51% of the portfolio. However, there has been an underlying natural concentration of the portfolio over the past 12 months due to M&A activity involving portfolio companies, as illustrated by Denison Mines acquisition of Rockgate Capital in January 2014 and Fission Uranium s merger with Alpha Minerals in December The managers expect this consolidation trend in the uranium sector to continue, leading to a natural reduction in the number of portfolio holdings over time. As illustrated in Exhibit 3, GCL s geographic exposure, in terms of the location of underlying assets in the portfolio, is focused on Canada, Australia and the US, and the portfolio exposure to these three regions has increased from 78% at 30 September 2013 to 90% at 31 March Exhibit 3: Distribution of underlying portfolio assets by location As at 31 March 2014 As at 30 September 2013 Canada (52.9%) Australia (25.7%) US (11.4%) UK (3.2%) Global (1.9%) Tanzania (1.5%) Other (3.3%) Canada (39.3%) Australia (19.6%) US (18.6%) UK (7.3%) Kazakhstan (3.6%) Mali (2.8%) Global (2.3%) Chile (1.9%) Other (4.7%) Source: Geiger Counter, Edison Investment Research The manager reports that the portfolio currently has relatively balanced exposure to producing and exploration companies, excluding the holding in Uranium Participation ETF (which invests in uranium concentrates), with producers representing around 45% of the portfolio. GCL held one fixed income investment in the portfolio, a convertible loan note in Rose Petroleum, which was converted into shares in June 2014 and the shares were subsequently sold. The unlisted loan note was valued at 0.5m, representing c 2% of the portfolio, while the market value of GCL s shareholding on conversion was 0.9m, representing c 4% of the portfolio. Uranium represents c 90% of the portfolio exposure and GCL has c 2.5% exposure to gold-related equities, principally Gold Road Resources, and minor exposure to other commodities. Geiger Counter 30 July

6 Performance: Outperformance over 12 months GCL has outperformed the uranium spot price in terms of price and NAV total return over one year, while underperforming over three years and since launch. As illustrated in Exhibit 4, GCL performed broadly in line with the uranium price during 2013 and started to outperform in early January 2014 as the sector rallied while the uranium price drifted sideways. In March 2014, GCL s performance turned down as market sentiment towards the uranium sector reversed and the uranium spot price fell. However, while GCL s performance was negative from March 2014 to June 2014 similar to the uranium price, the outperformance from January and February 2014 was retained. As highlighted in Exhibit 5, GCL has returned a similar NAV total return performance to both Cameco and the URAX Index over one year and since launch in July 2006, although it underperformed over three and five years. Exhibit 6 illustrates GCL s substantial outperformance of the uranium price, Cameco and the URAX index from mid-2009 through to 2011, although this outperformance has reversed over the last three years. Exhibit 4: Investment trust performance to 30 June 2014 Price, NAV and benchmark total return performance, one year rebased Price, NAV and benchmark total return performance (%) m 3 m 6 m 1 y 3 y 5 y SI Jul/13 Aug/13 Sep/13 Oct/13 Nov/13 Dec/13 Jan/14 Feb/14 Mar/14 Apr/14 May/14 GCL Equity GCL NAV U3O8 Spot Price Source: Geiger Counter, Thomson Datastream, Edison Investment Research. Note: Since Inception (SI) represents the period since 7 July Three, five-year and SI performance figures annualised. Exhibit 5: Share price and NAV total return performance, versus benchmarks (percentage points) One month Three months Six months One year Three years Five years Since launch Price relative to U3O8 spot price (15.2) (3.3) (16.0) NAV relative to U3O8 spot price (2.4) (19.2) 1.8 (10.8) Price relative to Cameco (40.5) (32.6) (7.0) NAV relative to Cameco (1.3) 0.9 (1.5) 4.2 (44.5) (27.5) (1.8) Price relative to URAX Index 5.0 (4.4) (16.4) (24.6) (11.0) NAV relative to URAX Index 1.1 (4.2) (20.3) (19.5) (5.9) Source: Geiger Counter, Thomson Datastream, Bloomberg, Edison Investment Research. Note: Data to end-june 2014 and benchmarks adjusted. Exhibit 6: GCL NAV total return versus benchmarks, over five years rebased Performance GCL Equity GCL NAV U3O8 Spot Price Jun/09 Aug/09 Oct/09 Dec/09 Feb/10 Apr/10 Jun/10 Aug/10 Oct/10 Dec/10 Feb/11 Apr/11 Jun/11 Aug/11 Oct/11 Dec/11 Feb/12 Apr/12 Jun/12 Aug/12 Oct/12 Dec/12 Feb/13 Apr/13 Aug/13 Oct/13 Dec/13 Feb/14 Apr/14 GCL NAV / U3O8 spot price GCL NAV / Cameco GCL NAV / URAX index Source: Geiger Counter, Thomson Datastream, Bloomberg, Edison Investment Research Geiger Counter 30 July

7 Discount: Narrowed during 2014 Exhibit 7 illustrates that, while GCL s share price discount to NAV traded in a broad 7% to 29% range from May 2011 to December 2013, during which time it averaged 18%, it narrowed markedly at the start of the year and averaged 10% in the first half of The discount has widened in July and currently stands at 21%, providing scope for it to narrow when sentiment towards the sector improves, as happened in early The current discount is significantly below the peak levels of the last three years, possibly reflecting a more balanced view of risks and rewards in the industry. Exhibit 7: Discount over three years Jun/11 Oct/11 Feb/12 Jun/12 Oct/12 Feb/13 Oct/13 Feb/14 Source: Thomson Datastream, Edison Investment Research. Note: Positive values indicate a discount. Capital structure and fees GCL has 75.6m ordinary shares in issue with no shares issued since February 2011 when 12.1m were issued on the exercise of all outstanding subscription shares. Although GCL is permitted to repurchase its shares, there have been no repurchases made since launch. GCL has an overdraft facility with Credit Suisse on which interest is payable at LIBOR plus 1.75%. There is no formal limit on gearing, although the board sets borrowing limits to ensure gearing levels are appropriate to market conditions and bank borrowings are not expected to exceed 35% of net assets. GCL had no gearing from August 2013 to January 2014 and, after having increased gradually from February 2014 to c 6% in May 2014, gearing has been reduced almost to zero at 30 June NCIM receives an annual management fee at the rate of 1.375% of gross assets (reduced from 2.0% on 1 January 2014). In addition, NCIM is entitled to a performance fee at the rate of 20% of outperformance above an 8% pa hurdle with a high watermark provision. No performance fees have been paid since Dividend policy GCL s investment objective is focused on capital growth and it has no formal dividend policy. No dividends have been declared since launch in 2006 and while it had 1.5m of revenue reserves at 31 March 2014 from which it is permitted to distribute dividends, there is no current intention to pay a dividend. Peer group comparison Exhibit 8 illustrates a closed-ended peer group comparison across the commodities and natural resources sector. We use the AIC specialist commodities and natural resources sector constituents excluding CEB Resources (which distorts the averages) as the peer group. GCL s NAV total return Geiger Counter 30 July

8 over three and five years is at or close to the bottom of the peer group, while over one year it ranks more highly although still below the peer group average. GCL s ongoing charge of 2.96% is lower than the peer group average although above the median. We estimate it should decrease to around 2.5% following the reduction in the management fee from 2.0% to 1.375% of net assets. Exhibit 8: Commodities and natural resources sector peer group, as at 29 July 2014 Market cap m NAV TR 1 year NAV TR 3 year NAV TR 5 year Sharpe 1y (NAV) Sharpe 3y (NAV) Discount (ex par) Latest ongoing charge Perf fee Net gearing Geiger Counter 18.3 (14.2) (71.0) (51.1) (0.7) (1.1) (20.8) 2.96 Yes 101 Altus Resource Capital (59.0) (18.1) (0.5) (1.1) (13.0) 2.47 Yes 96 Baker Steel Resources 27.2 (19.5) (52.8) (1.6) (1.0) (27.9) 2.17 Yes 101 BlackRock Commodities Income (9.1) (0.3) No 105 BlackRock World Mining Trust (37.6) 21.5 (0.5) (0.8) (2.8) 1.37 No 110 City Natural Resources 93.7 (1.3) (52.7) 1.0 (0.9) (1.2) (12.5) 1.47 No 123 El Oro 47.1 (4.4) (32.0) (0.7) (23.9) 1.70 Yes 147 Global Resources 13.8 (47.8) Yes 115 Golden Prospect Precious Metal 23.1 (5.7) (62.0) 17.3 (0.5) (0.8) (16.4) 2.37 Yes 100 International Oil & Gas Techno 6.7 (52.9) (57.9) (56.7) (2.8) (1.6) (65.2) 4.44 Yes 97 New City Energy (38.0) (0.6) (13.6) 3.35 Yes 113 Praetorian Resources 5.5 (0.2) (0.4) (40.6) 3.62 Yes 119 RAB Special Situations 7.4 (2.9) (49.3) (57.1) (1.0) (1.0) (35.5) 4.31 Yes 96 Riverstone Energy (4.1) 0.87 Yes 8 Tiger Resource Finance 1.9 (23.2) (51.2) (44.4) (2.3) (2.3) (27.5) No 45 Simple average (8.0) (47.7) (9.3) (0.8) (1.0) (23.3) Weighted average 5.7 (37.8) 19.2 (0.5) (0.8) (5.6) Source: Morningstar. Note: TR=total returns. The Sharpe ratio is a measure of risk-adjusted return. The ratios we show are calculated by Morningstar for the past 12- and 36-month periods by dividing a fund s annualised excess returns over the risk-free rate by its annualised standard deviation. Net gearing is total assets less cash/cash equivalents as a percentage of shareholders funds. The board The board currently comprises three directors all of whom are non-executive and independent of the investment manager. George Baird (chairman) and Graeme Ross (also a director of R&H Fund Services, which provides administrative services to GCL) have been directors since GCL s launch in Richard Lockwood (appointed to the board in May 2011) founded NCIM in 2004 and was GCL s portfolio manager from launch until September NCIM was sold to CQS in October 2007 and Richard Lockwood is no longer involved in NCIM so deemed independent. 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