The uranium revival has begun. The Japanese government has announced plans to restart the country’s 48 nuclear reactors. Russia has flexed its muscles in Kazakhstan by curtailing new uranium supplies; and China is trying to address large pollution problems by moving to clean energy sources which plays well to an acceleration of nuclear new-build. All these factors should revive interest in uranium mining equities and one way to get exposure is via Geiger Counter (GCL).

The London-listed fund invests in uranium producers, explorers and the radioactive metal itself via exchange traded fund Uranium Participation (U:TSX). We alerted readers to the fund’s attractions two months ago in our contrarian call on uranium as part of a wider look at commodities (see Cover, Shares 30 Jan). The fund has since risen by just over 10% in value, purely down to changing market sentiment. Yet this is from a very low base as the shares still trade 75% below levels three years ago before the uranium price was destroyed by Japan’s Fukushima nuclear disaster.

Uranium has crashed from $136 per pound in 2007 to $35.5 per pound at the time of writing. Very few uranium miners are likely to be making any money at this price. Research group Edison reckons only the lowest-cost producers won’t be losing money. Plenty of miners have already given up, having closed mines after failing to get capital for project developments.

Industry player Paladin Energy (PDN:TSX) has shut its loss-making Kayelekera mine in Malawi (20 Feb). Earlier in the month, Cameco (CCO:TSX) scaled back its four-year growth plan. Meanwhile Rio Tinto (RIO) is unlikely to be making much money at current prices from its large Rossing mine in Namibia, says Will Smith, a fund manager at New City Investment Managers, the company that runs Geiger Counter. He also doesn’t believe BHP Billiton (BLT) wants to write a $20 billion cheque any time soon to expand its Olympic Dam copper/uranium project in Australia.

One third of the uranium mines in Kazakhstan, the world’s biggest producer of the metal, can still make a profit at $35 per pound of uranium and its largest operators include Uranium One. ‘There was a consensus when Russia took control of Uranium One (in late 2013), they’d take Kazakhstan through supply management, as per gas, diamonds and potash in Russia,’ notes Smith. Low and behold, Kazakhstan has now halted plans to increase uranium production.

There’s plenty of supplies for existing nuclear power requirements, yet clear signs of a future squeeze could imply the worst is over for the uranium price. Geiger Counter’s top holding is Fission Uranium (FCU:TSX-V) which has discovered high-grade uranium close to surface in a uranium mining-friendly jurisdiction. It is understood to have attracted takeover interest from several parties but doesn’t want to sell immediately. Other stocks in the Geiger Counter portfolio include Denison Mines (DML:TSX), Cameco and Uranium Energy (UEC:NYSE).

Expectations of a turnaround in the uranium price will drive the rerating in Geiger Counter. Yet investors shouldn’t lose sight of the risks involved with backing resource stocks, namely difficulty in raising money, exploration success or failure and geopolitical interference. Slower-than-expected reactor restarts in Japan may also curb a rerating in the stock. It is also worth noting the large bid/offer spread. This will come down as more people become aware of the fund’s potential, and therefore liquidity should increase in the shares. For now potential investors should take note of the large spread.

Geiger Counter (GCLS) 30.9p

Stop loss: 24.7p

BUY

Market value: £17.6 million

Prospective PE Sept 14: n/a

Prospective PE Sept 15: n/a

1-month relative strength: n/a

1-year relative strength: n/a

Prospective dividend yield: n/a

Bid/offer spread: 10.6%

Growth: HIGH

Uranium equities should be past their worst and could stage a decent rerating once nuclear comes back into fashion.

Risk: HIGH

Geiger Counter’s fortunes are dependent on third parties, investor and macro sentiment.

Quality: LOW

There’s no dividend and the fund doesn’t generate any income unless it sells some of its holdings, so investors must depend on capital appreciation as their reward.