Uranium and Copper: Metals of the future

This episode of the ETF Express podcast, Off the Record, is entitled Uranium and Copper: Metals of the future with John Ciampaglia, CEO, Sprott Asset Management. Ciampaglia and ETF Express’s Beverly Chandler discuss how these metals are affected by the supply and demand of new energy and whether metal mining can ever be considered sustainable.

This episode is brought to you in partnership with HANetf.

Transcript

Beverly Chandler

Hello and my name is Beverly Chandler and I welcome you to this outing of Off the Record, the podcast about all things ETF brought to you by ETF Express in partnership with HANetf and Sprott Asset Management. All views expressed in this podcast are the speakers’ own and we hope suitably controversial. This outing for the ETF Express podcast Off the Record is entitled Uranium and Copper: Metals of the future driving energy transition with John Ciampaglia, who's CEO of Sprott Asset Management. John, let's start with you giving me a bit of an introduction to Sprott.

John Ciampaglia

Yes, Sprott Asset Management has been around since the early 1980s and I think we're best known for our focus and expertise in all things related to metals and mining. We manage about 30 billion U.S. dollars, primarily in physical commodities which cover a broad range, as well as many of the related mining equities. We do everything from public market investing right through to very specialised private market investing.

Beverly Chandler

And we're going to talk today about uranium and copper and we'll talk about them separately. But you can take me through first of all with uranium, what is important about uranium in the modern world?

John Ciampaglia

Yeah. So uranium is a very unique metal and its primary purpose is to generate base load power with no greenhouse gas emissions. So if you look at the world as a whole, about 10% of global electricity is generated through nuclear energy. It varies dramatically from country to country. So some countries have little to no adoption of nuclear energy but other countries like the UK and Canada, United States have fairly good levels of nuclear energy adoption and it's obviously been a technology that we've we've had since the 1950s; it's a very reliable source of energy production. And one of the I think the things that's most interesting about it is just the sheer energy density of uranium. Uranium is the densest form of energy in the world, which is why when you start one of the chain reactions within the nuclear power station this reaction can generate electricity basically all day, 365 days a year, and generally you don't need to refuel your power station for 18 to 24 months. So it's a very dense form of reliable energy, which the world I think realised is very important because it provides that base, what they call base load power of energy. And the world in the last, I would say three years, has started to view nuclear energy through a different lens. We had a number of countries kind of moving away from it, mainly on political, and I think public safety concerns. But in the last three years we've seen a number of governments around the world shift back and pledge renewed support for it because they openly acknowledge there's no way of hitting, you know, net zero 2050 targets if they go down a path of phasing it out. I think Germany is a really good case study. When they phased out their last few nuclear power stations over the last two years, their greenhouse gas emissions exploded because unfortunately a lot of that energy was substituted with coal. So I think the acknowledgement that it's important to hit net zero; energy security has obviously been a very topical theme in the last two years when the invasion of Ukraine by Russia really upset a lot of energy and electricity markets and really showed the world what happens when you do not have secure supplies of energy. And so that's the other, I think, key reason why governments around the world are shifting back and pledging support for nuclear energy.

Beverly Chandler

We'll come back to uranium, but let's just now look at the other metal that we've got today on the table and that's copper. How does that fit into this story?

John Ciampaglia

Yeah. Well, copper obviously is is a fairly well understood metal, we've been mining it for thousands of years for all kinds of different applications. I think most people maybe think of copper in a very old traditional way in terms of pipes and pennies, but copper is really a new energy metal. It is very important for moving electrons around because it's very conductive; one of the most conductive types of metal. So anything to do with electricity. So if you think about all of our electrical systems, our grids, cabling, computers, electric vehicles, wind farms, solar farms; all these things that basically are moving electricity around you've got copper as your main conductor. So copper is a very large established market as I as I mentioned, we've been mining the stuff for thousands of years. But what's happening now is that the use cases for copper are moving away from, let's call it the pennies and pipes, to more new technologies which are related to clean energy production, data centres, artificial intelligence data centres, electric vehicles. And so there's new demand I think coming for copper from many of these kind of cleaner energy technologies. Electrification initiatives, so think about in the UK a big push towards heat pumps away from gas boilers. And then just very basic things like as the world becomes more wealthy, places like India well, what do you do? You go and buy an air conditioner. You buy appliances. These are all copper intensive. So as the Eastern countries become more wealthy there's more copper usage and intensity per capita. And in the West I think what's driving copper demand is obviously newer technologies, clean energy, reshoring of a lot of manufacturing. And all of this is changing the demand profile for copper at the same time it's becoming harder and harder to find large scale deposits of copper because of two reasons. One, I'll go back to, we've been mining it for thousands of years. We found all the easy stuff. And two, we really didn't invest in finding, discovering and developing new copper deposits for many years because the price of copper was just kind of meandering around and nobody had a financial incentive to make these very large investments to bring more supply online. So those two dynamics I think are really creating a lot of renewed interest, investor interest, in copper as a theme.

Beverly Chandler

And we're just gonna look at metal minings generally and then specifically uranium and copper. But can metal money ever be considered sustainable?

John Ciampaglia

Yeah. I mean, obviously there's a lot of misconceptions about the sustainability of mining and I think the vast majority of it is quite good. You know, in Tier 1 mining jurisdictions like where I live in Canada, the mining laws are very strong. But the reality is they're not as strong globally and there is a tremendous pressure being put on mining companies by governments, and more importantly institutional investors, that are demanding a greater focus on environmental, social and governance standards. This is basically your social licence. If you're a mining company and you're essentially being invited to a host country that obviously has that economic deposit, wants to extract economic benefits for its citizens. And so mining companies have, I think, very high standards in terms of being welcomed into countries and being required to mine in a responsible and sustainable way. So as I talk to institutional investors around the world there is a hyper focus on this right now and it makes total sense because you don't want to be investing in certain kinds of metals that are critical for green energy transition and then find out that they're not being responsibly mined. And so this is really, you know when we talk to company managements, it's almost like the first thing they start to talk about. It's not about you know the value of the deposits or or whatever; they really focus a lot of their pitch around why they are a sustainable miner. So I think this renewed focus and pressure on mining companies is the right one. You clearly see mining companies that are operating in Tier 1 jurisdictions like Chile and the United States and Canada and Australia and some parts of Western Europe. You know, they clearly get kind of a premium attached to their production. You often see car companies, for example, specifically seeking brands of metals that come from those jurisdictions because they know the supply chains are safer. They know the ESG standards are taken more seriously and they will be, you know, in many cases willing to pay a higher price for those metals over production in some countries where risks are inherently higher.

Beverly Chandler

And would you like to just tell me a little bit about the difference between mining uranium and mining copper?

John Ciampaglia

Sure. So uranium is a very unique metal in that it is found in very low concentrations all over the place, all over the world in granite and even in seawater. So it's a very plentiful metal. But the big difference is it does not exist in very high level concentrations, with the exception of a very small number of countries. So in the case of uranium, you have one country which is Kazakhstan which produces 40% of world production. So it's almost like OPEC plus in terms of the amount of production that it is responsible for. Canada historically has been a huge producer of uranium and is starting to increase. There is a specific area in Canada called the Athabaskan Basin in the province of Saskatchewan, which is essentially like the Saudi Arabia of uranium, has incredibly high concentrations, and there are a number of very large mines there operating today and a number that are being proposed to be built over the coming years, which I think is very exciting. And so it's a very rare metal in terms of its concentration, Namibia would be another key producer. And then finally Niger, which unfortunately production there has been sidelined over the last 12 months because of political issues. But it is highly concentrated in about half a dozen countries around the world which makes the supply chain, I'd say somewhat more vulnerable to disruptions. We see that all the time. Copper is obviously has higher levels of concentration in the Earth’s crust. But again, you've got two countries that represent about 36% of the production and those are Chile and Peru. And then there are a broader number of countries that are responsible for copper mining. Copper mining is also often done as a byproduct, meaning is mixed in with other kinds of minerals. But the really big deposits and mines tend to be in South America.

Beverly Chandler

Thank you for that. So you think looking forward the trend for metals demand is going to continue on the back of, or encouraged by, the sustainability and new energy argument?

John Ciampaglia

Yes, exactly. I mean our thesis over the last few years is that if you want to transition away from traditional oil and gas and fossil fuels, that that transition is going to be very mineral intensive. And the way we like to think of it is into three groups. How you produce electricity, and that is obviously shifting to things like solar and wind which are very mineral intensive. They all have different minerals involved in them, but obviously things like copper and silver and aluminium and steel, you know, these are all very important minerals for clean energy technologies, electric vehicles, copper, cobalt, lithium, manganese, graphite and some rare earths for permanent magnets are critical. So energy transition around energy production is very mineral intensive. Then you like to think about how you move that energy around. That is obviously the transmission, the grid, the cabling. It's very intensive related to copper and aluminium. And then finally, how do you store energy? And that's another way of saying batteries. And there you've got two main drivers. You've got electric vehicles, which have a whole range of different battery chemistries depending on the region of the world, but they are very mineral intensive. And then you've got a growing category which is large scale battery systems. And these are very large batteries that are built at site where you have a solar farm, for example, and when you have excess electricity in the middle of the day you charge up the batteries and then you draw them down when obviously the sun is setting. That is still very nascent as more and more is scaled and costs come down. But you're starting to see more and more new solar farms built with adjacent large scale batteries accompanying them.

Beverly Chandler

And I know that you offer investment which is supported by direct investment in the metals, but also in the miners of the metals. Can you explain to me how those two things work? Do they work together or separately? Or I mean, how does that work in one portfolio?

John Ciampaglia

Yeah. So for a lot of metals, many people have options in terms of how do you get exposure to these different themes. So with respect to copper, for example, you could invest in copper futures. Now that's not for the faint of heart, and it's it's usually not even accessible for even some institutional investors. So we don't really view that as the best proxy for the marketplace in terms of how they're getting exposure. Most people are investing in copper miners. That's a way to get exposure to the metal and the growth potential that these companies have as they grow production, realise higher prices and obviously build new mines. And then with uranium, there are vehicles in the market where you can actually invest in physical uranium, believe it or not. Obviously you cannot come and take delivery of it, but you can own title to it, and Sprott has a vehicle that does that and there's some other ones in the world. And uranium miners have obviously been very popular investment vehicles over the last few years and we obviously have a couple of vehicles in partnership with HAN that are listed across Europe, that gives investors exposure to the uranium mining landscape. Either the entire landscape or if you want to just focus on the smaller cap companies, which are more of the smaller producers, emerging producers, and companies that are still trying to develop and explore for uranium deposits.

Beverly Chandler

And how accurately would an investment in the miners, rather than the direct metals, reflect the value of the metal? And also what does the ETF structure give you as an investor?

John Ciampaglia

Yeah, well, they don't always move in sync, I think that's a really important point that the commodity market obviously is being driven by its own individual supply and demand fundamentals. The mining companies are obviously more volatile. They are more risky, they have more risks attached to them because they are digging up the ground and you just don't know what you're going to find at times, whether ore grades are changing or weather conditions or geopolitical changes in a country. So we always tell people that investing in the mining stocks carries higher risks and you should invest accordingly. The commodities they tend to be less volatile because the fundamentals don't change as quickly, and why investors have really gravitated towards ETFs to invest in these thematics is really about diversification by companies. Investors often don't have the confidence or the technical skills to say, am I going to go through this universe of 50 or 60 or 70 or 80 companies and try to figure out which ones are going to be the big winners here? Or do I just buy a broad basket where maybe I have 30 or 40 or 50 of these companies that are weighted and rebalanced periodically? And the way we design our indexes is really trying to make them dynamic in that every six months we rebalance them, we take a look at the investment universe and ask ourselves, are these the best companies to express the thematic? And we often will remove companies and we will add new companies as companies come and go and spin offs happen and IPO's. And so we're working with our index providers to make these indices. Yes, they're rules based and they're passive, but they're also dynamic and the sectors are very dynamic, so we want to make sure they're evolving with the investment universe.

Beverly Chandler

Thank you so much, John, for talking me through the issues and the trends in renewable metals and metals that are important for energy production today. I'm going to wrap that up and say thank you, John again, and thank you to you for listening. Remember to subscribe and leave a review and feel free to contact us at podcast@chandlerpublishing.com. This has been an Off the Record podcast from ETF Express brought to you in partnership with HANetf and Sprott Asset Management.

Outro

Off the Record is brought to you by ETF Express. Production by Imogen Rostron and Lisa Hines and music by Otto Balfour. Thank you to our guests on this episode of Off the Record from ETF Express and to you for listening. We look forward to you joining us next time.

Important Information

Investment Risks and Important Disclosure

Relative to other sectors, precious metals and natural resources investments have higher headline risk and are more sensitive to changes in economic data, political or regulatory events, and underlying commodity price fluctuations. Risks related to extraction, storage, and liquidity should also be considered.

Gold and precious metals are referred to with terms of art like store of value, safe haven, and safe asset. These terms should not be construed to guarantee any form of investment safety. While “safe” assets like gold, Treasuries, money market funds, and cash generally do not carry a high risk of loss relative to other assets classes, any asset may lose value, which may involve the complete loss of invested principal. Past performance is no guarantee of future results. You cannot invest directly in an index. Investments, commentary, and opinions are unique and may not be reflective of any other Sprott entity or affiliate.

Forward-looking language should not be construed as predictive. While third-party sources are believed to be reliable, Sprott makes no guarantee as to their accuracy or timeliness. This information does not constitute an offer or solicitation and may not be relied upon or considered to be the rendering of tax, legal, accounting, or professional advice.