Uranium and Copper: The Elements of Energy

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March 21, 2024 | (1 hour 8 mins 14 secs)

Electricity demand is expected to grow 86% by 2050. At the same time, most of the world is committed to seeking zero-carbon emissions and increasing nuclear energy capacity. At the center of this growth and transformation are uranium and copper – two critical materials that are in high demand and limited supply. These materials and their miners are potentially attractive investment opportunities.

Webcast Transcript

Ed Coyne: Slides 2-6, Introduction

Edward Coyne: Thank you all for joining our webcast today. I think we have some really timely topics to cover. And once again, my name's Edward Coyne, Senior Managing Partner at Sprott, Inc.

With me today are two special guests, John Ciampaglia and Jacob, or Jake White. John Ciampaglia is Sprott's CEO or Chief Executive Officer at Sprott Asset Management. John has almost 30 years of investment industry experience, and since 2017, serves as the CEO of Sprott Asset Management. He is responsible for overseeing Sprott's Public Market Investment Strategies and is also a portfolio manager for the company's physical commodity funds.

Before joining Sprott in 2010, John was a Senior Executive at Invesco Canada. Prior to Invesco, he spent more than four years at TD Asset Management.

Also with us today is Jake White. Jake is the ETF Product Manager at Sprott Asset Management. Jake joined Sprott Asset Management in July of 2020 and is responsible for managing Sprott's ETF lineup. Prior to Sprott, Jake worked in asset management on property outcome-orientated funds and diversified investment strategies primarily for Canadian institutional investors.

For today's webcast we're going to cover a couple topics. I'll briefly talk about The Energy Transition and Critical Material Opportunity and then we'll turn it over to john Ciampaglia to talk about Uranium and the Reinvigoration of Nuclear Power. Then we'll turn to Jake White to talk about copper and how it's Wired for the Future. Lastly, we'll talk about the full suite of Critical Materials and How to Potentially Invest in those and help those build out a diversified portfolio.

For our listeners on today's webcast that aren't familiar with Sprott, Sprott is a global leader in Precious Metals and Critical Materials Investments. Sprott has over 28 billion in assets under management and we are a publicly traded company that trade on both the New York Stock Exchange and the Toronto Stock Exchange under the same ticker symbol SII.

At Sprott we offer a full suite of opportunities and investments from exchange listed products that give you exposure to physical materials, to managed equities that gives you exposure to the equity portfolios and equity markets, and last but not least, private strategies that give you exposure to bespoke credit investments and mining resource companies.

Now we're going to shift to the topic at hand, which is Critical Materials with a Focus on Uranium and Copper. One of the challenges at Sprott that we're finding is that the clean energy transition is that energy demand is a moving target. It's not enough to replace current demand with clean power. We'll have to meet a much larger target as demand continues to grow.

In fact, energy analysis estimate that the electricity demand alone will increase by over 80% by 2050, which is also the net carbon neutral goal that we've all set out to achieve. This is due to largely growing middle class in Asia [Source: BloombergNEF], as well as the developing technologies in the West. We believe this will continue to drive the growing appetite for electric power, and we think this is going to be a perfect storm, so to speak, for the critical materials opportunity. 

In fact, when you think about capital being allocated to the space, as of 2022, this was the first time when we saw investment in the energy transition peak over $1 trillion. In fact, a little over $1.5 trillion with equity global investments equaling that of fossil fuels. According to the Clean Energy Research Group of Bloomberg NEF.

What I'd like to do now is turn it over to John Ciampaglia to discuss the Uranium marketplace, as well as the Reinvigoration of Nuclear Power. John, please take it away.

John Ciampaglia, Slides 7-19, Uranium and the Reinvigoration of Nuclear Power

John Ciampaglia: Great. Thanks, Ed. And thanks everybody for joining us. It's great to see the growing interest in this thematic, which we think has very compelling investment fundamentals underpinning it that we think will play out, not over one or two years, but most likely over the coming decades, given how important these areas of investment are for global economies, decarbonization goals, energy security.

We have spent the last three years educating the marketplace about a carbon-oddball commodity, which is called Uranium. For good reason, the world was largely disinterested in this commodity from the year 2011 to 2020. It was essentially a lost decade for investors and a lot of knowledge was basically lost. We have really tried to focus on education, trying to help people understand this topic, which for some people is still polarizing and there are a lot of misconceptions and misperceptions about it. We try to just stick to facts and science and let you come away with your own conclusions.

Just a little bit of a science lesson, talking a little bit about electricity production, where it comes from, how it operates, and what some of the trade-offs are between the different options that we have. We like to think about electricity in terms of reliability, affordability, and how clean it is. Those are three of the primary characteristics that we're trying to achieve. And obviously, there are trade-offs between those. But if we start off with reliability, nuclear energy is really the king. If you think about the capacity factor, which is a way to measure energy production, the consistency of energy production, nuclear energy on average operates 92.6% of the time. Once you start a chain reaction in a nuclear power station, it basically runs continuously 24-7, 365 days, until you either have to do maintenance or add more fuel. It is what we refer to as baseload power. That baseload power really underpins the electrical grid, which has to be balanced at all times.

If you look at some of the other forms of electricity production, such as wind or solar, they operate at much lower levels, obviously, because of weather conditions and the number of hours a day of sunlight.

The world, I think it's fair to say, is deploying record amounts of clean technologies like solar and wind. Because predominantly in the case of solar, the cost of solar has really come down enormously and continues to fall each and every year. But because of the low-capacity factor and intermittency, you cannot run a highly industrialized economy on the back of intermittent sources of power. This is why nuclear really plays a key part in underpinning the grid and offseting intermittency.

The second thing the world is really focused on is obviously generating reliable, affordable energy, but also clean energy. And you can see here what the full life cycle carbon footprint looks like. Things like nuclear, wind, solar, hydro, natural gas, oil and coal. Again, renewables and nuclear are really the leaders in terms of having very low carbon footprints, which everybody's focused on.

On the flip side, you have coal, which is very cheap, and plentiful, but has a very unfavorable carbon footprint. And just to give everybody a little bit of perspective. In the United States, 20% of all of the electricity produced is from coal, and about 19% of all electricity in the United States is produced from nuclear energy. Even though the United States is a very wealthy country, it is still heavily dependent on coal.

If you compare that to some of the emerging markets, let's take China, for example, China's still well over 50% of its electrical grid is dependent on coal because it's cheap and it's plentiful.

What's this all about? Why is nuclear energy becoming topical again? Well, it's because it really ticks the boxes in terms of decarbonization, given the low carbon footprint as I just mentioned, energy security, because it is an incredibly energy-dense commodity, and it provides that base load energy, which is very important to keeping your grid stable.

I'm using this illustration. Yes, we might, be a little bit sarcastic and say this is just a political photo-op, but I think it's very symbolic. This was late last year at COP28, where 20-plus countries pledged to triple nuclear energy by 2050.

Why I think this is significant is that, if you go back to just two years ago, COP26, nuclear energy was barely allowed to even attend the event. This really represents a meaningful shift in energy policy because of the growing reality that we need more energy, we need more clean energy, and we need more reliable energy, and obviously, affordable energy after we experienced severe energy shocks, particularly in Europe and Asia in 2022 after the invasion of Ukraine.

I just scraped a few headlines from some major news publications. And these are just in the last few weeks. And if I accumulated these over the last two years, it would be a huge list. And I think it's really symbolic of the changing sentiment. Because two years ago when we talked to investors about uranium and nuclear energy, we would get asked the most basic questions like, "Is it safe? What about all the waste? What are we going to do with these things?" And I think it's really telling that the world, the sentiment, the stigma has really shifted.

Just to call out a couple of these headlines. Just a couple of weeks ago in the New York Times, "US seeks to boost nuclear power after decades of inertia." I think that sums it up perfectly. It was basically a technology that was forgotten, and ignored, some of it for practical reasons, some of it for political reasons. But I think there's been a real meaningful shift.

Why is this shift playing out and why do we think this shift is going to continue for many years to come? This is really similar to what happened in the 1970s when the world experienced a very severe energy shock when OPEC squeezed the oil price. It was a real wake-up call for Western governments to think very carefully about their sources of energy, and which countries they were beholden to. And we've obviously seen different commodities in the last couple of years become weaponized.

Governments around the world have acknowledged that they need to be more supportive, not just financially, but in terms of expediting new projects, expediting the environmental permitting processes for permitting new uranium mines. And it's not just happening in one country, this is really happening with the exception of one or two outliers in Europe. This is happening right around the globe. It's a very exciting time. If you're in the industry, this really represents a new renaissance for the industry, as many people refer to it.

As I mentioned, it's not just one or two countries. This is just a quick snapshot around the globe of all the countries that have basically done nuclear energy policy U-turns. And it's really being driven by all of these factors that I just outlined. There are a number of countries that have decided to keep their nuclear power stations running for longer. There are a number of countries that have restarted idle capacity. And I would say the big story here is really China.

China is leading the world in a whole bunch of energy-related categories that we'll touch on. In terms of deploying new nuclear power stations, China is building between five and 10 new reactors every year. And they are going to do that not just for the next one or two years, but probably for the next 10-plus years.

And by 2030, China will surpass the United States in terms of having the largest nuclear reactor fleet in the world. They have one standardized design that they build over and over again, on time, on budget. I think it's a very good case study in terms of a country that knows how to build large-scale infrastructure projects quite well.

And just one thing I wanted to touch on, because I think it's going to start to become more topical, and this is about Artificial Intelligence and Data Center Growth. If you think about the world moving everything to the cloud, all the servers, Artificial Intelligence, the amount of computing power that you need, what's really interesting is that you need to have those facilities running 24-7.

Now, which power source provides 24-7 reliable power? Nuclear power. I thought this story from March the 7th was really interesting. "Amazon Cloud Services buys Nuclear Power Data Center from Talon," which is co-located in Pennsylvania next to a nuclear power station. We think that the United States, after having flat electricity demand for the last 15 years, is actually going to start to experience higher requirements.

And if you listen to any of the CEOs at publicly traded U.S. utilities, they are all saying something very consistent right now, which is their customers are asking them and signaling to them that they will be needing more power because of data centers and also the reshoring of manufacturing. Many of those facilities are related to energy transition that are going to require more and more electricity. This is something to keep an eye on over the next 5 to 10 years as we move more and more to data centers that require 24-7 power.

All of this obviously is having an immediate impact in terms of uranium. This is an interesting slide I would like to share with people around how utilities that own these nuclear power stations, how they are buying uranium to reflect this growing interest and renewed interest and the fact that many of the power stations that were scheduled to close are going to be operating for longer.

And this basically shows you in millions of pounds per year how much uranium has been purchased by "Dark blue" is U.S.-based utilities and the "Lighter blue" is non-U.S. And you can see that there are very distinct cycles here. In the middle of the chart there, you saw a period of very elevated buying of uranium, and that was in the commodity super cycle of the 2000s when China signaled to the world they were going to start to move away from coal and build nuclear power capacity, very large amounts of uranium were purchased, which obviously was a very strong correlation between utility long-term contract buying and the price of uranium. We'll show you the slide in a moment. And then in 2011, the contracting cycle collapsed.

And what was the catalyst for the contracting cycle to collapse? It was we had the earthquake and tsunami in Japan, which damaged the nuclear power, led to a public sentiment shift away from nuclear power. Government support obviously fell by the wayside, and you had countries like Germany signal they were going to be phasing out all their nuclear capacity, and it led into a multi-year period where contracting of uranium collapsed well below replacement rate.

Think of it as a destocking cycle where utilities had too much inventory, and they were running it down. And we see that in 2022 something's happened. We think the cycle has now shifted. Utilities around the globe are starting to procure to buy more uranium because they need to ensure they've got long-term security of supply.

And last year was very momentous because 160 million pounds of uranium were purchased under long-term contracts, which was the highest we've seen since 2012 and is approaching replacement rate contracting. Our belief and our thesis is that this cycle is just starting, will continue for many years, and as the contracting cycle accelerates, inevitably the price will follow, and we've seen that happen in the last couple of years.

Let's talk a little bit about uranium. Where it comes from. It comes predominantly from a small number of countries, which makes it more vulnerable to disruption. Kazakhstan is the largest producer of uranium in the world, 44%. We like to think of Kazakhstan as the OPEC of uranium. But Canada is also a very large producer, and historically has been. Namibia, Australia, Uzbekistan, Russia through JVs it has in Kazakhstan, Niger, China, mostly through mines in Africa that it controls, and JVs in Kazakhstan and India. We often will tell people that uranium is abundant in the Earth's crust, but it only resides in very high levels of concentration in very few places in the world.

Let's try to put this all together in terms of supply and demand. Because it's very important that what ultimately drives every commodity cycle is "What does the future demand look like for a commodity? And what does the supply profile look like for a commodity?"

This is a very important slide, because it basically shows you in that kind of orangey line what the projected, based on all of the new builds and projected builds, of nuclear power stations look like. And you will see there that our annual demand for uranium will go from 180 million pounds today, depending on the forecast, I've seen 250 to 300 plus million pounds in the year 2040.

If you look at the bars, that is production of uranium from existing mines, mines turning on, mines basically flexing up production, as well as new builds that are in the pipeline. And you can see that industry has been operating at a supply deficit, not just this year, but in the recent past. And in the future, we don't see any scenario in the foreseeable future where the market becomes balanced.

Now, you might say, "Well, how does an industry operate if it consumes more than it produces?" And the answer is, the industry always has secondary supplies and inventories on hand to cushion that shortfall. And that's what it's been living on. At some point, you run those inventories down to a point that represent undue risk, because again, you can never have your power station turn off because of lack of fuel. At the end of the day, the only way to solve this problem is to stimulate more production through higher pricing. And that's something that's obviously happening right now in the market as the price of uranium has moved over the last three years.

With every commodity price increase, you obviously get a supply response. And this is just a summary of some of the mines and the companies that control them. There are plans thus far in terms of reopening them and expanding them, and as well, planned restarts. Many of these mines were previously producing mines that went on care and maintenance when the price of uranium collapsed, and they're now scrambling to restart because the price of uranium is now viable, economically viable to make a reasonable profit.

There's one producer there that I've circled there, which is Kazatomprom, which is the largest producer in the world. This is the Kazakh state-owned company. I've put some red circles there around future production because we don't know if those numbers are going to actually play out based on their recent announcement in the last few weeks that they are having material impact in terms of their supply chain in order to flex up production. It was only a few weeks ago they signaled to us that they would not be increasing production by their previously announced target of 8 million in 2020. And we think that this year their production will be flat, and we don't know as of yet what future production looks like.

The main takeaway from this is we're getting a supply response. Most of these are previously producing mines, but even with all of these mines coming back online, we still have a supply deficit. Until we build meaningful new greenfield projects, these are mines that can produce 10, 20 million pounds per annum, we don't think the supply gap will be there.

Just for some historical perspective. You know, every commodity goes through bull and bear markets. And there are three distinct bull markets in uranium going back to the 1970s when the technology was commercialized. In the 1970s, again, it was the OPEC oil crisis that really drove the price of uranium significantly higher. In the 2000s, it was the commodity super cycle, which was also underpinned by China announcing they were going to build nuclear capacity.

And in the commodity super cycle, the price peaked at $135 in the spot market, and then it collapsed all the way to $18. As you can imagine, if something collapsed to $18 per pound, the industry would basically go on care and maintenance, and many companies would go bankrupt.

The industry has basically retrenched itself over the last few years. And as the supply overhang has been worked through, and energy policy shifted back to nuclear power. You can see the price is now in the middle of another bull market that has really been moving in the last, I would say, three years after trading sideways for a few years. This shows you a year-end price of $91 a pound. We're right now around $88. We did get as high as $106 earlier this year, and we've had a healthy correction, which I think provides a very interesting entry point for some investors who have missed the first kind of move in this bull market.

I think the main takeaway here is the bull markets in this sector last typically very long, longer than a typical economic cycle. More importantly, when you have a very long protracted bear market, it usually takes a very long bull market to kind of work through all those legacy issues that the industry is facing.

I'm just going to share one last slide with you. This is courtesy of Bank of America, and I think it provides valuable perspective. When the price hit $100, a pound earlier this year, we had a lot of investors reach out to us and say, "Okay, we've hit $100. That's a huge milestone. That's the highest price since 07. Is it over? You know, mission accomplished. The industry is coming back to life."

What's interesting about this chart is if you inflation adjust the nominal uranium price over the last two bull markets that I just showed you, using some very basic rate of inflation, you'll see that in today's dollar terms, the price of uranium in 1970 actually hit $170 equivalent. And in the 2007 period, the equivalent price in today's dollar terms is actually $200. We are well below, I'm going to say, today's peak pricing of uranium, which is why we remain bullish on further gains going forward.

To sum up. Nuclear energy is really addressing energy transition, decarbonization goals, energy security, the new renewed focus on energy security around the world, and some of the challenges for renewables related to intermittency and land use. I mentioned we continue to be in a structural supply deficit in terms of uranium production. And I know we had a question on that. People asked, "How much uranium do we actually produce?" Probably about 140 to 145 million pounds are projected to be produced this year against demand of around 180. It gives you a sense of how much of a deficit we're dealing with.

And as I said, we don't see a meaningful supply response until 2028 in the earliest, maybe 2030. And that really gives us a lot of room and fuel to continue this bull market.

Utility Contracting. While it has perked up, we think it's only going to accelerate. And that means, elevated uranium prices for a longer period. The industry is not going to come back to health if we just have a one-time spike in the price and then it then retreats. That is not going to be sustainable to allow the industry to make the necessary investments to deal with the long-term security supply issue.

And the last point I would leave for you is that in the last three years, the interest and the attitudes toward investing in uranium and uranium mining have changed remarkably. As I mentioned, the kinds of questions we would get from investors two or three years ago were so simple, so misguided. There are a lot of institutional investors and family officers around the world that we talk to every day who have really done a lot of homework around this space and the investment thesis and are very interested in participating. With that, I'm going to pass it back.

Edward Coyne: Thank you, John. And please stick around for the Q&A session, which will come up in about 30 minutes. I'd like to now turn it over to Jake to talk about copper and how we believe Copper is Wired for the Future. Jake, please take it away.

Jacob White, Slides 20-34, Copper: Wired for the Future

Jacob White: Thank you, Ed. Starting off, let's look at the overall copper market. The copper market is large and mature at nearly $200 billion, making it the third largest metals market behind iron ore and gold. Copper has a host of unique properties, and of particular importance is its superior conductivity.

Copper is the second most conductive metal, next to silver, making it absolutely essential in conducting electricity. Its unique set of properties makes it a vital fit in a range of applications, from construction to power generation to electronics and more.

Coupling these wide-ranging applications with its large market size has historically made copper a barometer of the global economy and even earned it the moniker "Dr. Copper," meaning, that the movement in the price of copper tends to be in line with global economic growth.

In recent years, the energy transition has risen to strategic importance for many nations, and copper's role has been recognized within it. And it is now labeled a critical mineral in the US, EU, and more.

Whereas the global energy transition is gaining scale, it is taking over as the copper market's key growth driver, where renewable energy technologies, electricity grids, and electric vehicles have emerged as significant sources of demand.

Energy transition technologies are driving increases in copper demand via larger copper intensities. What we mean by that is renewable energy and electric vehicles require a significant amount of copper, and that it is more than their traditional counterparts, where electric vehicles require 2.4 times more copper than a conventional internal combustion engine car. Solar requires 2.5 times more than its fossil fuel counterparts. Similarly, onshore wind requires 2.5 times more. And offshore wind requires 7 times more, reflecting the greater infrastructure and the larger distance and ultimately more copper that's needed to transport this electricity these farther distances.

On to electric vehicles. Not only do electric vehicles use far more critical minerals per vehicle than conventional cars, but there are a lot more electric vehicles than even in the recent past. Across the globe, approximately 14 million electric vehicles were sold in 2023, which is more than four times the sales three years ago. Sales are also estimated to reach 16.7 million in 2024, representing a growth rate of nearly 20%. These sales figures also correspond to 23 countries above the 5% adoption rate for electric vehicles. This adoption rate is considered a tipping point for any technology's penetration of its overall market, as it moves along an S curve from early adopters to early majority, all of which increases the demand for copper.

Like electric vehicles, solar and wind-installed capacities are rising. They've been growing exponentially and are expected to continue to grow. Notably, solar and wind farms are often smaller than traditional sources and more remotely located, which also requires more grid infrastructure and, thereby, copper demand.

Electric grids also require considerable investment. Copper's high conductivity, tensile strength, and resistance to corrosion make it critical in electricity distribution and transmission. To reach net zero emissions by 2050, the electricity grid may need $630 billion in investment per year to 2030. And this is 2.3 times more than 2022's level. And the amount of investment increases as the decades o on.

Part of this is because, as we noted, the transition to renewable energy involves a substantial number of small facilities that are often located remotely and require an enhanced level of grid infrastructure. However, there are multiple other factors. Electricity demand is expected to increase 86% by 2050 due to new technologies in the West and rising middle classes in the East. Notably, this is under existing policies. To reach net zero by 2050, electricity demand may be nearly double that figure for a 165% increase. Additionally, there's an aging grid infrastructure that needs to be replaced, given its outdated technology and need for digitalization.

And lastly, there's an increase in the prevalence of undergrounding. Undergrounding is the replacement of overhead cables with underground cables due to increasing urbanization. This undergrounding uses twice as much metal as an above-ground power line. This is especially important for copper, which is specifically prevalent in these underground cables and is gaining market share versus these above-ground power cables, which don't utilize it as much.

Putting all this increased demand together comes up with some staggering figures. This visualization shows that the total amount of copper we need to 2050 is larger than the total amount of copper produced over the course of human history. Where we have been mining copper for thousands of years for a total of 700 million metric times. And we need not just more than that. But double that amount of copper from now to 2050, the date much of the world is targeting to meet to reach net zero. So clearly, copper demand is significant.

Let's take a look at supply in that slide. Firstly. Copper is mined throughout the world. However, South America stands out as the global leader in copper mining with 38% of copper mine production. Copper mining is a well-established industry. The copper supply disruptions have been frequent. Of note recently is First Quantum Minerals’ Panama mine closure. Which accounted for about 1.5% of the global copper supply and Anglo Americans. Copper production cuts due to transportation capacity issues.

Overall, copper mine disruptions have averaged around 5% of global supply. In addition to this, all grades are declining, where today they are typically 1% or less compared to 150 years ago when they could exceed 5%.

Further. Major copper discoveries are becoming less common in general. As the world has discovered the easiest deposits and mined the richest deposits first.  Notably. There are also long lead times hampering the supply response. As it takes, on average, 16 and a half years to move from discovery to first production.

Finally. A good example of various supply issues is Codelco. Codelco is a Chilean state-owned miner and it's the world's largest copper producer. Codelco recently announced its 2023 production, and it was the lowest copper production that it's ever done in 25 years. Despite increasing demand for copper, and it's not that they've targeted lower production, there's been the sort of supply issues that even the largest copper mine in the world hasn't been able to ramp up supply as of yet. It's posting lower and lower results. Clearly, supply is constrained as demand is growing.

On the next slide, let's put this further into perspective. As this chart shows, we believe that the demand for copper is likely to outstrip supply as the clean energy transition takes hold. Where, by 2050, to reach net zero, there's currently a 40 million metric ton gap between supply and demand. Traditional sources of copper demand continue to grow and copper's role as a bellwether of the global economy will still exist.  But as mentioned earlier, this graph also shows the incredible amount of demand growth from the energy transition. Most notably, the electricity grid and electric vehicles.

Bring this back to a shorter-term horizon. You can see that the copper market is also expected to be in a small deficit this year. This actually represents a U-turn where forecasts were for a slight surplus in 2024, but due to issues like the Copper Panama mine closure and Anglo American’s production cuts and other issues, this slight surplus has evaporated and become a deficit that we believe is likely to deepen as time goes on. Notably, there is no shortage of copper in the ground for our needs. However, we may need higher incentive prices to bring more supply online to meet this burgeoning demand.

Let's dive into the copper price history in our next slide, please. Here we can see the copper price since the turn of the century. Where it begins at around $2,000 per metric ton and it's currently nearing $9,000. In the early 2000s, copper had a bull market largely driven by the industrialization and urbanization of China, which increased the price almost five times until we hit the global financial crisis. Where like other assets, the price of copper tanked before rebounding and breaking through the $10,000 per metric ton level.

Subsequently and similar to other commodities like John just went over with uranium, there's been a decade where copper and commodities fell out of favor and the prices fell. That is until we reached 2020. In 2020, there were large economic stimulus packages, and the energy transition really started to come through on a meaningful scale. The confluence of these things bumped up the copper price to an all-time high above $10,000. Economic data since then has been mixed and the copper price has retreated from this all-time high. But notably, this still represents an outperformance to many metals, especially battery metals.

Most recently in 2024, the fundamentals have really started to play through for the copper market and boost the prices. Where smelters treatment charges have fallen to the lowest level in a decade. Treatment charges are what smelters charge miners, and a lower fee implies a tighter mine supply market. As such, recently, top Chinese copper smelters have announced production cuts because they have a shortage of raw materials. And they're not the only ones. There were also recent announcements from Zambian copper smelters that they had to cut back production, although due to power shortages. The end results of these issues have been a copper price gaining momentum, nearing $9,000 per metric ton, and we believe that this momentum is likely to continue given the demand-supply dynamics for physical copper and, more importantly, that the price may be set up for a new super cycle.

Copper inventories are also at historic lows. Exchange inventories at your end covered around three days of global demand. And these limited inventories may raise the risk of a sudden price increase if buyers make large drawdowns to secure supplies. Analysis has shown that a longer-term average of inventories has covered 13 days of global demand. Much greater than the three days shown here. Although there have been some short-term headlines that cover inventories may have risen somewhat, it's important to contextualize these as they're still well below the longer-term average, and this risk is still prevalent.

On to copper miners. Historically, copper equities outperformed during bull markets. This chart shows three periods of rallies in particular where copper miners outperform the spot price. As you can see, in the bull market that we discussed before the financial crisis, copper miners significantly outperformed the spot price. Then, in the subsequent recovery period, copper miners also outperformed. And most recently, since this surge beginning in 2020, copper miners outperformed once again.

Overall, for the time period shown, copper miners have a 109% return relative to the spot prices, 26% return. Or an outperformance of 83%. Given the demand supply dynamics for physical copper and that we believe copper may be entering another bull market, investors may want to consider copper miners as a way to gain exposure to the sector.

Let's take a look at copper miners, and healthy profitability. Copper miners all-in sustaining costs (AISC) and all-in-sustaining costs is a measure of the cost to sustain your current mining operations. It's around $2.41 per pound. And that's well below the current copper sprout price. It implies a 41% all-in sustaining cost margin at the most recent $4.7 copper spot price.

And in this way, copper miners have inherent operating leverage to the copper spot price. As increases in the copper spot price may increase earnings, improve investors' outlooks and may provide equity growth.

When looking to invest in copper miners, we believe it is important to take a targeted approach. Many investors may look for the largest copper miners as a way to gain exposure. However, many of these miners may not give you true copper exposure. What I mean by that is that, even though they mine a significant amount of copper, if they are a massive mining company, this may represent a small fraction of their overall business, and therefore the exposure you would get by investing in such a company.

Take Rio Tinto, for example. It was in the top 10 copper producers in the world in 2022. However, copper only represented 11% of its revenue, and therefore 89% of the exposure is not to copper, but to things like iron ore. And Rio Tinto is not alone in this. Taking a look at the top-10 copper-producing companies shows that only four of them are majority copper producers and are publicly listed, where one of them is Codelco, the largest copper producer and its state owner.

Therefore, we believe that investors may benefit from a pure play investment approach to copper miners that really targets investments that give you that true inherent operating leverage we discussed earlier. [The term “pure play” relates directly to the exposure that the Funds have to the total universe of investable, publicly listed securities in the investment strategy.]

To Summarize. Why invest in copper miners now? One, copper is essential for decarbonization where the push towards net zero emissions by 2050 is driven by global mandates and goals may likely be set to escalate the development of copper-intensive infrastructure, such as power grids, electric vehicles and clean energy technologies. Copper demand is growing, where emerging clean energy technologies require significantly more copper than traditional systems. And this growing demand coincides with an anticipated 86% increase in global electricity consumption by 2050. Or like talking about earlier, almost double that if you were to actually reach net zero.

Thirdly. Copper supply faces challenges. There are significant hurdles like disruptions, decreasing ore qualities, prolonged lead times for opening new mines, and there was an extended period of under investment similar to uranium.

Fourthly. Copper price dynamics are spurring more production. We have this rising copper price that may be the catalyst needed to motivate the development of new projects aiming to satisfy the growing demand.

And lastly, copper miners specifically may offer opportunities where the widening gap between supply and demand may translate into benefits for both copper and the mining companies involved.

Additionally, an uptick in mergers and acquisitions. For example, BHP and Rio Tinto mostly both made multi-billion dollar acquisitions for significant premiums. And an uptick in this within the industry could further strengthen the positions of the copper miners. Now I'll pass it back off to Ed.

Edward Coyne, Slides 35-44, Uranium and Copper: How to Invest

Edward Coyne: Thank you, Jake. And thanks again, John, for your comments. We'll be shifting over to Q&A in a few moments.

But before we do, I thought it would be helpful for all the listeners to really get a sense of how you can actually apply not just uranium and copper, but really all the critical minerals to a portfolio to potentially diversify that portfolio. I just want to spend a few minutes talking about that.

And then we currently have 54 questions, which we clearly aren't going to get to all of them, but we're going to spend about 10 minutes of the last 10 minutes of the webcast getting to as many questions as possible.

The big question we always get is "This is great. I understand the supply and demand, but how does copper actually fit and how does uranium fit, and even other critical materials fit into a portfolio?"

One of the things I think that's worth talking about is how much energy is represented in the S&P 500. You know, right now, energy now represents 10% of the S&P 500 estimated net income up from about six and a half percent in 2022, yet it's waiting in the portfolio was 4.10% in June of 2023. It's clearly starting to punch above its weight as we see the shift. And I think this speaks to what both Jake and John talked about from a supply demand standpoint.

At Sprott, we recommend looking at not just uranium and copper, but really all the critical materials as a way to potentially enhance a well-diversified portfolio when you're looking for ways to get exposure to the energy transition opportunity and participate in those critical materials.

We offer a full suite of opportunities. In addition to the physical Uranium Trust, we offer a full series of Energy Transition ETFs that include both senior and junior uranium mining ETFs, along with senior and junior copper mining ETFs, as well as a full suite of additional ETFs that give you exposure to a basket of critical materials.

For all the listeners today, I encourage you, if you have interest in what we're doing as a firm, I encourage you to reach out to our Sprott Client Service Team, whether you're a financial advisor or an individual investor, or you represent more of a broker-dealer or institutional side. We have a full arm of service members to help you kind of wade your way through all the opportunities we see in the market today.