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 [Music] I'm Charlotte McLoud with investing news.com and here today with me is John chalia CEO of sprout Asset Management thank you so much for joining me today great to have you yeah nice to be back really good to have you back and you know usually when I have you on for these conversations we're talking about uranium but we're going in a different direction today with copper and the occasion is that Sprout Asset Management has just launched the spr copper miners ETF so I wondered if we could start a

little bit broad get your take on the copper Market because we haven't spoken about that before and why this was the right time to launch this ETF yeah yeah thanks for the opportunity yeah we're we' obviously been you know super bullish about uranium for the last three years and copper is kind of the next metal that we think is a little bit further behind on the curve but this is very quickly coming into Focus for investors and the reason why it's coming into Focus I think U there are a lot of

commonalities between uranium and copper believe it or not they're both fundamental in terms of their roles in electrification and clean energy so if you think about uranium it's obviously very important to produce clean energy with uranium through nuclear power and copper I think is is even more profound just because it is so fundamental uh everything from its role in energy production to energy transmission electric vehicles you know electric cabling so as the world kind of shifts to this idea of moving away from fossil

fuels slowly over the coming decades we think copper is going to be a very important metal to to Really enable uh those electri electrification goals from appen right and you went straight to one of the questions that I had which is that you know of course uranium continues to do very well but I know a lot of people are looking forward and they want to know what's going to be the next uranium and definitely copper has come up in those discussions so is it is it fair to say from your perspective

that copper could be the next uranium yeah I mean they're very different markets you know uranium Market is about 15 uh billion dollars a year in terms of sales and and copper is approaching 200 so they're very different in size and application but it's it's quite profound to us when you think about if the goals that countries are stating are are going to be realized uh the amount of copper that we need to F out of the ground in the next 20 30 years is about double and you know it's it's pretty meaningful

when you think about we or whole 200 billion dollars of the ground and I think what's more interesting is that we've been mining copper for for thousands of years so it's I think it's fair to say that mankind has kind of found all the easy stuff and now we're getting into the challenges of uh finding the more difficult to mine deposits which generally are deeper underground so they're more costly to extract so you know I I use this analogy with rum because rum also has a a supply

challenge in front of it and we think copper has a very similar uh situation where we need to in some scenarios um in some estimates almost double the not of proper being produced uh over the next between now and 2050 and it's going to be a real a real challenge because as I said all the easy stuff's been found right so certainly some similarities also differences I think that does a a nice job of outlining it so maybe we can talk a little bit more about the new ETF and what was interesting to me as well is this is

actually the second coppery ETF that you have so first came the junior one and then this seems like more of an expansive one so I'm interested to know you know why the junior 1 came first and now this one and who each of them might be directed at sure great question so we actually have three coppering ETFs now um the first one we launched in February of 2023 which was the Junior and we we saw that because um we saw that as an interesting first move uh opportunity for us because there at the time there

was no Junior copper mining ETF anywhere in the world so we thought hey this could be a first to Market which we think is important there was a lot of m&a activity happening at the time as well amongst Junior copper we expect uh continue m&a because you know the major the major the major Myers are very focused on bulking up your exposure to your uh to copper in one of the ways clearly if a if a team is has got a very attractive deposit they're going to come calling to to buy it and and and to

ultimately build it we Then followed up um just a few months ago we launched a mining ETF across Europe so there's one in Europe as well and then we rounded out the the final uh offering which is the Sprout copper mining ETF that's listed uh in the United States and that fund is obviously focused primarily on the the larger companies when we designed that fund what what was really interesting to us is that when you look at um the 10 largest copper producers by by volume in the world most of them are

not cheer plate copper companies uh some of them are state-owned companies so you can't actually invest in the world's largest copper producer which is a Chilean state-owned company but when you when you actually pull away the top 10 there's only four of them that are publicly listed and have the majority of their revenue derived from copper so what we went about in designing this copper uh index with our partner NASDAQ was really trying to focus on the companies that provide Pure Play

exposure to Copper money so we've gone Company by company universe and basically evaluated how much of its revenue or asset base is tied directly to Copper Mining and we've really focused on the companies that uh have at least 50% or more of their revenue tied to Copper so it's a pure play expression um you know there aren't that many companies that meet that criteria irres of how big the copper Market is so we think it's a a differentiated offering that gives investors more pure plates

copper mining okay definitely good to know about that angle and my apologies for forgetting the third ETF I think right now it's it's a great time for us to be talking about copper really because we've had in recent just this past week or so we've seen the price really break out after months and months of inactivity so I wanted to get your take on what's going on there and see if you can break it down yeah well it's interesting maybe we'll just take a step back and and talk

about um how copper fared relative to other pedals last year and you know we will start off and say copper did really well last year and it ended the year up flat in price and and and it did very well relative to nickel and Co Bal and lithium which which had pretty meaningful price Corruptions last year because there have there is a scarcity of copper for sure we've definitely had some Supply challenges obviously things like Panama and some other Minds have signaled that they were going to miss

production targets um and what's really been driving demand for copper has not been you know tradition traditional industrial uses and construction things like that it's been things like electric vehicles solar farms uh obviously building out you know infrastructure related to uh electric vehicle charging um things like heat pumps air conditioning so you know as countries become more wealthy uh what what is one of the first things people want air conditioner uses a lot of copper so there's a lot of different applications

uh that copper gets integrated to and what we see really under hting the demand recently has been more energy transition related uses versus more you know traditional industrial uses another interesting development that's been helping the copper price in the last few weeks is there appears to be uh a shortage of copper concentrate that is available to to smelters in China and this is important people watch this very closely because over half of the copper ends up in China for for refining and

smelting and right now the the the the costs that the smelters are charging for that refining and smelting uh step with the process has really collapsed and the reason why it's collapses there's a shortage of concentrate and that is a very bullish sign reflecting scarcity of of of copper physical copper concentrate in the market and that's helped the price of copper breaks through the $9,000 metric tonon price just in the last few days okay I think it really helps to go over those Dynamics and I think we can

go a little bit deeper into to supply and demand maybe starting with Supply because you mentioned you know first Quantum in Cobra Panama toward the end of last year had to be shut down and that created some disruption in the market you mentioned the shortages we're seeing now so I wondered if you can talk about that and maybe how that shows us about supply chain fragility maybe jurisdictional considerations in the copper sector yeah well I'm going to start off with Chile because Chile is the the

largest producer uh of copper in the world and that's a state-owned company uh with the Acron and celo um and their their production in the last few years has been very challenged even though they're the number one producer in the world they're having challenges because some of these mines are coming to end of life the or grades um have have fallen off uh over time I mean it wasn't unheard of to have or grades 100 years ago that were 5% copper now they're sub 1% so that means you got to move a lot

more dirt to get the salale out of of concentrated the ground um there are some challenges with water some of the locations um Peru has been a a a more stable producer they're number two but we've obviously if you go around the world there have been specific mines that um have had some production issues um in Zambia recently they're having not issues with the mine but they're having issues with providing reliable steady uh electricity for the mines to operate so the government has recently said to the

to the some of the copper miners there eat a hel your production because need to cut out an electricity production for the country or consumption so I think these are very interesting um signs for investors to see that this Market even though it is very well established it's very mature it's very sizable in terms of size is still vulnerable to different uh disruptions and Supply shots um and when you're running a very tight Market with very low inventories held in warehouses you you know you can have an

a Very immediate supplier response uh or excuse me price response which I think we we've just seen with breaking through that $9,000 uh that ton Mark but I think the bigger picture is that you know if you talk to some of the large copper miners they will tell you that the price of copper needs to go up meaningfully higher in order to fund this very significant Capital expend expenditure uh required for these very large scale projects it is not unced to have these copper mines cost five to 10 or even

more billion dollars to build uh these are not small projects and in order for anybody to make those kinds of capital Investments they need to be assured of a very attractive profitable long-term payoff um and that is not is is going to be done our belief at Copper prices that uh are much higher than 9,000 per ton and I think that's the longer term thesis that we have um the market may be you know more or less balanced in the next few years but over over over the coming years if the amount of uh EV

adoption plays out that people expect the ongoing deployment of solar wind and other technologies that are very copper intensive we will be in a supply deficit and that's when the price can really start to move like we saw in uranium in the last couple years right I think I think you did a great job of explaining the issues that these existing producers are having right now I wondered if you can talk a little bit more about the pipeline of exploration and development projects the the companies that need this these huge

amounts of money to move forward how many actually are like do we have enough out there if there was money that could help us fill this Supply Gap yeah it's a great question I mean I think you know after a very long period of uh underinvestment I would say in Copper Mining and exploration vment um governments around the world are acknowledging this is a gap some countries have put copper on their critical mineral list which is important because it acknowledges the issue it also provides uh pref preferential

treatment to the development and Mining of of these particular Commodities that could come in the form of lower financing costs or special credits or incentives to encourage uh copper mining now look in in some parts of the world uh there's a lot of resistance to Copper mining because they're very large scale projects people don't want these things in their backyard uh but if we are serious about Net Zero targets and de carb oranization and moving away from fossil fuels to more electric uh sources

of energy energy storage and transmission uh we just need a lot more copper so you know I think that is giving a big boost to a lot of the Juniors who if they've got an attractive adset they can finally move these projects forward and if the senior miners want these projects we have seen in the last year or so a number of these projects and companies yet acquired a pretty pretty uh attractive premiums and I think that's that's also very important it's a little bit different than what we've

seen in the gold market where some of the mmaa activity in the gold market the premiums have been very tiny or they've been kind of ver vergers of equals um in the copper space we've seen very good premiums um for the best projects okay and I wonder you know when we look at uranium and sorry to keep going back to uranium but there's been such an attitude shift toward uranium and nuclear energy in recent years and I wonder if you think we need to see more work done there for copper because I

think I think within mining people know yes we need this for the energy transition but I don't really know if that is widely known at this point well I can tell you like that you know different governments around the world are clearly uh have taken notice they they theyve done assessments of what are the critical minerals they need to hit their decarbonization goals and also to build uh Supply chains on Shore so whether they're building uh factories to build electric vehicles or wind turbines or solar plants or whatever um

they've done their homework and said hey we're going to need a lot more everything from from you know copper to Cobalt to lithium to Nickel um and you know things like uranium rare birs and and so that's why these things are being added to these trip Mills lists the it it's clearly a signal on the marketplace that governments um view this as a national security issue or economic they have economic interests in terms of moving these these projects the big issue I I think is is capital and

permitting at time um it's taken historically very long periods of time to get these projects approved uh through the environmental permitting process and the capital raising as I mentioned is really really significant for some projects um and you know anytime you can condense the period of time between you know starting a project and and delivering cash flows is very meaningful in terms of economic returns to to shareholders and and it's you know in Canada for example where you and I live it's nice that our government is

openly admitting they need to streamline the mining approval process that it is very honorous doing it at both the provincial and and federal government levels um and look we don't we're not advocating that we fast tra and cut cars we want cal made a tier one mining jurisdiction but they're clearly can be improvements to the permitting process no doubt right okay and so certainly at the government level this is moving forward things are happening all right I want to look a little bit more closely now at

the demand side so this is pretty interesting I know that for the long term as we've been speaking about these green energy applications going to be really important for copper demand but one thing I've been hearing recently at least in the short term is you know we've had concerns about recession either in China or other places in the world recently I've been seeing headlines about deflation in China so I wondered if you could weigh in on kind of the shortterm copper demand possible

Dynamics yeah let me rais a really good point because the in China um as I mentioned half the copper ends up going there for for either Pro in or in use that the Chinese real estate market is really the bubble is blown um a lot of speculation uh in the in the real estate market um has has has ended up on on um you know on the wrong side of the trade and and that obviously is having some impact on copper demand but I think you as I mentioned earlier copper demand has been incredibly resilient because of

these other emerging use cases that are most mostly related to electrification if you look at the forward projections yes we need more copper for inside solar and uh wind farms and and those things but the two most material uh incremental uses of copper that we're going to see in the next 20 years are going to be electric vehicles which have over two times as much copper relative to a gasoline power uh vehicle and the second thing is transmission so everything from energy grids cabling think about how

much copper is in a data set as we move everything to the cloud as the world is moving towards AI um these are very energy intensive so there's a tie back to urum and stable you know 247 power but also all of the wiring and cabling in the in these facilities is quite meal so we we expect that every uh everything from long range transmission to Shorter term inground cabling for greater electrification uh is going to rep both of those things and electric vehicles are going to to account for most of the incremental lift

and raining demand again this isn't tomorrow but over the next 20 30 years right and as we're as we're getting a little bit closer to the end here I wondered if we could look forward a little bit less long term at 2024 and just get your your thoughts on copper moving forward in 2024 and any any key developments we should look for yeah well we've been watching very carefully these um Chinese smelting charges for for uh treatment and refining of copper because it's it's really uh to to borrow the o saying

Canary Coal Mine in terms of indicating to us the scarcity of copper Concentra in that market in in part because demand has been very durable related to some of these energy transition Technologies but also because we've had some some Supply bumps on the road uh cob Panama I mean I think that was 3% Global output alone that mine's closed um so it does tell you the market is fairly tight when just a few bumps at at specific mind sites can can tighten the market up as much as it it has so we're watching for that

that if you look at that U signal um and I I I recently read some some good research from the Bank of Montreal that said in the last three occasions when those treatment charges copper treatment charges in China fell to these very low levels signaling Market tightens that in the subsequent six months that the price of copper has rallied anywhere from 10 to 24% uh and I think it's fair to say that those you know again history sometimes repeats um and those three U past instances is exactly what's kind of

setting up right now and Copper's just starting to move so we would not be surprised in the next 6 to 12 12 months if the copper price is is higher by you know 10 to 20% right and okay that perfectly answers I think what was going to be my next question which was for investors you know is now the time to enter the market it sounds like it's certainly time to start thinking about it so before I let you go I'll just put it back to you copper is a less familiar Market to me and and possibly for our

audience I wondered if there's any final points that you think people should be more aware of that they might not have known to consider when it comes to Copper well that's a good question um yeah when you think about copper I mean all of us understand what it is um and you know it's part of our daily lives um you don't always see it but it's it's there I I think I would just leave you with the message that the role of copper is is no longer for pluming and and making pennies those days are long gone um it

has a very important role for electrification and it's going to play a much more important role over the coming decades and it is further behind the Cur in terms of where it is in its particular uh uh cycle and you know every commodity is at a slightly different point of the cycle copper I think is just starting to emerge out of a bit of a slumber which I think makes it interesting we're starting to see some institutional investors reallocate to Copper uh after a little bit of Hiatus there was a lot of excitment

about Copper at the beginning of 2023 when the Chinese economy was finally reopened from covid that that turned out to be disappointing because the the construction sector just didn't take off um but we're starting to see signs and uh interest come back we're starting to see some pretty uh sizable Capital starting to poke around there have been a number of sizable uh Equity raises for copper companies which I think is very healthy because generally it's been hard to raise a lot of capital in the last

couple years in mining okay I think that's it's a great place to wrap it up thank you for coming on to go over what's going on with copper Supply demand prices I think this is a really great place to begin thanks for having me of course and once again I'm Charlotte McLoud with investing.com and this is John chello with Sprout Asset Management thank you for watching if you like this video make sure you subscribe to our Channel we'd also love to hear your thoughts so leave us a comment

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