The Inflation Reduction Act is a bill that is designed to accelerate the transition to cleaner energy and technologies. This piece of legislation is aiming to help the world transition from legacy fossil fuels to greener technologies. Think solar power, hydrogen, EVs, and carbon capture among others. The goal is to incentivize companies to invest in these sectors. What opportunities might that present for your portfolio?
John Ciampaglia, the CEO of Sprott Asset Management, joins Jimmy Connor to discuss what incentives may be available for companies who transition to these newer technologies and the potential new cycle of investments you should look out for as clean energy become more mainstream.
Jimmy Connor 0:00
China is a major supplier of anything and everything to do with the lithium ion battery. You did touch on how Russia is a big producer of uranium, but maybe also stress that how the US is beholden to these two nations to get a lot of these materials that we need.
John Ciampaglia 0:16
Yeah, I mean, it’s it’s a really interesting topic. And it’s, I think it’s being more and more understood as time goes on.
Jimmy Connor 0:29
Hi, and thank you for joining Wealthion. I’m James Connor. And I’m the host of Bloor Street capital, which is a YouTube channel focused on resources and the energy transition movement. I’m honored to be a guest host on Wealthion. And to have the opportunity to be part of Wealthion ‘s mission, which is providing you with insights from leading experts in the world of finance, and to help you learn, build and protect your wealth. And I’m trying to do the same. I’m always looking for new ways to grow my wealth, and the world is transitioning from fossil fuels to one of decarbonisation, and this movement will require many resources and create many investment opportunities. And our guest today will help us understand what opportunities are available to us. I want to introduce you to John Ciampaglia. John is the CEO of Sprott Asset Management. And Sprott is an asset manager based in Toronto, and manages over 25 billion in assets, many of their investment products are designed to benefit investors on the energy transition theme. John, thank you very much for joining us today, I want to start with the theme of energy transition and how we as investors can profit from it. Governments globally are adopting net zero and energy green policies. And this is creating many opportunities for investors. And one of the most aggressive policies have been put forth in the US with the inflation Reduction Act. And I just want to start right here, maybe you can tell us what the backdrop to the inflation Reduction Act was, and how this is driving this energy transition movement.
John Ciampaglia 2:04
Sure, thanks. Thanks, James, nice to be on with with everyone again, that the the inflation Reduction Act unfortunately has a terrible name attached to it. It’s anything but a deflation, deflation reduction in purpose. It’s really a climate bill. And what I mean by that is, it’s a bill that is designed to accelerate the transition to cleaner energy technologies. That doesn’t mean we’re moving and abandoning. Moving away or abandoning fossil fuel based systems as these systems are obviously underpin our economies and day to day lives, and have for the last 150 plus years. But what the world is trying to do is add additional capacity and transition some of our legacy technologies to cleaner ones. And what this piece of legislation isn’t is designed to do is to basically put out both 370 billion plus in different incentive programs that are geared towards a very large number of industries and technologies. Everything from nuclear energy, solar power, wind power, upgrading, transmission, electricity, transmission lines, electric vehicles, hydrogen carbon capture, there’s just a multitude of different technologies and incentives. The goal here is to incentivize companies to invest in these sectors, if they can direct their projects by getting in part some government capital. So for us, we viewed as a very powerful investment signal, it’s it also reflects a new focus on energy policy, industrial policy, and to some degree, national security. And this is a very similar situation. We believe that occurred in the 1970s and 80s, after the OPEC oil squeeze happened, the world started to shift and think about how do we become less dependent on a group of countries or a particular country. And obviously, that was really the dawn and the catalyst that built out most of our nuclear energy capacity in the 1970s and 80s. The the energy crisis that we experienced in 2022, and it was really felt very intensely in Europe and Asia, was a real wake up call for governments because unlike the oil crisis in the 1970s, which just focused on a single commodity oil, the energy crisis in 2022 was oil, coal, natural gas, nickel, palladium, a whole host of commodities and the reason being that Russia is a very meaningful net exporter of all of these different commodities. So it really hit a number of different energy and other industrial metals and commodities and it really as As I said, it really acted as a wake up call for governments to say, you know, we cannot be overly reliant on any one country for something as critical as our natural gas, which is obviously used to heat homes, run industrial processes, etc. So there is there’s definitely an element of energy security, which we haven’t really experienced and some of the oil shocks in the 70s and 80s. So we think there’s a new cycle of investment, that is going to be spurred by not just the inflation Reduction Act, United States, but also across the European Union, Canada, a number of other countries are basically trying to compete with the US, which I would say is the most aggressive in terms of the total amount of incentives that is making available to industry. So there is some some definitely have some competitive pressure amongst governments to be to be in the game, so to speak, in terms of ensuring that capital investment is going to stay in their in their own countries.
Jimmy Connor 6:01
So you brought up a few interesting points there, you made mention of the fact that these governments are, are trying to, I guess, clean the environment, they they’re trying to reduce the amount of carbon going into the atmosphere. And they’re doing that through these various policies. But another point you brought up was the fact that we’re beholden to a lot of these foreign jurisdictions, right, for a lot of these critical materials, and a lot of these materials we need for this whole energy transition movement. And maybe you can just touch on that how China is a major supplier of anything and everything to do with the lithium ion battery. You did touch on how Russia is a big producer of uranium, but maybe also stressed that how the US is beholden to these two nations to get a lot of these materials that we need.
John Ciampaglia 6:48
Yeah, I mean, it’s it’s a really interesting topic. And it’s I think it’s being more and more understood as time goes on. If you think about OPEC, you know, controlling 40 50% of the world’s oil supply it obviously, when they want to change policy and supply, it can have an immediate impact on the price. If you think about the concentration of manufacturing, and processing of things like Evie batteries, or rare earth minerals, which are used from everything from defense applications to electric vehicles to wind turbines. If you think about solar panels, China basically dominates these industries, anywhere from 60 to 80%, of global production comes from China. If you think about uranium production, you have 45% of the world’s uranium that comes from a single country, which is Kazakhstan. If you think about the United States and uranium, specifically, the United States is the largest consumer of uranium in the world for civilian purposes, at approximately 50 million pounds per annum to to run 20% of the electricity grid in the United States. Last year, the United States produced 300,000 pounds on local soil. So these are just examples of how the US has become highly or almost completely dependent on foreign countries for many of these critical minerals. So governments as you can imagine, after seeing the invasion of Ukraine, the weaponization of natural gas and oil really started to think differently about how secure their supply chains are. In reality, if China decided to withhold rare earths, which it did in the past, in a bit of a dispute with Japan years ago, and more recently, China has been making noise about limiting the export of certain rare, rare minerals. They’ve also recently imposed export license limitations in terms of graphite and graphite is a key mineral within evey battery cell. So as you can imagine, if the West wants to make these investments, they’re they’re becoming increasingly concerned about having all of their eggs in one basket, which is mainly in China. This is a sea change over the last 30 years, that since the fall of the Berlin Wall, we’ve moved to kind of a hyperglobalisation model, moving everything to the lowest cost part of the world. It worked very well everybody kind of one. China became very wealthy in the process, we got lots of cheap goods. And now you know the balance is starting to shift in terms of people rethinking that dynamic and focused on diversifying our supply chains to having more locally provided as well as focusing on let’s call it strategic partners or free trade partners, where we generally have better It relationships with. So John,
Jimmy Connor 10:02
I just want to summarize this for our viewers, there’s two drivers really pushing this whole energy transition theme one, it has to do with the need for a cleaner environment and decarbonisation, and to the government’s want to onshore a lot of these critical minerals that we need to carry this process. So, and when you look at it from an investment point of view, there’s two ways that investors can profit from this. And the first one has to do with electricity. And, and many viewers might not realize this, but 35% of the world’s electricity comes from the burning of coal, even in the US, 20% of electricity comes from the burning of coal. And of course, the government wants to reduce that. And one of the best or cleanest ways of generating electricity is through nuclear energy. And the fuel to do that is uranium, and uranium is up over 60% on the year. And maybe you can just take us through the supply and demand side of the equation and why uranium is up so much. Yeah,
John Ciampaglia 11:02
for sure. So I think it’s fair to say that over the last two years, nuclear energy is going through a very powerful revival. It was an energy technology that we obviously built out in the 1970s and 80s, largely in response to the OPEC oil crisis, we then abandoned the technology more or less, and we stopped building nuclear power stations, for the most part in Western countries, Eastern countries, predominantly China, India, the Middle East, have been very aggressive in terms of building out their nuclear capacity. And why because they’re, they have huge populations, they use lower amounts of energy than us in the West. And they are trying to diversify away from things like coal, which if you go to some of these cities, you quickly realize they have serious air quality issues. But in the West, we’ve largely abandoned nuclear energy for a long time. And some of that was political. Some of it was I think, unfounded fears around safety. Some of it had to do with government policies, as well as the shale boom. And I’ll talk a little bit about each of those. So when you think about the shale boom, it provided enormous amounts of very cheap natural gas. And while we had that period of abundant cheap natural gas, we built a lot of natural gas fired power stations. So nuclear power stations found themselves to be less competitive in terms of energy production, visa vie, you know, these very low cost natural gas plants. Governments also incentivized the build out of a lot of renewable energy. And that would be everything from solar, solar to wind, they received huge financial incentives, tax credits, fixed purchase agreements, all these kinds of things that made nuclear power plants, once again, difficult to compete, in terms of the cost of production against these heavily subsidized industries, as they were scaling and becoming more commercialized. So there was a period, there were certain power stations around the US and Europe were not competitive, they couldn’t compete. They were scheduled to be decommissioned and their owners didn’t want to make the investments, which are pretty significant in terms of upgrading them, you know, to extend their lives for another 10 or 20, or 30 years. So some of these power stations slowly started to close, the last couple of years, we’ve seen a complete reversal in many of these dynamics, and it’s because governments have acknowledged that they have no way of hitting any of their net zero targets, if they phase out their nuclear power. That’s thing, one, thing two natural gas is not nearly as cheap and as abundant as it once was. And three, I think, as we’ve learned, you can’t, you know, run a highly industrialized economy on the back of renewable energy, which operates, you know, between 25 and 35%, of the time because of climate factors. And so, where nuclear power really comes in is reliable baseload power, which means it operates all of the time, 24/7 365 days a year, the only time you turn it off is when you refuel, which is about every 18 to 24 months, so you have this incredibly reliable power source. And governments are clearly realizing that there’s no way to, you know, expand the electrification of things, move to more electric vehicles, etc, unless you’ve got a very stable grid. And that stability does not come from rural energy. It comes from baseload power. So there’s a very compelling argument for, you know, kind of reinforces why we built these things in the first place in the 1970s and 80s. People are starting to acknowledge we need we need these power stations, places like California and Illinois, who had power stations that were scheduled to close have done reversals in their decisions. But it’s not just in the US It states it’s happening around the world South Korea, Netherlands, Belgium, the UK, France, Japan, restarting power stations, the only country in the world that has taken a different path with respect to their view on nuclear energy has been Germany. And in the last two years, they’ve closed six perfectly operating power stations. And as a consequence of that, and in conjunction with the gas that they historically were buying from Russia being cut off, they are now burning an enormous amount of coal, which, you know, as we talked about is the dirtiest form of energy production. It’s also the least safe safe in terms of the entire supply chain. So nuclear has a really good role in terms of decarbonisation, reliable baseload power and very high energy security, because, as I said, once you once you feel your power station, it runs all the time, you’re not subject to the mercy of the market, in terms of supply and price shocks, like we saw in 2022, when the prices of oil, coal, and natural gas spikes. So it’s a very compelling revival, this revival, I think, is going to continue for not one or two or three years, but for the next 20 or 30 years, the world is building an enormous amount of new capacity. And China, once again, like we saw with EVs and solar panels, and some of these other technologies, China, once again, is leading the world, in the growth of new power station developments, they’re going to build upwards of 150 new nuclear power reactors, in the next 10 years, it is astonishing. With that you are you require an enormous amount of fuel. And that is obviously uranium and uranium has is a commodity that for a very long time was was in a very difficult market environment was at a price level that was so low that even the best minds in the world were were not profitable, and were subsequently closed. Now that there’s this revival of nuclear energy, we need to now find more uranium to ensure we’ve got the supply to power all these these stations that are in development. So we’ve got a situation today where the world needs 180 million pounds of uranium per year, that number between now and 2040 will grow anywhere from depending on the forecast will grow from 250 million to 300 million pounds in 2040. So you’re essentially talking about almost doubling the amount of uranium production between now and 2040. So it’s a pretty significant expansion of supply that the industry is going to have to somehow figure out how to do because we’ve ignored this commodity for a long time. And now the world is shifting back to this technology. And we have to kind of play catch up here. So the commodity price is obviously responded to all of these positive news developments. It’s gone from about $30 a pound, two years ago to now around $73 A pound so the price is more than doubled. And we continue to believe that the price will will go up further because we need a price point to incentivize this doubling of production, which right now is about 150 million pounds per year. So yes, we’ve had a big move. But we think the the momentum in this in this sector is still has quite a bit of runway ahead of it.
Jimmy Connor 18:29
So John, you made mention of the fact that supplies 180 million pounds a year, but the US consumes 50 million pounds, which is quite a bit on a percentage basis, what percent of the electricity or power comes from nuclear energy in the US. So
John Ciampaglia 18:48
it’s about 20% of electricity today comes from nuclear power. And that’s been pretty consistent for a long time, we have not really increased that amount for a very long time because we haven’t been building new power stations with the exception of a couple in Georgia that have just come online. But we think that over time, that percentage is going to slowly creep up as as the existing reactors stay on for longer. And also the deployment of some new generation technologies, which are called small modular reactors. There’s a lot of focus right now globally, on trying to commercialize this technology, which is essentially a very small power station, which would be much more versatile for different applications, such as you know deployment in a smaller urban center also for different industrial processes which require different levels of heat in their in their different manufacturing processes, and even micro reactors so so think about a micro reactor, let’s say at a remote mine site where there is no electricity. Today, many of these mind sites operate on diesel generators. And people are very, very focused on could we could we provide a micro reactor on site, so that you’ve got kind of clean energy and a more reliable energy than having to transport diesel every day to to power all these generators. So there’s lots of developing technologies and applications that the world is very focused on. And we’re very excited about that over the next 10 years or so it’s going to take time to get some of these designs approved. But the industry is just starting to layer in future demand from from the small modular reactors. And right now, I would say it’s still pretty modest in terms of the demand curve.
Jimmy Connor 20:51
Alright, something else that you said that I think is quite curious, you said the US consumes 50 million pounds of uranium annually. They use that to power their nuclear reactors, but they only produce 300,000 pounds, Was that correct? That
John Ciampaglia 21:06
was last year’s number. And we would expect that number to start to creep up. Because as the price of uranium has risen, that is incentivized and allowed some of the shut in production to slowly come back online. So we actually expect over the next two years that that number is going to grow, but it’s not going to, you know, grow meaningfully, it might get to one to three, maybe 5 million pounds per annum of production. So you’re still heavily dependent on other countries. Thankfully, countries like Canada and Australia are more than happy to sell uranium to the US. But it just reinforces this, this notion that you’re heavily dependent on other countries for a critical mineral like uranium.
Jimmy Connor 21:52
All very interesting. So we discussed how investors can profit from the use of nuclear energy and the growth in nuclear energy all throughout the world. And I’m surprised you mentioned China, I’m really surprised that they would make such a big commitment toward this. But another way is through the growth in electric vehicles, or EVs and EVS require many different types of battery metals, the primary one being lithium, why don’t you just take us through the growth in EVs over the last few years and how this is impacting the lithium price and the price of many other metals? Yeah,
John Ciampaglia 22:26
sure. So EVs is obviously another long term secular trend that we’re watching carefully. I think it’s fair to say that five years ago, if you were driving around, you rarely would see an electric vehicle. Today, in certain cities, they’re everywhere you see them all over the place. And yes, some places are way ahead of others. And that’s just because of, I think, practical realities of running EVs within an urban center, with much more charging infrastructure is obviously a lot easier than, let’s say, more rural areas. But places like California, I mean, it’s like one in five cars. Now, new car sales is an Eevee. places, such as China have similar stats where one in four cars. Today, new car sold is some kind of electric vehicle. There’s a big push right now, to transition away from internal combustion engines. It’s not going to happen overnight, it’s going to happen very slowly, but it is accelerating. We are starting to get to the point where new car sales that are EVs represents something like one in seven new vehicles globally sold has some kind of a battery inside of it. And it’s obviously very lumpy in terms of the the adoption rates, you have some countries like Norway, which is the world leader where like 85% of every new car sold is electric today. places like China in California, I would say are the most meaningful in terms of the production, I’d say 25%. But you we have identified about 25 countries around the world, where at least 5% of new car sales have a battery in them today. So we’re starting to hit tipping points. We’re hitting these tipping points for a few reasons. Consumers have more choice today. The prices of electric cars have come down enormously as the technology has scaled. A lot of the cost savings have come from the battery cells themselves. I think consumers are becoming more educated about climate change and how EVs can help clean the transportation sector. And obviously, there’s government incentives. So you know, going back to the inflation Reduction Act, there’s a $7,500 tax credit, if you buy an Eevee that qualifies, meaning the car was manufactured in United States and comprises components which primarily come from either the US or free trade. Countries with the United States. So, for example, Mexico and Canada, obviously, other countries where the US has a free trade agreement in place, if the minerals that are used in the car are coming from those countries, you can you can qualify for the full $7,500 Tax Credit, which is obviously a huge incentive to someone. There are some Tesla Model models today, due to aggressive price cuts in the last year, which are now lower in cost than some mid range internal combustion engine vehicles, which is astonishing. As the as the sector grows, I think costs naturally will come down. And price price parity will become more of a norm. We’re not there in every market. But we are in a number. They the big automakers, you know, the General Motors, the Fords, the VW is still anthesis. They are all scrambling around to try to figure out how to migrate their manufacturing capabilities, which they’ve been, you know, which are highly efficient in terms of ICs. How do they migrate them to a higher percentage of EVs and right now, there is a big a big race going on in terms of building out capacity. Since the inflation Reduction Act was announced, we’ve we’ve counted up over 100 projects that have been announced that have something to do with manufacturing of electric vehicles, batteries, solar panels, etc. In the United States, we view this as industrial policy shift, we view this as kind of a reshoring of manufacturing back to United States, which I think is very strategically important and obviously beneficial to many people that have been kind of left out over the years, as many of these jobs have shifted to low cost jurisdictions. Now these jobs are starting to be brought back to United States because strategic reasons supply chain resiliency drivers, and I think it’s very positive. Now there’s a lot of different minerals within an electric vehicle, but there’s some very important ones. One of the most important is lithium. Lithium is the essentially the electrolyte we all know about lithium ion batteries, they’re in our cell phones, lithium ion batteries were created in the 1980s. By Sony, I mean, you can you probably had a camcorder. As I did, that was some of the first commercial consumer applications of lithium ion batteries. Lithium ion batteries, obviously, are the dominant chemistry. For electric vehicle batteries. There are many different chemistries that comprise everything from nickel and manganese and cobalt. Obviously, graphite is the dominant anode, but across all the battery chemistries. Lithium is your is the common thread. And so lithium right now is an industry going through a tremendous growth cycle. It’s an industry that historically has been very small because we didn’t have a lot of application for lithium. But with the with the adoption, growing adoption of electric vehicles, the world is scrambling around trying to find lithium, the price of lithium has gone from about $15,000, and metric ton, all the way up to $80,000. a metric ton. It’s at one point last year, because we had a massive kind of bottleneck and shortage, as new car sales really spiked. And the price this year has corrected pretty pretty significantly down to 25,000 or so a metric ton. So and I think this is really a function of growing pains. We’ve obviously had high interest rates starting to impact the sale of vehicles, not just EVs, but all kinds of vehicles and durable goods, as the cost of capital has risen very sharply. But it’s it’s reflective, I think of an immature industry that is still trying to find a more secure and stable supply. And so when you have you know, when you have bursts of high Evie sales, or if you’ve got slowdowns, you can have these manufacturers kind of restock and destock inventories very quickly. And that can have an impact on the lithium price. But the lithium price even at 25,000 metric ton is still a very good price companies are making money companies have the incentive to go and explore Australia as the largest producer of lithium in the world. But the lithium triangle in South America is really where the big reserves are, and that’s Chile, Argentina and Bolivia. There’s big investments going on down there to harness their big deposits of lithium. But more importantly, and I’ll come back to the inflation reduction act again. There’s a big push in the United States to develop lithium on US soil. There are large deposits in places like Nevada, there are companies there that are exploring and trying to develop these deposits The US Department of Energy is making multi 100 million dollar loans to these companies to help facilitate the development. So once again, the US isn’t completely beholden to other countries for a key mineral. So lithium is a very interesting one, it’s going to be a little bit bumpy because it is a nascent industry. That’s still maturing and developing. But we’ve we’ve we think it’s really interesting growth market, the lithium companies have performed very well, up until more recently, where we’ve had a correction, there’s been a lot of m&a activity is everyone’s jockeying around to secure the best lithium deposits in the world. And it’s a sector that we think has very good long term prospects.
Jimmy Connor 30:42
Interesting points. Now, I just want to quantify this for our viewers, the number of EVs sold in 2020 was 3 million, it’s estimated to grow to 14 to 15 million in 2023. So massive growth. And as you said, this is going to require a lot of these critical minerals. Lithium being the key one, and earlier you said the US produces very little uranium. What about lithium?
John Ciampaglia 31:08
I mean, the good news is that one of the largest lithium companies in the world isn’t the United States, Albemarle, and they do have lithium deposits locally in the US. And clearly there is a huge focus right now to develop some of the big deposits identified in Nevada. So that’s where a lot of the the development focuses right now. And I think the US is better positioned and lithium than uranium, which is still largely shut in. And
Jimmy Connor 31:39
one other point I want to throw out there. But once again, this goes back to the fact that it’s very important for the US and other Western nations to onshore a lot of this technology. But China recently imposed export restrictions on graphite, that’s another very critical or very important mineral that goes into a lithium ion battery, and China mined 60% Of all the graphite in the world. And more importantly, they process over 90% of it. So if you’re an Eevee maker, and you need graphite for your lithium ion batteries, you have to go to China. So once again, another reason why it’s very important for these nations to bring a lot of this technology back on shore, so we’re not beholden to other nations. So we went we discussed nuclear energy and how we can make money there through uranium. We discussed this growth in EVs and how we can make money there through lithium and other battery metals. And something else we should touch on John is copper. And even though copper is not used in lithium ion batteries, it is used in EVs, maybe you can touch on that, and in just the growth.
John Ciampaglia 32:48
Yeah, so copper, obviously is a metal that everybody understands. You know, it’s in our in our homes using us for for plumbing and other applications. We’ve been mining copper for 1000s of years. And the reality is, as we found all the easy copper. And where copper is really starting to become interesting is not in all the industrial applications, but in electrification. Copper is a very cost effective, and one of the most important metals in terms of the you know, the conductivity of electricity. So if you think about a world where we want to increase electrification, we want to employ more green energy technologies. We want to adopt more EVs. Copper is universal everywhere, every every kind of wiring, cabling, foils. It’s very, very important. If you look at the amount of copper in a traditional gasoline powered vehicle, relative to an electric vehicle, it’s a meaningful difference. Copper is obviously very important for the transmission of electricity. So I think it’s becoming very well understood that we have not made a lot of investment or sufficient investment in the United States in terms of electricity transmission. So these are the long lines. It’s been very difficult to permit these projects. And if the world wants to build more electric, you know, have more electrification, you need more and more energy. You want to have more solar and wind farms, for example, in the Midwest, well, then you need to transport that electricity pretty far distances to larger urban centers. So a lot of that is copper driven. So copper is really the backbone of electrification. And most of the demand for copper, the growth is going to come specifically from these electrification type of initiatives. As I mentioned, we’ve been mining copper for 1000s of years. And it’s a very big market. It’s about a $200 billion a year market in terms of primary costs. copper production. But if you look at some of the forecasts over the next coming decades, many people believe that our primary production of copper will have to grow anywhere from 50 to 100%. So it’s a pretty big number because the copper market is so big to be to begin with the challenges, as I said, we’ve we found all the easy stuff that deposits in the world that we’re now trying to develop are, are typically deeper in the ground, which means they’re more costly to pull out. They’re also we’re suffering from, you know, declining org rates, which means the percentage of copper in the overall ground is starting to fall because of all of the easy stuff we found. And so we think that the price of copper, which right now is about $3.70, a pound will continue to strengthen over the coming years, because we need to make significant investments to find more copper deposits. A lot of copper comes from Chile, it’s number one producing country. And even Chile, who obviously been the world leaders in producing copper over the last few decades. They’re having challenges with production and as well as their cost structure. So those costs ultimately get passed through to the commodity price, that higher commodity price helps to help my mining companies develop their raise capital and develop their projects. So there’s a real big emphasis right now on copper. What we also find it very interesting that some of the really big diversified mining companies are very focused on expanding their copper portfolios, and even a gold company such as Barrick Gold, which I’m sure five years ago, if the CEO talked about investing in copper, his shareholders would have been phoning, phoning him and saying, Hey, what what the heck are you talking about, you know, you’re a gold company. But you’ve got the CEO of Barrick Gold right now talking about how Copper has become a strategic focus for them. And I think this is really about the belief that over the coming decades, copper is going to be a critical mineral, even though it’s such a big existing market, but it’s going to be critically important to achieve all of these different goals. And that we need to make a lot of significant capital investment in the sector in order to grow production. So copper, again, it’s it’s a more mature industry. So it’s the opposite of lithium, it’s not going to have this, you know, the same kind of ups and downs in the price. But we think it over the long term is going to be a big beneficiary in terms of the price increasing as well as many of these copper companies getting projects moving along. And also, there’s been a lot of m&a in copper, where the big major companies when they find a copper company that has a high value deposit, they’re they’re very inclined to acquire that asset and scale it versus just trying to build everything from from scratch. So we see a lot of m&a activity happening in the copper space, we see the majors, renewing their focus on copper away from from things like coal and iron, which they’ve historically been more focused on. So we see another very positive long term story in copper.
Jimmy Connor 38:20
So John, just to summarize, there’s huge opportunities within the whole energy transition theme. As we wrap up, you and your team speak with some of the largest institutional investors in the world. And I’m curious to hear your thoughts on what they are saying about this current environment where we have very high inflation inflation that we haven’t seen since the 1980s, high interest rates. And are they concerned? Or is there a sense of complacency given how well the s&p and the Nasdaq are doing?
John Ciampaglia 38:51
I think it’s been an incredibly challenging year for investors, not just this year, but last year. And I think it’s because you have to peel back the layers to really understand what’s what’s happening within the underlying equity markets. People might believe, okay, the equity markets are up X percent, but the reality is, if you didn’t own seven or eight stocks, you didn’t get any of that return. And many of the stocks are down year to date, particularly in the smaller cap sectors. So it’s been a very uneven, very narrow breadth, equity market rally. So I think most investors have have underperformed the bellwether indexes by by meaningful amount. Obviously, the carnage in the bond market with rising interest rates has been devastating. If you ask me, what’s been the biggest hit for investors, it’s been capital losses on their bond portfolios, which you remember when bond yields went to astronomically low levels, you know, you have these huge unrealized capital gains in your bond portfolio. All of those are kind of gone now. And then obviously, the real estate market particular The the commercial side has been tough. And if you think about, you know how investors are allocated, you may not be buying commercial real estate because it’s not feasible. But, you know, the pension plan that you’re involved in it no doubt has significant investments in commercial real estate. So it’s been a very challenging year. Uranium I’m going to come back to that has been kind of the shining light, it’s, it’s up over 50% this year, and a lot of institutions have been calling us saying, Hey, what’s going on here? Why is this thing up 50%, when most other asset classes have really struggled. So there’s a lot of interest and intrigue, and there’s a lot of education, because it’s not a very well understood sector has a lot of nuances, it behaves differently than other traditional commodities. But we’ve been focused increasingly on helping helping institutions understand, you know, some of these commodity markets, particularly the uranium market, not just the physical uranium market, but also the uranium mining stocks, which we have some offerings in that area. But investors are looking for new investment ideas, I think a lot of investors for a very long time have a period of very low interest rates just kind of rode tech stocks forever. I think a lot of people understand that, that that ride is kind of getting getting getting old, it’s getting a bit tired, and long in the tooth, and they’re looking for new investment ideas. And generally, you know, institutional investors are woefully under allocated all things commodities. And so I think for the first time in a long time, investors are rethinking a commodity allocation, their portfolio, because they see the value in it, they think we’re now entering a new cycle, commodity cycle, these commodity cycles, they tend to last very long, much longer than an economic cycle, which might last, you know, four to six years, commodity cycles can last 10 or more years. And we think we’re in the early stages of a new commodity supercycle, which is gonna last a long time. And unlike the last cycle, which was very driven by, you know, basically the urbanization of China, China building 30, major cities, industrialization of China, which really consume massive amounts of bulk and base metals and materials, this cycle is going to be driven in large part by the energy transition, the need for uranium, lithium, copper, nickel, cobalt, manganese, graphite, some of these other critical minerals, rare earths. These are the metals that we think are going to get a disproportionate benefit from the transition. And I think a lot of investors are thinking very differently, and looking at these commodities in many cases for the first time.
Jimmy Connor 42:50
Well, John, I want to thank you very much for spending time with us today and providing your insights on how investors can make money from this energy transition theme. If investors would like to learn more about Sprott, and its various products, and how they can profit from this, where should they go?
John Ciampaglia 43:05
Yeah, we would encourage you to visit our website that sprott.com. And we’ve got a great insight section, which has unbelievable research reports from our team, we have a whole host of podcasts, with our own internal experts, as well as external guests. We really encourage people to do research, familiarize yourself with some of these investing areas. And also we have a whole suite of different ETFs and closed down funds that invest in many of these different thematics. And and once again, you know, research, understand what exactly these funds do and what they own. And we’re always available, if you want to speak to us directly, either firstname.lastname@example.org or we also have a one 800 Number on our website where people can reach us through.
Jimmy Connor 43:55
Once again, John, thank you.
John Ciampaglia 43:56
Thank you for having me. It’s a great chat.
Jimmy Connor 43:59
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