How Copper's Growing Demand Is Creating Newfound Value For Mining Firms

As we seek to meet growing global demand for electricity and rapidly develop new energy sources, entities essential to sourcing and refining copper could benefit, and present a potential investment opportunity for investors. Especially if countries accelerate efforts to reach net-zero carbon emission, copper mining companies could be poised to rise in value over time, allowing investors who hold them in their portfolio to benefit from the economic value they provide.

The Significance Of Copper

Copper's exceptional electrical conductivity and contribution to energy efficiency make it a critical element in energy transmission. It possesses the necessary physical properties to transform and transmit energy derived from sustainable sources – electromagnetic (solar), kinetic (wind and hydro) and geothermal – to their useful final state, such as moving a vehicle or heating a home. 

As detailed in a recent whitepaper authored by Sprott, an electric vehicle requires 53 kilograms of copper in electric motors, batteries, inverters, wiring and charging stations, about 2.4 times more than a conventional combustion vehicle uses. 

Growing Market Demand For Copper

Recently, copper prices passed the US$10,000 per ton mark, propelled by projections of tightening global supplies and heightened demand from the electric vehicle and power sectors. Against this backdrop, the copper market has become of keen interest to various stakeholders. 

As reported by Bloomberg, some of the biggest energy traders are re-entering the metals market based on the anticipation that long-run production shortfalls will occur in the near future.  In turn, mining companies are capitalizing on this moment, with one notable mining producer seeking an upfront payment of as much as $1 billion for their copper and aluminum production.

Limited Capacity, Lofty Goals

Copper is a predominantly long-cycle commodity – the process from discovery to production is lengthy, averaging 16.5 years. However, the long-tailed nature of copper mining seems incongruent with the current policy actions of the governments of major economies. In the U.S., President Biden’s Federal Sustainability Plan calls for 100% carbon pollution-free electricity by 2030, including 50% on a 24/7 basis, 100% zero-emission vehicle acquisition by 2035, including 100% light-duty acquisition by 2027 and other sustainable development goals. 

The European Union has enacted similar policies with a 2035 deadline. However, meeting these goals would require increasing copper mining capacity exponentially. A recent report by The International Energy Forum, the world’s largest international organization of energy ministers from 72 countries, states that to meet current business-as-usual trends, 115% more copper will need to be mined in the next 30 years than has been mined historically so far; and electrifying the global vehicle fleet would require 55% more new mines.

In summary, the rising demand for clean energy and electric vehicles is contributing to the rising demand for copper; however, given the copper industry’s capacity constraints, the ability to fulfill such demand is likely to be limited – potentially resulting in continued price appreciation.

Investing In Copper Miners With Sprott

Reported economic insight from Sprott suggests copper may be entering a supercycle, which is defined as a sustained period of expansion, usually driven by robust growth in demand for products and services. A macroeconomic shift of that nature would benefit companies capable of supplying copper to the market, as they would reflect some of the fundamental economic value derived from the critical mineral and be a potential source of wealth-building for investors. Both the Sprott Copper Miners ETF COPP and Sprott Junior Copper Miners ETF COPJ provide pure-play exposure to a broad range of copper miners positioned to capitalize on the increased demand for copper and its usage in electrification.

Though both funds share a thematic focus on capitalizing on the growing demand for copper and its integral role in transitioning to a carbon-neutral society, COPP provides comprehensive exposure to mining companies across the large, mid- and small-capitalization spectrum. In contrast, COPJ predominantly focuses on small copper miners, with the potential for significant revenue and asset growth.

Earlier this month, Sprott also launched an at-the-market equity program to issue up to an additional $500 million of trust units via its Sprott Physical Copper Trust COP, which CEO John Ciampaglia says is the world's first physical copper investment vehicle. The Sprott Physical Copper Trust is a closed-ended trust created last month to invest and hold all of its assets in physical copper metal.

As reflected in Sprott's recent educational video, Copper: The Essential Power Player in the Energy Transition, as electric vehicles and clean energy technologies become mainstays in our global economy, companies that produce copper may create long-term investment opportunities. 

Featured photo by Paul-Alain Hunt on Unsplash.

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