The Great Power Shift: Uranium, Battery Metals and the Energy Transition
September 12, 2023 | (70 mins 11 secs)
The clean energy transition and worldwide energy security goals are fueling a global power shift. This shift has reignited interest in nuclear power, accelerated electric vehicle (EV) adoption and spurred renewable energy deployment. In this environment, uranium, lithium, copper and other high-demand, short-supply critical minerals are vitally crucial — and potentially attractive as investment opportunities. Our webcast will cover:
- Global commitments to clean energy, including the impact of the U.S. Inflation Reduction Act and Europe’s Green Deal
- The nuclear industry's global renaissance in clean energy generation and the uranium supplies needed for new and planned reactors
- The proliferation of electric vehicles (EVs) and how automakers and producing countries are securing future supplies of lithium for electric batteries
- How to take a fresh look at energy sector allocations in portfolios
- An overview of the Sprott Energy Transition ETFs
Director, Nuclear Fuel and Investor Services
Director, ETF Product Management
Sprott Asset Management
Senior Managing Partner, Global Sales
Sprott Asset Management
Millissa Allen, RIA Database: Cover Slide
Ed Coyne: Slides 2-4, Introduction
Edward Coyne: Thank you, Millissa. And thank you all for joining today's webcast. Once again, my name is Edward Coyne, Senior Managing Partner, and I'll be your host for today's webcast.
I've asked two special guests to join us today, Steve Schoffstall and Per Jander. Steve is the Director of ETF Product Management at Sprott Asset Management. And prior to Steve joining Sprott back in April of 2022, he came to us with more than 18 years of experience in the ETF industry. Before joining Sprott, Steve was an ETF Product Manager at ProShares. Prior to ProShares, Steve held varying positions at Vanguard, which included responsibility for ETF product management. Steve earned his Bachelor of Science in Finance and his MBA from Penn State University.
Per is the Director of Nuclear Fuel and Investment Services at WMC. Per joined WMC with a broad background in the energy sector spanning over 20 years. Most recently, Per spent over a decade in uranium sales and trading in various roles through Cameco Corporation. Prior to Cameco, Per worked with nuclear power plant fleet management with programs at utilities in Sweden and Switzerland. Per has a Master of Science degree in Industrial Engineering and Management from Link Shopping Institute of Technology in Sweden.
For today's webcast, I've asked both Steve and Per to join us to really give a full outline of what we're seeing in the great power shift. I'll ask Steve to talk about "Prioritizing the Energy Transition.” I'll have Per talk about "The Role of Uranium and the Energy Transition.” Then we'll turn it back to Steve to talk about "The Case for Critical Minerals.”
Then right before we go to Q&A, which we'll have an open Q&A session towards the end of this webcast, I'll briefly talk about Sprott Energy Transition ETF, and how to potentially allocate those to an investment portfolio.
For those who aren't familiar with Sprott or are new to Sprott, Sprott is a global leader in precious metals and energy transition investments. We have over four decades of experience focused on the precious metals markets, and more recently have gotten engaged with the energy transition investment opportunities.
We manage over $25 billion in assets under management, and we are a publicly traded company that trades on both the New York Stock Exchange and the Toronto Stock Exchange under the ticker symbol SII.
We offer our investors a unique suite of solutions, whether it's through our exchange-listed products, which have over $19 billion in assets under management, or managed equities, which have close to $3 billion in assets under management, all the way through to our private strategies, which is just north of $2.5 billion.
For those investors that want to allocate to the physical market, whether it's through our Gold Trust, Silver Trust, Platinum Palladium Trust, or other unique vehicles that give exposure to both Senior and Junior Miners, we offer a basket of solutions in that space through Closed End Trust and ETFs.
Through our managed equities, you can allocate directly to mining stocks through our flagship Gold Equity Mutual Fund with the ticker symbol SGDLX, as well as our Energy Transition Critical Mineral Strategies, and last but not least, our Sprott Hathaway Special Situation Strategy, which focuses on gold equities.
Within the net private strategy suite, we offer bespoke credit investments to mining and resource companies.
At this time, I'd now like to turn it over to Steve to talk about "Prioritizing the Energy Transition." Steve?
Steve Schoffstall: Slides 5-13, Prioritizing the Energy Transition
Steve Schoffstall: Thanks, Ed. Before we get into looking at individual critical minerals, I think it's important that we step back and take a look at the broader energy transition, what opportunities are emerging and what's really driving those opportunities, mainly in the way of mandates and increased investment that we're seeing in the sector. One thing that we like to talk about is when you think of the energy transition, it's not really a new or novel idea, this is something that human society has been going through all throughout history. If you go back in time a little bit, 150 or 200 years ago, most of our energy came from burning wood or coal, and then once we discovered oil in Pennsylvania, that really shifted us into the gas age. By the 1950s, we were starting to rely more on natural gas, and by the sixties, oil had taken over as the largest source of energy, and that's when we really started to see nuclear energy also get commercialized.
If we fast forward to where we are today, we're in the early stages of that next step of the energy transition. Wind and solar and hydro, they're not new, they've been around for a while now. And they're becoming even more common as we make this conscious shift toward cleaner energy sources.
EVs, which were in their infancy just a decade ago, are starting to have rapid adoption globally and starting to catch on here in the U.S. As we'll discuss later, nuclear energy is undergoing a new renaissance as well.
But we hear a lot from investors who are fully bought into the energy transition, and we also hear from investors who may be a little more skeptical. And I think one thing that we like to discuss when we get both sides of that coin is we're really at a spot now where the energy transitions are in motion, global governments and companies are really putting investment resources and re-imagining economies to move toward these greener forms of energy. It's coming whether we agree with the reasoning or the rationale behind it. And so one of the things we like to do is, is point out what investment opportunities are emerging for anyone looking to take advantage of those opportunities.
You could see here on your slides that we do have 97 countries that represent about 80% of global greenhouse gas emissions that have signed on to some part, either through making a political pledge or starting to enact laws that require the transition to cleaner energy.
Moving to the next slide, we can look at what this looks like from a practical perspective. There are a number of ways that we see this playing out. First, we're going to transition away from fossil fuels. And the view we take on that is we don't expect, at least not for the foreseeable future for several decades, any abandonment of fossil fuels. We think that, over the long term, they still have a role in the energy transition, they're very good at providing that baseload power for times when the wind doesn't blow, and the sun's not shining. We think there's still a role for natural gas and oil going well out in several decades into the future, and that's something that we don't see changing at any point in time in the next three, four or five decades or so. We're also seeing a renewed interest in nuclear power. Per will dive into that more as we go through this presentation.
But countries that were at one point a little hesitant to delve back into nuclear energy have really gotten that renewed interest because it does really emit zero greenhouse gases, and it aligns with their agenda. It's also, in addition to being clean, it's very reliable, and it can help with energy security, all things that we'll touch on later.
And then, finally, we're going to see an increased need for battery storage to offset the intermittency of power production, whether it's coming from solar or wind. And then also, in the form of electric vehicles, we'll need the batteries to power those vehicles.
Moving to the next slide, one of the things we like to look at is "How has the investment in the energy transition changed over time?" Last year was kind of a banner year for a couple of reasons for investment. When we look at the global total investment, it was about $1.1 trillion just last year alone, most of that was either around renewable energy or as it relates to electrified transportation. And that can involve building out charging networks as well as infrastructure for EV manufacturing and things of that nature. Not only was the $1.1 trillion the significant number because it's the first time that we really topped $1 trillion in investment, it also puts us on par with the investment that was made into fossil fuels last year as well, so we've reached parity from that perspective.
Moving to the next slide. We're at a critical junction, as it relates to the energy transition, where we're starting to see governments and private companies really start to flood the investment landscape with dollars and mandates. And they're starting to realize, not only are we trying to decarbonize and move to greener technologies, but there are issues around the available supply of critical minerals. On top of that, we're seeing some supply chain vulnerabilities.
When we look at the results of what happened over the last several years with COVID-19 and the war in Ukraine, we're also seeing significant moves by Russia and China to increase their alignment and their influence with resource-rich countries, particularly in Africa and in some parts South America, so that's definitely a supply chain vulnerability that we have going forward.
In the U.S., we're seeing a considered effort to prioritize securing critical minerals. And a large focus of that is as it relates to battery metals. There's also a growing openness to increase the usage of nuclear energy, which is about 18% of our energy output. And again, Per will talk through that throughout the presentation.
Recent legislation, like The Inflation Reduction Act, provides about $369 billion of incentives to onshore new technologies. Whether that's through mining or tax credits for refineries or end users for EVs, we're seeing significant investment from that perspective as well.
And then, finally, we're seeing a global alliance in which many Western nations are working to ensure that critical minerals are being sourced from friendly countries. In many cases, in order to be eligible for tax incentives, companies will be limited as to where they're securing that material from.
I mentioned earlier that we reached a record in global spending. And while China traditionally accounts for a large percentage of that investment, the U.S., Canada, UK, and EU member countries are ramping up spending as well.
If we go back to July 2021, just about two short years ago, these countries combined spent about $380 billion on the energy transition in the 15 months since then, through November 2022, we're seeing that investment is now topped about $1.2 trillion. Significant investment is happening. Typically, what we see with the energy transition and nuclear in general is, that it's not very active in the U.S. relative to what we see in Europe and Asia, so we tend to be a little bit insulated from that. Still, it is starting to come home much more quickly now.
Digging in on the IRA, the Inflation Reduction Act, just a little bit, it is the largest climate legislation we've had in U.S. history, and I think probably the worst named bill that we've had in U.S. history. According to the Congressional Budget Office, we are expected to spend almost $400 billion on clean energy initiatives. I've seen other independent research that estimates that we could see that figure balloon north of $700 billion by the end of the decade. It seems the risk is on the upside that we'll overspend rather than underspend to support the transition.
Of that, about $100 billion dollars is earmarked for credits related to the production or investment of renewable energy. And then we also have another $30 billion allocated to nuclear power production and $20 billion in clean fuel and vehicle tax credits as long as certain conditions are met, like including the materials being sourced coming from certain countries.
Next slide, please. In the 12 months since the passage of the IRA, we've seen more than a hundred new clean tech manufacturing announcements totaling more than $80 billion of investment hit the news. And while some of these investments are related to solar and wind energy, you can see by the red dots on the screen those larger red dots indicate the size of the investment. The battery sector, as it relates to refining and battery construction, is getting the lion's share of the investment dollars there.
And we have, if you look from Michigan down to Georgia, you're starting to see somewhat of a battery belt forming. And states are also providing incentives to companies in order to move production there. A lot of auto manufacturing's moved to the south in recent years, South Carolina and Georgia, in particular, are out there. Education and their educated workforce and the number of workers involved in the automobile industry are ways to lower those battery production and battery plants to their states.
Next slide, please. We'll spend a little bit of time walking through and talking about the investments that are being made. If we look at the other side of the equation, see, "Well, what does that mean actually for corporate revenue?" As we mentioned, about $1.1 trillion in investments are being made. That's a significant amount. But when you look at the revenue that's been generated, not just of that 1.1 trillion, but where we stand as an economy now, we have over two and a half trillion dollars that's been generated in revenue from 8,000 different companies. With that, we have a number of sectors that have revenues over $100 billion, with that electrified transportation, you know, about almost $400 billion. And the nuclear power, which may surprise a lot of those based here in the United States, is about 332 billion dollars in revenue that we're seeing from the transition.
And next slide, please.With that, I'll hand it over to Per, and he can talk through the opportunity in Uranium.
Per Jander: Slides 14-22, The Role of Uranium in the Energy Transition
Per Jander: Thank you very much, Steve. That's set the stage very nicely. We can stay on the slide for a bit because I just want to talk about Energy Transition. The attitude has changed a lot towards nuclear energy over the last few years. As focus shifts and inside in general, we have to decarbonize. Energy transition has been quite very wide term, so it basically means that we are going to decarbonize whatever energy production that we have, but at the same time, we're also going to electrify a lot of energy sources that, or a lot of energy consumption that hasn't necessarily been using electricity so far. We're looking at first facing out the fossil side or carbon-intense activities, and also, we're looking at a massive increase in electricity consumption. Those two things combined form a big challenge we're facing over the next few decades.
One of the main topics or themes leading to this changed attitude toward nuclear is that as reality starts hitting, we've all been talking about solar and wind for a long time, and that's all agreed, they're very good technologies. Still, when you rely a lot on them, they cause some issues. We're seeing it in Germany, obviously very dependent on whether the wind blows. I'm over in Europe right now, and yesterday the wind didn't blow at all, and the price peaked at 500 Euros a megawatt. That's probably roughly the same as $500 a megawatt hour, significantly higher than what you normally see this time of year.
We also have examples from Texas a couple of years back. Of course, it got really cold, and it knocked out some of the windmills. We have dusting issues for solar panels. It's not the golden or the silver bullet that everybody's been looking for, it's not the perfect solution. In order to have a stable grid overall, you need this base load power that is always there, and that is very reliable. And as people realize that you can get that in a few ways. You can get it through fossil fuels to turn on whenever you want them to turn on, but of course, that's the downside the more you use them, the more carbon dioxide you produce. And you can use nuclear engines. Those are your two options essentially. I think that's what the main driver is. We get to the end of security issues and current international affairs as well.
But, if we go to the next slide, if we go into this and look at some of the main benefits of nuclear energy, obviously, one I talked about in the graph on the left here is reliability. And then, normally, you count that in the capacity factor. Essentially, assuming that a hundred percent capacity factor means the plant is running more or less all the time. And that's why we believe that nuclear energy is head and shoulders above other options.
Now, first one to admit that it's slightly misleading to have fossil fuels here at very low capacity. Oil, for example, at 16%, of course, you can use an oil power station almost a hundred percent of the time, but that means you burn a lot of oil, which could be costly or cause you to have a lot of emissions. This is more to show the effect of intermittent power sources like wind, solar, and to a certain extent, hydro as well. That's where nuclear is there, whenever you need it to turn it on, it runs 24/7, and you stop it once every 12, 18, 24 months, in some cases even to refuel. And that's essentially it. It's there when you need it, more or less all the time.
And then, shifting focus to the right-hand side, we're looking at Carbon Emissions. And here again, nuclear has virtually zero emissions, and this is over the livestock. This includes mining, fuel manufacturing, decommissioning, all those things. Operations itself is zero, so the small numbers that you see here are all from construction, mostly concrete, essentially, and decommissioning. And this is looking at obviously the carbon footprint, and something that's not even on here is, and that getting more and more talked about, is the physical footprint where "How big of a land area are you going to? What's the land use per megawatt produced or megawatt produced?
And again, nuclear is a very dense source of energy, first when it comes to fuel, but even when it comes to the land mass that you use itself. Whereas I'm sure you've seen pictures from California where you have entire hills covered with solar panels, which, again, the solar panel is great, tends to peak in the middle of the day when you have a lot of demand for it, but it changes the landscape at some point. And you see pictures of windmills covering land areas as well. That brings some issues as well that's starting to be a little bit more focused on that.
And then another topic that's also not here is, "What about the waste?". That would be the first thing people say about nuclear energy. It's like, "Well, the waste is not taken care of". And it's interesting as acceptance, getting higher and higher for nuclear energy that the waste issue effect is turning into a benefit because nuclear energy is the only energy source that has full responsibility for its waste. It's all in these containers packaged, and very easily managed, so it's not necessarily a technical issue, it's more a PR issue.
And as people are educating themselves more, it's realizing that nuclear does take responsibility for its waste, versus you look at a fossil power station, it's released into the atmosphere or on the terms of renewables that, yes, windmills are, of course great. Still, there's no clear solution of what to do with the spent through windmill blades. They're very durable, but that means that they don't easily decompose either. You put them in big landfills right now, and it's turning into more of a discussion where people look at nuclear and see the waste issue as an advantage. So yes, we'll see where that all ends up, but I would not have expected that 10, 15 years ago, but again, here we are.
We can go to the next slide. And just to see where the nuclear reactors are today. Yes, the U.S. is the biggest country, with about a hundred reactors listed. Canada's quite intense. Europe has a lot of old ones. Where the big push is in China and Asia. The Chinese are growing extremely fast. They have a very aggressive expansion program where they're talking about building up to 150 reactors over the next 15 years. about 10 reactors a year. It has been done before. It happened in Europe and the U.S. in the seventies and eighties, but now, we're seeing that level of growth over in Asia.
And these numbers are from a report that came out from an industry association that I just had a big conference last week in London. The numbers are from the actual producers themselves or the utilities themselves and not from sort of secondhand information. This is all the latest data you put in there. And we're looking at about a 28% demand increase by 2030. And this is significantly up from a similar report that came out two years ago. And a lot of this depends on life extensions of existing power stations that they're reversal in policy decisions to face out nuclear energy. They decide to keep them running because they're extremely profitable towards the end of their life. All the capital costs are already paid off. And the operating costs, if I'm going to touch on that in a little bit, are extremely low. You are basically getting "free" energy. We also see a lot of expansions in reactor programs, and new countries popping up, and we're going to touch on it a little bit later. Some smaller and newer reactors as well.
We can move on to the next slide. Steve touched on it before too. A lot of positive news in the U.S. There are policy changes. I think currently, we see 15 bills that are possible in front of the Senate and House that are positive for nuclear energy. Unfortunately, the only problem is the spending caps stop them from being implemented, that for example, there's talk of putting sanctions on Russian material. That won't happen until you are confident that the domestic industry, a fuel industry in the U.S. is going to be able to cover that need. While they're going to need some funding for that, and the spending cap kind of has prevented that from happening so far. It's more or less assumed that it will happen fairly soon, but no decisions have been made to date. Regardless, it's a very positive development because there is bipartisan support here in the U.S. now that we're seeing policy support from the industry that we've never seen before.
Looking across the pond in the European Union, there are a lot of developments there too. The Great British Nuclear (GBN) program is a very aggressive expansion of nuclear in the UK, not just for reactors, but also for the fuel cycle itself. I'm currently in the Netherlands, and they are certainly talking about both small and large reactors. And we're seeing it on other levels too. We have examples of the green parties that are coming around that traditionally have been very anti-nuclear, they are now speaking out in support of it. Because again, what I touched on earlier is that reality's starting to hit. And you got to pick one of the two. You can't be against the expansion of nuclear and also want to decarbonize at the same time.
France is expanding, and a lot of new countries extending reactors and building new programs. China, I mentioned before, with the unprecedented growth, that's just no other countries matching currently. Great stories out of Japan and South Korea, both were more or less looking to phase out their nuclear programs. Japan, following Fukushima, and South Korea just had an anti-nuclear government. And we're seeing restarts of many reactors and complete policy reversal. So, very, very positive.
Again, we can switch to the next slide, please. So, Supply and Demand situation. If we look at the graph in the middle of the slide here, where we are today, obviously, yes, demand is growing, and this green line demand line is kind of the shape of the shifting. Again, this report came out last week. Prior to this, I'm not sure if it's entirely worked its way in here or not. Still, these demand numbers are changing from month to month, more or less, so it's almost hard to keep up as life extensions are coming on or new reactors and planned production coming on, so we're trying to update it as much as we can.
If you look at the yellow, the supply side of things, you have a big ramp-up that's been happening, and it's continued for the next few years. And that's because of the slump the market has been in since Fukushima, where a lot of production was shuttered, prices plummeted, and now when there's certainly a certain amount of price recovery, they're coming back online. Most of the stuff coming online if not all, is already pre-sold and committed to end customers. And if you follow the Uranium market closely, there was on Sunday, just before this big conference last week, Cameco, the large Western Canadian producer, if you will, announced that in their restarts, they're having some issues.
And they announced up to a 7, 8% production decrease from deviation from planned production because of some startup issues. So, it's even from existing large facilities, it is not a certainty and easy to just ramp up as well. And this is something they're struggling with as well. There are a lot of different places. And as we go out in time. Obviously, a lot of mines are depleted, and the supply-demand gap is just widening.
And, of course, looking at it, it's a little strange. It looks like you have a constant deficit. And yes, there is from primary production, but that has traditionally been met by what we call secondary supply, which is government inventories, utility inventories, and even some idle capacity of other plants in the fuel cycle that we don't necessarily have to get into now. But if you have idle capacity, that essentially means that you can turn it into a sort of uranium mine of sorts. So, a little bit complicated, but either way, that is a complete reversal from what's been happening before when there was an idle supply, now with the geopolitical situation in Russia, it's turning into the complete opposite where you need more uranium than you have done.
We can move to the next slide. And this is looking at Utility Demand. So, if you look at supply on the last one, here, we're looking at some demand, what's happening on the utility side. 15 years ago, there was a run-up in the uranium price, up to $140 a pound, that was triggered by some production issues at a lot of mines around the world. At the same time, China was advancing its program very aggressively, and there was simply a shortage of uranium. It's a squeeze there. You saw spot prices shot up. And then, one, the financial crisis happened, a lot of the nuclear power stations and projects were shelved, and then, on top of that, in 2011, you had Fukushima, and demand just dropped off the cliff, essentially. Of course, people who are junior miners and production assets that were planning to come align into this new price environment, it takes five or more years to come into production. They all came into production right as Fukushima happened, so that led to a very dark period for about 10 years with very depressed prices, and now we're finally starting to see that surplus being eaten into and gone to a very large extent. And now we're running out of that secondary supply of uranium and contracting is ramping up.
We're just from last week talking to a lot of utilities, seven out of them are sending out tenders here in the coming couple of months, which is a lot more than normal. A lot of this is triggered by what has happened when the Russians invaded Ukraine.
We go through the fuel cycle a little bit. The uranium comes out of the ground, then that's what we call natural uranium, but then you need to convert that into a gas, and then that's when you enrich it. This might be news to you. If it is, it might be a little too complicated to go through, but it's just different steps in the fuel cycle before you create a ready fuel bundle to stick into the reactor. And these steps, not the uranium itself, yes, Russia is quite small in that sector. Still, the two following steps, the conversion into a gas and the enrichment, Russia is very large. Obviously, the Western world is trying to remove its dependency on the Russian supply of those services. And two, they realize that this might be a problem. As soon as the Russian invasion of Ukraine happened, they moved the contracts for those components as quickly as they could. And now they've done that, then they moved to the uranium side, which is the most commoditized component of the fuel cycle. And we're seeing a very large increase in the contracting activity. So, we expect the number that you see on 23 there is certainly coming up. We expect that to just keep growing over the coming years but into a very, very thin market.
We can move on to the next one. And then, talking about a little bit of what we're looking at on the uranium supply side. During that dark period that I talked about, there was no exploration going on, producers just completely shut down their exploration groups. There was no development either so that slump is starting to hit now when we need to ramp up. You just can't respond quickly to the increased demand, so we're trading by a few years. You're looking at a delay of three to five years before anything's going to come on. So, it's certainly lost that time, and that's probably going to be reflected in prices over the next little bit.
Lead times are long, and not easy to get permission to build these things. And even simple things as, when you restart your mine, that's just access to sulfuric acid, which is one of the biggest sorts of components or materials that you need for the mines that are in Kazakhstan, for example. They can't get it, they can't get enough of it, so they wanted to increase the production this year, but they simply couldn't.
In other cases, in Cameco, there's, obviously in Canada, there are other factors, but nevertheless, it's not as easy as flicking a switch, so we are looking at expansion delays, and that is leading to this shortfall we're seeing just as the utility contracting is picking up at the same time. Not seeing a perfect storm, but it's the wind is certainly picking up.
We can move on to the next one.
Edward Coyne: Hey Per, before you go to the next slide, I wonder if you could just touch on it for a moment, the typical lead time to bring a new mine into production. I'm not sure a lot of investors appreciate the amount of time it takes. What do you typically see in bringing a new mine to production?
Per Jander: I would say, five to seven years, if you're good, that's what everybody plans for. But, while I was talking to an analyst who has been working in the field for over 20 years last week, he said in his, and this was not just uranium. Still, the uranium is certainly no exception, but I think he said, "I've seen one or two projects that have come on budget and on time".
And when we're looking at the price situation of uranium too, when the production was idled back, say, five, six years ago, if your production cost, you aim, that your break-even was $50.50 a pound, that number is now 75 or 80. So, no new mines are coming online at these levels we're looking at now. You need something a lot higher to incentivize new production. So, that's certainly just like you have labor costs, materials, costs, inflation, all these add up that it's a very sharp cost increase for producers.
Edward Coyne: Interesting. Thank you. I just wanted to clarify that for some of the listeners. Thank you.
Per Jander: No, that's a great question. I was going to touch a little bit on the geopolitical situation. And like I said, Russia is, yes, it's a very hot topic, and they're not, as you can see on this one, they're only 5%, but this is only the uranium component of the fuel cycle. You have these services that you need, and they are, yes, 30 and 40%, respectively of the next steps in the fuel cycle where Russia is. So, you are very dependent on Russia. It's trying to move away from it.
And another factor is that, you see, only Kazakhstan is a very, very large portion of the world's supply of that material. And there are no reactors in Kazakhstan, so the uranium that comes out of Kazakhstan needs to go to either China, which is a very large consumer. Still, to the West, it needs to go to Canada, to France, or the U.S. Those are the next facilities where the next step in the fuel cycle will happen. Traditionally, it's all gone through Russia. Well, that's one, quite risky. And two, some JV partners with Kazakhstan, don't want to go through Russia because they don't think that's an option. So then, Kazakhstan has, you either go through China or there's the route, it's called a trans-Caspian route, where you go through Kazakhstan, you go across the, the Caspian Sea, you go to Azerbaijan, you go through Armenia, you go through another port and put it on a boat, you go through the Black Sea, which is also not entirely safe these days, and then, through the Bosporus and out in the Mediterranean. So, this is not a cakewalk, and there are limits on how much volume you can ship through there. So, for the time being, the majority of this material goes through Russia, but at the same time, the Russians themselves are running short of natural feedstock for their facilities. So, it's an increased focus on this situation where for how long can you rely on shipments to task down.
And add to this the current situation in Nigeria, where Niger is like, yes, it's 4% here. They've got a couple of idled mines. It's potentially a fairly large country when it comes to uranium production. They haven't been profitable. There were plans to start up, but even in the current situation, it is a bit of an issue. Most of that material goes to France. But, the big French producer, Oramo, just a few days ago completely shut down production in Niger and said that "We're not starting it up until there's a pro-French government in place," and that's about 5 million pounds a year.
Now, there's not a lot of shipments every year. That's about three or four of them. The last one was in July. But, if the one slated for November or December doesn't happen, that's even going to put more pressure on the current situation. So, something we are following very closely.
We can go to the next slide. Just looking at the Price Development here. You can see the price pack back in 2007 that I talked about before. And then, how it was fairly low for the time being, it's picking back up again. I mentioned how new mines need the $80 to $100 range to come back online, and we are looking at a very, very tight situation in the next two to three years, at least.
One interesting aspect here to work to point out, though, is that, if you have a nuclear power station, your operating costs are quite insensitive to uranium prices. It's about 10%. So, if you have a doubling in uranium price, your total production costs are barely going to be affected by it. Now, if you have a gas-powered station, that number is about 70%. So, if gas gets very expensive, one, either electricity gets expensive, two, or you just don't produce there. Whereas uranium is more or less completely insensitive to this. So even if you run uranium doubles in price, you will not see any power station shut down because of that.
So, the pricing sensitivity is something to keep in mind as well. Of course, I'm not saying that uranium is going to the moon and everyone's going to be happy about it. Still, considering what happened to electricity prices in Europe last winter, no price is too high for uranium for producers to buy it or for, yes, the electricity producers to buy it.
So, I'll stop talking there and pass it back to Steve, but I'm certainly available for any follow-up questions.
Edward Coyne: Which we'll do at the end of this webcast. So, thank you for that Per. And Steve, let's turn back to you briefly just to talk a bit about "The Case for the Critical Minerals."
Steve Schoffstall: Slides 23-39, The Case for Critical Minerals
Steve Schoffstall: Thanks Per. Yes, so we'll spend a little time, if we move to the next slide here, running through some of the other critical minerals. We tend to think of them in three different buckets. We have those minerals that are used in generating cleaner energy, so uranium, which we just went through. Silver, and rare Earths, given their strong magnetic properties, are used also in EVs and aren't just relegated to wind turbines. On transmission, we think of copper. That's one of those things that anywhere there's electricity, there's a good chance that that copper's involved. So, it does stretch in the generation, transmission and the storage component.
And then, finally, on storage, we think of lithium, nickel, manganese, cobalt, and graphite. All those are critical minerals necessary for the various battery chemistries, whether it relates to EVs or battery storage or energy storage components for backing up solar and wind farms and other energy sources.
On the next slide, we'll talk briefly about how these minerals are used. Represented by the larger dots would mean that that mineral is more important for that aspect, the smaller dots mean there's no importance or not important at all.
So, we spoke through uranium, let's just focus a moment on copper. What we see there is, you know, I mentioned it's in EVs. We see it in solar power and wind farms, hydropower. Anytime that we must connect an energy source back into the grid, copper's going to be involved in that for the lines to get everything hooked up. And that's not only going to extend to the electricity networks but any electronics we have, any wiring of batteries in electric vehicles or the associated electronics there will rely heavily on copper.
When we look at EVs in particular, lithium will play a significant role there, as it's the main metal of importance there. Within the lithium-ion battery, nickel, manganese, cobalt and graphite are all used in various battery chemistries. And to varying degrees. some battery chemistries increase the amount of nickel, hoping to decrease the reliance on cobalt. Others still have a significant portion of cobalt involved.
And then rare earth, given their magnetic properties, are also used not only in wind power but also in EVs.
So, onto the next slide. So, when we talked about the Energy Transition, we did talk about moving from our traditional energy sources to clean energy. So, we do have a ramp up that we have to do in how we're generating power. Another thing that we must account for is, is not only population growth but also as it relates to developing economies. As these economies, many of which are resource-rich and may benefit from the energy transition as we pull those minerals out to the ground, we expect to see a rising middle class in many of those economies. And then, as technology advances in more developed countries, we expect to see more energy needs from that. And I guess the easiest way to represent that would be as we're increasing our EV adoption, we would expect to need more electricity to charge those vehicles. So, that's driving this 76% expected increase in electricity demand relative to 2021 out to 2050.
Next slide, please. So, this is one slide we like to show. It does talk about how much growth we need to see in lithium to meet expected demand. So, when we look at lithium, for example, we see about a 15 times growth that's needed through 2040 to meet the expected demand. If we were to look at this back until 2020, we would see a number that's closer 42 times. So, we've been able to increase our lithium capacity. There are expectations that new technologies may potentially decrease the reliance on some of these critical minerals and in certain instances, may also actually increase the amount of minerals that are needed.
Nickel, given its importance in EV batteries, is also expecting to see over eight times increase in demand out to 2040.
Next slide, please. It's probably no surprise to see, if we were to look at the growth in EV adoption, you can hardly go anywhere now without seeing a Tesla, that we've had a pretty much a hockey stick type growth here in the last several years. So, last year alone, on a global scale, we had about 10 and a half million EVs sold. Going back just four years ago to 2019, that's five times that figure. So, we're seeing this ramp up in adoption.
Just to give you an idea of what that might look like at the end of the decade. If you look at estimates from the International Energy Agency, you could see that they've estimated about 350 million EVs are on the road, whether that's just passenger or light commercial, by the end of the decade. In order to reach that figure, we would need about a 45% annual growth rate to get there. So, a significant upside on the adoption of EVs as expected through the rest of the decade.
Next slide, please. So, if we look at where all the EVs are going and who's buying them, China is a leading user of EVs. We're seeing significant growth. If you look in that green column, the electric growth column, in Southeast Asia and India, both over 200% growth in EV sales. At the same time, they are small players in the EV market as of now, so you would expect some higher growth rates. Internal combustion engines, so those gas-powered cars are still growing in those regions as well.
The interesting thing is when you start to drill down into other countries. So, Japan, for example, had a hundred percent increase in EV sales, while the gas-powered cars are decreasing, so about 7% decrease. Similar story in the U.S., so not as pronounced -- a 50% increase in EV sales, relative to the gas-powered cars falling about 10%.
On a global scale, we're seeing a 62% growth rate versus a 4% decrease in internal combustion engines. So, when that all shakes out, in that final column over there, you do see that passenger car sales are on a global scale, increasing about 2%, and that's driven by EVs.
Next slide, please. One of the big issues we've had with EVs in the past is the drivable range, and that's going to be an issue for different countries, right? So, suppose you think of Europe and China, and in particular Europe, where the population is congregated around urban centers. In that case, the drivable range isn't necessarily as much of an issue as it is in the U.S., where we don't necessarily have the infrastructure of trains and other modes of transportation. So, we've seen in the last four years a pretty significant adoption of the number of vehicles that can drive, it says 400 kilometers, so you're talking a little less than 250 miles of drivable range. So, we went from a handful in the United States in 2018, now we're over 50 different models that can now drive 250 miles on one charge. In China, they're getting close to 150 models. So, some significant growth there.
Next slide, please. So, what does that mean from a practical perspective? So, there’s old political cartoons and other notions that, you know, having an EV is great and all, but at the end of the day, you're going to plug that in the charge, and you're going to get the coal power from a coal-powered plant, so what good is that doing?
What this chart does a good job of showing is one, that about 40% of the global electricity at this point comes from clean energy sources. Out to 2050, we expect that to be above 75%.
And then secondly, while we're seeing this uptick in EV adoption, it still only accounts for less than 2% of the miles driven. That also out to 2050 will converge, where we will see more than 75% of electricity come from clean energy sources and about 75% of the miles driven coming from EVs. So, plugging in and charging your car is going to be much cleaner than it was, say, 10 years ago when EVs first started rolling out.
Next slide, please. So, we have a few slides here just to talk about how the different minerals are used within cars and some other technologies. So, we'll run through these relatively quickly, so we have a few minutes for questions. When you look at an EV, most of the metals are going to be used in the battery. So, that's made up of the cathode, which uses lithium, nickel, cobalt, and manganese on the anode side, it's using graphite, and then the motor's going to use the rare earths. Then copper's going to be used throughout the car to wire everything together and deliver that electricity.
Next slide, please. So, what's that account to? If we're looking at the amount of material per car, we've included zinc in these numbers here as well. A conventional internal combustion engine vehicle is going to have about 75 pounds worth of minerals in there, an EV's going to be closer to 450 pounds. So, as we do increase our reliance on Electric Vehicles, the demand for these minerals is going to increase greatly.
Next slide, please. All in, when we look at the battery itself, we have about 408 pounds for a typical EV battery of material just to make up that battery. Typically, those batteries are large and heavy and run pretty much the full length of the underside of the car. So, there are new technologies that are emerging, particularly solid-state batteries, where they're trying to decrease the amount of weight going into the car. And the thought there is that "If we can decrease the weight in the car, we should get a better drivable range". And, the way in which those batteries are constructed, instead of spending an hour to an hour and a half to fully charge the car, you might be able to see full charge times, get down to 10 or 15 minutes.
One of the key problems we see with the solid-state batteries is that they are very costly. Since they are solid and don't have any liquid components like lithium-ion batteries, they do still use lithium, but they use it in a more pure state, a much more solid state. So, you're increasing the amount of lithium for a solid-state battery by about five to 10 times. So, in order to get commercially viable, we're probably looking at some point in the middle of the next decade where most estimates are coming in.
Moving to the next slide. So, this is just an illustration of how the energy flows through a typical lithium-ion battery. So, you have ions that are flowing between the anode and cathode, that's where solid-state batteries try to increase the efficiency and drivable range. Typically, with a lithium-ion battery, you'll have a membrane to keep the anode and cathode from touching each other, causing fires that you sometimes read about or see on the news, so they'll put a plastic membrane a lot of times between those two elements.
What solid-state batteries will attempt to do is, use ceramic and make it a little more porous so that those ions can go back and forth a little more efficiently.
Next slide, please. We talked a little bit about the growth and expected demand and how much lithium's used in EVs and other technologies that are coming up. When we look at what that means from a supply-demand perspective, we can see that outside of the little bump in supply that we're expecting to see here over the next couple of years, once we start getting into 2027, 2028 or so, we expect to be in a structural supply deficit as it relates to lithium.
There are new technologies, particularly Direct Lithium Extraction, DLE, which are starting to emerge. And most lithium now comes either from evaporation ponds, which can cover huge acreage to get lithium out of the water that's in the ground or from hard rock mining. What Direct Lithium Extraction tends to do is take those large ponds and be able to process lithium on something that's more akin to a warehouse size and basically take the brine out of the earth and separate it, and then be able to pump it back down without the need for these large ponds. There's a lot of testing happening.
The main issue they're running into is each place you go to set up a new DLE extraction plant, there are different chemistries in the brine, so they have to tailor each plant. So, that's one of the things that they're working through now is to figure out, "What's the best method? And then, how can they do that on a mass scale?" But I would expect you to hear more about that in the coming years and start seeing more of that.
Next slide, please. Just quickly looking at Cooper here. Copper's one of the most used metals, not only in electricity and EVs, but also as it relates to building, it's used in plumbing and pretty much anything that has electricity to it. You know, Chile is one of the largest or is the largest producer of copper in the world. They've been plagued by mines that are producing less. They do tend to have labor shortages in many parts of South America where copper is produced. So, we do expect to see a supply deficit over the coming years as it relates to copper.
One of the good things, however, about copper is that it's highly recyclable. And some estimates have the supply of copper that comes on the market as high as 60%. So, as we recycle copper, we're able to get that back into production and reuse that.
Next slide, please. And then, finally, I'd just like to touch briefly on what we're seeing in terms of investment. So, we talked earlier about the Inflation Reduction Act and how that's leading to battery manufacturers coming to the U.S., We're also seeing auto companies invest directly in either refiners or mines themselves.
So, the first one we have here, and we won't go through each of these, but GM last year invested $650 million in a lithium company to get the Thacker pass up and running out in Nevada. For providing that money, they'll get first dibs on all the lithium that comes out of that mine. And just today, we did see that the Department of Defense is giving out $110 million to Arbor Maro, which is the world's largest producer of Lithium, to get the mine up and running in North Carolina and then also another miner to get nickel up and running in Minnesota. I know we ran through that quickly, but I'll pass it back to you, Ed.
Ed Coyne: Slides 40-44, Energy Transition ETFs
Edward Coyne: Thank you, Steve. And thank you all for your patience on a very informative and long webcast. This is, I think, the first time we've taken it this far before we got into Q&A. A lot of material to cover. I'd encourage you to all reach out to your respective Senior Investment Consultants, which I'll touch on in a moment. But we are going to still open it up for questions. We still have north of 600 people on the webcast. To those that do need to drop off, we will have people follow up with each one of the questions. We're currently at 76 questions, but I want to read off a couple of those briefly.
But before I do, I want to talk just shortly about the suite of Sprott Energy Transition Funds. Regarding many of the things that we talked about today, whether it's the Physical Uranium Trust or the underlining ETFs that give you exposure to the miners themselves, we would encourage you to reach out to us and see how you could potentially look to allocate to this space and have it be part of your broader portfolio, whether it's through SETM, which gives you a basket of all the metals, with the ticker symbol, SETM, or if you want to make a more surgical specific allocation to pure lithium, uranium, junior uranium, junior copper or nickel, we have a full suite of those solutions.
Within that suite, the Sprott Energy Transition ETFs do provide a pure play investment exposure to the minerals critical to what we believe is the world's transition to clean energy. Not only is it a pure play exposure, giving you direct access to those specific metals and the mining companies surrounding those metals, but it's also with a firm like Sprott that has over four decades of experience, over 25 billion allocated to the precious metal energy transition marketplace. We do have, as you just saw, an extensive lineup, and these are all wrapped in a very convenient liquid low-cost ETF structure.
From a participation standpoint or how they would fit into your portfolio, you know, energy now represents more than 10% of the S&P 500 estimated net income, up from over 6.5% just a year ago in 2022. Its waiting in the index is currently 4.1% as of June 30, 2023. So, we believe, and we like to recommend and talk to our investors about the Energy Transition ETFs that should be considered for that energy allocation within an investment portfolio. And although you're getting some of that in the S&P as far as the way the income is considered, it's still underweighted, so this is certainly a place that we think going forward is going to continue to expand. We think we're early stages from an opportunity standpoint, and I think it could potentially fit nicely into your portfolios for yourselves and your clients.
As I mentioned before, for those who want to take a deeper dive into our product suite and learn more about what we do, on the next slide here, I've just taken the liberty to list our direct contacts. So, for those on the West Coast, our Senior Investment Consultant, Matt Harrison, for the Central Region, Julia Hathaway, and for the Eastern Region, Sergio Lu. So, I encourage you to reach out to your respective Senior Investment Consultants to learn more about what we do and how we do it.
With that, I'd like to turn it back to Millissa briefly before we open it up for some Q&A.
Millissa: Thank you. As a reminder to the audience, materials can be found in the, the document folder at the bottom of your screen. We appreciate your feedback. Please take a moment to fill out our brief survey also located at the bottom of your screen. Please type your question in the box under the media player window. And as Ed had mentioned, we'll get to the questions, but in the event your question is not answered on today's webcast, a member of the Sprott team will reach out to you directly.
If you'd like to have a conversation to further discuss the ideas covered during today's event, please click the blue 'Confirm' button in the meeting request box on your screen. And with that, I'll send it back to you, Ed.
Questions and Answers
Edward Coyne: Thank you, Millissa. Well, one of the questions that kept popping up throughout the webcast was infrastructure, can we truly make this happen or will it hamper growth? So, the question is, you know, while there's an obvious push for more consumers to own electric vehicles, the infrastructure needed for widespread adoption appears to be significantly insufficient. Steve, why don't we throw this one to you? What are your thoughts related to that? And do you see this hampering growth?
Steve Schoffstall: Yes. I think two things hamper growth in my mind. One is the infrastructure question, right? It does take a lot of time and a lot of money to build out the infrastructure. The second is getting the materials out of the ground and building out production so that we can get those deployed. Whether it's at battery plants or uranium for nuclear power plants, I think at the end of the day, you're left with a spot where governments, they have these laws in place, they have these mandates where they're saying, "We want to get this energy transition done." They do have targets. 2050 tends to be the predominant target for net zero carbon emissions.
In my mind, it's not a, "If we don't get the infrastructure built, then the transition won't happen," it's more of a, "Well, we might have to delay how long it takes."
So, I would still expect the transition to move forward, it just might take a little longer than maybe the planners are anticipating.
Edward Coyne: Thank you, Steven. And this next one, I think I would love to hear from both you and Per on this, and this is about just green energy in general. So, whether it's EV, storage, or whatever the case may be. The question relates to copper, but I suspect this is true for all metals. Green energy requires much more copper than the world currently produces, yet no one wants to permit any new mines. What do you guys see, and maybe we switch the Per on this one. What do you see, Per, as relates to new mines coming online? I know you mentioned earlier that you need probably $70 a pound or so for a new mine to come on, maybe a little less for an existing mine to restart. What do you see there as a supply-demand squeeze? Is there a real opportunity, or is it, basically getting carbon neutral by 2050 not realistic? What's your view there?
Per Jander: I would say, uranium is not going to shorten the problem. Uranium is quite plentiful around the world, it's just a matter of the cost of extracting it. For example, I think I looked at it over 20 years ago that you can get uranium from seawater, there's quite a lot of it in there, but the extraction cost was $400 a pound, so it's going to be something more than that today, but you will not run out of uranium. It will cost a lot more, but again, like I mentioned to you before, even if you do have a couple of multiple higher uranium prices, nuclear energy, I mean, I'm sure everybody realizes that electricity is going to be more expensive as we expand the use of electricity and we like electrify more activities than humans do, but they say it's a doubling an electricity price, that's not going to be a problem at all for nuclear energy when it comes to the cost of uranium. So, in my view, uranium will not be a shortage.
Now, permitting and getting the mines up on time, that's a completely different story. So, there certainly could be a squeeze and probably spiking in the interim, but the lack of uranium will not be a reason why we do not deploy money to uranium.
Edward Coyne: Great, thank you. And Steve, from your point of view, you know, the question specifically mentioned copper, but suspect this is true also for the other metals. Any area of concern you see from a permitting standpoint relative to supply and demand?
Steve Schoffstall: Yes. And you're exactly right, it doesn't just relate to copper, it is pretty much most of these critical minerals. We're starting to see; I mentioned the Department of Energy looking to provide funding for the lithium mine in North Carolina. We have a lithium that came on track in Nevada. I think what you're going to see as the governments are now waking up to the realization that they have some wind at their back as it relates to the energy transition, they're providing incentives, they're trying to reach onshore production of those minerals. I think what you'll see over time is the timeframe from discovery to getting a mine to begin to produce, I think you'll see that decrease. It's hard to say, from jurisdiction, how that'll play out, but I think we'll see that time close as we move through this transition.
Edward Coyne: Great. Thank you. And this one comes in the way somewhat of a product question. It says, this relates to the Sprott Energy Transition Materials ETF, the SETM. What is SETM trying to express regarding new technologies in material science? Or is it investing in value companies with already proven technologies?
Steve Schoffstall: Yes. That's a great question. And it does have a different naming convention than the Lithium Miners ETF or our Uranium Miners ETF. What we are attempting to do with SETM or Energy Transition Materials ETF is provide pure-play exposure to upstream companies, so those producers that are actually bringing those minerals to market. We think, well, one that really tails to our strengths as a firm and the relationships and institutional knowledge we have in the mining space. But second, by providing exposure to the miners rather than the end users or the producers of batteries or new technologies. We're not betting that any one technology is better than the other, going to benefit one firm over another.
What it allows is for investors to take a view of - we know that there's this change coming, and we'll take lithium as an example because it is pretty easy. We don't know what battery technology is going to be the predominant battery technology as we move forward and how many iterations that'll be, but it gives us an opportunity to invest in the theme itself without having to worry about that end product.
Edward Coyne: Thank you, Steven. As we're running a little over 10 minutes past the hour, we'll finish with the, with a political question. It's hard to talk about metals without getting into politics. So, the last question, we'll switch back to you, Per. How do you think the price of uranium will perform once the geopolitical tensions between Russia and the Ukraine are resolved? What's your view there?
Per Jander: Yes, considering the thesis is so much bigger than just the geopolitics, is it accelerating some uranium demand right now? Yes. But as I mentioned to you before, Russia is not a very large producer when it comes to uranium, so even when this blows over, hopefully, it does blow over soon, and when it does, I don't see it changing the overall picture very much anyway.
And of course, if there are sanctions in place, they don't take effect until the time, so I think it's going to take a while for them to come off as well. But the overall picture is just a shift in demand in time. It does not change the fundamentals.
Edward Coyne: Thank you. And we still have well over 440 attendees, which is great. In the interest of everyone's time, we'll cut off here at 88 questions., but we would like to remind everybody that we will be reaching out to each one of you individually via email and or phone call to address your questions over the coming days. Again, we encourage you to reach out to us as well to learn more about how we could potentially work together and help you allocate to this ever-growing opportunity. So, thank you all today for joining us. And Per and Steve, thank you for participating, and we look forward to working with you all in the future. Thank you.
Millissa: Great. Thank you all for such an informative discussion. As a reminder, materials have been made available for download and could be found in the document folder at the bottom of your screen. We appreciate your feedback. Please take a moment to fill out our brief survey also located at the bottom of your screen.
As Ed mentioned, if your question was not answered on today's webcast, a member of the Sprott team will reach out to you directly. If you'd like to have a conversation to further discuss the ideas that were covered during today's event, please click the blue 'Confirm' button in the meeting request box on your screen.
Thank you for joining us and enjoy the rest of your day.
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