Copper is a strong play in the energy transition

Long lead times, rising mining costs and a steady increase in demand make copper an attractive investment for those looking to capitalize on the global energy transition, says Bryan Pilsworth, president and CEO of Foyston Gordon & Payne.

Speaking on the latest episode of the Soundbites podcast this week, Pilsworth said upgrades to electrical grids are driving an explosive demand for copper, and companies positioned to take advantage of that should do well as the green revolution progresses.

“The path to electrification and decarbonization can’t happen without copper,” he said, pointing to the tremendous amount of copper required for electric vehicles, wind turbines, data centres and transmission lines.

But even as demand increases, mining companies face dwindling copper mines and burdensome regulation, which slows production times.

“Our thesis is that it is becoming more difficult to get materials out of the ground. It takes 15 years to really approve a new mine to get stuff out of the ground,” Pilsworth said. “And where you once got a kilo of copper out of a ton of rock, it might be half a kilo today. So that talks to scarcity. And when things are scarce and demand goes up, price should go up.”

An added benefit for Canadian mining companies is that operations are paid for in Canadian funds, and the end product — the minerals — are priced in U.S. dollars.

“That means that if our Canadian dollar goes down, we get a benefit,” Pilsworth said. “So, it’s a hedge on a lower Canadian dollar.”

He said every country is handling the energy transition in its own way, influenced by resources, domestic economics and the local impact of geopolitical concerns.

“There have definitely been ebbs and flows in the clean energy transition globally,” he said. “There have been periods when it was very ebullient and things were going quickly, and then periods where it’s starting to slow down.”

As for Canada, he said the country has long been a producer of clean electricity.

“If you look at hydro and nuclear power in Canada, it’s almost about 70% of our electricity mix. So, that’s a big number. And then you throw in renewables on top of that,” he said.

The heavy emitting industries in Canada’s oilsands are making efforts to reduce their environmental footprints, with substantial investments in world-leading carbon capture.

“There’s been a very proactive approach by industry and governments — both provincial governments and federal governments — to make this happen,” Pilsworth said. “It’s very much a work in progress.”

Governments could further assist the energy transition by speeding the approval process for new projects and facilities.

“If we want to make the transition to a green economy, and we want to make ways to reduce carbon, then we’ve got to be able to approve projects faster,” he said. “It’s as simple as that.”

He suggested that investors in the decarbonization trend look for companies that can benefit in a wide variety of scenarios.

“Pick high-quality companies that can endure the ebbs and flows of this transition,” he said.

Among the names he likes is Calgary-based ATCO Ltd., a utility company with global operations. “They benefit both from electricity distribution and gas distribution,” he said. “Plus they have renewables. So, they’ve got broad exposure to the overall existing energy sources and the new renewable sources as well.”

Calgary-based Tourmaline Oil is an example of a company that can participate in the growing demand for natural gas. Pilsworth billed it as Canada’s largest independent gas company with a great track record.

And Vancouver-based Teck Resources Ltd. is a Canadian mining company with strong exposure to copper.

The energy transition will take time and there will be a need for traditional energy for decades to come, he said.

“You can’t say that you’re just going to invest in a company that does renewable energy and not in traditional energy,” he said. “It’s not an either/or proposition.”

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This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.