Transcript: Copper is a strong play in the energy transition
Bryan Pilsworth of Foyston Gordon & Payne says a higher demand for minerals will favour Canada’s resource economy
- Featuring: Bryan Pilsworth
- August 13, 2024 August 9, 2024
- 13:01
- From: Foyston, Gordon & Payne
iStockphoto/Wand_Prapan
Bryan Pilsworth
Welcome to Soundbites, weekly insights on market trends and investment strategies, brought to you by Investment Executive and powered by Canada Life. For today’s Soundbites, we’re talking about the energy transition with Bryan Pilsworth, president and CEO of Foyston Gordon & Payne. We talked about the state of the transition in Canada, names he likes, and we started by asking about the most promising opportunities in energy.
Bryan Pilsworth (BP): We think one of the ways to participate in this transition is through copper. The path to electrification and decarbonization can’t happen without copper. So we believe that materials will be more important in the next decade. And it’s becoming more difficult to get materials out of the ground, either through permitting and regulation, or the grades of the materials are going down. And that talks to scarcity. And when things are scarce and demand goes up, price should go up. So we’re quite positive on commodities.
How Canada’s energy transition is going
BP: Canada is doing the transition very well. Canada’s always 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. That’s a big number. And then you throw in renewables on top of that. So in terms of our carbon footprint from our electricity, it’s extremely low, and that’s great. Clearly, with the energy industry, the carbon footprint is higher and it creates emissions. But I would say that the Canadian energy industry, and the Pathways Alliance and individual companies, they’re all trying to reduce their emissions. They’re all investing. So, we’ve got great foundations, and for those high-emitter industries, they’re all looking for ways to lower their carbon emissions.
How governments can help
BP: I would say that there’s been a very proactive approach, a good attitude and good spirit, frankly, by all the governments, both the federal and provincial governments, even though there have been some headlines of not always agreeing. So it’s very much a work in progress. One area where I think the governments in Canada can work a little bit better, though, is on the approval process. If you can’t get something approved, then you can’t reduce the carbon. It’s as simple as that. If it takes years to get approval to do something, then it just makes it more difficult to reach our 2050 Net Zero target.
Names he likes
BP: We’ve historically been material investors in the traditional energy sector. One area that we’ve expanded into recently is Canadian natural gas. And natural gas its a good transition fuel. And for the first time in a long time, Canada now has an ability to export natural gas, which will allow us to export to foreign markets. We think the demand for natural gas is going to increase. We’re also positive on the pricing environment if that demand goes up. So there’s good growth in natural gas, and one example of a company that can participate in this is Tourmaline [Calgary-based Tourmaline Oil], which is Canada’s largest independent gas company. They’ve got a great track record and an ability to be a low-cost producer. One other company that we own in our portfolios is ATCO [Calgary-based ATCO Ltd.], which is a utility company based out of Alberta, but they also have operations globally. They benefit both from electricity distribution, gas distribution, plus they have renewables. So they’ve got broad exposure to the overall existing energy sources and the new renewable sources as well. And that’s a great way to invest in the theme. It’s also a very inexpensive valuation, great dividend yield. So it’s really a great combination that you can sleep at night with. In terms of metals and materials that are required for the energy transition, copper is categorically the number one. We think, long term, Canadian mining companies that have copper exposure are generally beneficiaries of this electrification trend. And one company that has strong exposure to copper is Teck Resources [Vancouver-based Teck Resources Limited].
And finally, what’s the key takeaway for investing in the energy transition?
BP: Number one, transitions take a long time. So you can’t say that you’re just going to invest in a company that does renewable energy and not in traditional energy. It’s not an either-or proposition. Number two, you have to be careful about investing in themes versus investing in companies that can benefit in a wide variety of scenarios. You’ve got to pick high-quality companies that can endure the ebbs and flows of this transition. And the third thing is that carbon capture, it’s taking a bit of time but they’re moving forward, and it’s going to happen. And we actually think that’s good for investors, it’s good for Canadians, and it’s good for the planet.
Well, those are today’s Soundbites, brought to you by Investment Executive and powered by Canada Life. Our thanks again to Bryan Pilsworth of Foyston Gordon & Payne. Visit us at investmentexecutive.com, where you can sign up for our a.m. newsletter and never miss another Soundbite. Thanks for listening.
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