Copper’s Surge: Rewriting the Investment Case

For the latest standardized performance and holdings of Sprott Precious Metals ETFs, please visit the individual website pages: COPP and COPJ. Past performance is no guarantee of future results.

In this webcast, Steve Schoffstall, Managing Partner and Head of ETFs at Sprott, discusses copper’s evolution from a traditional construction metal to a critical enabler of AI, data centers, electrification and modern infrastructure. He examines the supply-demand forces driving prices higher and what copper’s growing strategic role may mean for portfolios.

Webcast Transcript

Kirsten Chang: Hello everyone, and welcome to today's webcast, sponsored by Sprott Asset Management. I'm Kirsten Chang, Senior Industry Analyst at VettaFi, and we are here to talk copper today. We're giving you Copper's Surge: Rewriting the Investment Case. We'll tell you how copper's traditional role in construction is being eclipsed by its critical function in AI, data centers and much more, and why that shift matters for portfolios today.

We'll talk about the supply-and-demand dynamics that have driven copper to all-time highs, what ongoing constraints mean for the commodity's future, and, of course, what geopolitical uncertainty could mean for pricing. We'll tell you how advisors can consider incorporating copper exposure into client portfolios, where it fits in today's market and why ignoring it may carry risks.

Allow me to introduce today's presenter. Steve Schoffstall is Head of ETFs at Sprott Asset Management. He leads Sprott's ETF strategy, including development and ongoing support for Sprott's U.S.-listed ETFs and European-listed ETF strategies. Steve, happy Thursday. Thanks so much for joining us to talk copper today.

Steve Schoffstall: It's great to be here. Thank you.

Kirsten Chang: It’s great to have you. I'm going to go ahead and bring the audience in with our first poll of the day, just to get your temperature here on copper and some of these metals. How would you describe your current allocation to copper or critical materials within your client's portfolios right now? Would you say there is significant allocation, perhaps strategically; minimal allocation, more tactical trades; no current allocation, but actively doing some research; and no current allocation, and no plans to add? Steve, not to put you on the spot here, but where do you think our audience might land?

Steve Schoffstall: I would say option C, no current allocation, but actively researching.

Kirsten Chang: That's probably a good guess since they're here to learn a lot more about copper. Let's see what the audience has to say. Again, how would you describe your current allocation to copper or critical materials? It looks like right on the money. No allocation, but actively researching. A good amount have minimal allocation, tactically speaking, with 20% saying strategically and then 10% with minimal allocation. That's the audience you have to convert on your side.

Steve, want to get your quick take on these results. Then why don't you dive right in and give us a rundown on Sprott and how you approach investing in these precious metals?

Steve Schoffstall: I think this is probably indicative of what we see from a lot of our conversations that we're having with investors. I think the critical materials space, in general, is one where we're starting to find that the more advisors and investors we talk to, the more they've already done some research coming into it, though some are still waiting to find that right allocation point or entry point to make their first allocation.

With that, I'll introduce Sprott for those who aren't aware of who we are. We're a Canadian asset manager. We have several decades of experience in the metals and mining space, and that expertise is what we're principally known for. As of the end of last year, about $52 billion of our assets were in our physical trusts. These would include physical gold, silver, platinum, and palladium, along with our suite of ETFs.

We also have the world's largest physical uranium trust, which is backed by physical uranium holdings, as well as the only physical copper trust in the world, which holds physical copper. We also have a growing ETF suite, both in the U.S., where we have 12 ETFs focused on precious metals and critical materials, and in Europe, where we offer a number of UCITS strategies for European investors and those seeking the UCITS wrapper.

In addition, we offer managed equities, active portfolio management and private strategies to certain investors. Today's conversation will largely focus on our ETF suite, particularly in the U.S., and on what we're seeing in copper.

There's a lot to unpack as we go through this conversation, but if you were to look at a few takeaways out of the gate, the first would be the structural demand for copper and the drivers behind it. We'll talk about all of these in greater detail as we move throughout.

Copper is one of those industries where it is a mined material, and because of that, there are significant supply challenges. In the last several months, and even in the last couple of weeks, copper prices have hit all-time highs. That's really bringing renewed attention and focus not only to the copper space, but also to the copper miners and investment from that side. When we look at the industry as a whole, we're in a phase where conditions are creating investment opportunities in miners.  

One of the main factors to consider for copper is the demand side of the equation. There's a lot to talk through on supply as well. When you look at copper, the first question that often comes to mind is: what makes this so important? It is one of those metals that has been mined throughout human history, ranking only third behind iron ore and gold.

One of the properties that makes copper so valuable is that it's the second-most-conductive metal on Earth, only behind silver, which is many times more expensive: $80-$90 per ounce versus about $5.80 per pound. That's why we tend to see a lot of uses where electricity comes into play, opting for copper rather than silver, which is more commonly used in higher-demand or higher-priced applications like semiconductors.

Because of the size of the market, we'll really dig into this as we go throughout: copper has traditionally been viewed as a barometer of global economic health. This is a new thing investors are starting to wake up to, and how it's changed over the last 4 or 5 years. 

Given the importance of copper to the global economy, many governments, including the EU, China, Canada and the U.S., are all designating copper as a critical mineral. This is important for many factors. Just this past November, the U.S. Geological Survey added copper to its list of critical minerals.

This is significant because once a mineral is identified and added to a government's critical materials list, it signifies how important that metal is to defense, aerospace, high-tech industries and other aspects of the economy.

What that really does is start to guide the overall policy on procurement and supply chain management. To any extent that they want to start stockpiling a metal, what types of incentives may the government make available to different actors within the supply chain? It also streamlines permitting processes, allowing production to really ramp up in a meaningful way.

Electricity demand growth is the single most important factor driving copper demand. We're going through a period now of surging energy consumption. In developing nations, this is driven by industrialization and urbanization. When you look at developed economies, you see technological advancements driven by AI, infrastructure buildouts and electrification. Reshoring the supply chain is becoming increasingly important as we move through this decade. It's really gone to the forefront.

Global demand for electricity is expected to increase by about 157% out through the middle of the century. One of the things that we like to focus on is not just on what we're seeing from the demand drivers from developed nations, but if we start looking at developing economies, one thing really comes to the top, and that is that economic growth is tied to how much energy a country has access to. We have it in the circle there (on slide 11) and augmented it because you don't have a rich country that doesn't have access to energy.

If you look at cumulative growth rates for electricity and energy demand, you will see that China and India, two of the world's largest economies, are growing rapidly. Not a surprise to see those high growth rates.

Some people are a little surprised to see that the U.S. has grown by only about 15% in energy and electricity demand over the last 24 years. When you go back and think about the Internet and technological advancements that we had at the early part of the century, we actually saw some significant growth in electricity demand up until about 2008, 2009, until the financial crisis.

Then we went into a period of a decade or so where we didn't see any meaningful demand for electricity coming out of the U.S. That's largely because, as the economy was expanding and as those reasons for increased electricity were being developed, those were largely offset by what we were seeing from an efficiency standpoint. As a result, we're seeing a much lower growth rate over that period. But as we move into the next decades and years, we're also seeing significant growth from the U.S.

If we start looking at the growth of some of these emerging economies, like India, Brazil, and, if you want to call China an emerging economy at this point, they do have very significant critical materials requirements, and that would include copper in that as well.

What we're seeing is the increasing standards of living, things that we might take for granted in the U.S. and a lot of Western countries, things like air conditioning, are expected to be a huge driver of demand for copper going forward and electricity for that matter.

In India, 97% of households have electricity, but only 8% have air conditioning. One of the points we'll talk about later is the weakness we're seeing in the Chinese market, as outlined in the last bullet point (on slide 12). This is the real estate market, that is. That has some implications for the changes that we're seeing in copper and how it's behaving. 

An area where we've seen significant growth over the last two or three years that didn't exist before was AI and associated data centers. These associated data centers, along with hyperscalers building massive, power-hungry facilities, are expected to be a significant driver of electricity demand growth.

Just to put that in perspective, if you go out through 2030 with expected electricity demand about 2.5 times current levels, we would expect to see just to power data centers. You would need the electricity that's needed to power all of Japan. Very energy-intensive applications and endeavors that we're seeing here.

Typically, hyperscalers like Google, Meta, Microsoft and Facebook are investing in renewable energy sources to a large extent because, at the corporate level, they often have a self-imposed clean energy mandate. Increasingly, we're seeing them go to nuclear energy as well because it has reliable baseload power. They're also looking toward natural gas because it tends to be cleaner than coal and other fossil-fuel sources. But because of that, we typically see these applications are much more resource-intensive in terms of copper.

We'll take a view a little later on exactly how AI contributes to electricity demand. But for now, it really is a very copper-intensive endeavor. When you build a data center, copper is typically used not only for tying into the grid but also for wiring within the data center.

We do see other technologies, such as fiber optics, that could be used in data centers. There are also occasions when we've seen fiber optics employed first, and then copper brought in because it can operate at much higher temperatures, reducing cooling costs.

Another area where we're seeing significant growth from the AI data center is in battery energy storage systems. These would just be typically battery backup that if they're getting power from solar or wind, they need to be able to stay operational 24/7. They'll store that power when they can. A lot of copper is used in these battery backup systems.

Just to give you an idea of how much we're seeing from the storage system, last February Google announced that it now had over 100 million lithium-ion battery cells. A lot of investment is being made, not only in lithium, nickel, and some other battery metals, but also in copper, which is necessary not only to wire batteries, but also to carry the electricity from the batteries back to the data center. This is AI in general, but these energy storage systems are also two areas where we expect to continue to see significant growth in investment, and we expect that to benefit the copper market as well.

Another aspect that really started to take center stage, I'd say, with COVID, and then once Russia invaded Ukraine, we really saw this thrust to the forefront, is energy security. This is an aspect of the supply chain that is now non-negotiable for most governments. That's one of the reasons we're seeing countries add copper and other critical materials to their critical minerals lists.

One of the main reasons for that is that fossil fuels are largely trade-dependent. As we're seeing with the ongoing conflict that just started here in Iran, it's very vulnerable to trade disruptions. After the bombing that happened in Iran, we saw natural gas prices in parts of Europe increase by about 50%, almost overnight.

These are aspects that, in parts of the supply chain, governments are really looking to reshore to get away from this energy volatility. In particular, if you look at the chart on the right (slide 15), it shows the significant growth in energy generation China has had. A lot of that has come from clean energy, and that's not because they're out there trying to reach some net-zero mandate or because they're so concerned about clean energy. A lot of that energy they're bringing online is nuclear, with 6-10 new reactors under construction or approved each year. We do see them as a leader in clean energy, but it's not necessarily for purposes beyond energy security, which seems to be driving those moves.

Another area which has ramped up in the last 6 or 7 years is defense spending. This is an area where we've seen significant investment and growth, and investment that we've seen coming from global defense spending. Now it's around $2.6 trillion.

For 2025 is the most recent estimate. That's about a 2.5% increase from 2024. Recently, NATO agreed to increase its defense spending from 2.5% of GDP to about 5% of GDP. This is an area that, when you start looking at all aspects of defense, whether it's jets, propulsions, ships, ammunition, smart missiles, autonomous platforms or AI infrastructure, it’s all very copper-intensive and is a new area of growth as these militaries begin to get much more technologically advanced.

Even though it doesn't seem likely that Net Zero will be met by 2050, many governments have it listed as policy, and in some places it's been enacted into law. The main takeaway here is not about reaching Net Zero. It is an instruction on what governments are looking to do. If they're investing increasingly in renewables, those tend to be critical material-intensive. That is, in our view, inflationary for many of these critical materials and their prices, and should benefit the underlying miners as prices rise.

The main takeaway here is for countries where Net Zero is still very much figuring into their overall policy and legal perspectives. They need substantial investments in their grid. Again, very copper-intensive, as well as other metals and materials to build that out. 

There's a change we're seeing in critical materials, and specifically, it's playing out quite uniquely in copper. A lot of what we're seeing is structural demand for these critical materials. The energy transition, or, as some have taken to calling it, the energy addition, because we are adding energy to a grid. The investment that we're seeing now, just last year, by itself is $2.3 trillion.

If you go back to 2020, that's where we really started to see this ramp up. This is an area where China is leading in spending, followed by the EU and then North America, mostly the U.S. and Canada, in third place. But this provides a significant structural investment that wasn't there before 2020. It's an area we're seeing significantly impact the prices of many of these critical materials and change the outlook.

Another aspect that tends to get lost on many U.S. investors, because we're not seeing the same level of EV growth as other countries, is the growth we do see. This is an area where we're seeing significant growth outside the U.S. China and Europe are leading the charge.

In our view, we expect to see, before the U.S. goes on to full EV adoption, some increase in hybrid adoption, whether that's in the plug-in variety or otherwise. Those aren't as resource-intensive as you would see out of your traditional EV-type vehicles, but they are much more material-intensive than your traditional gas-powered cars. We think this is an area that's in transition.

Many countries throughout Europe are near 100% of sales, or all the growth in car sales is coming through EVs. A little bit different story than we see in the U.S., but still an important one for the overall investment thesis.

When you look at the intensity of metals, and copper in particular, as it relates to renewable versus fossil fuel sources, you typically see somewhere between 2.4 and 7 times the amount of copper needed for each application. If you look at an average-sized EV, it's going to take about 2.4 times as much copper as a conventional car; your hybrid is going to be somewhere in between, less than 2.4%. But on the energy generation side, wind and solar are much more copper-intensive than natural gas and coal.

Offshore wind, depending on which part of the globe you're at and being scaled back in a lot of cases, is the most copper-intensive of all these, about seven times its fossil fuel counterparts. One aspect of the copper market that makes sense to dig into a bit is that, since we've mined copper for so long, we've really gotten accustomed to using it throughout our daily lives and in everything that carries an electrical current.

When you look at the demand structure for copper, over roughly the last 25 years of the almost a century here now, we've seen demand double. If you look at the early 2000s, that would have come through the expansion of the Internet and then also China's industrialization. Now we believe we’re in a period where AI data centers, energy transition, and what we're seeing from urbanization and industrialization are driving that next move higher in copper demand.

Just to put that in perspective, by some estimates, it's expected that from 2020 through 2050, we'll mine twice as much copper as has been mined throughout human history. A very significant growth period we're seeing in copper at the moment. Kirsten, I'll kick it back to you for the next poll question.

Kirsten Chang: Thanks so much for laying the groundwork for us, Steve. That was great. Many great stats and perspectives. The next poll we have for you all: which of the following factors do you believe will be the primary driver of copper demand over the next 1-2 years? It looks like we got quite a few things Steve already touched on here: AI and data center infrastructure development, of course, global energy, grid, and electrification, or is it more of a supply story, supply side constraints, mine outages, the scarcity aspect of it, or is it renewed global growth and industrial production?

Steve, I just want to throw a quick question from the audience at you. Daniel is asking: regarding electricity growth, would you clarify, again, a simple metric for how that's measured in the U.S.? Because my electric bills are certainly up more than 15% this century.

Steve Schoffstall: The electricity growth will be measured by the megawatts generated. What you're likely seeing more recently, and we're hearing this more at a government level, we can offset the growth in electricity demand through efficiency. We're now at the point where we need more energy and more electricity. That's why we're seeing higher electricity prices in many parts of the country.

That, coupled with the rapid growth in data centers, is consuming a lot of electricity. I know there are some efforts being talked in Washington over the next couple of days, about minimizing what that impact looks like on consumers. We'll leave that up to government officials to figure that out. But I think those efficiencies we achieved over the last decade are likely maxed out at this point. But the growth we're seeing for demand going forward is likely driving those prices higher.

Kirsten Chang: That's a great point about policy-making. Back to the poll: which of the following factors do you believe will be the primary driver for copper demand over the next year or two? It looks like the survey says 45% favor global energy grid modernization and electrification, and about 40% say AI and data center development. I love that stat you brought up about global data center power demand rising to a level that could power all of Japan. I think that's a great point.

Steve, why don't you talk to us about the biggest demand drivers you and the team at Sprott are watching right now? Just walk us through some of what you're seeing and how right the audience is here.

Steve Schoffstall: We hit the high-level stuff as we went through, but there really is a change and transformation in how the demand is shaping up. I think the first thing to point out here is that the major change is that the growth is coming from the electrical infrastructure. If you look at the construction part of the bar chart here (slide 25), you can see it's been consistent, as reflected in copper's growth rate. It's been fairly low to stagnant, some might say. But this build-out in the electrical infrastructure is becoming increasingly important.

If you look at last year's figures (2025), it passed construction and is expected to continue to grow through the rest of the decade at a good clip, now making up about 30% of overall copper demand. Looking at this chart, the key takeaway is that copper prices are more directly tied to structural changes and demand than in the past, when demand was more cyclical and construction-driven.

Another way to look at this is that, if you look at the core uses for copper demand, we're expecting to see a significant decrease: from about 68% of demand coming from those core uses in 2024, down to about 55% by the end of the next decade. The total compounded annual growth rate for copper demand is about 2.9%. That's what's expected. You can see on the table here on the right (slide 26) that it's being led by things like defense, AI and energy transition, whereas we do still see those core uses are expected to grow and be a growing contributor to copper demand. It's just not at the same level of what we were seeing out of some of these other areas of the economy.

This brings us to the next part of the equation: what does that mean for Dr. Copper? It is a moniker it's picked up over the years because, as I mentioned earlier, it tends to be a barometer of global economic health. With that, there are other metals that are assets, often compared to iron ore, because they are used in construction, high-rises, and other parts of the expanding economy.

But crude oil is also a commodity closely linked to global economic health. Over the last 18-24 months, we've seen copper increase much more rapidly than oil and iron ore, as demand has skyrocketed relative to these two commodities. When we see efficiencies that have come through, whether it's emissions efficiency in your car and how many miles per gallon it gets, that decreases the demand for oil. On the flip side, to get the same kind of performance out of your car, you need more copper because you need bigger batteries, whether it's a hybrid, EV, or otherwise.

One of the interesting things we like to look at is how much more pronounced copper’s performance is becoming relative to the Chinese equity market. This is an area that has really started to change now over the last 5 years or so, where if you look back, if we were to look at a longer time period of copper, you would see that from 2000 up until about the early 2021, that as we're seeing at the early part of this chart (slide 28), you're seeing a very high correlation between the Chinese economy as well as the metals market.

The energy transition spending we've seen is a structural demand driver that really ramped up in 2020, when we almost got to a trillion. In 2021, we crossed the trillion-dollar mark. You look at the growth that we're seeing in EVs. Again, we're starting to see this ramp up in 2020 and 2021. Then we can also look at the defense spending, where we've seen this ramp up starting at the late end of the last decade.

These are all aspects that are really pushing copper prices and demand higher. At the same time, as we're seeing structural investments in different aspects of copper demand drivers, we’re seeing this dislocation between copper prices and Chinese equities. If you were to go back to the high point between the two here back in February 2021, you would see that since then, physical copper has returned about 64%, while Chinese equities are down about 28%. A very significant break from what we've seen in the past and from how copper has performed relative to the broader equity market.

That's the background of the structural changes that we're seeing from a copper perspective. This is also an area where we're seeing significant supply challenges. In the copper market, we typically expect about a 5% disruption to supply each year, give or take. This market is often plagued by copper disruptions. If you think about where much of the copper is mined, it often comes from developing nations or nations with a different political framework than the tier-one mining jurisdictions like the U.S. and Canada.

What you tend to see are social issues that can affect copper production. One of those will be the Cobre Panama mine, which got up and running about 2 years ago. Shortly after getting up and running, the citizens of Panama weren't happy with the terms of the deal and the royalties being paid back to the country, and as a result, the mine was forced to shut down.

To put that in perspective, that was about 1.5% of global production that was taken off the table, and they're still working to get that mine open. It still hasn't happened, and it would have been a top-10 copper mine had it been producing. I know that's one First Quantum is working diligently to get back up and running. Not listed here is Codelco, the Chilean state-sponsored copper miner. They have the El Teniente mine, their flagship operation. They actually saw issues related to the seismic activity at the mine, and production fell from about 356,000 metric tons to 300,000 metric tons.

Just last week, they said they don't anticipate being able to continue growing their output for the next several years. This is one of the largest mines in the world, with output curtailed by 15%-20%. The Grasberg mine, a large Indonesian mine, is the second largest mine in the world. They had a very significant mudslide event late last year, which knocked out much of their production. They're expected to be down for most of this year, if not all of this year.

The lost production from that is roughly equivalent to the third-largest mine on here. Very significant disruption. Also, the Kamoa-Kakula mine is seeing a 65% drop in production. This is one of the several issues we have with increasing copper production: persistent supply disruptions.

This tends to put upward pressure on prices, which is beneficial to miners and is one of the reasons why, when we could ask the question, “why don't we just increase supply?” The easy answer is that it's very difficult, because keeping these mines fully operational is challenging.

Another factor that makes copper specifically a little more difficult to increase mining capacity is that we've mined it for so long; most of the easy copper ore we have to mine has already been mined out. As a result, we're seeing significant decreases in copper grades. This means that these miners have to now dig deeper to extend the life of the mine. We're seeing some of these disruption issues, which, at first indications, appear to have been triggered by going deeper in some instances, which may have triggered seismic activity. Those are some potential issues. You can get more copper out, but you risk additional disruptions there. 

Another issue is that, if you look at the major copper discoveries, and we go back through 1990, only 14 of the 239 new mine discoveries we've had are considered major discoveries. We're seeing a significant drop in these major discoveries, which would be much more costly to set up and get operational because there's less material on the back end of this.

Another aspect that is increasingly important and really ties in quite nicely with what we've seen with being added to the critical materials list is the time to get a new mine from discovery to production: the average is about 17 years. This can vary widely depending on the country of domicile. I've seen some estimates put new mining ventures in the U.S. at about three decades, but on average, we're seeing about 17 years. 12.2 years of this is around the exploration, permitting, and financing. Waiting for feasibility studies is about 2 and 1/2 years.

There are a lot of upfront costs, time and effort that have to go into this. By being added to a critical materials list, we could see these miners get through the permitting process a bit quicker. We could also see more government investment in the space, which should help move these timelines along a little more quickly.

What does this all roll up to from a demand perspective? The disruptions at the Grasberg and Kamoa Kakula mines we saw last year left us in a supply deficit late last year. Prior to those disruptions, most estimates had us maybe around flat last year, maybe a deficit in 2026 or 2027. Either way, it was expected to be a fairly balanced market. But by and large, most projections indicate we'll see a significant supply deficit, unable to keep up with current and expected demand.

This was piled on top of the growth in AI and what that's doing for copper demand. As we're going out over the next 10, 15 and 20 years, we think being added to a critical materials list and other actions that get policymakers involved can really help alleviate some of this supply shortfall that's expected, but that's something that we'll have to see how that plays out over the coming years.

Another important aspect to note is that, when you look at many critical materials, including copper, we're seeing the U.S. government increasingly taking positions in miners of these materials, so they can reshore those mines or aspects of their supply chains.

As it relates to copper, the U.S. government announced a deal last year around Trilogy Metals, which has a mine in Northern Alaska. They needed to have a road built, and to help build that road, the government took a stake in Trilogy Metals.

With a lot of these government investments, is that not only is the U.S. government getting a stake in the company or the revenue of the company, in some cases for some critical materials, they're putting price floors into effect by basically saying, "Listen, we'll be the Number 1 buyer of your material if nobody's there to take it off your hands, and we're willing to pay a price that is higher than what we're seeing in the current market." This is something we see in the rare-earth market, and we wouldn't be surprised to see it in copper and other markets as well.

We could just take a shift here and talk about some of the historical growth that we've seen in the copper market. If we had a conversation 2 or 3 years ago, most people we spoke with believed that copper prices were relatively flat or had been down over the last century. I think that's because, if you look at the volatility we saw from 2012 through 2024 and the correlation with Chinese equities, they would have assumed that, since Chinese equities were lower, copper was likely lower. That's not the case that we've seen here. We've seen very significant growth in spot copper prices over the course of the century. As I said earlier, we recently reached another all-time high just a few weeks ago.

Another aspect to look at is the spot market and the tightness we're seeing there. If you look at the treatment charges being applied to refine and process this copper. Typically, you would see that a smelter charges a mine around $60–$100 per ton to smelt their copper so it can be used and sold on the international market.

The refining capacity at this point is so high relative to what we're seeing from the material coming out of the ground that these treatment charges have been termed negative for the most part since about 2024. What that means is now these smelters are trying to keep their doors open. They're willing to pay about $40 per ton to the miners for the privilege of processing the material. We've seen a dramatic shift in the market over the last 1.5-2 years.

What does this mean? One thing that we often get asked about is tariffs: how may tariffs impact the copper market? What we saw last year, when the threat of tariffs was on the table under the Section 232 review, was that the expectation was that most copper, refined copper and copper products would be hit with a very high tariff. We found out, I believe, in July or August last year that most of the refined copper used for international trade was going to be exempt, but that didn't change the market's reaction.

What we saw is just the threat of tariffs caused two major issues. One was that a lot of the material, a lot of the copper, rushed to the U.S. That's the middle grayish-colored line there showing the inventories at COMEX storage facilities (slide 37). At the same time, that material had to come from somewhere. We saw it leaving LME and China to come to the U.S. When the threat of tariffs was still hanging over it, we started to see a fractured market with pricing dislocations across the COMEX facilities, LME and other facilities. That was what was driving copper to the market, as arbitrageurs sought to get ahead of expected tariffs and pay a premium to move it here.

Since those tariffs didn't materialize as many thought they would, we've seen, for the most part, that copper has been locked up in the U.S. and hasn't really left for those other markets. One of the contributing factors, as we see in the treatment costs from the previous slide, is why we're seeing some of these dislocations.

Let’s take a moment to look at copper miners and why we think miners may be well-positioned given the current backdrop. The first is that, typically, what you would expect to see from commodity miners is that they would outperform during rising markets and underperform during falling markets. This is because they offer operating leverage to the underlying commodity. We've seen this play out with copper miners and spot copper here now over the last 5 years or so, where the miners have handily outperformed spot copper.

Looking over the last 5 years and broadening the picture a little, the copper miners are the copper-colored line (slide 40). Junior copper miners tend to be a bit more volatile. These are exploration-and-development companies that may be pre-revenue but have copper resources or reserves, making them attractive acquisition targets. Oftentimes, they haven't necessarily entered into long-term contracts to buy their copper.

We tend to see more volatility there, and they have traditionally outperformed a basket of all-cap copper miners. Both have outperformed copper, but significantly, they've outperformed not only U.S. equities but also a broader commodities basket over that time, as the changing structural demand and supply deficits we're seeing with copper take shape.

From a mining perspective, the next logical question is: I understand the performance, I understand the supply and demand and how miners might benefit, but what does that look like from a practical perspective? What we're seeing is increased profitability from the miners, based on copper prices of $5.65 a pound, which is in the neighbourhood of where we are now. These miners, the pure-play miners, are running at about a 57% all-in sustaining cost of mining margin.

What that means is basically that they're running at a 50% margin, and about 99% of copper mines are profitable at this point. If you look back over the last 5 or 6 years, since 2020, 90% of copper mines have been profitable.

At the moment, given what we've seen with elevated copper prices and how they've remained consistently higher, miners are benefiting from improved financials, something we're seeing across critical materials. Copper is no exception here. That's the key thing that's been driving these copper miners forward.

The next question is: what do valuations look like for copper miners? When you look at copper miners versus the S&P 500 and examine valuations, you tend to see they're about 44% as expensive as the S&P 500. From that standpoint, not only do we have the improving balance sheets, but we also have an asset class that, relative to other U.S. equities, is undervalued.

One of the areas that we really focus on, and this is where our expertise really comes in to designing a copper product, is that because we have this deep expertise in metals and mining, we have a lot of knowledge around selecting different companies. For these copper indexes and most of our critical materials indexes, we work with NASDAQ to develop what we believe is a premier suite and strategy across the critical materials space. We're involved not only in creating the index but also in its ongoing maintenance.

Twice a year, we go through and score each mining company, assigning them what we call an intensity score. Basically, that intensity score is what percentage of your revenue is dedicated, in this case, to mining copper. What we want to do is provide investors with those pure-play companies which have at least 50% of their revenue or assets tied to the mining of copper, and provide that in a vehicle which has all the attributes of an ETF, potential tax efficiency, liquidity, you can trade it throughout the day, and daily transparency with the holdings.

What we think we're left with is a strategy which encapsulates the entire copper universe from the perspective of what's investible. What does a pure-play strategy look like when you start to look at the copper market? This is one where it's increasingly important, because when you look at the 10 largest copper-producing companies, only 3 are publicly traded, and only 2 get at least 50% of their revenue from mining copper. What this means is that if you look at the companies highlighted in orange (slide 43), those are the three that account for at least 50% of their revenue.

When you start going down, if you look at companies like Glencore, for example, that might only get 8% of their assets and revenue from mining copper, they're the fourth-largest copper producer in the world. You have a lot of unintended exposure when you invest in these non-pure-play companies. Our design strategy around this index is to limit the unintended exposure while providing more of the exposure that investors want, in this case, copper miners.

With that, we'll just take a brief look at the two strategies that we have. The first fund that we have is the Sprott Copper Miners ETF, ticker COPP. This is the only copper miners ETF on the market that is a pure-play fund and also provides physical exposure to copper. That's one of the two key differentiators and two main points. Compared with most other strategies, you're getting less unintended exposure and more exposure to physical copper. The physical copper exposure will be just south of 5%. The index is rebalanced semi-annually in June and December.

If you look at the breakdown of exposure levels, you'll see that about 75% of the index is invested in Canada and the U.S., and it also has a 70% large-cap exposure tilt. Mid-cap exposure will be about 18%. 

The other opportunity is the Sprott Junior Copper Miners ETF (ticker COPJ), also listed on the NASDAQ. I'd say both assets for these funds are out of date, as we've seen significant growth over the last 2.5 months to start the year. This will also be a pure-play strategy. It's the only junior copper miner ETF listed in the U.S., with significant exposure to Canada, Australia, and the U.S. Because it is a junior copper miner strategy, it will have about 82% exposure to the small-cap space. Then, we'll also see about a 17% exposure down to the mid-cap space.

Kirsten Chang: Thanks for that rundown, Steve. I'll give you a chance to catch your breath there. A lot of people are asking questions about substitutes. We're seeing the record-high copper prices and long lead times, as you mentioned, for mining and production. What substitutes are out there right now? Do any of these have the same conductivity as copper? There's a lot of talk about aluminum, and even scrap, as a buffer.

Steve Schoffstall: Scrap is going to be an important part, but it's never going to close the gap, because it’s not nearly big enough. Aluminum is probably the one that we hear about the most. Typically, those long-haul lines that carry electricity from a power plant back to a city use aluminum because it's lighter. The wire itself is less conductive and about 55% thicker than a copper wire. When you start getting into urban settings, where the lines are buried underground, that's a little more conducive to copper.

Aluminum is one that we've gotten a lot of questions about. The thing to remember is that it's not always as easy as flipping a switch to switch from copper to aluminum in your production process. Not only is it less conductive, but as I said, the wire has to be thicker. That can create some issues with, maybe, standardization around certain applications, where space might be a consideration. Also, you'll have downtime when you shift from copper to aluminum to retool your factory. It's out there as a potential option. You could have some degradation in the amount of electricity that it carries, which is also a concern.

Kirsten Chang: Then there are questions about the China story. Alexander is asking, "The copper and Chinese dislocation you mentioned, does that insinuate that China was the primary consumer of copper until recently?" Can you tell us a little bit more about that?

Steve Schoffstall: They're a very large consumer of copper and continue to be so. As they expand, they went from building 100 cities or so at the start of the century to now building out their infrastructure, defense and energy capabilities. Within that, it's still a significant consumer of copper and a leading one.

We're currently in the Chinese Lunar New Year. With that, demand dips slightly during short periods when people are on vacation. The copper market in China remains very important and can often drive short-term price volatility, as we're seeing.

As we have these conversations with investors, our goal is always to focus on the long term, rather than necessarily trading short-term moves. With that, we expect China to remain one of, if not the largest, consumers of copper going forward. We would expect volatility in critical materials prices. Over the long term, we think the global supply-and-demand balance is the important factor to focus on.

Kirsten Chang: Mary's asking about strategic stockpiling. Are there countries like China that are accumulating copper as part of their strategic stockpiles? As a follow-up, are we relying a little too much on that narrative to prop up prices?

Steve Schoffstall: To prop up prices, as we showed with some of the demand shortages that we see, we flipped into a supply deficit this past year. I wouldn't necessarily say that the stockpiling is what's driving those prices. It's an aspect of it, but I think there are greater factors at play.

Regarding stockpiles, there are several initiatives. I know Australia is looking to establish a resource storage of sorts, where allied nations could invest and store a lot of critical materials. We also have our Project Vault, which was announced several weeks back and is a $12 billion initiative in the U.S. It's a public-private partnership where they're still fleshing out the details. The idea is that there'd be a stockpile of critical materials, including copper. U.S. companies could access the materials in that stockpile. Once they use it up, they would then have to replace it.

I would expect to see more of these types of stockpiles for many critical materials. It's an increasingly important part of the narrative going forward. I will say that, at this point, the Department of Defense does have its own critical material stockpile specifically for military and similar uses. We don't have data on exactly which materials are being stockpiled there, but we wouldn't be surprised to see an expansion of copper or other critical materials within that stockpile.

Kirsten Chang: Then Barry is asking, "Between now and 2030, what is the volume of new supply coming in versus the volume of new demand that you're seeing?"

Steve Schoffstall: The supply has really been the choke point. To bring in a new supply, it's tough to gauge an exact figure because we're dealing with these disruptions. We do have mines that were expected to come online, such as the Cobre Panama mine, which isn't currently operational. The main thing to key in on there is that the demand is, at least in the medium to longer term, expected to far outstrip what we're seeing with new supply entering the market.

Kirsten Chang: We have a lot of questions, so just bear with me here. Questions about mining in the U.S.: Is there available copper to mine in the U.S.? Do you see any more miners coming online in the U.S. or Canada anytime soon?

Steve Schoffstall: I mentioned Trilogy Metals. That's a road that's looking to get built to bring on some copper capacity up in Alaska. We do have out West, in Utah and some other states, copper mines available to either ramp up or restart production after being put on care and maintenance. There are those opportunities within the U.S. Typically, when we're talking about reshoring, we're referring not just to U.S.-based mines, but also to U.S. and allied mines.

When we start thinking about the resources Canada has and the investments we can make in South America. Australia is another resource-rich nation that's an allied country. Investing in those countries as well can also help shore up your supply chain and move it away from countries that might not be as friendly, either geopolitically or from a resource-vulnerability perspective.

Kirsten Chang: Jeremy is asking, "Can you talk about the difference in risk and exposure between investing in the commodity versus the miners themselves?"

Steve Schoffstall: Typically, if you're looking at the physical copper, you have two options. You have a physical copper fund, which I mentioned. That's going to be much more swayed by short-term dynamics. If you were to look at short-term supply chain issues, you would see that they would affect the physical market more than they would affect miners.

Another option would be copper futures. There you start to open up a whole host of issues where you have to deal with things like contango, backwardation, and it's, to a large extent, often referred to as paper copper, not in our view as desirable as physical copper. I would say that with spot copper, you would probably be more concerned with short-term pricing dislocations.

When you start looking at the miners, that tends to be a much longer term play, because when you start looking at the operational leverage and improving financial condition that we see, it's going to be much less impacted by today's price of copper versus tomorrow's, where they're going to be more impacted is looking at the margins that they're able to get based on the mines that they have up and running. Also, they're going to have that leverage, which is going to ripple through their balance sheet, smoothing out the short-term price of copper.

Kirsten Chang: Questions about broader precious metals versus copper. Is there any correlation between copper, gold or silver?

Steve Schoffstall: It depends, right? We're currently in a risk-off environment here over the last few days, as market uncertainty has returned, right? In such environments, you would expect to see assets correlate for a short period. The differences between copper and gold, and between copper and silver, are probably worth talking about. Copper and silver are both critical materials. Silver is a dual metal: it has precious-metal aspects, but about 60% of its exposure comes from industrial uses rather than demand. It's similar to copper in that it's been in deficit for about 6 years. Each of the last 6 years, we've mined less silver than we've used. From that standpoint, we see many similarities.

Gold tends to be that type of metal that's going to give you a little bit smoother ride. A lot of what we're seeing in the demand for gold, at least up until more recently, was central bank buying. Poland, China, and other countries were major buyers in the physical gold market. We see that continuing. But over the last 12 months or so, we've really seen retail investors, particularly U.S. investors, enter that market, which has helped give it that next leg up.

I would view gold as more of a traditional safe-haven asset, which can add downside protection to your portfolio. If you were to look at silver and copper miners, you would tend to see low to moderate correlations to other aspects of the economy, U.S. equities, foreign equities, and the U.S. dollar. You could benefit from that diversification on top of the growth characteristics you would get from the underlying miners.

Kirsten Chang: It's a great breakdown. Please talk a little bit about the disconnect between physical copper prices versus futures right now.

Steve Schoffstall: If you think about the futures market, by definition, if you get out of the front-month futures contract, you're buying copper at some point in the future. Anytime you look at spot versus futures, it's not unheard of to see dislocations there. That's why there's a thing called contango and backwardation in futures markets. Contango occurs when futures prices are higher than spot prices. The opposite of that is backwardation, where spot prices are higher than futures prices.

In those markets, you would expect to see supply issues, which is typically what pushes spot prices above futures. That could be one aspect of it. But typically, when you're looking at the copper market, we tend to err on the side of physical is best, and that's where our focus tends to be.

Kirsten Chang: Questions because you did mention defense spending and the role copper plays there. Stuart's asking for any comments on the demand signal from national security rearmament and new sovereignty supply chain focus? Could this be a hidden surge in demand for copper?

Steve Schoffstall: At this point, I think any time when you're in a market that's already, and even though it's a small deficit at the moment and expected to grow, any time you're in a deficit, any additional demand to that could have an outsize impact on future prices. Again, that's one of the reasons why we like the miners. It gives you that operational leverage. Any additional demand would likely lead to improved financials for miners, all else equal.

Kirsten Chang: I’m getting a couple of questions about COPJ dividends. We could talk a little bit more about that.

Steve Schoffstall: Our ETFs usually pay annual dividends, and those dividends can come in the form of income or capital gains. Typically, what we're seeing now with the junior miners is that they aren't firms that are paying dividends, so we wouldn't expect to see much on the income-generation side. It's difficult to set expectations for what capital gains could look like at any given point in the year for any fund, especially junior miners.

Kirsten Chang: All right, a couple of questions left since we're running out of time, but this has been great. Question from David: as the grid is updated, won't that put a fair amount of copper back into the supply and circulation, since much of it will be recycled?

Steve Schoffstall: Copper is one of those metals where much of it isn't recovered or recycled. We see this as a problem with many critical materials. Sometimes it's not worth it from a cost perspective or for other reasons. You think about how many people have old electronics they might just throw out, which end up in landfills.

As you're going through this electrification process, not only are we building out the grid, which is copper-intensive, but think about it: if you owned an EV and bought a new one, you might recycle some of the copper from that old EV into the new one. But again, it's not a perfect substitution. Estimates indicate that recycled copper will account for about 10% of the supply in any given year. Not an insignificant amount, but not enough to close the overall gap, as it's already baked into the supply availability.

Kirsten Chang: Steve, I'll give you the last word here. What sets Sprott apart from other commodity players? Obviously, you got the only ETF, you got the pure-play exposure to copper miners, the junior copper miners. Talk a little bit more about the philosophy behind that and what sets you guys apart.

Steve Schoffstall: There are a couple of ways you can look at product development, right? I think that's what really sets Sprott apart: the way we go about that process. If you look at the broader ETF landscape, you could see some that choose to throw a lot of products out on the market, and hopefully one of those catches on. Another option is for a larger provider to wait and see which area of the market is starting to attract attention. They come out and try to undercut the price. Usually, you just see an index that could be taken off the shelf or not come from a specialized provider.

The way we approach product development is very thoughtful. We've rolled out several funds. We're now up to 12 ETFs, 10 of which we've rolled out over the last 4 years. It's been a very methodical release of new products to the market. We do that intentionally because we want to make sure that when we put a product out in the market, it aligns with the long-term focus of the strategy.

Do we expect that there's a long-term investor need for it, an investor case for it? If the answer to that is yes, we'll take a look at the market and see which products are already out there. Do we think that there's a way that we can improve the investor outcome based on what's already available? Those are the areas that we focus on for product development. Those are areas where we can lend our expertise in launching new products. We're not just taking an index off the shelf or relying on third-party research. We're going in and doing our own research.

When you look at our Nasdaq-based indexes, we're scoring the underlying companies as I discussed earlier. It really is an ongoing process to make sure that the product we're putting out there, in our view, is the best possible representative of that underlying market. That investors are getting the exposure that they anticipate when they buy into one of our ETFs.

Kirsten Chang: You've certainly shown your experience today. Thanks so much. That does it for today's webcast. Steve, again, thanks so much for joining to share your insights. Great to have you.

Steve Schoffstall: Thanks. It was great to be here.