The Metals that Make the World

Monday, 29 September 2025 |  80 | 29:49

Shownotes

Sprott economic geologist and Senior Portfolio Manager Justin Tolman joins Ed Coyne for a deep dive on demand trends for steel, copper and silver and what it might take to successfully invest in the metals that build the world.

Podcast Transcript

Ed Coyne: Hello, and welcome to Sprott Radio. I'm Ed Coyne, Senior Managing Partner at Sprott. Today, I have one of our returning guests and one of Sprott's very own, Justin Tolman, Senior Portfolio Manager and Economic Geologist. Justin, as always, thank you for joining me on Sprott Radio.

Justin Tolman: You're most welcome, Ed. It's my pleasure.

Ed Coyne: Justin, I want to talk specifically about what we're seeing in the metals markets today, beyond just precious metals, and really get into all metals, critical materials, steel, you name it, all the things we need in the world today, and why we need them. I also want to talk a bit today about different ways to invest in that space. Whether it's a passive or active strategy and why you think one over the other makes more sense. Let’s unpack this opportunity because many things seem to be happening right now.

Let's start with the base case on why the metals markets, in general, is growing. What are some of the metals out there that are gaining your attention right now?

Justin Tolman: The big macro drivers in the metals and mining space, as I see it, are energy growth and energy and mineral security. This drives a lot of our investment theses right now here at Sprott. Some short-term perturbations are happening in the economy, whether it's tariffs, changing trade policy or other things that lead to increased uncertainty. That can cause investment paralysis, but if you look back at the long-term drivers for commodities, it starts with energy growth. By 2050, this planet will have close to 10 billion people.

That means huge investments in infrastructure: homes, schools, hospitals and highways. They're all hugely resource-intensive. More than half of those people will be in developing economies with long growth cycles, young populations, and rising incomes, and they're working to bring their lifestyle closer to that of developed countries. That means metals and energy. That means power generation and transmission. There is no such thing as a country with low energy consumption and a high income per capita—those things are on a log scale graph at 1 to 1 ratio.

You don't need a little more metal if you're a developing economy. You need an order of magnitude more to lift yourself to developed economies. You put those two things together, meaning more people in cities. We will add two and a half billion people to the world's cities. Guess what? Cities use huge amounts of steel and copper and need way more power than other areas. In the developed world, we've seen a significant push in the growth of technology infrastructure, AI, telecommunications, and data centers. The amount of energy going into those, the growth rates are eye-watering. It's up 60% in three years.

Three years ago, AI wasn't even in the popular vernacular. You can check the frequency in Google searches, but that's set to double in the next five years. Frankly, our current infrastructure isn't set up for that demand, and it's got to come from everywhere. A lot of that will be what we call non-traditional energy sources. Solar, nuclear, we need all of them. It's not a case of one necessarily replacing the other. The drivers I'm talking about, at least in the medium term, will have to come from everywhere, and it will have to come sooner rather than later.

The flip side of this is the energy and mineral security discussion. That's being moved right into the forefront now. Energy security is power. You're hugely at risk if you have growth ambitions and don't have control over your minerals, materials, and energy. You stick out like a sore thumb. You see governments everywhere making these lists of critical materials.

Ed Coyne: One of the things, I think, that's happened is in the last, say, five years or so, the first trend, the first group of investors waking up to this reality, we're just looking at basic indexes, ETFs, just ways to get exposure to it. As it's evolved, there's become this, maybe not a debate, but there's been a line in the sand of, "Do you just want exposure to it or do you want a more active, engaged exposure to it?" Can we talk about that? Because this space is unique in that it's not as liquid as some other spaces. You really need to have an educated background in the space.

You're an economic geologist. You're also a portfolio manager. You know this space. You've lived and breathed this space for a very long time. Talk about the value of approaching it as an active portfolio manager versus simply getting exposure to the space. What are the pros and cons? How are you thinking about it? What would you tell an investor?

Justin Tolman: Obviously, I fall down on the side of being pro active management, not least of which because I've got a vested interest in it. It's served me well over the last few decades and in my tenure at Sprott. In active management, it's one thing to say I want exposure, and you can generate a set of formulas and gain exposure. What we're trying to do is curate asymmetric risk reward. We're doing it based on real-world insights, reacting to what we see in a macroeconomic environment and local inputs.

It's not just charts or formulas or sentiment. It's very strategic positioning where we understand valuation gaps. We can see in a sector that we think is great and doing well, a stock trades below NAV or peer comps. Then you've got to ask "Why?" and understand if there's a chance there for a re-rating. We can build themes around understanding where a region is in a virtuous cycle. Let's say a company has a great discovery that's absolutely world class in an emerging area that attracts additional capital.

As people look for more of that style of deposit, more dollars spent means a greater likelihood of more discoveries, which keeps that snowballing along. Being able to identify that early can be a huge advantage. Understanding where projects are in their life cycle and the different catalysts that are coming, permitting milestones, drill results, resource updates, the cumulative effect of all of these things, I believe, lets you construct portfolios with a superior risk-reward balance than some passive index. Obviously, a lot comes down to the individual managers treating it the right way, but you touch on an interesting theme because the return for metals markets is very pronounced.

The dispersion that you have around an average return for a market is not a normal distribution. It's not like you have an average and an even set of results on each side. In metals markets, just like in ore bodies, you have a lot of average companies, and then you have a long positive tail where a small number of companies actually deliver most of the value. These things get modeled by log-normal distributions, power laws, or other fancy statistical terms.

At the end of the day, you could look at something like 2024, when the broader market actually had a poor year. It was a negative year, but the top quartile of results returned close to 200%, a low dispersion year. This is arguably one of the strengths of well-run active management. Suppose you've got a team that can identify which sectors of an environment are working, lean into those and reduce your exposure to areas where there are challenges. In that case, it can adapt to a changing environment. It can adapt to technological breakthroughs and changes in legislation. All of these can impact performance.

Ed Coyne: When you look at different names, market caps and so forth, how do you look at day-in and day-out operations? Are you sitting behind a computer screen just doing analytical work and looking at balance sheets? Are you getting on an airplane and going out to these sites? Are you doing a combination?  What makes your approach unique in a core way to get exposure to this space? Talk about that a little bit. Please give us a snapshot of what a year might look like for you.

Justin Tolman: You touched on it before. I am a little different from most portfolio managers because I'm an economic geologist, but more than that, I am an industry veteran now. Before joining Sprott, I was doing many things that many of the companies we invest in are trying to achieve: making discoveries, developing them, and becoming successful, profitable operating mines.

That gives us unique insight. We look at this stuff every day. We look at what's changing at a company level, at an industry level and all the way down to a project level. It boils down to this: What you're asking is, what's our edge? If you correctly leverage the combination of specialist technical knowledge and deep industry experience, it can help. It lets you avoid over-hyped plays and focus on assets with real upside.

It allows you to time your entry and exit points into investments with greater nuance. I'll give you some examples. When it comes to leveraging your technical insights, understanding ore body quality, understanding the relationships between the gray, the tonnage and the metallurgy, arguably with a technical background, we can maybe get there a little quicker than most and maybe ask questions a little more nuanced than a retail or generalist investor might be able to do.

We understand which deposits are feasible, not just in bull markets but throughout an entire life cycle or price cycle, jurisdictional risk and technical risk. We understand that when projects get renamed, rebranded, and brought to market, perhaps others who haven't been doing it for this long might not immediately latch onto it. We see a lot of deal flow that smaller or non-specialist investors might not see.

We get to see corporate strategy. Many of these companies, when their boards are seeking feedback on what they're doing, will reach out proactively to us and ask to set up a time for a conversation. There's an opportunity to follow a corporate strategy and have a voice in it. Not the only voice, but increasingly, we're seeing more engagement from boards seeking feedback on how they should think about metals markets.

There's also a pattern recognition thing at the end of the day. We've studied what makes outperformers succeed. We look for serially successful teams, whether it's great geology, management, timing or well-run companies with stable balance sheets. These are things that, in the right circumstances, there's a handful of companies that will deliver outsized value, and the sooner you can identify those, the better it's going to be for all involved, I suspect.

Ed Coyne: I want to get to different metals in a moment, as far as which ones you like, which ones look interesting, and so forth. Before we do that, I would imagine, in mining, when something looks great and is great and you visit, and then, all of a sudden, something out of left field happens, what do you do when that happens? How do you handle that from an active standpoint?

Justin Tolman: Great question. What you are describing is our job, which is how fast you can find a fatal flaw with a new project, or if something structural changes with your investment thesis, how fast should your investment change? The answer is: it depends. There's a lot of nuance. You never hope for it, but let's say an unplanned rock movement in a pit, which can delay mining, impact cash flows in the short term, but maybe it's not a fatal flaw, and it's able to be rehabilitated and the answers you were hoping for just get delayed.

If the stock were to sell off disproportionately on that news, it could create opportunities. Then there are moments where it's genuinely time to go, "Oh my gosh, something has fundamentally changed. Our reason for owning this stock has gone away. Perhaps, so should we." As active managers, you can deal with that very quickly by putting a tourniquet on something and stemming some of that bleeding.

The inverse is also true. We're in a position to react very quickly, perhaps more quickly than other investors, because of our insights into discoveries, to something that fundamentally changes for the better at a given company. Indeed, for some people, they'll have restrictions on what they're able to invest in, either because of a market cap threshold or a necessity to be a producer or some other restriction that won't apply to active managers per se, depending on their mandate, meaning we can be early on great ideas.

Ed Coyne: Speaking of ideas, I know you predominantly focus on the miners themselves taking an equity position, and I guess recyclers probably fall into that as well. What else would you find in an active portfolio? Are there other vehicles or paths you can go down to gain additional exposure?

Justin Tolman: There's a whole ecosystem out there of opportunities. It's worth saying, at the outset, the way I think of it is some of those niches of our industry are wonderful things to have exposure to, but it's always going to be a very calculated, bespoke process when we take positions in some of that. If mixing that metaphor makes sense, it will always be the tail, not the dog.

One of the areas would be streaming and royalty companies. They've been tremendous value creators in recent decades. They've provided creative funding solutions to miners at lower capital costs than they could've sourced anywhere else. The royalty and streaming companies can be immune to many operating risks while retaining upside to commodity price improvements and exploration success. At different times in the market, they can be very good investments.

Then there are picks and shovels service providers who support the miners in various capacities, whether you're a drilling company, a laboratory or something else. They have the capacity to scale up very quickly and can benefit across multiple commodities, multiple times. I think it's worth noting that the best service providers, if you get the right ones, have the potential to improve the industries they work in.

Laboratories' ability to push down detection limits for different metals has led to discoveries. Improved technology means improved separation of ore and waste. I've worked with these guys for years. They're businesses that we understand, and when they're well run, they can be great value creators.

Ed Coyne: Let's talk about different sectors or different metals, as it were. What do you like right now, and maybe what's up and coming that is interesting, but maybe not just yet? What are some of the spaces or metals that really have your attention right now?

Justin Tolman: We touched on a few earlier in broad strokes. When you talk about energy growth, energy addition, the requirements for big infrastructure buildout, power needs, metals like copper screen very well. The growth rate for copper is tremendously bullish in the medium to long term. Not just from a demand side, but I can tell you that all of the things we talked about, whether it's AI data centers coming up or the idea that electricity growth globally is set to start to inflect, it doesn't happen without copper. Still, it doesn't happen without uranium as well.

Nuclear power is experiencing a renaissance I haven't seen in my career. Still, the idea is that all big energy firms are trying to build AI data centers and technology centers, and we see them. They know they need independent power sources that won't compete with other people. They know it needs to be cost-effective and clean. Right now, that's nuclear, happening everywhere you look.

Elsewhere, I would point out that a very interesting sector occurs inside something that doesn't spring to most people's minds. We talk about this, but steel is essential for supplying the world with energy. It's an infrastructure enabler, is the phrase that I've latched onto. Whether it's hydropower, solar power or electric vehicles, none of it happens without steel. Steel has problems, including questions around global economies, tariffs and other big headlines. Making steel accounts for about 10% of the world's carbon emissions, more than all the cars and planes.

Green steel is a small sub-sector that can be fed from recycled products, high DRI (Direct Reduced Iron)  feedstocks. It uses an electric arc furnace rather than a blast furnace. It has orders of magnitude lower emissions, and it's revolutionizing the industry because it can be very cost-effective when you do it right with access to recycled products and cheap power. It's got big regulatory tailwinds. It's a tiny portion of the global market, but we see it growing at a compound annual growth rate over the next five years of more than 20%.

Within the behemoth of the steel industry, green steel is revolutionizing it and will improve the whole industry over time. The early adopters here, the most well-run companies, will have the best sites with the best access to scrap and the lowest power costs and will be the beneficiaries.

Ed Coyne: What do you think about silver? Do you see silver becoming more of a critical material, or is it still living in a precious metal category?

Justin Tolman: Silver is critical now. It does tend to move with gold on occasion, but there are whole periods in the market where it will correlate better with copper than with gold. You'll have that relationship breakdown. It'll follow copper for periods. Silver demand right now is pushing 60% of industrial applications. It was nowhere near that high if you go back just a few years. The introduction of it into solar panels, electronics and batteries is where the growth has been, and where we see it continuing. The silver market has been in deficit since 2020. I don't see that changing anytime soon.

The world's silver supply can be consumed by industrial applications, depending on how you want to slice the numbers. It's got strong roots into the electrical economy. It's increasingly seeing a range of new use characteristics that didn't exist. We're finding more for them. Thrifting will get better. You'll see some substitutions. It will come and it will go. Silver has been one of the rising stars here, with a strong run over the last few years and strong demand. If that starts to shift, we'll adjust accordingly, but it's exciting.

Ed Coyne: I hate to be self-promotional because you and I both work at Sprott, but I think it's worth asking this question anyway. You're riding down the elevator with a client and talking to them about the metals markets. Why Sprott? Why invest with us? What are we bringing to the table?

Justin Tolman: For the last several decades, Sprott has been not just the leader in this space, but they've been a thought leader. I've learned a great deal in my time here from many skilled individuals in various parts of our business. The capabilities we have from looking at projects as equity investments, as lending projects, as royalty and streaming, I don't think many groups can replicate the breadth of that.

We have deep in-house technical expertise. The team I work with has people who are wizards at financial analysis and understand corners of the markets way deeper than most people would be willing to go. The collaboration that comes with that is a testament to the company, but it helps make us all better. I was very excited to join Sprott seven or eight years ago, and I'm proud to be here now.

Ed Coyne: If you're an investor looking to allocate capital to this space, what would you say to somebody relatively new to this space or someone that's maybe reentering the space for the first time in the last decade? What would you leave them with as to why invest in the space now? I'm not talking specifically about Sprott, but why would you allocate capital to the space right now?

Justin Tolman: We've touched on facets of it during this talk. The drivers that I talked about are energy growth, mineral security and the idea that governments have hit a tipping point where they understand now that we're in a multipolar world, you can't rely on the rest of the world to help you along. Security of supply is power. If you don't have your minerals or you don't have access to them through friends and alliances, you are sticking out like a sore thumb, and you are exposed.

You are about to see a whole bunch of elements that weren't in people's vernacular suddenly get very topical. Rare earth elements have been in the news recently. The rise of energy, mineral security, and the ongoing energy train, or the rise of non-traditional energy sources, such as solar, hydro and nuclear. We've reached that Malcolm Gladwell-like tipping point where it's in the public consciousness, it's happening. The investment is starting to snowball. It's rolling down the hill right now and gathering momentum faster. I'm incredibly bullish on the medium-term outlook, looking through the short-term perturbations we're working through. I think it's a wonderful time to start having that discussion.

Ed Coyne: Justin, once again, it's always a treat to talk to you. Thank you for your insight. I look forward to seeing how things develop as we go down this active journey within the metals market. As always, thank you for your time today and your insight.

Justin Tolman: My pleasure, Ed.

Ed Coyne: Once again, you're listening to Sprott Radio, and I'm your host, Ed Coyne. Thank you for listening.