Investment Opportunities in the Energy Transition

John Ciampaglia discusses the energy transition on Nasdaq Trade Talks with host Jill Maladrino.

Video Transcript

Jill Malandrino: Welcome to Nasdaq Trade Talks. I'm Jill Malandrino, Global Market reporter at Nasdaq. Joining me is John Ciampaglia, CEO of Sprott Asset Management and Senior Managing Partner with Sprott Inc., to discuss investment opportunities in the energy transition. John, it's great to have you with us. Welcome to Trade Talks.

John Ciampaglia: Thank you for having me.

Jill Malandrino: You got it. Why do you think energy transition is the place to be for investors?

John Ciampaglia: It's an emerging growth opportunity that many investors around the world are starting to learn about. It's a term that most investors are probably unfamiliar with, but I can tell you from talking to investors around the globe, it is a term that people are starting to adopt, and we think it's a very long-term secular theme.

It's really about the world decarbonizing different energy systems and the way we live our daily lives, everything from electric vehicles to cleaner ways to produce electricity. It is creating a massive capital and infrastructure cycle that we think will last for at least two decades, if not more.

Jill Malandrino: Let's talk about a couple of those opportunities starting with energy storage. Where are you seeing the opportunity there?

John Ciampaglia: Energy storage is another way just to simply say batteries. The big opportunity in batteries right now is around electric vehicles. Last year, we saw a tipping point in terms of EV adoption globally with about 10 million new cars sold with some battery cell within it. This year, we are tracking to hit around 14 million globally. That's a 40% increase.

We are seeing greater adoption of electric vehicles, and why? Because there's more choice. The vehicle is quite frankly, much cooler. The price points have come down to the point where they're almost the same as a traditional internal combustion engine vehicle. As a consumer has to decide to buy a traditional gasoline or diesel-powered car or think about an EV, more and more are considering EVs. That requires a lot of capacity expansion in terms of building the cars and most importantly, the battery cells. The heart and soul of the car are the battery packs.

The battery packs are made up of many different materials. But the materials that most people would be familiar with are lithium because these are lithium-ion-based batteries, just like we have in our cell phones. But there are a number of other key ingredients such as nickel, cobalt, manganese and graphite. These materials are seeing exponential growth as the world slowly moves towards electric vehicles.

Jill Malandrino: Is there enough of this material to meet that demand? I mean, we're talking about the cars. We haven't spoken about the infrastructure that needs to be built, particularly in the U.S. Are auto manufacturers almost becoming miners themselves? Or how are they addressing that problem? Is there enough of this material to meet this demand, particularly if there are going to be mandates that you must have an EV?

John Ciampaglia: Yeah, it's a great question. I think the world is increasingly becoming focused on building out these supply chains. We can have all the lofty goals we want about decarbonization and EVs, but if we don't have the supply chains and the critical minerals, these goals won't become a reality. The fact is, the Earth has abundant materials. The reality is the time to discover and permit them and develop the mines is really what's creating a lot of stress in the system.

It's not uncommon for some of these mines to take between 8 and 15 years to come into production. If you think about building a new facility to build EVs, that might take five years. If you think about building a lithium mine, it could take 10 years. We've got this time mismatch that is creating scarcity, it is creating some bottlenecks and shortages.

It's one of the reasons why some of these commodity prices have doubled and tripled in price over the last few years. That's not a great thing for the end car class. But as these technologies are scaling, there are efficiencies, and it is incentivizing more discovery and production of these critical minerals.

It's a matter of time. Over time, we think there is a big push to ensure we provide sufficient incentives both at the government level and also to facilitate permitting.

Jill Malandrino: What about the growth potential in nuclear energy?

John Ciampaglia: It's another big topic within this energy transition thematic that we are talking to investors about on a regular basis. This is about a form of energy that we've had for 50 or 60 years that unfortunately, in many parts of the world, it's turned its back on over the last 20 or 30 years, but now is revisiting. The reason why people are looking at nuclear energy again is because many governments have done all the modeling and said there's no way we're going to hit net zero without power sources like nuclear energy that don't have greenhouse gas emissions. Whether it's the United States, or Korea, or Japan or Canada, we're seeing a big pivot back to nuclear energy. That is creating a lot of excitement in the sector.

But again, it all comes back to can we build these new plants on time, on budget? Also, can we find the Uranium, which is the fuel that ultimately gets put inside of these reactor cores? Uranium has gone through a horrific bear market from 2011 to the beginning of 2020. In the last two years, the price of uranium has essentially doubled as the world has realized that, "Hey, we don't have enough of this stuff. If we don't go and find it, we could have a shortage in the next 4 to 5 years.” Investors are looking at that supply, demand, and balance and are very interested in that story as well.

Jill Malandrino: Finally, when you think about where these types of investments would fit in an investor portfolio, where do you think the allocation makes sense?

John Ciampaglia: It's amazing to us how versatile this thematic is used in people's portfolios. We sometimes talk to investors and say it's in my commodity bucket or natural resources. Sometimes it's in the energy bucket as alternative energy or clean energy. Sometimes it's in climate tech. It's quite versatile in terms of the way people are thinking about it and applying it in their portfolios. Many investors have historically invested in the downstream part of the sector, meaning the companies building solar and wind farms.

But now they're thinking more about the upstream because they see that's where the real pinch point is going to be in terms of the critical minerals and the impact that's having on different commodity prices. We're seeing a shift from downstream, which has been very popular for the last 10, 15 years. In the last couple of years, a lot of investment dollars are moving upstream to the mining companies producing these critical minerals.

Jill Malandrino: John, we appreciate the insight. Thanks for joining us on Trade Talks. I'm Jill Malandrino, Global Market reporter at Nasdaq.