The "future" is already happening now, and copper stands to benefit the most from the electrification of our economy, said Gianni Kovacevic, CEO of CopperBank.
The future is already happening now, that's the main theme of our discussion with Johnny Kovacevich, CEO of copper bank, who is back to give us his outlook on the economy. And what's changing for the metals in particular base metals like copper, Johnny. Welcome back to kiszko. It's been a long time. Um, it's a pleasure speaking with you today.
Very topical David. It's the end of 2020. It's been a very tumultuous year. And we're going to talk today in finer details about this green new deal. And of course the electrification who's been naughty. Who's been nice. Who are the winners? Who are the losers? Yeah. So let's start with, uh, what you were telling me, offline, everything you have been sort of predicting in terms of what the industry is doing towards electrification digitization.
It's already happening now. Isn't it. When I gave the keynote at SESCO's pained copper dinner in 2017. This is the who's who of the copper mining trading fabricating world that takes place in Santiago, Chile. Everyone knows chili as the world's largest producer of copper. And my opening line was to these executives.
You are all in the energy business because the future of copper is about energy and it's as the world goes from today, 20% of final energy usage is electrification. That's being acknowledged that it will go to about 55, 0%. In the next 25, 30 years, this has a tremendous impact on the demand of everything that enables electrification.
The way we generate it, the way we utilize it. And this is what we're gonna talk about today. Okay. Let's start with the green new deal first and how that impacts of base metals. So can you summarize what this is? The green new deal. People have it. This is not a new, by the way. This is, this is some, uh, this is an idea.
That's been passed around for many years, already, several years. And now with a president of like Biden taking office in January, it's, it's becoming more of a reality than never. Yeah. Talking about this green new deal are these kind of a greenie themes. You either gain a lot of friends or a lot of enemies.
I'm in the middle. I'm an investor. And I look at it this way. This is not just about the United States. There is about $10 trillion of stimulus. More than that, probably now that's going to be flooded to the global economy, China, Europe, America, other economies. The vast majority of that is going to go into modern infrastructure electrification, or as some people call the green new deal, I will tell you people like me that I understand incumbent energy.
I've followed it for over 20 years, but I really understand this modern energy pivot. If you cut all these things in half, how do they work? What's the impact. I used to say things like. I will suggest to you. I will submit in my opinion. Not anymore. Now I can say because there's so much pivot has already occurred.
I tell people, I declare to you, the facts are the numbers are that these CEOs are investing $50 billion in the, in the case of Volkswagen, for example, to electrify their entire fleet. Right now, this had nothing to do with COBIT or stimulus. They were already doing it. And so. You can start to look at the ramifications of that, you know, in one thing where you really want to talk about energy, the world's greatest conglomeration of energy CEOs, investors, and management.
This takes place in Houston, Texas at Dan Yergin. Sarah week cost $10,000 to get a ticket there just to give you context. And the last two years they didn't do the meeting in 2018. Uh, strategies for a new energy future and 2019 a pivot towards the new energy model. What we used to argue there is how long this would take.
Not what was it happening? No one cares because if it's in 2040, talk about it, then we can't do that anymore. This is happening in real time. And in this decade you will see a tremendous pivot take place. So there will be ramifications for the winners and losers. And of course, we're talking about the five major electric metals, copper and aluminum.
Nickel cobalt, lithium, and there are some other ones. And another thing that we should touch on is the role of rare earth elements this wheel to sector, to go away from China and have a production elsewhere in the world, but all so the actual commodities and one that I think is going to really be on the front page and people have to pay attention to.
Is scandium because it's you add half a percent or 1% scandium to aluminum and it becomes super aluminum weighting of steel. But we'll talk about that. I wanna, I wanna start with the, uh, the role of copper and base metals in green energy. So I'm looking at the EIA data from 2019 and most of the electricity from the United States produced in 2019 was still from fossil fuels.
So 23% coal, 38% natural gas. That adds up to 61%. Fossil fuels is this percentage. Is that going to S you, you need this percentage to come down and for the rest of the energy to be produced more from, from things like solar wind to, to have a, to have a significant impact on copper, do we not? You do. And you noticed this big pivot you're right there.
The coal to gas pivot, coal to natural gas and coal is going to continue to suffer around the world. Natural gas will be a winner. And that's because as we dramatically grow wind and solar power in many jurisdictions around the world, most I will, I will say beaker power. The optimal peak power is natural gas.
Coal just doesn't work has nothing to do with climate change or, or wearing a bumper sticker on your car. It's the fact that it, it, it's not instantaneous. Natural gas is the best peaker power because you can turn it on in five minutes. So when the sun or the wind aren't. Uh, quite robust enough to, to keep that network going.
You need to have something in the backup, but when in aggregate, when you're talking about 365 days, 24 hours a day, how much actual fossil fuel has been burned over those many hours with, with coal, usually it's just a five or six or seven day turnaround up and down. That's why we don't like to use it as intermittent power.
Natural gas will be a winner, but the kegger growth rate. I'm talking about seven, eight, 10, 15% in certain a certain jurisdictions is going to be the growth in solar wind, offshore, wind, um, well, solar projects, macro solar projects, and the big benefits are going to be these electric metals. Cause we will also have battery storage.
So it would, McKinsey has done some math on this subject for us. To give you context, middle of the road growth scenario, and you could argue it's going to be better than that with all this stimulus, but let's just go middle of the middle of the road in the next 15 years we need, we will need on an annual basis, 50 million tons of aluminum, 23, 24 million tons more copper copper market right now is 24 million tons.
So it doubles nickel grows by about 3 million tons cobalt, 500,000 tons a year and lithium by three and a half million tons. Now that's going to require a $1.7 trillion investment from the global mining corporations in the next 15 years. So if you want to have some, some guidance on how did we get here during the China Supercycle and starting in 2005, how much money did the global Milo mining companies spend on these five important metals?
The cap X Weiss. The answer is 600 billion. So David, we need to invest at these prices at a constant us dollar three times more than during all of the best years of the, of the China Supercycle in the two booms that everyone saw that invested in metals and the will, will be there. The demand is going to be there because people are going to be buying transformers, cables, everything that makes electrification possible business will be good.
And general investors will finance these things. The money will be there because the business cases there. But not at these metal prices. We need to go and incentivize, let's just talk about copper for now. You need to make these resources or all. What we found in the world pretty much is low grade resources.
I'm talking about 0.4 0.3% copper. The outlier is Robert Friedland's. Kamoa. And you have some other pockets, but that must not, maybe not wishful thinking the engineers and the economics. They must be able to enable a 0.3% copper deposit, maybe at three or 4,000 feet in the Andes that has to become economic, which tells you copper places.
I will say, in my opinion, in this case, we'll surpass it, the old all-time high, and probably we're going to see something in the tune of, you know, between 12 and $14,000 a ton, which is North of $5, a pounds copper. That's what I, I see taking place. One of the provisions of the green new deal is that we're supposed to achieve carbon neutrality by 2050.
So 30 years from now, we're supposed to have zero emissions from electricity generation in the U S. Now I'm looking at the EIA data again in 2019, only 17% of electricity was generated from renewables. How are we going to have from 17% to a hundred percent in 30 years? Like what kinds of infrastructure changes are required for that to happen?
But it must be unimaginable. Yeah, you have to look at countries that are, that do not have an endowment and fossil fuels. Now I'm in The Bahamas. Bahamas is an Island population is just under 400,000 people. Can they now over the next 10 years implement something where everything other than airplanes and helicopters, but everything else is fossil fuel, free energy generation and utilization.
Absolutely. Can Japan do this once again, population some hundred 50 million people. They do not have an endowment fossil fuels relatively small in size. Yes they can. The other countries, the industrial superpowers of the world, they do not have a fossil fuel endowment, Germany, Italy, uh, growing India, China, for that matter, there were importers of fossil fuels.
Net zero. That's going to be very difficult, but if you get a large part of the way there, the collateral benefit is not just in emissions, but it's also particulate pollution in the cities around the world. And it will happen in 2050, whether they actually get to net zero with some of the proclamations that various governments and prime ministers and presidents are making, that might be difficult, but we'll get very close to it.
Do we need this? I mean, skeptics of, of green energy point to the fact that to produce green energy, the infrastructure construction, the, uh, implementation, the transportation, battery manufacturing, all that is going to contribute to. To greenhouse gases anyway, and people are still going to travel with airplanes and, uh, and, uh, and cars are still gonna use diesel.
Uh, electric cars are taking up market share, but it's going to take decades for, for a mass, for mass migration into EVs. That's that's the argument against this. Yeah, nothing comes for free and people will. I don't know if anyone saw that, that ridiculous Michael Moore documentary that came out where they're talking about the pollution that it requires to make a steel tower for a wind turbine.
What they failed to tell you what anyone with common sense know is if you make the steel and you make the turbine, that's it it'll stay there for 20 or 30 years. The other path, when you do not make a sustainable long-term way to create transfer and utilize energy, you have to do that every single day in the context of a coal power plant.
Okay. Sometimes you have to have it. It's the only form of energy, perhaps in, in, in some rural area, but day after day after day, it, most CEO is in global power. They're moving away from thermal coal, not for these issues, but because it's the economic sense, it just doesn't make sense. And so, um, I, I struggle with that argument.
I think that it's the incentive. Is there most importantly for the, for the corporations, the CEOs on those companies and then the rest falls in place, let's look at the world has changed. You know, I told you before that people are used to say, um, I suggest, and I submit. We're looking at the facts. People are saying like for Exxon, Exxon doesn't have to carry, or it doesn't have to care about energy transition, but the market does, their investors do look at the market cap of exon.
Look at the market cap of the incumbent automotive companies. Look at Ford, for example, do you do most people realize that Ford corporation has had four CEOs since 2014? Why fail policies, the German automotive industry. We have new CEOs at Volkswagen, BMW, and Mercedes, and they all drop the ball. So what they're doing now in Germany in excess of $100 billion is being invested to retool the entire automotive industry there to be electric cars.
Once the world's automotive fleet is 30 or 40 or 50% electric. Then comes all the infrastructure required to power those cars, not with thermal coal power plants, David with houses, micro plants. In some cases it will be done on a larger scale, but the CAGR growth rate, once again for copper and for these things, they take typically 400% more copper per megawatt of utility transmission.
Um, not transmission, but generation and utility. No, Johnny, I think everyone that I know personally agrees with you on that front, everyone likes electric vehicles. I mean, if anything, Tesla has proven that we can get good performance. Out of N E V, that the question is not whether we should have EVs, but how we should power them.
Because according to some research, the demand, let's say, if everybody switches to an electric car tomorrow, we're not going to have enough electricity to generate, to do power that fleet also, who's going to build the charging stations. We don't have enough of that on the road either. Right? So there are these infrastructure problems that need to be overcome.
Can they be overcome? It's a long answer. Yes. The simple terms I drove across America in 2016, I've driven countless thousands of kilometers, also in Europe, many different countries. It does not take a long time to build the infrastructure. This, this happens very quickly. Tesla already did it. Other companies are going to have to follow suit.
And the question, if everyone came home at 5:00 PM and charge their car at the same time with today's infrastructure, yes. That we would not have the ability to do that. But no, one's going to do that. David. Because you have an incentive in most jurisdictions around the world after midnight, nobody's using electricity.
You would have an incentive. If you want to pay four times more for your electricity to charge your car at five o'clock, you're entitled to do that. Who's going to do this. Nobody, you charge it. At midnight, the terror falls dramatically in every different power company and jurisdiction. They will do it differently, but you know what?
People will vote with their wallets. And it's a lot cheaper to fill up an electric car at midnight, in most jurisdictions. Even if you live in a, in a, in an expensive electricity market, we're talking five to $10, not big money. The incentive is there. It's a huge business model. Oh. And by the way, They're already doing it.
Royal Dutch shell bought British gas. Why? Because they've told the world that they will become the world's largest generator and provider of electricity by about 2035, because the future is electrification. Yeah, that was my next point. I had imagined that actually it's the oil companies that have the most incentive to switch into renewables.
Right. Because while petroleum is a finite resource, they can't eventually, if it's, if they don't have any more of it, they're gonna go bankrupt. They have to make this change. We already saw this happen before we used to joke with technology companies that didn't want to change what they were doing.
Kodak invented the digital camera and didn't want to advance that technology. We have the automotive companies, but when you're talking about oil and gas, the progressive CEOs, we're talking about, um, Ben, Ben, Jordan at Royal Dutch shell. And of course the transition now with, um, BP. Be acknowledged that they know that they have to make this investment and they can't do it, um, abruptly, but they can do this in a, to look at that for the future of their business.
And going back to the CERAWeek week meetings of 2018 and 2019, all about the future of energy, the argument was how fast this transition to electrification would take place. And you used to be able to make that argument. You might be able to still do that in certain jurisdictions, but did you know the who's who of global energy for days?
All they talk about is the future of energy electrification. Did you know David that the word copper doesn't get a line item, doesn't get a line item. So there's an arbitrage in that ignorance or in that misunderstanding that that's how I'm positioned as an investor. I believe that it will become it's a little bit more topical now in our circles, but you're going to see it now on time magazine, the New York times, barons copper.
The magnificence of copper, that is in fact irreplaceable for these electric networks in the future. It's infinitely recyclable and it's irreplaceable. This is why we at copper bank. We've positioned ourselves to capture what I believe is going to be a disproportionate benefit. And we do this by having exciting exploration projects.
We have three of them. We have two advanced development projects, which are not, we're not economic in the $2 copper area. When you start talking three and a half and $4 copper, there's already been a a hundred million dollars invested on this portfolio. Now you start looking at that and something that we're talking about just this week, and this is very important for your readers royalty business.
In copper, we have two organic opportunities with our 16,000 acres of land holdings to development projects where a vast majority of this land does not have a royalty attributed to it. So, if you look at that and run a model on a one or 2% royalty for each one of these projects, and then you augment that with a stronger copper market.
And if we're successful at getting a partnership or a joint venture with of course, a major mining company on one of these projects, the value of that, there's a tremendous amount of value and you people should have seen that recently, the big ramp up. In certain Welty companies and it's a fantastic business because it doesn't require a big team.
It gives long stable returns. Once those projects go into production and we have a division within copper bank that I think is totally misunderstood and there's an arbitrage there for people to better understand it. So I can focus people on copper bank's website. My keynote at SESCO from 2017, which is very topical.
I've been sending it to some of the copper CEOs that were actually at the meeting I've been doing that. The last couple of weeks. And I say, boy, that is, it could be told today that that that's a 25 minute, very concise, um, a to Z on global energy. And the role that copper is playing in will play plan. I think people will find it very topical on the energy zone, copper bank's website.
Okay. I have one before a warmer question about copper Johnny. I know you're bullish on copper due to the electrification story, but, uh, if we go back and go back in time a little bit, the electrification story is not entirely new. So people have been shifting towards EVs for more than a decade with Teslas and other manufacturers, Volkswagen, BMW, Mercedes they've all been doing it to some extent.
Toyota. Now copper has fallen from. Around $4 and 40 cents and 2011, I'm looking at the chart too. It bought him to around $2 and 28 cents in 2016, and then it slowly climbed back up. So during that time, we still had a decrease in copper prices. What happened in the last decade and what could be different this time?
Well, put my consumer's hat on. And copper is an input for the fabricators of the world who celebrates a high copper price. Nobody. So it's as Robert freely has been saying, it's the revenge of the miners coming. So you have about 20 CEOs of the largest integrated mining companies that produce the vast majority of the world's copper.
It's those people against the world. And it would make sense to me that normally in most circumstances, the consumer is very happy for the market to be just a little bit imbalanced. And if you liken it to, um, to a concert where tickets are being sold, doesn't matter. Even if there's 20 tickets available still, there's no premium for that concert, but the second it changes and which we're seeing right now, but it was scrambled warehouse levels are coming to all-time lows.
You look at the Chevy inventories, LME and COMEX, uh, irrespective of marketplace. When we're talking about a 25 million ton market, that's going to climb the kegger growth rate. By the way, middle scenario is about 6%. Eventually you do run out and win what I love about the commodity business. Cause every once in a while running out of a commodity, David does not matter until it matters.
And then it matters a lot. But this time not to say it's different this time, but you do have a once in a hundred year transition. And that is not well understood. I know this because of Cera week, when you have all these energy people, they do not understand how important and how delicate. To, to bring new copper production, um, to market, it does not work at $3 copper, two 75 copper.
And in fact, you're going to need something significantly more so there there's a tremendous arbitrage there, so prices to meet. Um, it makes sense. Final question. You brought up the rare earth metals, which of these metals are your favorite? You mentioned scandium. So what is that all about? I love scandium because it's something that's, it's a secret ingredient that you add to aluminum.
And once you've done this, aluminum can be better welded. You don't have to use rivets on an airplane. For example, it is super strong for less content. So if you were an automotive manufacturer and you want to make your car more efficient, you can then use this. Fortified aluminum instead of steel or less aluminum.
And all you need is about 1% or half a percent of scandium inputted there. Now, why haven't they done this before? They did not have many primary scandium deposits. That's changing. There are a few in Australia and other parts of the world, but there's a company I've been following Imperial mining group at a Quebec.
They're located in Quebec. Quebec's a huge aluminum market. It has a simpler metallic energy. And they're driving this crater Lake deposit to be something that could be this chicken and egg. If the product is there, certainly the aluminum industry can use a lot more scandium so that is something that I think people need to look at.
Rare earth elements are very important. And I think that there's a sort of a, a Renaissance or an. Or a rare earth element, 3.0, uh, boom. That is actually already underway. But now we can start looking at the more important of the railroad elements. Now, UBM is another one, but I like scandium, I'm following this trade.
I believe that the industry is going to adopt more and more of this. And it's something that people should follow. It's not a next day story, but certainly, um, you'll see this every quarter, every year, more and more important. And, uh, I would focus on Quebec for that jurist for that type of on. Got it. Okay.
Very interesting. Thank you Johnny, for coming on the show today and giving your thoughts. I appreciate it. Thank you, David. Thank you for watching Kitco news. I'm David Lynn. Stay tuned for more. .