There are roughly 2 ounces of silver and more than 100 kg of copper in an electric vehicle like Tesla, said Gianni Kovacevic, CEO of CopperBank. Kovacevic said that it is unlikely automobile manufacturers have been trying to suppress the prices of silver and copper. “As for electric vehicle manufacturers having some sort of a cabal to suppress the price of silver, I don’t buy into that. It’s a commodity, it does have some monetary features, which is unique to itself, but there’s going to be a lot of demand for silver,” he said, adding that silver is going to be more scarce. “I would say that you’re not going to be betting against it.” According to the Silver Institute, battery electric vehicles (BEVs) consume 0.8-1.6oz (25-50g) of silver.
As the world transitions into a more electrified economy with more electric vehicles, renewable energy generation. What does this mean for miners? And in particular, the base metals like copper, silver, and other base metals. Joining me today to talk about this issue is Johnny Kovacevich, CEO of copper bank.
Johnny. Welcome back to the show. David nice to be back. And I think we got some, uh, hopefully very, um, very relevant updates. And I always like to have data points and things that people can associate with in the longer term, hopefully that they haven't heard or reformulated in a way that will resonate for the longterm for everyone.
I'm very excited to talk about, uh, These charts and data you've presented to me offline. So the first question I have, and we'll segue it into their charts is a, is whether or not there's a significant amount of base metals in an electric vehicle. Let's take Tesla, for example, how much silver, how much copper are in a Tesla model?
S. Well, most people have probably seen some of these collaborations or collections of how much of these products everyone knows about lithium ion batteries. And, uh, but by now they should know that it takes 400% more copper per electrical vehicle, uh, buses or more. So indeed almost all of the, of the popular mind metals are pervasive throughout an electric vehicle.
So how much silver is in a is in a Tesla, um, better than two ounces. And copper, uh, better than a hundred kilograms. In fact, it's far more than that. I mean, who's actually looked at dissecting a car right down to the last washer. I think Bernstein attempted to do it, and they had some really contemporary data, but they're all changing.
And today Jaguar announced that they too are only gonna make electric vehicles from the year 2025. So it's basically the entire incumbent automotive industry by about the year 2035. Is going to be making for the most part electric vehicles, but where will all of these critical metal parts come from?
And that is a theme that I think people can invest in for the rest of this decade. And it's going to be, it already is becoming popular and we're going to continue to scrutinize that and present the opportunity the way I see it and cooperatively he's not charged. So we're gonna, we're gonna talk about, um, copper.
And the other base metals just a bit, but going back to silver for a bit, there's a lot of discussion around whether or not Elon Musk and Tesla and other car manufacturers really secretly loved silver in the sense that they want to hollow up all the silver and just sort of inter sort of collectively push down the price because they need that component.
And it's so critical, but you just said there's only about two ounces of silver in a, in a Tesla for its battery. That doesn't sound like a significant amount to me. Yeah, I've seen some of these, um, some of this, the talking heads going about, and there's a big discussion. There's this famous silver or silver squeeze.
And do the banks get involved in that? I mean, I heard Peerless sons' answer to that and I kind of go under his school of thought that I, I believe that it's. The market would be balanced. You can only hypothecate these things to a point. Um, as far as the, the electric vehicle manufacturers, having some sort of a cabal, the, to suppress the price of silver, I don't buy into that.
It's a commodity. It does have some monetary feature, which is unique to itself, but there's going to be a lot of demand for silver and like every other mining operation there, the grades are falling. It is more scarce. And I would say, you're not going to want to bet against it because people that shorted, if they believe let them do that, because this will all get resolved and it gets resolved with overwhelming demand, surpassing supply, and then it could have come out of inventory and the price should go higher in my view.
Well, when we're talking about electric vehicles, I don't just mean the cars. It's the whole ecosystem, right? It's still power generation behind electric vehicles as well as we move away from coal and petroleum power generation. Uh, power generation. We go into solar, we go into wind. Those were required, copper and silver as well, right?
Like a power of magnitude. David, when you build an offshore wind park, which they're doing now at the gigawatt scale, it takes a thousand percent more copper per megawatt of utility, 75% of all the copper that's fabricated in the world today. Before all this green energy stuff happens is fabricated into something to generate, transfer and utilize.
Electrical energy. Yeah. My bestselling book that came out in 2016 is now very themic. It is not stale dated. And I recall during Ted, when I launched the book, uh, I ended up having breakfast. I sat next to Jeff Bezos. My friend went to the bathroom on a long break and we started chatting back and forth. He says, what do you do?
I said, I'm in the copper business. Oh, that's interesting. We went on and on and we discussed this theme. He had a copy of my book. And we were together for that three or four days during tad. Hello, bye. Had breakfast again the next day. Coincidentally, sat next to each other. Why does Jeff Bezos understand and appreciate copper?
He is an electrical engineer. Most people won't grasp that. He's been to the mines of Chile. He understands that business. So, unless you are an electrical engineer or like myself, I took electrical studies at the British Columbia Institute of technology. You do not appreciate the magnitude of copper that will be required in a middle of the middle scenario.
Where when you look at the amount of copper we installed around the world from, from 1890 to today. We will need to duplicate that in the next, they say 30 years, I will tell you what's going to happen probably even sooner than that, because of this trillions of dollars of stimulus being allocated right now to these green energy programs, the commercialization of all of these things that do now work and it's happening country after country, I'll give you one anecdotal piece of information who is the world's largest buyer of copper it's China state grid.
They just under 3 million tons a year on a 25 million ton market. Did you know David that China's 14th five year plan? The releasing of it this year, China state grid is going to increase spending by 50%, five, 0%. Now I haven't done the analysis on how much copper trying to stay crit is going to consume, but it's going to be a lot more because Will's the single biggest buyer.
It's going to be spending more. Did, uh, bayzos tell you his intentions of buying up any of these minds for copper and other base metals. It just seems to me like these industrialists, it would be in their best interest to buy up some of these mines silver, for example, and just control the price that way.
Right? It wasn't like that. You don't want to put this out of context. We had breakfast in a very friendly way. Talking about my book. I live in Vancouver. I sat him in the copper business. I just wrote this book. The title, my electrician drives a Porsche, has nothing to do with fast cars. It has everything to do with understanding the magnificence of electrification.
And that is where that interest level took. Now I do always politely suggest to people. There is a trade here. You can short something from the old energy mix and go long, the future of energy. And it's always been led in my view by copper. Robert Freeland said it best at his keynote at PDAC 11 months ago.
This is going to be. The revenge of the miners and let's go over some very pointed data. I have a graphic here that I think you guys are able to share with people. It's a long-term 20 year chart comparing the price of oil with the price of copper. And I th I've always been saying that this will decouple.
Price wise, they're inverse when it comes to demand. We know that when we go away, things that, that, that consume, uh, fossil fuels for transportation fuels, it's something that is electrification. As everyone understands. Now it's a power of magnitude, more copper, but look at the price 90% of the time to correlate it.
Today's copper price, which is now three 80, three 83, a pound. As we're talking this morning, look at the oil would be. On that longterm average three 80 copper would be $115 oil, well oil $60. This is a decoupling. Could you imagine if oil was $115 a barrel, you could not dream wild enough. What you could do in the extraction of oil in many formations around the world.
What can you do with copper? Nothing. Very little. Look at the copper price at three 80. And superimpose that to what does it take to make a copper project viable? We've already spent, um, the industry that is the copper mining industry spent a fortune looking for copper. And now we're talking about where will the future of copper come from?
It's going to be from high elevation, typically in the Andes countries with a lot more political instability or miners are going to have to go to established mining camps where all that infrastructure is in place already. And I say this, why? Because when you look at the capital intensity per ton of production, The average, and you can look at the list of the projects coming on in the next four or five years by B by the big miners.
Did you know, it's $20,000 a ton, $20,000 per ton of production. So if you expect to produce a hundred thousand tons of metal out of a mine using the average, that's roughly $2 billion of CapEx. How big is a large copper mine in the world? The big ones, they're about 200,000 tons a year. So if you want to duplicate that.
The future of copper mining it's for each hundred thousand tons of production. The average is $2 billion of cap ex, guess what? Even at this copper price, it's very difficult because the future reserves of copper are low grade, unlike oil, where we went and done amazing reinventing of the wheel with the horizontal fracking and all the technology and innovation that they've seen from 3d seismic all the way down.
You do not have this in compromising. Yeah, there's simply no copper in the rock. We're down to 0.3 and 0.4% copper concentration in a ton of ore. And it's not economic. When you look at today's price and copper. Pardon me? When you look at today's price on a tonnage basis. Okay. So three 83, a pound is $8,300 a ton.
If the order was 1%, which it's not, um, that would be worth $83 a ton it's worth it's about one third of 1%, which gives you a today's copper price about $25, $27 per time. Not going to work, especially at higher elevation. Countries without increased political instability, or you're going to have to go to establish mining camps.
It is an insurance policy for the engineering is telling us that copper prices, in my opinion, will surpass their old all-time high, which was 10,000 a ton or four and a half dollars a pound. And they're going much higher because we have to enable this. And why will it be enabled? Because if you're in the business, Of making motors, windings cables, anything that enables electrification you weren't going to have boom times, like you've never had in the past hundred and 20, 130 years, which means they will be buying more copper.
Here's the perverse thing though. David by traders getting involved in the copper trade. Now the market's very tight. If you go and take a hundred thousand tons of copper, not for fabrication, but for trading for hoarding. Those little increments, they imbalanced the market entirely because the fabricator that people that actually consume the copper, they now have to trip over themselves to get material.
And we've seen that. That's why the copper price continues to climb because it's not just one trader buying some small tonnage, this hundred thousand tons, which is worth about 800, $900 million. This is being, um, this is a trade that's very well vocalized. Now it's going to get interesting to see what happens in the coming weeks and months, but it's not going to be sedated because the demand is going to be very strong, 6% CAGR growth rate and the demand of copper, really for the, for the rest of it.
Let's uh, let's, let's break this down what you just said. So the first thing is. The, uh, you mentioned that there's dwindling reserves of copper is what I understand from what you're saying, which so the shortage of resources, resources. So suppose we hit a roadblock of, of just, you know, not being able to find economic deposits suppose that that were to happen.
Wouldn't the tech industry. It's just try to look for another substitute for copper for, for, uh, like another storm. Now the form of conductor is that possible. Well, Warren Buffett always says that he loves businesses that have a protective moat. Copper is unique because there is no substitute. It's only aluminum.
And it's true. You can use aluminum or copper for various applications, certain applications. You can only use copper, but as we go forward, if you want ultra high, efficient electrical systems, you will use copper and not aluminum. But the answer is you'll use both. We don't have enough copper to do it simply with copper.
Okay. But that moat is greater. So if you're talking about this protective moat, that, that, that copper has one, the, the, the utility for electrification, it has no substitute other than the aluminum, but it's also geologically very scarce. It only happens in a few different countries. If people thought we relied on middle East oil in the seventies, wait until they find out that 40% of primary copper comes out of Cholula, Chile and Peru.
And there are furthermost. We already recover 90, 91, 92% of the, of copper at a big porphyry. That's your recovery already? Where is innovation and technology going to help you on a copper operation? Um, there was a Barclays report that says that we're going to get. Maybe 10 or 15% innovation out of existing operations, that's not going to help.
The current work is 25 million tons. And it's going to double in about the next 15 to 20 years. I want to go back to that chart. You presented here, the copper versus Crudo your chart. So this is a very, very interesting chart. There's a very close correlation. First of all, is what this chart shows. Can you explain why this correlation exists between copper and a crude oil?
Well, oil is the dominant, dominant commodity. It always has been. And you'll find out when basically when oil was peaking, many other commodities were peaking and when it crashed, many other commodities crashed. There's the us dollar involved there's inflation, deflation global economic cycles, but it's also in these big commodity funds.
If a billion dollar was allocated by whatever group into a commodity fund. I would say 80 or 90% of that went into oil and gas. Very little, actually trickled down into mining. That's going to change one. They got there, they're handcuffed. They're not able to invest in, uh, incumbent oil and gas industries let many endowments around the world, but also people want to invest in the future.
And you don't have kegger growth rate up by six, 7% in a lot of the other commodities like you do copper. So you're going to see an overweight allocation. Not just copper. We're seeing this now with lithium, you'll see this with cobalt and nickel and other things, the enablers of electrical, energy and storage.
And this is something where I see the copper market as I've already articulated, doubling, but let's look at it this way. The oil market, which is, it was at a hundred million barrels a day. It's fallen because of COVID, but let's call it somewhere in a normalized business cycle. We get back up to 95 or a hundred million barrels a day at $60 a barrel that is a $2 trillion a year industry copper today at this copper price, 25 million tons growing by 6% a year.
At 8,300, a ton, which is three 82, a pound that's a 200 and $210 billion industry. Is it fair to assume that when the copper market doubles and the price is also, let's say the price goes much higher, if not doubling because of this low grade posits and lack of innovation, would it be reasonable to see the copper market double in size, but double in price?
Or it goes to it to be an 800 or 800 billion or a $1 trillion industry in 20 years. I think it's possible. And can we see that in 30 years, the oil industry goes from 95 or a hundred million barrels a day to say 60 or 70, still a very important industry, probably used more for enhanced products and petrochemicals and everything else that we can get out of, out of a barrel of oil.
And it trades at whatever price right wheel is going to be, uh, overwhelmingly dictated by politics and less so by fundamentals. In my view, whereas copper is going to overwhelmingly be supported right now by fundamentals, but the trade is the speculator trade because a few people can now upend that market and radically increase the price.
So for every a hundred thousand tons, that's it, that's about a billion dollars worth of investment trade. Um, The market's tight. It's going to remain tight because the trade is on. This is the decade of electrification. And the decade of copper. And that's why copper bank is so well positioned to capture this because the projects that we own on a 100% basis, David are located in the United States.
There's no debt. And with a market cap of 30 million, we think that we can start closing the gap on the historical highs, which is 300 million, a 10 X differential evaluation between what we own today and its value and where we believe it could be in a $4 copper environment. So Johnny him overlay the oil chart with the renewable energy chart.
So this chart that I'm about to show here shows the kilowatt per hour energy cost production of renewable energy sources like solar and wind and over a long-term period of time, like 10 years, you can see that it's declined more or less in the same fashion that oil prices have declined. So my question to you is if energy prices of renewable sources continued to go down as it has been over the last decade, could that also weigh down?
On a copper prices. Should you, should you assume that the relationship between copper and oil holds, do you think that could happen, but that's, that's exactly the point. I'm trying to articulate here because the cheaper that these things become and they have become cheaper it's technology since 2014, how did the two doubling effects for utility and cost?
You and you use more of it, which is, it feeds off itself. There's actually more demand for copper, whereas other things are impacted, but the demand of copper, that is exactly why the demand of copper doubles roughly in the next call it 15 to 20 years, people thought before. Now let's say the price of copper doubles.
Hypothetically Elliott wave has copper going to seven and a half dollars. Okay. So it's a niche. It's an interesting trade, but let us assume for a moment that copper price has doubled when you build now, because as you correctly said, the cost of all these renewable energy schemes are falling dramatically to build, uh, uh, a megawatt.
Of solar power or onshore wind power is now in the three to $4 million range. In fact, solar it's much lower it's $2 million a megawatt. So you're saving a tremendous amount of money where it used to be 8 million and $10 million. Now how much copper does it take to make a megawatt of wind power? It takes five tons.
Copper. Today is $8,000 a ton. That's $40,000 worth of copper in a $3 million per month per megawatt project who cares. Copper prices. Of course they can absorb it. Even if copper prices doubled. It's not going to impact the utility in a car in all these electrical, um, applications, because. It, they can absorb it.
And we know this historically speaking, because they were all scared in 2002, three, four, five during the, the start of the China Supercycle miners and fabricators were terrified that copper went to a dollar and then $2 a pound. They thought collectively people are going to use aluminum and not copper because the copper price was too expensive.
Incorrect. It's it's to pervasive. It is required now even more so, because it's efficient, it's a better conductor than aluminum, but copper prices went then to $4 a pound and we've traded sideways since 2006 to today at an average of better than $3, a pound industry has absorbed that cost. They will do so again.
And so you get this double effect that the lower, that renewable energy costs become, the more that they're applied across global industry. And the more there's demanded of copper, but even if copper prices continue to climb higher, they can absorb it. Irrespective of the fact that it's irreplaceable and it's infinitely recycled outperform oil in 2020, if you look at this chart, they've more or less sort of moved in lock step.
Now this year oil has dropped, but it had a very Swift V-shape recovery back to pre COVID levels. Copper has done the same thing, except as way surpassed, pre COVID levels and price. Why, why has it done that? Well, there's a temporary in the oil price. There's many different shock absorbers. We've had these spats between this OPEC plus agreement.
You've had this curtailment of production between all the big producers and where, where who's going to produce the oil. Let's say you do get to 80 million or 70 million barrels a day where, who will produce this oil. There are people that will tell you if Iraq never had a war today, they produce four or 5 million barrels a day.
They could do eight or nine Russia to do up to 14 million barrels a day, Saudi Arabia, 14 million barrels a day. And all these Venezuela is no longer a real oil producer. Iran is Kurtz, but because the sanctions is not really an oil exporter, even though they could do four or 5 million barrels a day, the farmers in America will tell you their industry farming.
The most important driver is politics is no longer the weather. And anyone that really understands energy that understands the oil business. Yes. Oil can go back up to $100 a barrel, but the main driver is no longer fundamentals. In my view, it's politics policy, the many, many governments that are now having overwhelming pressure, irrespective of everything we just talked about, they're doing it because of particulate pollution and they have to address this and they can do it.
Nope. So that's, there's many, many reasons why these things, they are inverse. Copper and oil will continue to decouple based on that chart that I use, which is a 20 or 30 year, um, correlation we're already seeing, it's actually being very magnified now. Interesting. So a decoupling of this relationship.
Very interesting. Finally, let's take a, let's take a look at this table that you showed me offline approved copper development projects to 2027. And you've highlighted the, uh, uh, the two columns on the right-hand side. What does this table tell you, Johnny? There's a few things we're trying to show you here.
Number one, it reinforces the fact that where will the future of copper production come from higher elevation countries with inks increased political stability or a little bit at the margins right now in established mining camps. If you look the yield that this will provide us, first of all, it's a $65 billion investment between now and 2025, 2026.
And it should yield if it works correctly, just over 3 million, tons of copper metal will work for growing at five or 6%. And the copper market is 25 million tons. So it's growing by one or it will be growing by one or one and a half million tons per year. David. So this extra 3 million tons we get is not going to cut it.
Can we see some efficiencies come out of existing operations at the margin? Probably maybe 5%, some stays as high as 10. It's still not going to cut it, but it also tells you this relationship. I talked about the CapEx per ton of production, which is why. I like projects in established mining camps. If you do not have to build the power system up to 4,000 meters, desalinate the water, uh, move a crew of a thousand men or 2000 men up and down for 30 years, you have to pay for all this.
If you're in Arizona, in the copper corridor. I'm talking to PNL County or the counties of the, of the great copper production of Arizona. These things are all there already. What you focus on is what do you do in your operation? So without doing a feasibility study, you can look at a project that's very well-situated.
Even if it has maybe some pre-stripped or other things, where do you want to be? And what is the CapEx per ton of production? Because that gives you clues. That is the future of mining, but the fact is the grades are lower. And we have to be able to pay for this. And it's simply, you do not need to do all that economic, um, mumbo jumbo.
If copper prices are low in the low $3 range, because they just don't work and BHP, the world's largest integrated miner, they tell they've already told the world they've done this since years. 75% of all of the future projects do not work at sub three 50 copper, lots of resources. We found David, we spent a fortune, we got lots of low grade resources.
But you cannot convert a resource into a reserve if it is not economic. Okay. All right, Johnny, thank you so much for coming on today and, uh, giving us, uh, giving us your update on copper and the other base metals in the industry. I appreciate it. Thank you, David. And we'll talk very soon. We'll talk again soon for sure.
And thank you for watching Kichler news. I'm David Lynn. .