Nickel and Copper Royalties: A Unique Opportunity in Clean Energy

Over the past two decades, royalty and streaming companies have garnered considerable buzz in the precious metals industry. Industry giants like Franco-Nevada (TSX:FNV,NYSE:FNV) and Wheaton Precious Metals (TSX:WPM,NYSE:WPM) have market caps worth tens of billions of dollars.

Competition for royalty and streaming agreements on high-quality gold and silver projects in safe, low-cost and past-producing mining jurisdictions is at an all-time high. However, what may come as a surprise to many investors is that few players are focusing exclusively on royalties for battery metals such as nickel, copper, lithium, cobalt and manganese.

While some of those metals don’t fit the royalty model well, nickel and copper are two bold exceptions. Industry experts believe that the demand for both nickel and copper will accelerate in the current decade in comparison to the last — a pace that may continue still into the 2030s. Global supply growth, however, remains a question mark. In the event that nickel and copper prices increase significantly in the near future, royalty and streaming companies targeting these metals may reap considerable rewards.

Nickel and copper are two of the most critical components in both the electrification and clean energy supply chains for a number of reasons. As copper is a highly efficient conduit, the metal is an essential element of renewable energy systems used to harness power from thermal, solar, hydro and wind energy systems across the globe. In fact, renewable energy systems rely on about 12 times as much copper as their traditional energy counterparts. Likewise, nickel is a clean energy necessity, in part due to its importance in lithium-ion batteries. These two metals will play a major role in any low-carbon future, which, with a new Democratic US government and its recent climate orders, may be nearer than you might think.

Keeping up with the demand for electric vehicles

Experts predict that the rapidly changing market for electric vehicles (EVs) will have a substantial impact on the demand for nickel, copper and other battery metals. The rise of the EV market can be seen in the explosive growth of companies like Tesla (NASDAQ:TSLA), which saw more than a 600 percent increase in its stock in 2020, and is now one of the most valuable companies in the world. Additionally, automotive giants such as Ford (NYSE:F) and General Motors (NYSE:GM) have released or are planning to release an electric version of their most iconic models. It is clear that major players in the industry are following consumers as they move away from internal combustion engines and toward greener, more forward-thinking technologies.

Nickel and copper are both essential to EV technology and its supporting infrastructure. Despite the COVID-19 pandemic, the EV sector saw a strong finish in the last quarter of 2020. According to a forecast by Deloitte, the industry is expected to grow at a compound annual growth rate of 29 percent over the next decade, reaching 31.1 million EV sales by 2030 from 11.5 million in 2025 and 2.5 million in 2020.

EVs require up to 10 times more copper per vehicle than the traditional internal combustion engine vehicle. Nickel, on the other hand, is a critical component in two of the most common EV battery types: NMC and NCA batteries, both of which are 80 percent nickel by mass. Copper’s necessity isn’t just limited to the batteries, either. A surge in EVs will require significant investment in plug-in EV charging infrastructure — more than 5 million charging ports may be required to support up to 7 million EVs by 2025. Currently, there are between 50,000 and 70,000 Level 2 ports in work or public locations throughout the US.

Indeed, it is difficult to imagine a thriving EV industry without nickel or copper playing a major role. Experts believe that bridging the gap between an emerging technology and a sustainable foothold in industry infrastructure will require a massive supply of these essential elements.

Major players to watch

Royalty and streaming giants like Franco-Nevada, Sandstorm Gold Royalties (TSX:SSL,NYSE:SAND), Cobalt 27 Capital (TSXV:KBLT) and EMX Royalty (TSXV:EMX,NYSEAMERICAN:EMX) have a stake in nickel or copper. Sandstorm Gold Royalties holds a 30 percent NPI and 2 percent NSR on a gold-copper mine in Northeastern Turkey that has a US$1.1 billion NPV at a 5 percent discount rate and a 50 percent internal rate of return.

Another major player in the fast-growing royalty space is Nova Royalty (TSXV:NOVR,OTCQB:NOVRF), a royalty company focused entirely on next-generation nickel and copper mines. The company has completed five major acquisitions with some of the world’s most well-known mining companies, including First Quantum Minerals (TSX:FM,OTC Pink:FQVLF), Teck Resources (TSX:TECK.B,NYSE:TECK), Newmont (TSX:NGT,NYSE:NEM), Rio Tinto (ASX:RIO,LSE:RIO,NYSE:RIO) and Antofagasta (LSE:ANTO,OTC Pink:ANFGF). Nova Royalty’s market cap is US$70 million, and its portfolio currently contains 14 royalties, 13 of which are located in Canada. Focused royalty companies like Nova Royalty command investor attention and garner premium valuations, giving them a hefty competitive advantage.

Takeaway

The market for EVs is poised for rapid growth as leading manufacturers debut new products and government incentives continue around the world. Nickel and copper are essential to EVs and other clean energy technologies, leading experts to predict that the evolving market will have a substantial impact on global demand for these battery metals.

Nickel and copper royalty companies represent a unique opportunity for investors who are interested in green-tech metals without the typical risks associated with adopting a direct stance in mining companies. Investors should pay attention to focused royalty companies with large, strategic and global assets.

This INNSpired article is sponsored by Nova Royalty (TSXV:NOVR,OTCQB:NOVRF). This INNSpired article provides information which was sourced by the Investing News Network (INN) and approved by Nova Royalty in order to help investors learn more about the company. Nova Royaltyis a client of INN. The company’s campaign fees pay for INN to create and update this INNSpired article.

This INNSpired article was written according to INN editorial standards to educate investors.

INN does not provide investment advice and the information on this profile should not be considered a recommendation to buy or sell any security. INN does not endorse or recommend the business, products, services or securities of any company profiled.

The information contained here is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Readers should conduct their own research for all information publicly available concerning the company. Prior to making any investment decision, it is recommended that readers consult directly with Nova Royalty and seek advice from a qualified investment advisor.