Why You Should Invest in the Copper & Lithium Green Energy Revolution

• Copper and lithium demand is being driven by the green energy transition and electric vehicles
• Supply constraints are expected to lead to higher prices needed to incentivize new mine development
• China's dominant role in lithium refining may diminish as the West seeks to secure its own supply chains
• Government incentives and streamlined permitting could help spur development of domestic copper and lithium projects in the U.S.
• Arizona Sonoran Copper and American Lithium are well-positioned to benefit from the bullish outlook for copper and lithium

Looming Opportunities In Copper & Lithium

As the world accelerates its transition to cleaner energy sources and electric vehicles, demand for critical battery metals like copper and lithium is poised for significant growth in the coming years. In a recent panel discussion, George Ogilvie, CEO of Arizona Sonoran Copper Company, and Simon Clarke, CEO of American Lithium, shared their insights on the outlook for these metals and the opportunities for investors in the space.

The Bullish Case for Copper

Ogilvie pointed out that copper demand is closely tied to economic growth, and the aggressive global push towards decarbonization and electrification will be a major driver going forward. Electric vehicles require 2-3x more copper than internal combustion engines, and investments in EV charging infrastructure and electrical grid upgrades will further boost copper consumption.

On the supply side, Ogilvie sees significant constraints that will necessitate much higher prices to incentivize new mine development. He noted that the world currently consumes about 32 million tons of refined copper annually, with that figure expected to reach 40 million tons by 2030. Bringing new supply online to meet this demand will require copper prices well above current levels around $4.23/lb. Without sufficiently high prices, miners will struggle to earn adequate returns on the multi-billion dollar investments required to build new copper mines.

Ogilvie believes a near-term price spike could occur in copper, especially if the U.S. Federal Reserve cuts interest rates later this year. Lower rates tend to weaken the U.S. dollar, which is bullish for dollar-priced commodities like copper. However, he sees the real upward pressure on prices coming from the supply-demand imbalance in the years ahead.

Recently, copper supply has been impacted by unexpected mine closures and production cuts. Smelters in China, which expanded rapidly over the past decade, are now facing historically low treatment charges - a sign that copper concentrate supplies are tightening. If smelters are forced to cut production, that will further reduce the availability of refined copper.

While China has been the dominant driver of the global commodity boom in recent decades, Ogilvie expects its share of copper demand growth to diminish going forward. Increasing consumption in Europe and North America, fueled by the green energy transition, will pick up the slack.

The Outlook for Lithium

Turning to lithium, Clarke noted that the market experienced significant volatility in 2022, with prices soaring as high as $85,000/ton before plummeting to around $12,000-$13,000/ton earlier this year. Despite the turbulence, lithium demand still grew by a robust 35% last year, and the long-term trajectory remains positive.

Current lithium prices around $15,000/ton are probably unsustainably low and are already forcing some marginal operations to shut down or slow development plans. Clarke believes prices need to be in the $30,000-$40,000/ton range longer-term to incentivize enough new supply to meet projected demand.

By the end of the decade, lithium consumption is expected to reach 3-4 million tons per year - about 3-4x current levels - as EV adoption accelerates globally. Looking out to 2050, demand could surge to 12-14 million tons annually. Building out the necessary production capacity will be extremely capital-intensive, hence the need for much higher prices.

The lithium market has been highly influenced by inventory levels in China, which accounts for 60-70% of global lithium refining. This concentration has allowed China to exert significant control over prices. Some have speculated that China worked to drive lithium prices lower last year in part to benefit its domestic EV manufacturers like BYD.

Reducing Dependence on China

Both Clarke and Ogilvie see the U.S. and other Western nations taking steps to reduce their dependence on China for critical battery metals over time. There is growing recognition that lithium and copper are vital to energy security, and that view is likely to strengthen, especially if a more hawkish Republican administration takes over in Washington D.C.

Government incentives like the Inflation Reduction Act, as well as potential funding from the Department of Energy and Department of Defense, could help spur the development of domestic copper and lithium projects. The challenge will be building out a local lithium processing industry to upgrade concentrate into battery-grade chemicals.

Clarke noted that government funding so far has favored unconventional U.S. lithium projects like Thacker Pass and Rhyolite Ridge that plan to refine ore into a final product on-site, rather than simply producing concentrate for export to China. Streamlining the mine permitting process, while ensuring strong environmental and social standards are met, will also be key to bringing more domestic supply online in a timely fashion.

The Investment Thesis for Copper & Lithium

• Demand growth is underpinned by the unstoppable global trends towards vehicle electrification and renewable energy
• Supply will struggle to keep pace, necessitating substantially higher commodity prices to incentivize new mine development
• China's dominance in lithium processing will diminish as Western nations seek to secure their own supply chains
• Government policies aimed at promoting energy independence will be a tailwind for U.S. copper and lithium projects

For investors looking to gain exposure to the space, Arizona Sonoran Copper and American Lithium appear well-positioned.

Highlights for Arizona Sonoran Include:

• 100% ownership of the Cactus Mine, a former producing mine in Arizona with 7.4 billion lbs of copper resources (6th largest un-mined deposit in the U.S.)
• Expect to produce 55,000 tons of cathode per year over an initial 21-year mine life, with further growth potential
• Strategic location on private land next to key infrastructure (roads, power, water)
• Targeting very low CO2 emissions of 2-3 kg per kg of copper produced, without any carbon credits
• Low capital intensity of $10,300 per annual ton of production capacity
• Near-term catalysts: updated feasibility study, potential funding from U.S. Department of Energy

American Lithium's Key Advantages:

• Large U.S. lithium projects in Nevada (TLC - claystone) and Peru (Falchani - hard rock)
• Also owns a significant uranium asset, providing additional exposure to the energy transition theme
• TLC and Falchani are both at the surface, implying low-cost open-pit mining
• Straightforward sulfuric acid leach process yields a high-purity lithium product on-site, with no need for further refining in China
• Falchani PEA showed $5.2B NPV, while TLC NPV is estimated at $3.3B, for a combined $8.5B - far above the company's $200M market cap
• Near-term catalysts: unlocking value from the uranium asset, completing studies at TLC and Falchani‍

The green energy transition is a mega-trend creating a highly favorable demand outlook for copper and lithium. While both markets can be volatile in the short run, the long-term supply-demand fundamentals point to the need for significantly higher prices to bring on adequate new production. China's control over global lithium supply chains is likely to diminish as the U.S. and other nations take steps to boost domestic output. Well-positioned companies like Arizona Sonoran Copper and American Lithium offer investors leveraged exposure to higher copper and lithium prices, as well as the potential for re-rating as their projects advance.