The Energy Transition is Heavy in Minerals

With a global shift to renewable energy and urbanization on the rise, the demand for copper is expected to grow while supply remains constrained. The Hennessy Energy Transition Fund, Portfolio Manager, Ben Cook highlights three reasons why copper producer Freeport-McMoran may be poised to benefit from this trend.

August 2022
  • Ben Cook
    Ben Cook, CFA
    Portfolio Manager


Beau Barnett, Sales Director

Hi, everyone. My name is Beau Barnett, and I am the Sales Director for Hennessy Funds. 

I want to, first off, thank all of you for taking the time out of your busy schedules to join us for what is going to be a quick but informative video on a recent addition to the Hennessy Energy Transition Fund. 

Now, if you've never looked at the Hennessy Energy Transition Fund before, the fund does have the ability to invest across the entire energy value chain. That does include renewable energy as well as the ability to participate in energy markets and gain exposure to both the supply and demand side.
Today, we're going to hear from Ben Cook, who manages the Hennessy Energy Transition Fund as well as our Hennessy Midstream Fund. Now, Ben, if you haven't seen him before, has over 22 years of experience in the energy space. Today, he's going to highlight a recent addition to the portfolio in Freeport-McMoRan and discuss why copper is an important and potentially overlooked piece of the overall energy transition.
We thank you again for your time. With that, I'm going to go ahead and turn it over to Ben Cook, portfolio manager of the Hennessy Energy Transition Fund.

Ben Cook, CFA, Portfolio Manager

Thank you, Beau. As Beau mentioned, my name is Ben Cook, and I'm the Portfolio Manager of the Hennessy Energy Transition Fund. 

I wanted to take a minute today to describe the fund, its unique approach and highlight one of the companies held in the portfolio that we believe offers extraordinary investment opportunity. As Beau mentioned, that company is Freeport-McMoRan.

The Hennessy Energy Transition Fund offers a practical approach to investing in the transition by broadening the investible universe to include both traditional hydrocarbon energy as well as renewable energy, including its respective value chain. This flexibility affords us the opportunity to select those stocks that offer the most attractive risk-adjusted return potential as the transition unfolds.
 As we've discussed, the energy transition will bring sweeping change to the way energy is both produced and consumed. It's clear to us that electric power, more specifically renewable electric power, will play a growing role in meeting a broad range of consumer needs. For investors, this electrification trend presents great opportunity to profit as a variety of businesses will be called upon to satisfy the materials, components, and systems that generate, transmit and deliver that electric power.
Importantly, one of the key materials required to facilitate the trend toward electrification is copper. Its role as a conductive material is critical in the process of generation and transmission of electricity. According to the international copper association, more than 65% of the world's copper is used in applications that deliver electricity. The transport electrification will serve to grow copper demand as EVs use up to four times the copper than that of a conventional internal combustion engine. Renewable technologies like wind and solar use four to five times more copper than traditional fossil fuel-powered generation systems.

According to S&P Global research, copper demand is expected to double by 2035, which will require a combination of new mining, substitution, and recycling to meet supply needs if we are to meet net-zero goals by 2050. In our view, one of the best ways to play the growing demand for copper is producer Freeport-McMoRan, ticker FCX. 

Freeport is an industry leader that maintains a portfolio of high-quality copper and gold assets with growth potential that's nearly impossible to replicate. Freeport, as an operator, is technically proficient and has demonstrated a proven capability in the mining of the commodity with an experienced management team.

We believe Freeport is attractive for three key reasons.

First, Freeport possesses a high-quality low-cost asset base capable of providing growth over the short and long term. Copper volume growth should expand in the low single digits between now and 2025. The company's long-lived asset base will allow for sustained volumes on existing projects through the end of the decade.

Secondly, Freeport has proven itself to be a shareholder-friendly allocator of capital, paying down debt, repurchasing shares in the open market, and paying both a base in variable dividend as company cash flows benefited from recent strength and copper pricing.

Then finally, Freeport's equity value is attractive. While both copper prices and the share price are off recent highs due to recession fears, the company's current share price is now reflecting a copper price typically seen during periods of economic slowdown. While at the same time, share valuation is trading well below historical average, suggesting that the worst of the recession fears have been more than priced into the current equity value.

In our view, with shares effectively de-risked, we think Freeport has become extremely attractive. Thanks for tuning in today. Look forward to visiting with you all soon.

Company Spotlight: Freeport-McMoran