Contrarian Investment Opportunities in Natural Resources

Maurice Jackson of Proven and Probable has recently interviewed Sprott U.S. Holdings CEO Rick Rule, a well known specialist and “old hand” in the natural resource space. This is quite a wide-ranging and interesting interview, so we decided to present it to our readers. Below you find a summary and our comments on the main topics discussed, a video/podcast of the interview,  as well as a download link to a PDF file of the transcript for later reference.

 

Sprott US Holdings CEO Rick Rule

 

A summary of the main topics discussed and a few brief comments:

 

  1. Silver, Platinum and Palladium

Rick provides his views on non-gold precious metals, all of which have a large industrial demand component. Many of the ideas he presents in this context are fairly widely known but he also mentions a few issues which are rarely discussed and are probably not on the forefront of most investors’ minds. This includes e.g. his view on why silver supply-demand fundamentals are notoriously difficult to forecast, it seems there are a number of important drivers are actually not all that well known.

With respect to PGMs we would note that at current prices – particularly the prices for platinum and rhodium – it seems quite likely to us that a contrarian opportunity is close at hand. As a general remark to this we should point out that there were frequently time periods in the past (of short to medium duration) in which platinum prices moved independently of the trend in other precious metals and commodities more generally.

  1. “Energy Metals” (Lithium, Copper, Uranium)

In this segment Rick talks about metals like lithium, which has become a focus of investors with the increasing popularity of electric vehicles, but also other base metals that are likely to continue to benefit from the rising prosperity of people in emerging markets and the concomitant growth in energy demand.

Some of our readers may recall the Q1 2018 Incrementum conference call (see: “The Future of Copper” for the details), which was attended by special guest Gianni Kovacevic, the chairman of Copperbank, who spoke to us at great length about the effects of this development on the future demand for copper, a topic Rick touches upon as well.

Another energy metal Rick discusses in some detail in this interview is uranium, which certainly looks like a potential contrarian opportunity as well, given its current price.

  1. Project Generators

There is a brief detour on project generators in natural resources. We actually quite like a number of companies in this sub-sector – they work in a specialized niche that looks highly promising to us. Briefly, what these companies do is this: they build up portfolios of undeveloped and/or under-explored mineral land packages that appear to have potential (either by purchasing them outright or by staking) and then try to discover viable deposits. Once they have done so, they either spin off the discoveries into separate companies, or they sell them wholly or partly to financially strong senior mining companies with the wherewithal to develop them.

Monetization can take many forms which are sometimes mixed, ranging from outright cash payments to exploration/development commitments in exchange for majority stakes, to royalties on future production. This allows project generator companies to proceed with looking for the next viable deposit without having to dilute existing shareholders. The best of them occasionally even manage to create immediate returns for their shareholders in the form of special dividends upon project monetization and/or the distribution of free shares in projects that are farmed out and spun-off. We only regret that this part of the interview is a bit short, but we will definitely return to this topic in a future post. As Rick notes “these companies are neglected, which is odd” (as they are on average among the most successful companies in the exploration space). Naturally this neglect is precisely what creates great opportunities in this sector.

  1. Agricultural Sector: Agricultural Real Estate, Water and Water Rights

This is another very interesting area about which we have at best superficial knowledge. We were for instance blissfully unaware that there are in fact listed farming companies that have noteworthy ownership of water rights harboring great potential to increase in value, as they are scarce while water is obviously an indispensable resource. As a rule, water rights are privately owned and therefore inaccessible to most investors. It is good to know that there are actually a few exceptions (obviously, one has to do a lot of due diligence and analyze these businesses in great detail before one can tell with certainty which ones harbor the greatest potential in the context of water rights, but Rick provides us with a good starting point).

  1. Sprott Inc.

Sprott itself is a publicly traded company (symbol on the TSX: SII; in the US OTC market: SPOXF). As Rick Rule quite reasonably points out, the Sprott brand name is likely to become highly attractive in a bull market for natural resources, and particularly in a precious metals bull market, as Sprott is best known for its PM exposure and expertise. Even now, with precious metals essentially going nowhere, the company seems to be doing quite well, as evidenced by this brief summary Rick provides:I can tell you that it’s a prudently run company. We have no debt. We increased our EBITA in the last two years by roughly 50%. We earn and pay a generous dividend.”

Rick mentions that through conferences the company organizes it regularly brings together very interesting companies and high quality presenters (such as Doug Casey, Jim Grant, Grant Williams, Jim Rickards, David Stockman et al.), helping to educate investors in the process (as an aside, Jim Rickards is a fellow member of the Incrementum Advisory Board). The intellectual capital brought to these conferences and the networking opportunities they provide are no doubt of great value. In this interview segment our friend Jayant Bhandari (and a frequent contributor to this blog) also gets a well-deserved plug for his upcoming “Capitalism and Morality” symposium.

 

Sprott Inc. (SII), daily in Canadian dollars (TSX quote) – the company has evidently done well, despite the absence of a precious metals bull market since 2011. Investing in it is one way in which one can “buy Rick Rule”.

 

In 45 minutes these subjects can of course not be discussed in as much detail as one would like – but the interview definitely provides interesting ideas and useful pointers for further research. Without further ado, here is the interview:

 

Maurice Jackson interviews Rick Rule – investing in natural resources

 

Download link to the transcript:

Maurice Jackson Interviews Rick Rule – Investing in Natural Resources (PDF)

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • The Gold Sector Remains at an Interesting Juncture
      Technical Divergence Successfully Maintained In an update on gold and gold stocks in mid June, we pointed out that a number of interesting divergences had emerged which traditionally represent a heads-up indicating a trend change is close (see: Divergences Emerge for the details). We did so after a big down day in the gold price, which actually helped set up the bullish divergence; this may have felt counter-intuitive, but these set-ups always do. Consider now the updated chart below...
  • Confronting the Dragon with Peter Navarro
      Of No Real Use A young man might go to business school believing he is obtaining some sort of academic training that will enable him to make a comfortable living.  His degree may gain him entry into a large corporation, where he can work his way up to a good income.  This may even put him on the fast track to what he envisions as success.   Don't knock it: Being useless can lead to unexpected career opportunities... [PT]   But his academic training likely won't...
  • Trouble in Paradise
      Impressive Zeal for Faded Ideals Uncompromising independence, rugged individualism, and limitless personal freedom were once essential to the American character.  According to popular American folklore, they still are.  We have some reservations.   Rugged individualists suffer mid-life identity crisis. [PT]   The principles that gave rise to the American character died long ago.  Freedom.  Liberty.  Independence.  Limited representative government. Sound...
  • Gold – Macroeconomic Fundamentals Improve
      A Beginning Shift in Gold Fundamentals A previously outright bearish fundamental backdrop for gold has recently become slightly more favorable. Ironically, the arrival of this somewhat more favorable situation was greeted by a pullback in physical demand and a decline in the gold price, after both had defied bearish fundamentals for many months by remaining stubbornly firm.   The eternal popularity contest...   The list of gold fundamentals that have improved is...
  • The United States of Terror
      Bombs Away! Two recent articles* have again demonstrated that the greatest “terrorist” entity on earth are not the bogymen – Russia, China, Iran, North Korea – so often portrayed by Western presstitutes and the American government, but the United States itself!   This is an old cartoon, but still a good one. It perfectly describes the trigger-happy Western political class and the depth of its “thinking”. By happenstance we recently reviewed the Libya intervention...
  • Capitulation and Currency Pain - Precious Metals Supply and Demand
      Waving the White Flag The price of gold rose two bucks last week, though the price of silver fell 10 cents. We have seen several analyses recently predicting big price drops, in one case by at least $500 in gold by the end of the year. Is this what capitulation looks like? It’s said they don’t ring a bell at the top, but they don’t ring a bell at the bottom either.   The give-up moment arrives... [PT]   We have also seen technical analysis arguing that...
  • Maurice Jackson Interviews Rick Rule – Investing in Natural Resources
      Contrarian Investment Opportunities in Natural Resources Maurice Jackson of Proven and Probable has recently interviewed Sprott U.S. Holdings CEO Rick Rule, a well known specialist and “old hand” in the natural resource space. This is quite a wide-ranging and interesting interview, so we decided to present it to our readers. Below you find a summary and our comments on the main topics discussed, a video/podcast of the interview,  as well as a download link to a PDF file of the...
  • The True Sport of MAGA
      Chest Bumps One of the more extraordinary things that investors have seen in living memory is unfolding at this precise moment. This goes for business leaders, money managers, veteran Wall Streeters, value investors, 401(k) holders, momentum traders, FX guys, gold bugs, technical gurus, chartists, pork belly speculators, quants, astrologists, Larry Summers, put option sellers, dweebs and geeks, millennial index fund enthusiasts, and everyone in between.   Pork belly speculators...
  • Black Holes for Capital - Precious Metals Supply and Demand
      Race to the Bottom Last week the price of gold fell $17, and that of silver $0.30. Why? We can tell you about the fundamentals. We can show charts of the basis. But we can’t get into the heads of the sellers.   Other people's fiat: in the global race to the bottom, it was recently the turn of emerging market currencies to tank. [PT]   We can say that in the mainstream view, the dollar is rising. The dollar, in their view, is not measured in gold but in rupees in...
  • US Money Supply and Fed Credit – the Liquidity Drain Becomes Serious
      US Money Supply Growth Stalls Our good friend Michael Pollaro, who keeps a close eye on global “Austrian” money supply measures and their components, has recently provided us with a very interesting update concerning two particular drivers of money supply growth. But first, here is a chart of our latest update of the y/y growth rate of the US broad true money supply aggregate TMS-2 until the end of June 2018 with a 12-month moving average.   US TMS-2: y/y growth rate with...

Support Acting Man

Item Guides

j9TJzzN

The Review Insider

Dog Blow

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com