Stansberry Radio Interview Series: Rick Rule (Part II): My top three resource picks today

Welcome back to the Stansberry Radio Interview Series.

As you know, every Saturday the Stansberry Radio Network brings you the most valuable ideas from the most intriguing guests from all of our shows.

This week, in part two of a two-part series, Frank Curzio interviews Rick Rule, founder of Sprott Global Resource Investments, Ltd.

Rick has 40 years of experience in natural resource investing. He’s a well-recognized expert in mining, energy, water, forest products, infrastructure, and agriculture.

A popular public speaker, Mr. Rule is a featured presenter at investment and industry forums around the world. This year he is hosting his brand-new Sprott Vancouver Natural Resource Symposium from July 22-25.

In last week’s interview, Rick talked about the state of the resource sector… and what really worries him today.

This week, Frank asks Rick about investing in individual junior mining stocks… Is now the time?

Rick explains that when looking at the junior miners, even in the best of times, you need to be cautious. But with patience and great research, these stocks can make you rich…

Anyone looking to succeed in the resource arena should read on… It’s information that you won’t hear anywhere else!


David Newman
Senior Producer
The Stansberry Radio Network


Originally aired on the Stansberry Radio Network on April 30, 2014

Part II

Frank Curzio: Rick, I want to talk about getting into individual stocks here, but first, how do you feel about this [junior mining] market?  Has it bottomed?  Is it time to invest in some of these areas?  Or do you still have to be worried about investing in junior mining stocks?

Rick Rule:  Very useful question, Frank.  Let’s begin by saying, in the best of times, you have to be worried about investing in junior mining stocks, because as a group – and this is important for your audience to understand – they’re valueless.  Let me repeat that.  As a group, they are valueless.  You speculate in them because the best five or 10 percent perform so extraordinarily well – better than any asset class I’m familiar with – that they add credibility and occasionally luster to a sector that’s almost terminal.

The Toronto Stock Exchange Venture (TSXV), which is the investment ghetto that most of the junior miners are consigned to, is off by 75 percent over four years. This is a different way of saying it’s 75 percent more attractive. The whole thesis that existed in 2009-2010 with regard to resources – worldwide demographics, inflation, debt – is as true today as it was in 2010.  The narrative hasn’t changed at all.  What has changed is that the market is 75 percent less expensive…

Having said that, it is important that investors who want to participate in a market that could increase five-fold or ten-fold, in hopes of finding stocks that could increase twenty-fold, understand the qualitative differentiation.  Securities analysis is absolutely the name of the game in junior miners.

Mercifully, for me, it’s something that I’ve learned in hard fashion over 30 years, and we invest a lot in.  So it’s an opportunity that doesn’t fill me with trepidation at all. I’m elated about the set of circumstances in front of me. But I could understand why it would be more challenging for other speculators.

Cuzio: Yeah, I love that, actually. I know our listeners always like ideas. What are some individual stocks that you may be looking at here, if you can share a couple?

Rule: Sure, Frank. In commodities, it’s important to ask yourself the “when” questions… People hate time uncertainty, but if you can ask yourself some questions where the answer begins with “when” rather than “if,” it’s much safer.  In other words, you know it’s going to happen; you just don’t know when it’s going to happen.

I like commodities where the price that the industry sells the commodity for is less than the cost of production. I like industries of liquidation… things that are really, really, really cheap. The reason I like that is either the commodity price goes up or there isn’t any more of the commodity. And if you need the commodity to live the way we live, then you know there’s only one answer: The price has to go up.

So what prices have to go up?

Platinum and palladium prices have to go up. Worldwide, the industry loses money on every ounce of platinum and palladium it produces.  So the price has to go up in order for there to be platinum and palladium. And the utility associated with platinum and palladium is very, very high. It costs $200 worth of platinum and palladium to give us the air quality that we enjoy in the United States. If the price was to double, and it cost $200 more to sell an additional $18,000 car, I don’t think there would be any reduction in platinum and palladium demand at all.

So the price has to go up and the price can go up. I would suggest that people who want to buy physical precious metals – which should be everybody – should buy physical platinum and palladium. It’s difficult to recommend stocks [in these metals] because most of the companies are losing money. Speculators could look at a development-stage company called Platinum Group Metals in South Africa, which we suspect will be in the lowest-cost quartile of the industry worldwide and make money at this price point.  Speculators could also look at something called Ivanhoe Mines, albeit development-stage companies are highly risky.

Another commodity that I think is priced below production cost is uranium. Cameco, the largest producer of uranium in the world, has suggested on conference calls that, including the cost of capital, the industry on a global basis needs $70 a pound to make money in the uranium business. So they make the stuff for $70 a pound and they sell it for $35 a pound. They lose $35 a pound and try to make it up on volume.

Talk about a catastrophic business, but the price has to go up.  It has to go up because even anti-nuke places like the People’s Republic of California… When these California pinkos walk into an office building and hit the switch, they want the lights to go on, and 16 percent of the power is nuclear. You can’t not have nuclear. So the price has to go up. It has to go up. It doesn’t have to go up next year or the year after, but it has to go up. So we’re certainly attracted to the nuclear space.

For your listeners in the west and southwest of the United States, the most mispriced commodity of all is water…  As a homeowner, you need to invest yourself right now in water conservation measures because your water bill is going to go up, and your water allocation is going to go down. This is something that’s going to happen. It’s a “when” question, not an “if” question. That’s the way you need to look at resources.

Curzio: Thanks so much. I really appreciate you sharing your ideas today, and I’ll talk to you soon.

Rule: Always a pleasure. I appreciate it. Thank you.

Crux note: You can listen to the entire interview with Rick on Stansberry Radio – for free – right here.

× Subscribe to Crux
Want more posts like these?
Like us on Facebook?
Crux Contributors