Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Rick Rule the CEO & President of Sprott U.S. Holdings sits down with Maurice Jackson of ‘Proven & Probable’ at the Oxford Club Investment U Conference in Carlsbad, CA where the theme has been ‘Energy’. Viewers will hear from Rick Rule, one of the foremost experts in the Natural Resource Space, convey the dangers and opportunities in oil, gas, and uranium. Investors will also discern the merits of holding the preeminent name in the Natural Resource Space ‘Sprott Inc.’ Symbol: SPOXF (U.S.) & SII (Canadian) in their portofolio. Mr. Rule, also provides a free portfolio analysis for viewers (Contact [email protected]).
Youtube:
Transcript
Maurice: Welcome to Proven & Probable. I’m your host, Maurice Jackson, and joining me today is the Chairman of Sprott U.S. Holdings and we are live at The Oxford Club Investment U Conference where the theme is energy. Rick, thank you for joining us today.
Rick: Pleasure, Maurice. Thanks for having me.
Maurice: You know, Rick, we were talking about energy all day today, all this week. Would you share with the listeners what is the current state of energy?
Rick: I think we have a train wreck coming in energy investment, Maurice, for reasons that we shared yesterday. There was about 3.5 trillion dollars in energy credit extended through the last decade and that energy credit was extended based on the $90 oil price. The problem with that is the $42 oil price. The company’s annual report is coming out this month, April, and I suspect that the problem would take 3 months to percolate through the system. But at some point in time, the conjunction of $40 oil against $90 assumptions and 3.5 trillion dollars credit problem is going to collide.
My suspicion is if that happens in the 3rd quarter of this year and extends all the way through to 2017, for investors who are invested going into the crisis, it’s going to be problematic indeed. For investors who have the courage to invest during the crisis with a well-selected energy portfolio, bonds, junk bonds and equities will achieve the type of returns that occurred in equity markets only once in a decade. This will be the chance in the next 10 years if you are an energy investor to build a portfolio that will last the entire decade.
Maurice: Well, as a value investor, that’s the most exciting news I could possibly have. Would you share with the listeners what’s the current state of uranium?
Rick: I think the uranium market probably is in a very long bottoming process. I was way early on uranium. I was expecting better global economic growth than we got. The consequence of weak growth with the considered demand in advanced markets, the United States included, has been much more tappet than I had anticipated and that led to lower demand for energy in places of export stock to people like us; Japan being an example.
The weak demand for electricity coupled by the collapse in oil prices which lowered the price of energy generally has been very difficult on uranium market. I had originally expected the uranium market to head up in 2016-2017. It wouldn’t surprise me now to see the uranium market head up in 2018 or 2019. That being said, there’s probably opportunities in select uranium stocks ahead of the rush.
On note, however, our good friend, Steve Sjuggerud says contrarian investors buy what’s underground but buy what’s in an uptrend. Perhaps you’re better off to wait for the beginning of the uptrend.
Maurice: You’re famous for quoting that bear markets are the authors for bull markets.
Rick: That’s correct.
Maurice: Who’s writing the narrating right now? Is it the bull market or is the bear market?
Rick: Depends on the commodity area. I mean certainly the discussions that we have last year concerning gold were very, very timely. The gold is up nicely and the gold stocks are up spectacularly. Perhaps it’s time to on the most speculative of the gold issues take a few profits and look at where to put them. But the truth is, Maurice, the industrial materials, the things like iron or the things like coal, things like uraniumthe things like copper, things like oil and gas, probably have 18 months of torture left in them before they hit up dramatically.
Maurice: Well, that’s an important to note. Let me ask you this, I’m an investor. I may not I have the time or expertise in the natural resource space . Let’s talk about a company that is the preeminent name in the natural resource space, company you might be familiar with. Let’s talk about ‘Sprott Inc’.
Rick: Flattery gets you everywhere. Sprott is we think the world leader by way of market share. In investing in small cap natural resource equities, we’re also aggressive investors and physical precious metals. We manage about 5 billion dollars in gold, silver, platinum, palladium and exchange trade at ETFs in the resource sector. Certainly given that specialization, if your listeners agree with your own thesis and my thesis with regards to both contrarian investing and natural resource investing will probably be the natural place to be. We have 160 investment products available for investors. So almost without regard to the investor’s means and needs, we have products which will suit their goals if their goals are related to precious metals, natural resources and contrarian investing.
Maurice: You know we’re in a bear cycle and your company right now is operating at 5% dividend.
Rick: The stock is up a little bit, Maurice, the consequence of that because the dividend is a lower, but it’s lower for that reason not because we cut it. And that’s the interesting point. Many of your listeners probably intend to participate in natural resources through mutual funds. I want them to think about the arithmetic. If they buy like a vanguard natural resources mutual fund, they pay a 1% management fee. If they own ‘Sprott’, which also gives a diversified portfolio, they get a 4.5% dividend. I think it’s arithmetic. Would you rather pay 1% or get 4.5%?
Maurice: I think the answer is quite obvious. Rick, let’s talk about one last thing. How about the debt You know we are in a bear cycle. Let’s talk about ‘Sprott, Inc.’ How much debt do you have?
Rick: Zero. Sprott stands for something. ‘Sprott Inc.’ was constructed by a guy named Eric Sprott and Eric Sprott was concerned about debt at the government level and debt in the financial services level. It would be extremely disingenuous to hold ourselves out as financial services solution provider for people who are concerned about debt and for us to be over-indebted. We have in excess of 300 million dollars in working capital and no liabilities. Our balance sheet is public unlike many other money managers. You can see what our income statement balance sheet looks like and, by the way, they look pretty good.
Maurice: Yes, they do. And in full disclosure, I am a shareholder. Rick, in closing, for investors that have a portfolio and they’re concerned about the health of it, is there someone at Sprott that would take the opportunity to look at their portfolio.
Rick: That’s me. Email me, Rick Rule, that’s [email protected]. Put your portfolio in the text and I will rank your portfolio companies on a 1 to 10 scale; 1 being the best, 10 being the worst with comments as appropriate. Understand that these aren’t recommendations because I don’t know you as an individual. These are company rankings, but I’m happy to do it absolutely no obligation.
Maurice: Rick, can you give us this one last thing. What is the website?
Rick: www.sprottglobal.com or if you’re in United States or Canada, 800-477-7853.
Maurice: Rick Rule, thank you for joining us today in Proven & Probable.
Rick: Pleasure, Maurice. Thank you.
End Transcript:
Maurice Jackson
All Rights Reserved.
The Information presented in Proven and Probable is provided for education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any particular purpose. The Information contained in or provided from or through this forum is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice. The Information on this forum and provided from or through this forum is general in nature and is not specific to you the User or anyone else. YOU SHOULD NOT MAKE ANY DECISION, FINANCIAL, INVESTMENTS, TRADING OR OTHERWISE, BASED ON ANY OF THE INFORMATION PRESENTED ON THIS FORUM WITHOUT UNDERTAKING INDEPENDENT DUE DILIGENCE AND CONSULTATION WITH A PROFESSIONAL BROKER OR COMPETENT FINANCIAL ADVISOR. You understand that you are using any and all Information available on or through this forum AT YOUR OWN RISK.”
