Rick Rule Interview
Rick Rule took the Friday seat on BNN Market Call tonight with new host Paige Ellis (who is doing a terrific job by the way). Below is my summary of the Rick Rule interview along with with a video of the show.
I have recapped previous Rick Rule interviews on BNN.
Mandalay Resources – Rick likes Mandalay and has done business with them for a very long time when the first came public Sprott was their senior lender. It is very difficult to operate 1 small mine let alone 3 small mines. Absolutely first class people.
Pretium Resources – Rick is long Pretium he thinks it is a first class company that will be pouring gold very quickly. He does think that when the mine is turned on it won’t necessary perform to expectations as most don’t for three months but this is a very high quality deposit. Led by a mining legend Bob Quartermain who seems to attract success after success after success.
Anfield Gold – Rick is again biased long. Anfield is controlled by Ross Beaty who is a serially successful mining entrepreneur. Rick had done well on all his investments with Ross Beaty before and is prepared to wait five years on Anfield. Rick says he doesn’t think he has owned a Ross Beaty play that hasn’t fallen 30-40% before returning him 10 for 1.
Integra Gold – A high quality young exploration team. Difficult to find a fault in anything they what have done in the last couple year. Mr. Rule thinks ultimately they will be acquired in the next 18 months. They had done a good job in the promotion aspect as will by lowering their cost of capital. He expects the belt will see a lot of attention.
Note – Integra was bought out by Eldorado Gold on Monday morning.
Teck Resources – Rick thinks the stock has upside. You have probably seen the transaction today where they sold Hydro assets for an unbelievable multiple. An unbelievable multiple compared to EBITDA. Metals like zinc and coal do not get much market attention but a company that generates that much cash will.We see the company (meaning Sprott) trading at about 3.5-4X EBITDA which is way to cheap. We don’t think the market has paid enough attention to how well they have repaid their balance sheet.
Fission Uranium – There is of course more room to the downside in any exploration stock. One must be very patient when it comes to the uranium trade as the market is overstocked right now. The price of uranium really depends on Japanese restarts. Fission has a world class discovery which is next to another world class discovery NexGen Energy. Ricks owns Fission because he has a lot of patience.
Rick’s past Top Picks
Ivanhoe Mines +152% – Rick is still very long Ivanhoe. He has a tolerance for political risk which is the only risk associated with this company. Three world class deposits. Fronted by the most successful mining entrepreneur Rick has done business with in his lifetime (Robert Friedland). Whats wrong? South Africa is challenging and the Congo is wrecked. My own experience is that very high quality projects finance themselves.
Nevsun Resources -22% – Rick sold Nevsun when they came out with the news that they were having trouble with the copper recovery circuit. Rick has lately been a buyer as they are recently fixing the copper circuit. The new deposit which they will be building Timok in Serbia will be one of the highest quality mines in the world. Moving into Serbia has lowered the companies political risk. High quality copper companies make an awful lot of money and the consequence of that is you can actually finance the acquisition of them at some point.
Northern Dynasty Metals A superb resource Pebble is just an unbelievable resource . The management team has had a huge political fight and spent millions of dollars in court. A spectacular project but a set of legal and social risks that Rick does not know how to quantify. Rick sold because it exceeded his own elevated levels of greed.
Birchcliff Energy – Birchcliff is a very high quality company that is natural gas focused so it has had some challenges in the last 5 years. At Sprott we are long Birchcliff and we are in good company with Seymour Schulich. If you have a 5 year horizon for Birchcliff you should do very well.
Barrick Gold – Barrick has been a tremendous recovery story and has fixed its balance sheet. Instead of choosing a company like Barrick you might consider an ETF you limit the single company risk. We would of course prefer the Sprott ETF. Pascua lama is an ongoing problem. I think the failure in Pascua lama has been largely priced into the market and you would only have upside from this project but that assumes they began to perform.
Cordoba Minerals – Rick is to old to do price expectation. Rick owns Cordoba Minerals. Robert Friedland is the largest shareholder in the joint venture partner. Very very nice discovery and still lots of exploration upside. Rick owns it and likes it understand he is able to take exploration risk.
Blackbird Energy – Rick does not own Blackbird. They have a spectacular land package and have had some good drilling results recently. Drilling results have yet to be in production long enough to determine a decline ratio. If you look at there land package compared to production it is a very sexy land package. Rick needs some data to determine if its a buy or not.
Trevali Mining – Rick knows Trevali well but does not own it. He thinks that the stock will go up as the zinc story is gaining momentum. Rick when he looks at the balance sheet and the income statement he is less attracted to it based on the narrative. He thinks the move to pick up some Glencore assets was a good move on both sides. All 6 analysts who cover on the street have a buy rating.
GDXJ – Sprott is a competitor so obviously Rick thinks ours is better than theirs. GDXJ is much bigger. Lots of turmoil recently the truth is that the ETF got so big that the tail wagged the dog. A more interesting question is that re-balancing of the ETF.
Capstone Mining – Rick does not own Capstone he likes their operating performance but I hate their balance sheet. He thinks easier ways to make money in the copper mining business (lower financial leverage than Capstone.)
Timmins Gold – Rick likes Timmins and owns it. They have done a good job operating and have a good project pipeline. A company that is really really leveraged to a higher gold price. High quality people.
Hudbay Minerals – We like their underlying business but we like other companies in the base metals sector more. If you hold for 3-4 years you will be reasonably happy but if you substitute names like Rio Tinto, BHP, or Teck you will be more happy with less risk.
Osisko Mining – Osisko is run by Sean Roosen another serially successful guy who is exposed to nearly every big gold camp in Canada. He is an extremely aggressive explorationist. This is not for the faint of heart but a serially successful team.
West Shore Terminals – Rick thinks West Shore is extremely steady and Rick owned it many years ago. It really depends on where you get the best relative yield . It has to be one of the simplest business in the world they empty coal cars and put them onto boats. You don’t necessarily own this for capital gain but for the highly highly certain dividend. This is certainly a safe company.
Barkerville Gold Mines – This has been a market leader for Sprott but Rick does not own it. Gold all over the place but Rick has not seen enough data in his mind to construct an ore body.
First Quantum Minerals – First Quantum is of course a copper stock. Rick thinks copper will do very well 3-4 years out. Balance sheet risk. Would need to share Rick’s long term view on the copper price and take some balance sheet risk.
Ricks top investing ideas
- Alphamin Resources – Rick likes to test the audience. He believes in very large world class deposits. The median grade in this deposit is 5x the average tin grade of tin deposits world wide. Will absolutely have exploration upside. Now the bad news its in the Congo and is in the bad part of a bad country. Taking political risk for Tier 1 deposits is something that works. This one requires courage.
- Sheffield Resources – A mineral sands deposit. A business that isn’t particularly well known in Canada but generates a lot of cash when it is done right. This is again a Tier 1 misunderstood deposit but when it goes into production will spin cash.
- Cornerstone Capital – Cornerstone has made a tremendous discovery with a company called Solgold. Solgold owns 85% and Cornestone 15%. Rick sees Solgold buying Cornerstone.