Rick Rule and Marin Katusa Talk Resource Investing
Dear Katusa Research reader,
As I mentioned yesterday, this is a special week at Katusa Research.
We’ve just kicked off a major new project that could make you a lot of money.
To kick off this new project, I’m going to send you a unique series of emails this week. Every day the market is open, I’ll send you a valuable essay or interview except that reveals a great investment idea.
The first installment in this series is Part 1 of an interview I just finished with legendary resource investor Rick Rule. In the interview, we talk about the Sprott Natural Resource Symposium, which Rick is hosting very soon. We also discussed our favorite investment sectors right now. I hope you enjoy it.
Marin Katusa:
Rick, why should a retail investor attend your conference?
Rick Rule:
I think it’s a particularly well-timed conference given that we are from my own point of view out of a very deep bear market and beginning what I suspect will be an extremely profitable bull market. Marin, you know my thesis and I think you’ve lived it, that bull markets are the authors of bear markets and bear markets are the authors of bull markets. TSXV resource decline of 90 percent in nominal terms and more in real terms is a historic bear market which I suspect could be the author of the historic bull market.
Marin Katusa:
But let’s get more into the detail. For myself, the reason why I’m interested in attending your conference and the reason why I hold my own conferences is for direct contact with the “who’s who in the industry”, or what I call “in the room, in the deal” factor. For example, last year, you and I negotiated a deal of which we were the lead investors that returned us over 300% gains and it was all negotiated in the hallway with the President.
Rick Rule:
Well, I think you make a very good point Marin and one of the things I hope we talk about later in this conversation is that most of the money that one can make in this bull market is concentrated among the very best players. You and I have referred to them in past conversations as living legends and we will have a bunch of living legends there. We will have Robert Friedland. We will have Lukas Lundin. We will have Rob McEwen. We will have Bob Quartermain. We will have Ross Beaty.
The ability to do business with the best of the best is important. Marin, at most conferences, the qualifications to be an exhibitor are basically a pulse and a check that cashes, in reverse order. At this conference, every one of the public company exhibitors has to be vetted by Sprott to the extent that we own them in one of our managed products.
Now that doesn’t mean that every one of them is going to succeed. But it does mean that they’re more than mere advertisers, that we regard them as content. As you suggest, for sophisticated investors, most of the money is made in private placements. The way you get on the list is by getting on the list, by being present when those things are being contemplated like at this conference.
Marin Katusa:
Well, you just highlighted something very critical. It’s about the people and it’s what I’ve really focused and emphasized for the junior resource sector. When you got Hall of Famers walking down the hallway and they’re more than receptive to answer your questions. But you mentioned Ross Beaty, Lukas Lundin, the Robert Friedland and I fully admit they are legends, but I have to be very frank. They do carry a premium for good reason because they have delivered so much in the past.
But that’s your generation and I don’t think your generation is as motivated as my generation to make the money. Who in my generation is going to be at the show that you’re excited to listen to and see what they’re up to?
Rick Rule:
Well, that’s very funny Marin because I was going to ask you a similar question. We will certainly have the Oxygen Capital Group. We will certainly have the Sandstorm Group. We will certainly have Amir Adnani. But the truth is that one of the things that I want to do on an ongoing basis with these conferences is be involved in passing the baton this year, next year and years after that.
By the way, I need to say that while my generation is in fact less active, this emerging bull market seems to have acted as a stimulant. I’m now back in regular email conversation with Tom Kaplan, with Ross Beaty, with Bob Quartermain, with Lukas Lundin, with Robert Friedland. It would seem that most of the old war horses, maybe even myself included, have a few more breaths to draw. That doesn’t of course detract from the basic point that you were making which is that the baton needs to be passed and this is the bull market that will pass it.
But I think from an attendee’s point of view, irrespective of the generation of leadership, the bull market that we are heading into will be one that somebody will be remised if they don’t participate in it.
Marin Katusa:
For obvious reasons everyone likes to go to the key note talks in the main hall. But I think the gems of the conference are the workshops. It’s a much more personal setting. What sessions are you going to make sure you don’t miss personally?
Rick Rule:
There are so many Marin. I’m embarrassed to say every single workshop slot, we have four different competing venues. I guess as a conference promoter, I shouldn’t be embarrassed about offering too much. But what I really hope to do myself to the extent that I have the capability to do it is to pay more attention to the company sessions although we own these companies.
What I have found very useful is in the workshops as you suggest, when the question-and-answer sessions take place and it’s 50 people asking questions, rather than just myself, particularly if you have a situation where you have a Bob Quartermain or a Ross Beaty, asking questions of other younger explorers, some wonderful, magical things happen.
I think the other thing that I will try and do in the conference is pay attention to more of the casual conversations as you suggest. You know that if you have 700 high net worth investors there, the idea that all the knowledge in the room resides at the dias and is distributed out to the seats is preposterous. The ability to watch various investors interact with the companies and watch the presenters who are also there to get investment ideas interact has been hugely successful for me in the past. I suspect it has been for you as well.
Marin Katusa:
It has. That’s why I make sure I’m there. Rick, you know my style, so let’s go through the commodity matrix, with a bull or bear comment. Are you Bullish or bearish on gold?
Rick Rule:
Very near term bearish. But three or four-year very bullish.
Marin Katusa:
Silver?
Rick Rule:
Identical comment to gold.
Marin Katusa:
Copper.
Rick Rule:
Bearish for sort of 18 months.
Marin Katusa:
Uranium.
Rick Rule:
Bearish for 18 to 24 months, then pretty bullish.
Marin Katusa:
Thermal coal in North America.
Rick Rule:
Thermal coal in North America with the exception of some very, very small sub-regions, bearish.
Marin Katusa:
Met coal in North America.
Rick Rule:
Same comment. Met coal in North America to serve the North American market I’m attracted to. Met coal in North America for export markets is sadly becoming un-price-competitive.
Marin Katusa:
Moly.
Rick Rule:
That’s a really interesting question and I don’t have any particular answer to it. It isn’t a metal that I have really studied supply, demand of in the near term. I know that some aspects of the moly price will have to do with how much copper gets produced because a bunch of moly gets produced as a byproduct of copper. But I don’t have an opinion to be honest.
Marin Katusa:
What about phosphate and potash and the overall agriculture sector?
Rick Rule:
Some more wash-out coming. There’s a real bun fight going on, one that you’re probably better prepared to comment on, given your focus on Eastern Europe than I. but there’s a real bun fight going on. That being said, there are more people being born every day and all of those people want to eat longer term. Given the scarcity of prime growing terrain and the need for additional nutrients, that’s going to be a very good business. But the next two years is going to be very hard.
Marin Katusa:
You nailed it on the head. The nutrient sector is more affected by the currency wars than any other metal in my opinion. Look at what the Russians can do with a weak ruble. Let’s get into the niche metals or the industrial metals like cobalt.
Rick Rule:
You really need to focus on internal political events in Congo. It’s very interesting. The proposal by China Moly to take on Tenke Fungurume from Freeport. I think that has probably more to do with cobalt than it has to do actually with copper. But I’m a real cobalt bull.
Marin Katusa:
How do you think the Lundins react to that? Do you think they sell out at the same time or stay a minority partner?
Rick Rule:
I really, really don’t know and they’re playing their cards very close to their chest. I know that the Lundin family thinks that the value of Tenke Fungurume is not adequately reflected in the share price of Lundin Mining. I know that they also believe that the operating difficulties in Congo are less extreme than the market thinks they are.
So somebody that’s going to take the Lundin’s piece is going to have to pay a pretty price because they’re very confident in what they have. In particular, they’re confident with regards to the cobalt business.
Marin Katusa:
Does the Lundin decision change on what has happened in Serbia with Reservoir?
Rick Rule:
I don’t think that matters. I think they were making a very, very opportunistic offer for Reservoir and what it really does probably is it puts Lundin in the place where they need to look for – or at least want to look for a new growth initiative. By the way, I wouldn’t be dismissive of the idea that the new reservoir called Nevsun could be a target for Lundin.
Marin Katusa:
Interesting. Now I believe I know the answer, let’s talk about the lithium markets. Vancouver has a great tendency of creating market bubbles in niche markets. We’ve seen just that in the rare earth sector from 2009-2011. We’ve seen it in graphite. We’ve seen in uranium about 10 years ago. Right now, we are in the midst of a lithium rush. What is Rick Rule’s opinion on lithium and what to be careful for the retail audience?
Rick Rule:
Well, I think the stocks go higher because all the big promotional groups, the sort of international fiction merchants are at work with lithium and lithium has a wonderful story. It has a wonderful story in particular because not very many people have lost money with lithium in the past. So it doesn’t have a bad name which virtually every other metal does.
That being said, we aren’t facing any lithium shortage of any kind anywhere in the world. There will be probably some discoveries that come out of this or at least some developments that come out of this. But I suspect that 90 percent of the speculators who are getting involved in lithium will come out of this with a very bad taste in their mouth unless they’re technical traders. In other words, unless you understand that these are stories and you employ very tight trailing stops and take advantage of any liquidity that’s offered to you.
Marin Katusa:
I think the lithium story is very real from the future demand. I agree with you. There will be no shortage and for anyone investing in the sector, make sure you invest in a lithium group that actually has put a project into production and now what they are doing.
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Marin’s note
: Please stay tuned for Part Two of this interview, which I’ll send to you tomorrow. I also strongly encourage you to make it to the Sprott Natural Resource Symposium, which is being held in Vancouver from July 26 -29. I’ll be speaking there. I receive nothing for mentioning the conference. I simply think it’s well worth any resource investor’s time. You can
Regards,
