Keynote Fireside Chat with Sprott US Holdings Present and CEO Rick Rule

[Music] jamaica is a highly prospective target area for different kinds of deposits in an island art terrain as probably the most widespread intensive and in-depth exploration program that's ever been carried out in this island five or six years worth of work into just two no one else has ever done this before there has been historic work on the island trending back 150 years i think they're getting excited as we are so stay tuned hello this is andrew fake from minds and money today i have a very very special guest rick rule began his career in the securities business in 1974 and has been principally involved in the natural resource security investments business ever since he has recently retired from sprott but still sits on the board of directors um so rick why are you retiring well if you think a few reasons andrew as you point out i've been in the business since 1974 i'm now 68 years of age and i decided to walk out as opposed to be dragged out of the business uh for me uh redirection might be a better phrase than retirement in the sense that i'll give up uh any regulated role in the business i'll give up my thin regulated broker's license as an example and i'll lose any managerial responsibility within sprott as you point out i'll stay on the board i'm keeping one private client myself who i know well who isn't much aggravation i'll sub-advise a few of the sprott products and i'll continue to act as a mentor to portfolio managers and wealth managers in addition the business that was known as brought u.s media including the spot vancouver natural resources investment symposium goes with me so i will continue to be active in that business rebranded as rural investment media as i say retirement is uh a redirection uh for me as opposed to an exit so um just kind of like looking back on your career we're obviously now in a precious metals bull market um you've probably probably been through about four um bull markets and probably about four downturns how does this bull market compare to previous ones uh straight you know oddly similar uh i would suggest in terms of precious metals bull markets that there have been two that really qualified in my career uh 1970 to 1981 an epic bull market and then 2000 to 2011 another epic bull market there have certainly been other shorter recoveries but in my experience the real bull markets have been much longer in duration than people give them credit for and much greater in terms of dimension too this bull mark is acting similarly too because the cyclical decline that we're seeing in the secular bull market the decline in the gold prices and the more precipitous decline in gold equities is something that happened fairly uh fairly frequently in the two prior bull markets of my career so the truth is this one is unfolding really very much uh as earlier once had and just about looking specifically at sort of like gold and silver where do you think gold and silver is like heading for the rest of 2021 are there any kind of key trends that you can pick out my suspicion is in the very near term that the u.s fed will let interest rate lot right uh interest rates rise a little more which will be hard on gold and silver prices in the near term uh i don't believe that the interest rate rises will be anything like permanent however and i suspect that when the fed the u.s fed loses its nerve and begins to cut interest rates if they do that gold and silver will rebound sharply it's important to note that the uh decline interest rates in the u.s 10-year treasury from 2.25 to 60 basis points mirrored that wonderful advance in the gold price from u.s 1100 to u.s 1900 and then the increase in the us 10-year rate from 60 basis points to 175 basis points mirrored very nicely the stall and gold prices and the subsequent decline in gold prices i realize that there are many many things that drive precious metals prices but i suspect that real and nominal interest rates particularly real and nominal interest rates measured by the u.s 10-year treasury which is still the reserve world's reserve currency are the most important determinants and i suspect that as this interest rate rise is reflected in the rest of the economy in the united states as an example the u.s 30-year mortgage rate if that goes up by 125 basis points i think you'll see weakness in housing uh and if the interest rate in the ten-year impacts the refinancing rate for short-term federal state and local debt in the united states and adds to those deficits my suspicion is that the voters and then congress will turn uh very very very dovish and you'll you'll see the return to yield management and you'll see higher precious metals and then higher precious metals equities prices um will silver again outperform gold in 2021 i don't know about 2021 but silver traditionally has outperformed gold in the middle and towards the end of bull markets uh by my measurement this bull market is about four and a half years old so it's about time for silver to begin to outperform gold if passed as prologue the momentum has to be established by gold but in my experience i think similar to yours andrew uh silver although it moves later moves further and faster once it starts moving and the silver stocks of course at least the reasonably high quality ones are the most volatile to the upside of any asset class and precious metals that i know given their relative scarcity or certainly um just moving on to the next question just before i too i don't invite any members of the audience who are listening to please go and send in their questions and i'll try to include a few questions from the audience as we go along in this uh interview um i think i was i think i remember seeing in a recent interview you said out of the 2000 or so junior mining listings only about 300 were viable how do you separate the good from the bad and the ugly what are the keys of like advice you'd give well there are numerous tricks i suspect among the juniors the most important is the people uh exploration in particular i regard as an intellectual capital business like a technology business the promoters of course always try to sell you the property uh you know it was always discovered by a prospector 100 years ago and if the mule hadn't died he'd be a billionaire that kind of thing the truth is that value is added in exploration by answering unanswered questions uh and so it's really an intellectual capital game but you can also gather some clues from the balance sheet in the income statement uh what is the proportion of total expenditures spent on g a how much goes in the ground and how much goes in gna we had we had a young intern some years ago pulled 25 tsxv juniors at random and i'm not trying to say that 25 as a representative sample but of those 25 the average junior spent 65 percent of capital raised on general and administrative expense 35 went into the ground i mean that was shocking [Music] absolutely shocking so i think that's useful and the third piece of advice i would give i suspect is um relevance uh you take big risks in small companies and so you need to get a big reward unfortunately sometimes people look for small minds and they find them small minds can never only make small money uh but they have the same risks as big deposits so i think it's important to have seriously successful people in your side i think it's important to look at how they spend the money and i think it's important that in american baseball baseball parlance that they're swinging for the fence yeah has the um quality of has the quality of management of cash balance sheets um amongst the juniors become better um since you started the business in 1974 how they could have like learnt from their previous mistakes no do you still see the same no no no same same old same old uh they are profligate and idiotic at the top of the cycle and merely idiotic at the bottom of the cycle i'm not talking about all of them by the way uh what i have seen is a tremendous upgrade in the quality of technical managements that are available among the juniors you still have many juniors that are an amalgam of butchers bakers and candlestick makers uh you know no real talent but uh the best juniors uh in terms of their technical talent are incomparably better than what we saw 40 years ago sure um one thing i've often noticed when i've been along to your spot resource symposium a few times is sprotts seem to be quite a big fan of the prospective developer model um can you sort of just elaborate a little bit system like why sure the rest of the world hates the model which is one of the reasons i like it i like to be alone and not have too much competition on the bid uh but separate and apart from that i really truly believe that exploration is an intellectual capital business therefore most of the value in a junior is actually in the people not in the projects and the idea that i would dilute my interest by issuing shares in the people to fund my interest in a project where 40 years of exploration arithmetic tells me i have a 1 in 3 000 chance of success is silly the idea that my management team uses their technical acumen and their commercial acumen to generate uh exploration ideas and then joint ventures the property out so that they dilute their interest in the property rather than dilute their interest in the intellectual capital is my idea arithmetically of a good time most people invest in juniors for um excitement uh for sex i prefer to find sex elsewhere um i believe that the arithmetic superiority of the prospect generator model uh diluting my interest in the property while maintaining my interest in the intellectual capital is the right way to go i should mention uh and i haven't updated this number for years but a year and a half ago we looked back and i had participated in 65 public prospect generators over almost 40 years and i had participated in 22 economic discoveries and 21 takeovers meaning that in over a third of my starts i was successful if you compare that with any other form of exploration speculation i can think of it's probably one standard deviation more efficient yeah and then how about royalty and streaming companies i love the royalty and streaming space but it got way way way overheated it's an extremely competitive space now and it's inhabited by companies that are raising capital at such a premium to their net present value that their cost of capital is sub-zero uh competing in a business where everybody else's cost of capital is sub-zero is very very very tough uh at the top of the spectrum which is to say the franco's the wheatons people like that while they're selling at a premium given the fact that they're generating 80 operating margins they probably deserve those premiums coming down the quality trail i think you need to let the air out of some of those stocks but it certainly is a superior business model and because it's a superior business model it seems to attract superior management too there's a virtual virtuous circle in place the problem is that the virtuous circle is very expensive right now andrew um what the question sort of sent in from the audience says in today's type of market would you or should we should you be focused on adding mid-tiers and even some of the smaller majors versus juniors to your portfolio yes uh the juniors for the first time in my life uh outperformed everything else early in a bull market i've never seen that happen before and the laggards would seem to be the single asset smaller producers um some of these things if you if you use the metric which i use which is net present value versus enterprise value and you use the forward strip commodity pricing to determine uh net present value some of them are by that metric relative to the precious metals prices the cheapest that i've seen them in my career the knock is always that a single producer is riskier than a multiple asset producer which is true but if the valuation discrepancies get too large the multiple asset producer takes over the single asset producer and the reason for that delta goes away and that's sort of what i think is going to happen we see real value in the mid-tier producers and some of the junior producers um what about gold and precious m a for 2021 i think was your colleague peter graskov said when we interviewed him last year on our show he talked about obviously due to the lack of travel in 2020 there might have been a bit of a bottleneck in terms of m a do you see it sort of something like bursting out in 2021 as we kind of eventually come out of lockdown whenever the vaccine roll out start to raise to take into effect i can't say 2021 but 2021 or 2022 absolutely i believe that the outlook for precious metals is very good i believe that both the balance sheet and the income statements of the industry are good and i believe too that the bear market that we went through in the 2011 to 2016-17 period uh caused the management teams to be much less profligate much less reckless so the m a that we've seen so far has been intelligent and strategic uh i don't know that that continues you said being and strategy do you mean that it's actually the shareholders that you've actually been benefiting rather than just the bankers who've been putting the deal together i do you know there were so many excesses in the 2000 to 2011 uh bull market so many stupid acquisitions so many stupid development proposals that probably 70 percent of the management teams in the sector were allowed to pursue other employment opportunities uh and i think that caused this generation of managers to be more sober uh with regards to the allocation of capital which has benefited the sector the you know the emanate that's taken place has either been strategic or uh often at no premium true mergers and i think you have this wonderful situation right now where the company being taken over benefits but it's secretive to the one who takes them over so it benefits both the acquired company and the acquiring company uh and that's a that's a spectacular circumstance given my own outlook for the precious metals equity sector sure um changing some like taxes of like a little bit i know the number of our viewers listening in kind of like would be kin snow what are your views on bitcoin uh i i would not describe myself as an expert on bitcoin remember we began this discussion by saying i'm 68 years old uh i i did manage actually to navigate uh coinbase and buy some which was cool and sold some and got paid which was all cool uh i understand the value proposition which is basically in the network and the technology and the alleged frictionless uh nature of the exchange i don't see it uh as a competitor to gold particularly i see them as more complementary than competitive asset classes except among the hyper speculative crowd uh but the value propositions are different um bitcoin is a method of payment and gold is payment in and of itself they also have relative to other asset classes around the world both of them precious metals and bitcoin infinitesimal market capitalizations bitcoin's market capitalization is about a trillion dollars against total savings and investment assets worldwide of 450 trillion dollars i suspect if gold or rather precious metals has a rival in portfolios as a method of shielding those portfolios from depreciation of purchasing power of currencies it would probably be general equities etfs you know people have looked through 40 years of a bull market and they've come to believe that s p 500 etf uh has enough pricing power that it's a savings mechanism i'm not saying it is or it isn't but if you're looking at bitcoin as a competitor to gold i think the s p 500 is probably a more popularly employed uh alternative to gold sure um another question that's the the sort of like kind of like kind of been sent in um how many names should an average retail investor own that's a great question um i should preface that by saying one of the things that i i do as a service for retail investors is i personally rank their natural resource portfolios if they send them to me i rank them one to ten one being best 10 being worst i rank 22 000 portfolios in 2020. and what i noticed is that most speculators own way too many companies way more than they could follow some of them own more companies than sprott can follow with 200 employees worldwide i would suggest to you andrew that the intelligence speculator owns the number of companies that corresponds with the number of hours per month that he or she is willing to work understanding the companies they own reading the balance sheet reading the income statement reading the proxy reading the property statements uh reading reasonable and realistic analysts report i'm not talking about the sort of online pump and dump stuff but if you're willing to spend 10 hours a month actually working you should own 10 stocks if you're willing to own if you're willing to work 15 hours per month 15 stocks but most people own so many stocks that if they devoted enough time to reasonably understand those stocks they wouldn't have lives yeah um and just time for like one more kind of like question and just kind of going back to sort of like the top end of our conversation throughout your career if you could name one role model that has gone and inspired you who would it be and why that's funny um you're gonna have to give me two actually um i began modeling my career in the early 1980s off of ned goodman a tremendous mentor wonderfully kind guy one of the smartest human beings that ever graced the planet and then i began to model my career if you will uh copy i guess is a better phrase um eric sprott uh i chased eric until he caught me uh part of the part of the process of modeling my career on eric is eventually i chose to throw my lot in with him so i would say in terms of my speculative career those two were important the person another person bears mentioned early in my career my most spectacular mentor uh was peter cundell a noted value investor he started in western canada and ended his career in london as i say peter peter saved me from a a career as an aspiring lawyer for which i'm forever grateful as is the law profession well look we could have gone on for at least like another 20 minutes so but our time is up so again a warm thank you to rick best of like best of luck on your retirement or your sort of like reinvention and i'm sure we'll go and sort of meet each other again um thank you very much that was andrew fake from minds of money with rick rule you

Channel: Mines and Money

Views: 1,655

Rating: 5 out of 5

Keywords: Mines and money, mining, investment, mining investment, investors, investor, mining investor, invest in mining, mining event, investment event, Sprott, Rick Rule, CEO, President

Id: kIHHmmNWbzk

Length: 21min 21sec (1281 seconds)

Published: Mon Mar 29 2021