Veteran Investor Rick Rule Reveals a Unique Arbitrage Opportunity

One of the hardest things for a mining executive to do may be nothing. But in a market that is not rewarding companies for pulling resources out of the ground, Sprott US Holdings Inc. CEO Rick Rule would prefer to see what he calls "optionality" rather than dilution from companies looking to justify salaries. In this interview with The Gold Report, he praises innovative precious metals streams on base metal projects and one Canadian company that is adding value and being rewarded for it.

The Gold Report: In November, you called the bottom for precious metals. Do you still believe that we're in the bottom?

Rick Rule: Yes, as long as you can define a bottom gently. I said in that same interview that the most important factor in gold pricing was the fact that it was priced in U.S. dollars, and we see a topping in the U.S. dollar. In fairness, Karen, if you had asked me that same question two years ago, I would have responded in the affirmative and been quite wrong. But I do think the upside in gold is both larger and closer than the downside in gold.

TGR: Now that the Federal Reserve has increased the key interest rate slightly, the expectation is that the value of the dollar will increase relative to other currencies. How could that be the sign of a bottom for gold? Continue reading "Veteran Investor Rick Rule Reveals a Unique Arbitrage Opportunity"

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Sticky Contrarian Investors Wanted

The Gold Report: Rick Rule talks a lot about how much money can be made investing in things people hate, or at least don't like very much. Throughout the first quarter of this year, natural resources as a whole seemed to be in that category. How do you create a successful investing strategy out of a contrarian philosophy?

Paul Wong: First, it takes a lot of patience to be contrarian. You also need to have a lot of discipline. Probably more important than anything else, you need sticky investors. That's the hardest thing to get on the planet right now, an investor willing to stick it out.

Contrarian investors have to have the stomach to buy when the market is in the midst of a violent selloff, and they have to have the wherewithal to ride the volatility of the storm. That's the patience and the discipline part. Successful bottomfishing investors have to be able to discern the fine line between a company that could rally hard after a down leg and one that is on the verge of going bankrupt. You can throw luck into the requirements for being a contrarian investor as well, but at the end of the day it is a challenging way to approach building a portfolio so it is a good thing it sometimes pays off so dramatically.

"Pretium Resources Inc.'s Brucejack project is a spectacular deposit."

Mutual funds aren't traditionally built to be contrarian. I remember a joke I learned when I was a junior portfolio manager. I mentioned to someone that a stock could be a great investment in three or five years' time, and the fellow shot back to me, "Yes, my successor will look quite brilliant when that happens." That's the problem with long-term, contrarian-type investments. It may be a great idea, but you may not have a job by the time it pays off.

TGR: Does it take a lot more homework to be a contrarian investor than following an index or a blue chip stock?

Continue reading "Sticky Contrarian Investors Wanted"

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Catalyst Check: Natural Resources Watchlist at Three Months

The Gold Report: Joe, some of your picks from the Natural Resources Watch list have performed quite well. Do you want to give us some updates?

Joe Mazumdar: Junior mining sector equities in the gold space, as proxied for by the Market Vectors Junior Gold Miners ETF (GDXJ:NYSE.MKT), have outperformed gold since the June Cambridge House conference. The inter-period high for gold was $1,3351,340/ounce ($1,3351.340/oz), about a 7% return. Gold is down about 3% since the conference, on the back of a strong U.S. dollar.

The benchmark Market Vectors Junior Gold Miners ETF experienced an inter-period high of about $45/share, generating a 30%+ return since the conference. But it is currently flat again. On both metrics, the ETF has outperformed the gold price. Our selections averaged an inter-period high of 50%, which included under-performers (+1826%) and some significant outperformers (+70115%). Currently, the average return for our selection since the conference is a more modest 1415%. [NOTE: Figures cited were current 9/30/14.]

TGR: During that panel discussion, you called explorers a lottery ticket and Cayden Resources Inc. (CYD:TSX.V; CDKNF:OTCQX) was a lottery ticket that paid off. What was your other "lottery ticket" pick? Continue reading "Catalyst Check: Natural Resources Watchlist at Three Months"

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Which Companies Will Bring in the Green?

The Gold Report: In a call with Sprott clients last week, you said that the junior resource market is at an intermediate-term top right now and there will be good summer entry points. Why is the market at a top now instead of May, which is more typical? Should investors wait until the summer entry points to get into good juniors?

Rick Rule: The top could continue through mid-May. If investors have positions in their portfolios that they aren't thrilled with, they should use this market to sell. One of the things I've noticed is that if an investor paid $1 for a stock and the stock is at $0.35even if the stock was valuelessthey are unwilling to sell it for $0.35. In many cases, the stocks that fell from $1 to $0.25 or $0.35 are now selling at $0.50 or $0.60. My suggestion is that this is a great time to take advantage of it.

"Tahoe Resources Inc. has one of the finest silver deposits in the world."

I want to draw people's attention to the fact that the market is up 40% in some cases from its bottom. Amazingly, people are more attracted to that than a market that exhibited bargain basement prices.

Although I believe that the market has bottomed, we're going to be in an upward channel with higher highs and higher lows, but we are certainly going to exhibit the volatility that the market is famous for. It's my suspicion that the summer doldrums will see lows that, while higher than last summer, are substantially lower than the prices that we're enjoying today.

TGR: Gold has been above $1,300/ounce ($1,300/oz) for several weeks. Is that influencing the market? Continue reading "Which Companies Will Bring in the Green?"

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Nobel Prize Winner: Bubbles Don't Exist

By Doug French

No wonder investors don't take economists seriously. Or if they do, they shouldn't. Since Richard Nixon interrupted Hoss and Little Joe on a Sunday night in August 1971, it's been one boom and bust after another. But don't tell that to the latest Nobel Prize co-winner, Eugene Fama, the founder of the efficient-market hypothesis.

The efficient-market hypothesis asserts that financial markets are "informationally efficient," claiming one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis.

"Fama's research at the end of the 1960s and the beginning of the 1970s showed how incredibly difficult it is to beat the market, and how incredibly difficult it is to predict how share prices will develop in a day's or a week's time," said Peter Englund, secretary of the committee that awards the Nobel Prize in Economic Sciences. "That shows that there is no point for the common person to get involved in share analysis. It's much better to invest in a broadly composed portfolio of shares." Continue reading "Nobel Prize Winner: Bubbles Don't Exist"