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Resource Investing

Rick Rule discusses PDAC and gives his thoughts on a variety of metals, including hot commodities lithium and cobalt.


If you were at this year’s Prospectors & Developers Association of Canada (PDAC) conference, you may have noticed that the atmosphere was different compared to other recent years. Attendance was higher, investors were more optimistic and at least some companies seemed to have money.
For Rick Rule of Sprott US Holdings, those changes were bittersweet. “Certainly from the issuer’s point of view it’s a very upbeat show,” he told the Investing News Network on the sidelines of the conference. “I’m conflicted myself because primarily I’m a check writer — my favorite year was 2015, when everyone was depressed and I had the exhibit hall to myself.”
Even so, Rule admitted that the renewed optimism in the resource space is justified. “I think that the worst times are behind us. That doesn’t suggest that the stocks can’t retreat a little bit … it wouldn’t surprise me to see them go down a little bit merely because they came up. But the worst is behind us in terms of the resource bear market — that part is done,” he said.
Listen to the interview above to hear more of Rule’s thoughts on PDAC, as well as his ideas about a few different commodities. You can also click the links below to skip directly to specific parts of the interview:

  • 4:58 (lithium) — “I could see the lithium stocks continue to do well as a consequence of narrative, but that avoids arithmetic.”

The transcript for this interview can be found below.

INN: I want to start off by talking about PDAC. We’re now on day three, and I’m wondering what you’ve thought about the show so far.

RR: Certainly from the issuer’s point of view it’s a very upbeat show. I’m conflicted myself because primarily I’m a check writer — my favorite year was 2015, when everybody was depressed and I had the exhibit hall to myself.

This has been a very successful year for Sprott, it’s been a very successful year for the industry. So from most people’s point of view, this is a wonderful year. For me, I’m a little nostalgic for times when people were less ebullient and my money went further.

INN: You mentioned people are optimistic — is that justified? Are we coming out of bad times?

RR: Yes, I think we are. I think that the worst times are behind us. That doesn’t suggest that the stocks can’t retreat a little bit. Remember that in addition to being cyclical, natural resource stocks are volatile. They can fall by 20 percent for no particular reason, and it wouldn’t surprise me to see them go down a little bit merely because they came up.

But the worst is behind us in terms of the resource bear market. That part is done.

INN: That’s certainly good to hear. What is the most interesting or surprising thing that you’ve heard this year at PDAC?

RR: What has pleased me the most about PDAC is its return to being an international conference. For a few years it was too Canada-centric. And the truth is that PDAC is the largest conference in the mining industry and the world. And to see foreign delegations returning to PDAC, and also to see international investors — investors from Asia, investors from the Middle East, investors from Europe.

The conference itself is regaining its format as the world’s largest and most important international mining conference. It’s much less Ontario-centric. And from my point of view that’s very helpful.

INN: Do you have a favorite interesting stock or person that you’ve been introduced to this week?

RR: I don’t have an answer to that. It’s been extremely busy from a Sprott perspective. We’ve been on the floor, worked off our feet. We have an office here in Toronto, all six board rooms have been busy basically 24/7.

The most fun I had was co-hosting a dinner last night with Pierre Lassonde and Frank Giustra, where the old dragons got together 25 young people who have been successful in the business, but aren’t well known. A networking event where the people who have been in the business [for 35 years], like myself, and Pierre and Frank, got to meet and greet, have dinner with in a private setting, people in their 20s and 30s and 40s who are new to the industry, but have already established themselves. That was hugely interesting to me, personally.

INN: So you expect good things from all of those guys?

RR: Of course we do. We wouldn’t have brought them to dinner if we didn’t expect good things from them.

I would say the second thing that has really surprised me positively has been the indigenous, aboriginal and First Nations participation at PDAC. It’s grown every year, but the participation this year has been an order of magnitude larger than earlier years. What’s really nice to see is aboriginal leaders and industry people, after five or six years of flirting with each other, actually being friends — sitting down, having a beer, talking business as equals. Very, very helpful for the industry. Very helpful for Canada.

INN: I would be remiss if I didn’t ask you about gold. The last I checked, the gold price was fairly flat year-to-date, which is not necessarily what people would’ve expected given Trump and other factors. Why isn’t gold doing a little better?

RR: I think that gold, in a global sense, is priced in US dollars, and the US dollar has been strong. People allege, I think, that Trump is responsible [for] strength in the US dollar. I disagree with that. I think disarray in Europe is responsible for the strength in the US dollar. We are in one of those rare years where the US dollar does well and gold does fairly well too.

If you measure gold, as an example, in Canadian dollars rather than US dollars, gold has done well this year. Twice before in my career, Charlotte, gold has done well simultaneously with the US dollar. That was in 1975, likely before you were born, and 2001. In both cases, there was a flight to quality trade, and in both cases, in the near term, the dollar rolled over and gold did very, very well. Is past prologue? I don’t know. But of course, many people here hope so.

INN: Gold is one of the constants, I think, for investors. But I’d like to know what you think of some of this year’s more trendy metals. I’ve been hearing tons about cobalt and lithium. Do you look at those at all? What do you think?

RR: Charlotte, you’ve known me well enough over the years to know I’m not very trendy. Lithium, I suggest, suffers from oversupply. I could see the lithium stocks continue to do well as a consequence of narrative, but that avoids arithmetic. There’s lots of it.

Cobalt I feel better about — unfortunately, not Canadian cobalt. You need to be in the lowest-cost quartile worldwide to exist in a market like cobalt. So what you’re really talking about is the Congo and Russia. Canadians care about Canadian cobalt, but the truth is that all cobalt performs equally in fabrication tasks. And to make money in mining, you have to have scale and you have to have grade. And the Canadians don’t have that.

What will work in cobalt, I think, is using the cobalt story to explore for nickelcopper deposits in the Canadian Shield. It’s a bit tricky, but that will work.

Don’t forget to follow us @INN_Resource for real-time news updates!

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in contributed article. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
Related reading:
PDAC 2017, Day 1: Notes from the Floor
PDAC 2017, Day 2: Notes from the Floor
PDAC 2017, Day 3: Notes from the Floor

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