• Connect with us
    • Information
      • About Us
      • Contact Us
      • Careers
      • Partnerships
      • Advertise With Us
      • Authors
      • Browse Topics
      • Events
      • Disclaimer
      • Privacy Policy
    • Australia
      North America
      World
    Login
    Investing News NetworkYour trusted source for investing success
    • North America
      Australia
      World
    • My INN
    Videos
    Companies
    Press Releases
    Private Placements
    SUBSCRIBE
    • Reports & Guides
      • Market Outlook Reports
      • Investing Guides
    • Button
    Resource
    • Precious Metals
    • Battery Metals
    • Base Metals
    • Energy
    • Critical Metals
    Tech
    Life Science
    Resource Market
    Resource News
    Resource Stocks
    • Resource Market
    • Resource News
    • Resource Stocks

    Rick Rule: Three Reasons to Start Buying Resource Juniors

    Investing News Network
    Aug. 04, 2014 04:00AM PST
    Resource Investing News

    Gold has declined slightly, from around $1,320 to $1,300, in the last few weeks. Rick commented that this was normal for a recovery in resource stocks. You expect gradual rises and subsequent consolidations. Today, he lays out his three big drivers for a recovery in the ‘junior’ resource stocks.

    By Henry Bonner (hbonner@sprottglobal.com)

    Gold has declined slightly, from around $1,320 to $1,300, in the last few weeks. Rick commented that this was normal for a recovery in resource stocks. You expect gradual rises and subsequent consolidations. Today, he lays out his three big drivers for a recovery in the ‘junior’ resource stocks.

    Rick, are we still on our way towards a recovery? What catalysts might take the market higher?

    “The market for junior resource stocks, as you can see from the performance of the TSX.V, the ASX, and the LSE AIM, marked a bottom around a year ago. They’re in a gradual recovery now, and I believe the uptrend will continue, albeit marked by the same volatility that we’ve seen in the market so far. We’ve experienced three advances and subsequent declines this calendar year – and that’s normal for the early stages of a resource recovery. These advances need to consolidate, which they have already done nicely.

    “There are three key drivers to this advancement. First, there’s the incredible amount of capital that the junior market raised five or six years ago and the fact that sooner or later, investors will realize that they’re playing with ’25-cent dollars,’ as many juniors are trading well below the value of their cash and other assets. Second, there are the extraordinarily low valuations attributed to some of the best companies in the sector. Third, there is the increasing pace of mergers and acquisitions. This is a good thing, as horizontal mergers decrease G&A expenses, while in ‘top-down’ mergers, larger mining companies buy up select juniors to add to their exploration and development pipeline.

    “Besides these three points, there is also the fact that we are in a nascent boom in the discovery cycle. There has been an increasing pace of new discoveries, and the market certainly appreciates genuine discoveries.

    “In my experience, Henry, bull markets begin when the market as a whole exceeds expectations. Since expectations are currently exceedingly low, it won’t take much to beat them. Moves up from lower bases, discoveries, mergers and acquisitions, and particularly the generally low valuations today relative to market norms for the best companies in the sector, all point to a continued uptrend among resource stocks.

    “I would urge you, if you are interested in the sector, to increase the pace of you investments now. Do it selectively because the sector will continue to be volatile and the recovery will continue to be gradual, though perhaps not tepid. I do believe that the risk is to the upside, not the downside.”

    You mention that we need to be selective, but don’t “rising tides raise all ships?” How important is analyzing resource stocks ahead of a recovery?

    “Important point, Henry. The sector is already so risky that you should try to minimize those risks, not increase them. Bad management teams make the risks of the sector even worse. My friend Doug Casey often says that ‘when the wind is blowing even turkeys can fly.’ The problem though is that the turkeys need to stay fed long enough that they can last until the wind picks up.

    “If you took all the juniors together, merging them into a single entity – they would probably lose around $2 to $5 billion a year. Therefore buying the sector as a whole is an excuse to go broke. Meanwhile, the 5 or 10 percent of the best companies in the sector can create such spectacular increase in shareholder value that they add visibility – and sometimes luster – to the overall sector. Confining your portfolio to the best people, the best projects, and the sturdiest balance sheets is not that constraining, but it is critical to maximizing your returns through both upswings and declines in the resource sector.”

    P.S.: Our inaugural Sprott Vancouver Natural Resource Symposium took place last week – some of the best speakers in the mining industry converged for our three-day conference. Recordings offered for a fee through Agora Financial.

    Rick Rule is the Chairman and Founder of Sprott Global Resource Investments Ltd., a full-service brokerage firm located in Carlsbad, CA. Sprott Global is an affiliate of Sprott Inc., a public company based in Toronto, Canada. Mr. Rule leads a team of earth science and finance professionals who form an intellectual pool for resource investment management. He and his team have experience in many resource sectors including mining, oil and gas, water, agriculture, forestry, and alternative energy.

     

    This information is for information purposes only and is not intended to be an offer or solicitation for the sale of any financial product or service or a recommendation or determination by Sprott Global Resource Investments Ltd. that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on the objectives of the investor, financial situation, investment horizon, and their particular needs. This information is not intended to provide financial, tax, legal, accounting or other professional advice since such advice always requires consideration of individual circumstances. The products discussed herein are not insured by the FDIC or any other governmental agency, are subject to risks, including a possible loss of the principal amount invested.

    Generally, natural resources investments are more volatile on a daily basis and have higher headline risk than other sectors as they tend to be more sensitive to economic data, political and regulatory events as well as underlying commodity prices. Natural resource investments are influenced by the price of underlying commodities like oil, gas, metals, coal, etc.; several of which trade on various exchanges and have price fluctuations based on short-term dynamics partly driven by demand/supply and nowadays also by investment flows. Natural resource investments tend to react more sensitively to global events and economic data than other sectors, whether it is a natural disaster like an earthquake, political upheaval in the Middle East or release of employment data in the U.S. Low priced securities can be very risky and may result in the loss of part or all of your investment. Because of significant volatility, large dealer spreads and very limited market liquidity, typically you will not be able to sell a low priced security immediately back to the dealer at the same price it sold the stock to you. In some cases, the stock may fall quickly in value. Investing in foreign markets may entail greater risks than those normally associated with domestic markets, such as political, currency, economic and market risks. You should carefully consider whether trading in low priced and international securities is suitable for you in light of your circumstances and financial resources. Past performance is no guarantee of future returns. Sprott Global, entities that it controls, family, friends, employees, associates, and others may hold positions in the securities it recommends to clients, and may sell the same at any time.

     

    For more insights from Sprott Global Resource Investments, sign up for the free Sprott’s Thoughts newsletter.

    canadamergers and acquisitionsdoug caseyglobal resource investments ltdsprott global resource investmentsrick rule
    The Conversation (0)

    Go Deeper

    AI Powered
    Rick Rule, mine site.

    Rick Rule: Gold's Next Move, Hated Sectors I Love, Top 3 ASX Mining Stocks

    Gold Outlook

    Gold Outlook

    Latest News

    Trading Halt

    Western Uranium & Vanadium Announces Brokered LIFE Financing of $5 Million

    Nine Mile Metals Closes Oversubscribed Non Flow Through Private Placement

    Extensive Gold Mineralisation Intersected at Spargoville

    Altech - Spherical Coated Silicon Achieves 88.5% Retention

    More News

    Outlook Reports world

    Resource
    • Precious Metals
      • Gold
      • Silver
    • Battery Metals
      • Lithium
      • Cobalt
      • Graphite
    • Energy
      • Uranium
      • Oil and Gas
    • Base Metals
      • Copper
      • Nickel
      • Zinc
    • Critical Metals
      • Rare Earths
    • Industrial Metals
    • Agriculture
    Tech
      • Artificial Intelligence
      • Cybersecurity
      • Gaming
      • Cleantech
      • Emerging Tech
    Life Science
      • Biotech
      • Cannabis
      • Psychedelics
      • Pharmaceuticals

    Featured Resource Investing News Stocks

    More featured stocks

    Browse Companies

    Resource
    • Precious Metals
    • Battery Metals
    • Energy
    • Base Metals
    • Critical Metals
    Tech
    Life Science
    MARKETS
    COMMODITIES
    CURRENCIES