Guest Post: Rick Rule - We're Entering A Great Era For Resource Investing

Tyler Durden's picture

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Rick Rule - We're Entering A Great Era For Resource Investing

Recently, we crossed the seven billion threshold for humans on the planet. Most of these people are desperately trying to get up the living standard curve. And that requires resources.

Simple math tells us there is going to be increasing competition for a steadily-dwindling -- in both quantity and quality -- global pool of high-grade resources. This 'scramble for stuff' is going to be one of the key defining trends of this century. And while it will have game-changing repercussions across societies, economies, and geopolitics -- we are at a moment in time where tremendous upside awaits investors who recognize today the true future value of key resources and secure meaningful exposure to them.

Rick Rule has made a successful and storied career as a resource investor, and has rarely seen as attractive an alignment for the space as he does today. What is there to be so optimistic about?

1. We are going to face an awful lot of volatility. And I should start by saying that volatility can be good news for you if you are prepared for it. It gives you frequent sales. Why the volatility? In the first instance, there are seven or eight trillion dollars sitting on the sidelines just in the United States looking to be invested. That has some upward bias.


2. We are in a secular bull market in 'stuff'. The bottom of the [global] demographic pyramid as it gets richer, and it is getting a bit richer, uses a lot more stuff than the top of the pyramid. So per capita consumption of stuff is growing, spread over lots and lots and lots of capitas.


3. Resource stocks have not kept pace with commodity prices. So resource stocks for the first time in several years are attractively priced.

4. The senior resource companies, including the mining companies that have been real under-performers for the last decade, are starting to make an awful lot of money. And one of the themes I think that you are going to see in the resource space is mergers and acquisitions.

Of course, there is plenty of bad news to offset the good here, and Rick warns that as attractive as prices may be here for many resource-based companies, they could easily go lower in the short term before powering higher to their true valuations.

The bad news is also pretty straightforward. It appears to me like we are headed towards a liquidity or credit crisis, as a consequence of the fact that the political will does not exist, to cause the citizenry of western nations to live within their means, and because the banking system as we know it is bankrupt. An example would be Germany; the lender of last resort for the European economic community had a failed bond auction. If the lender of last resort cannot lend, you have a fairly interesting set of circumstances. Of course, they did find another lender of last resort, and that is us. And the market has not seemed to figure out that we are in some danger of going broke ourselves.

I am completely conversant with the fact that resource stocks could get cheaper before they get expensive. [A good mathematician] knows that you have a mean line and a median line, because things do not revert to mean or median, they revert through the line. And the fact that stuff is gotten cheap probably means it gets cheaper. But the nature of investing in natural resources is investing on a net present value basis, and the stuff is cheap. We do not see it cheap very often.

So the key here is performing good-old fundamental analysis to find the undervalued opportunities, buying in, and then letting time work in your favor.

As for the resource sectors that interest Rick the most?

I am interested across the barrel, but I think I am particularly interested in sub five hundred million market cap resource plays in the western Canadian sedimentary basin, Canadian listed companies with repeatable resource plays in oil.

I am also very, very, very attracted to the uranium space. As a consequence of the events in Japan, the uranium space got cut in half, but uranium consumption has not budged. So I like the risk to reward checks to position in uranium.

What really has me excited right now, however, is that for the second time in the last ten years, the smaller gold stocks are attractively priced relative to the gold price. You know Chris, I found myself in the embarrassing position in 2010 to be a fairly well known gold stockbroker that did not have any gold stock recommendations. As a consequence of the fact that the gold stocks were assuming very, very, very high gold prices, but were not putting on very good corporate performances. We have seen the situation now where the bullion price has continued to go up, but the share prices of the stocks have gotten absolutely creamed. So what is probably most attractive to me of all are the shares of the pre-feasibility stage junior companies, and some of the smaller producers that have large organic development pipelines. We think that they are absolutely cheap, and that is something that does not happen very often.

Click the play button below to listen to Chris' interview with Rick Rule (runtime 32m:58s): 


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Pladizow's picture

Not one of Rick's better interviews.

ZeroPower's picture

At a first quick glance i though the title said 'Rick Roll'  :/

TheFourthStooge-ing's picture

The full transcript link redirects to the goatse site. </sarc you very much>


SAT 800's picture

Look up CitiGold, an australian gold mine in Queensland; google will get you the website for the company; selling for 61/2cents Aust. last year it sold for 21 cents; read all the info on the website; its perfect. About fourteen months ago the soverign wealth fund for Bahrain bought about 18% of the Company. They haven't made foolish move yet; and they didn't this time either. It's an example of an ezcellently run gold mine that has a production cost this year of about 350$; and it's being completely overlooked by the market.

golfrattt's picture

Sooooo, Resources are going to go up. Oh, forgot, they're gonna go DOWN before they go UP. Almost forgot that part...

Christ, isn't that the future path of just about EVERYTHING...??

This interview was better served if it was released 6-12 MONTHS from now..

Sudden Debt's picture

Wanna buy some high grade dirt?

I'll make you a deal!


walcott's picture

I am from fukishima I buy 16 tons no radioactive dirt please! Tank yu vaey vaey much!


Snidley Whipsnae's picture

Johnny Bravo would buy it for $5 oz... Johnny? Johnny, where are you?

TheFourthStooge-ing's picture

He's picking up loose change and netflix shares in front of a moving steam roller.


Atomizer's picture

I'll buy all your dirt, if you purchase my repackaged SIV. Heeheee

Animal Cracker's picture

Is the bottom of the economic pyramid really getting richer?  And will this continue?



Sudden Debt's picture

Well, there's such a thing as the bottom and foundations that go pretty deep to but of which nobody give a fuck.

stopcpdotcom's picture

"Sir Godber Evans: Don't you find this a little indulgent? Particularly in the present economic circumstances.
Dean: Oh, we never bother with "present economic circumstances".
Senior Tutor: We find that they tend to go away after fifty years or so."

"Porterhouse Blue" (1987)

High Plains Drifter's picture

some people just will never get it ..........

paratrooper325's picture

I got some oceanfront property in Az for sale Rick.But really I think that the future of trading will be in resources and commodities like grains, cattle, PMs, and land. That is just my unofficial thought and preference on what real wealth is, not this charade that we are playing not with robo algos, crooks, and the capital hill cronies. Call me old fashioned I guess.

Waterfallsparkles's picture

I feed the Deer.  Never know when you will need them.

The Big Ching-aso's picture



Well the only problem with this resource stock bonanza is that there's a dearth of greater fools who want to get screwed by insider fraudulent BS on Wall Street.   Other than that yeah it's a raging go there, Rickster.

Piranhanoia's picture

Ignoring stampeding bison in the control room of the head section,  let's try raping the environment for a fast buck.  Ignoring reality,  why not put your money into things far away from you.  Why not put that 8T in funny money to work for you somewhere it will be honored when it is found to be re, re, re re  (sounds like a little respect from Aretha) re, re hypothecated and worth less in Argentina than the $.02 it is here.  Go long uranium while the people who live on the roads to the mines  continue to allow it to pass thinking their governent knows best,  until they don't.  

This is either a joke, or Rick has some toxic assets backed up that he is trying to expel.   "Call for you Mssr. Le Petomane",  here garcon,  and call me Joe.


ebworthen's picture

PM stocks are on a 12 month lag behind the physical, here's to hoping they catch up.

This is very interesting:

BrocilyBeef's picture

thanks... and I just wanted to learn.

ebworthen's picture

Sorry, I couldn't resist.

This one is educational, Jim Sinclair on PM's from yesterday:

Money Squid's picture

Pfftttt....those guys are rookies when it comes to investing. You need advice from someone who has been in the bus or a long time and has demonstrated real performance and mastery of the markets

Nuff said.

fbrothers's picture

People will not be buying anything. They have no jobs, no money, and are unable to refinance their home to pick up cash from equity. Shopping will not be the U.S's favorite sport. We will not need resources.


xela2200's picture

They will still need to eat, drink, wear cloths, etc. Most people on wellfare have a tv, microwave, xbox, and a cell phone (Silver, copper, oil).

I believe 9 billion is the current carrying capacity of the world using monoculture and energy intensive (oil). We will be there in 10 or 20 years. I expect to trade Drinking Water commodity contracts that will be trading in Frankfurt by then.

prodigious_idea's picture

True that.  After 70 years of a consumer-driven economy fueled by a real estate bubble that just popped we're in for a long slog "rebuilding".

Matto's picture

Pretty sure stocks are lagging physical because they have been issuing stock like its confetti.

Snidley Whipsnae's picture

Matto... +1. Bingo.

A mine is a hole in the ground with a liar standing next to it.

FranSix's picture

Its true.  And sometimes they don't know what they're lying about and need to be reminded.

el Gallinazo's picture

Pathetic.  Demand is not what people want.  Demand is what people want and what they can and would pay for, especially when the house of cards of phony credit money disappears into that alternate universe.

earleflorida's picture

cameco,... oh cameco - where art thou?

buried in the worlds silo's, thy kingdom come

or upon a forest edge, camouflaged as a crawling grassy knoll

oh cameco,... where out thou

Flakmeister's picture

Yep.... what a shit show... CCJ is a best-of-breed Uranium miner that has been radioactive to say the least...

Sunshine n Lollipops's picture

As soon as I get out from under the pyramid, I'm gonna look into this.

Waterfallsparkles's picture

My Friend does resource investing.  He has an Heating Oil tank farm on his property.  He has about 4 Heating Oil Tanks any where from 250 gallons to 750 gallons each.  When the price of Heating Oil goes down he fills up, usually summer.  When Oil is up he uses his stash.

DosZap's picture


And the EPA is not SO FAR up his ass, he doesn't feel like he has a permanent tenant in his lower intestines?.

What happens when his people spill ONE quart on Terra Firma?,I am sure he is running a risky bidness in the long run.

Glad he is doing well, best enjoy it whilst he can.

slewie the pi-rat's picture

considering the sizes of the tanks mentioned, don't be too concerned

these are just standard home units as are filled from a truck when wanted or needed;  the oil isn't rationed, you know 


now, with a diesel truck & generator...welcome to TEOTWAWKI...

PaperBugsBurn's picture

Haha bitchez, got me own Au+Ag factory...I mean mine!

Collapse Amerikkka!

Fuck yeah!

spinone's picture

Mines will be nationalized for the Fatherland!

spinone's picture

This is a deflation. Value will be destroyed wherever it concentrates.

JR's picture

K Street, “The Best Government Money Can Buy?” by Davos  12.10.2011

Super FSN interview, some key points:

§  1/3rd of Congress’s time spent getting re-elected.

§  To get into DC requires having the most contributions.

§  Votes for cash.  Votes sold Tuesday-Thursday.

§  Some of these “people” are making 5 million-15 million a year.

§  A lobbyist turns every 1 dollar he/she gets into 100 dollars.

§  Arizona public property given to mining companies, votes sold for 200x conservation lobbyist spending.

§  About 14,000 lobbyists registered, probably 100,000 more who call themselves something other than a lobbyist.

Bottom line, Congress (save for a few like RP) doesn’t represent you or me.


Visualizing Numbers

Posted on December 9, 2011 by Davos

A while back I did an article called “Tossing The Consumer Under The Bus…And Insanely Expecting An Economic Recovery”, I pegged the debt at about 128 trillion.  Here is 114 trillion. (LINK to graphic source with lots of other good visuals of money).

There is a great post on Zero Hedge (as usual) about visualizing large numbers, what prompted me to post this graphic. 

“When you have reached your destination 15,500 miles away, the 47,000,000 people you will have passed is the number of people lining up for a meal every day in America’s breadline, also known as food stamps, or SNAP.”

Of course today our bread lines are located in Wal-Marts at midnight on the last day of the month.

rosiescenario's picture

" 1/3rd of Congress’s time spent getting re-elected."


Now if we could only get that 33% to 100% we might stand a chance of the economy actually recovering...

xela2200's picture

Presidency --> 6 years one term.

cpgone's picture

U. stocks are in a bear mkt. for a decade until FUk. is way forgotten.

Stocks and the demand of what they represent are not always linked.

REsource stocks just follow the main averages.

I dont see that changing as long as the Hedgies, HFT, and banksters run it all.

LeBalance's picture

just what I expect under Chris Martenson byline:

Exponential Function?


Bubble in population?



kito's picture

systemic collapse coming, buy stock in companies that may have financing dry up overnight, have their cash accounts obliterated, and the demand for their products drop off a cliff!!!  GREAT IDEA!!!! 

billsykes's picture

rick rule is a total scum bag. I wouldn't let this guy suck off my dog if he paid me.

run a screen back to 08 and see how well they did- not well. see how they are doing now- not well. my future prediction, even if gold hits 2500 I don't see the juniors doing well.  why?

1.  when they need money, they tend to be sloppy in regards to tight capital structure and dilution.  think 10%+ 1 warrant in commish. plus they dilute like crazy, to keep themselves in the nice Vancouver lifestyle.

2. gold even un levered will return higher returns than a group of 15-20 miners in most cases.

3. without cash they cannot drill, without drilling they won't be able to do press releases without that the stock will drop.

4. if things get really rough they start in on cowboy mining, they do not delineate a sizable proven reserve and start mining anyways in an effort to get cash to do more drilling. this signals the beginning of the end, as they cannot raise cash in the market. and the stock drops, and 100%+ of the gold will go into the miners pockets and not be declared on the income statement. a good sign of this is gold pouring pics on the website and a goose egg on the income statement.

5. junior miners only do well in good economic times. as the price of gold matters fuck all to a pre production mine its just a stock play at that point. same as the visible gold in a drill core, it matters fuck all.

6. pre feas study companies- they all will give up the gold to an experienced miner, and not always will you make bank when they do so.

bottom line if you have some cash to throw away, invest in miners and junior oil plays as a write off, and be surprised if you make anything. but I suspect that write offs are the least of your worries if the economy is down.

better off buying gold and physical silver, then maybe some; defense companies, beer stocks and cigarette companies.

but this is my overly strong opinion.






FranSix's picture

A producing gold company that has declared commercial production, with good grade controls, settled its permitting issues, completed a Preliminary Economic Analysis and submitted a financial report or two that starts at the outcrop in a safe jurisdiction with the exact type of geology that produces robust grades and has lots of room for growth.

What's so hard to understand about that?


PonziBeaver's picture

That's a fair and awesome comment about junior resource companies that are undercapitalized. Beware! Even with the best mine or oil prospect, you can get diluted to hell as the insiders issue themselves options and cash in years before any resource is even produced, then a big, well-capitalized company can come in and buy them out for a song. Early shareholders are left diluted and bought out lower than they bought in.

Do your DD and make sure your investments are well capitalized and not run by crooks!'s picture

Uranium mines and uranium prices have had tough sailing since Fukishima/Japan disasters...I have held small position in EGRAF (Energy Resources of Australia) a Uranium mine owned by Rio Tinto.  Does anyone know why this stock has basically nosedived since 2010?  It went from $10 bucks to now under $ trades on the Pink Sheets or OTC market...not sure what is wrong if the mine is not producing or their production costs are out of whack or what?  They paid out a dividend just a few days ago so seemed to be ok but can't figure out why the stock price keeps getting whacked...?