Mining guru Rick Rule’s top picks on BNN

POSTED ON August 18, 2015 BY James Fraser
CATEGORY Sprott Group,

Rick Rick on BNN Market Call Tonight on August 12th, 2015

In case you missed it last week Rick Rule Chairman of Sprott US Holdings was on BNN Market Call last Wednesday night with host Mark Bunting.

The always entertaining Mr. Rule discussed with Mr. Bunting precious metals stocks.

Here are my notes from the show.

There are two ways that commodities can recover from a bear market. One demand creation that occurs when prices for commodities stay low enough that the utility to users increases and demand increase as a consequence of that. Still answer number one or the economic recovery spurs demand for commodities along with everything else. Two supply destruction the price of commodities goes below the price of long enough that the producer prices are below the cost of production and producers shut down mines, oil wells, etc,.
Supply creation results results in a shallower bear market and a weaker
Supply destruction is very different where you get large moves in the commodity prices like oil from $10 to $100 dollars or the copper price goes from $0.60 to $3.50-$4.00.
It looks with tepid economic growth for industrial metals that we will have to have supply destruction rather than demand creation in this one.
Capitulation has yet to happen yet in the junior mining sector to signal a market bottom. GDXJ is trading sideways not what capitulation looks like.
Rick and Sprott have capital waiting to be deployed but are still waiting for issuers to come to more reasonable terms (he expects things to get cheaper).
Rick believes that the first interest rate raise is baked into the cake regarding the gold price. If the first interest rate can stick and Yellen can make the second interest rate stick it would be negative for gold. If she fails to do so would be bearish for the US dollar hence bullish for gold.
Gold is locked in a war with the US dollar. Gold will not win but will lose less badly than all other commodities.
Sprott is nervous about the copper price and all copper juniors as a result for the next 18-24 months.
On Silver investment demand has been very very strong. The retail demand for silver is strong. Very low base metal prices will constrain silver production over the next couple years. Most people don’t realize that most silver production comes from by product from copper,gold ,and zinc mines.

Questions on precious metals and resource stocks from viewers

Lake Shore Gold – Lake Shore Gold has done an extremely good job…. we are bullish on Lake Shore Gold and think it is a potential takeover candidate. Work paying off over the last couple years with increased production and lower costs.
US Geothermal – US Geothermal has proceeded cautiously over the last couple years and has not been rewarded by the market. Generates some free cash and is paying down debt rapidly which strengthens the balance sheet. They will have increased flexibility to build out the project pipeline. We like US Geothermal.
Fission Uranium – Rick admits his call on uranium was early as he thought the Japanese would have been forced to start reactors earlier after Fukushima. Worldwide slow down in everything including electricity and a lower liquefied natural gas price has given the Japanese flexibility in restarting reactors. Rick is hugely supportive of the deal between Fission and Denison even though he does not see the uranium space pick up for another 18-24 months. Rick owns Fission as a way to own Denison more cheaply.
Barrick Gold – Rick says Barrick is not a buy for him. He is concerned about the balance sheet, lack of financial flexibility, delay at Pascua-Lama, th G &A, and failure to merge with Newmont.
Skeena Resources – Rick does not own Skeena. Rick is attracted to Ron Netolitizky. He is usually not a sole proponent of single exploration stocks and prefers prospect generators.
Premier Gold – Sprott owns Premier Gold. We are attracted to the the management team who has not made many missteps over the past couple years. Sprott is constructive towards the gold price over the near term.
Capstone Mining – We like the people but are very nervous about the junior copper space over the next 24 months. Does not own but is not short because of the respect for the people.
Detour Gold – Rick thinks Detour is through a very challenging start up period. One of two things will happen to Detour either the share price goes up or the symbol changes (takeover).
Golden Arrow Resources – Sprott is constructive on the price of silver and doesn’t mind political risk. A very speculative stock. Sprott owns it. The management team behind Golden Arrow has been successful in exploration in South America before.
Silver Wheaton – The Canadian government is trying to shake them down and that adds an element of risk. A extremely good extremely durable business. Likes Fresnillo and Hothschilds as other silver producers.

Rick Rules Previous Investing Ideas

Dundee Corp – Has sold Dundee company as the outcome or direction of the company is in doubt. Sprott has lost track of what the outcome of Dundee is.
Delphi Energy – Still in it. Likes it still. Thinks it is one of the best asset packages in the Western Canadian Basin. Extremely good management team. Sprott increasing exposure to Western Canadian Basin by being secured lenders. Will look to re-enter the equity market in the second or third quarter of 2016. After seeing how the low oil price affects the balance sheet of companies.
Altius Minerals – very large holders of Altius. Both equity holders and lenders. Very close to management teams and supports them across their balance sheet.

Rick Rules’ Top Investing Ideas

Ivanhoe Mines – Friedland is the top mining financier/promoter of his generation. The best collection of assets ever assembled by a junior. Financing risk and political risk but Friedland is no stranger to either. As
Franco Nevada – The best of the best owner operated company. Rick predicts a major base metals mining company will become financially constrained and they will do a deal with Franco. Sandstorm has a bright young management team but does not compare with Franco. Franco Nevada is for investors and Sandstorm is for speculators.
Alterra Power – Is fond of Ross Beaty who is the companies chairman. Company has been paying down debt over last several years improving balance sheet.

James Fraser

Mr. Fraser joined CEO.ca in October 2014. He is passionate about the mining industry. His passion led to co-authoring the e-book "Mining Stocks Investor Guide: A Guide to Investing in Mining Companies." He has a finance background and has completed his Canadian Securities Course (CSC) and Conduct and Practices Handbook (CPH). When Fraser is not "digging" up the latest mining stock, he can be found enjoying a wide variety of sports or travelling the world. More →

Twitter: @miningstocks

james@miningstocksguide.com

James Fraser

Twitter: @miningstocks

james@miningstocksguide.com

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