Thursday, 8 May 2014

Rick Rule - Evaluating Junior Resource Companies

Audio - HERE 
Part of promoting Sprott's Vancouver Natural Resource Symposium in July (see companies below)
Also an interview with Frank Curzio (transcript)

Frank Curzio:             Yeah.  Quite a few times that I heard.  A lot of times during speeches and educated me, which is fantastic.  Now, I wanna talk about getting into individual stocks here where, you know, and explain some of these times where I get so many e-mails, junior resources stocks, and I wanna get to how you actually look at these companies and which ones to choose in a second, but overall when you’re looking at junior resource stocks, we’ve seen a little bit of a bounce here.  Is this a dead cap bounce?  Are you worried about junior mining stocks?  And, again, I’m lumping them all together right now.  We’ll probably get to individual ideas, but how do you feel about this market?  Has it bottomed?  Is it time to invest in some of these areas?  Or do you still have to be worried about investing in junior mining stocks?
Rick Rule:                    Very useful question, Frank, and let’s begin by saying, in the best of times, you have to be worried about investing in junior mining stocks because, as a group, and this is important for your readers to understand, as a group, they’re valueless.  Let me repeat that.  As a group, they are valueless.  You speculate in them because the best 5 or 10 percent perform so extraordinarily well – better than any asset class I’m familiar with – that they add credibility and occasionally luster to a sector that’s almost terminal.

The Toronto Stock Exchange Venture – TSXV – which is the investment ghetto that most of the junior miners are consigned to, is off by 75 percent over four years, which is a different way of saying it’s 75 percent more attractive.  The whole thesis that existed in 2009-2010 with regards to resources – worldwide demographics, inflation, debt – is as true today as it was in 2010.  The narrative hasn’t changed at all.  What has changed is that the market is 75 percent less expensive, which is a different way of saying it’s 75 percent more attractive.  Having said that, it is important that investors who want to participate in a market that could increase fivefold or tenfold in hopes of finding stocks that could increase twentyfold understand the qualitative differentiation.  Securities analysis is absolutely the name of the game in junior miners.

Mercifully, for me, it’s something that I’ve learned in hard fashion over 30 years, and we invest a lot in.  So it’s a circumstance, an opportunity that doesn’t fill me with trepidation at all.  I’m elated about the set of circumstances in front of me, but I could understand why it would be more challenging for other speculators.
Frank Curzio:             And you said that now – that 10 percent junior mining stocks will do well.  You seem to invest in a lot of that 10 percent over your career.  What do you look for before buying these stocks?  I’m not gonna give you the easy way out here ‘cause I know you always say management by far the most important thing.  And even Marin has come on this podcast and said you’d love to invest in someone who took a very, very small project and actually soared through production.  Outside of management, what else do you need to see to make you invest or find that 10 percent of stocks?
Rick Rule:                    You need a company that has a very, very clear picture of how they add value.  Adding value in exploration is answering a series of unanswered questions, and so you need to determine what the unanswered question is that the company proposes to answer.  To some degree, what the value of a yes answer would be, what the probability of a yes answer would be, how much time it takes to answer the unanswered question, and how much money it will require.  And then determine whether or not the company has the money to answer the unanswered question.

Mostly, when you interview these juniors, they don’t even know what the unanswered question is.  To them, the unanswered question is whether they’ll receive their salary next year.  I can understand where that’s their concern, but I don’t care about it, so you throw those out.  Many of them are trying to answer questions that don’t really have any value, so you get to throw them out.  And some that are left over don’t have the money to answer the unanswered questions, so you throw them out.  Really, it’s a process of attrition where you look at the process by which the company promises to add value and determine whether or not the probability of their adding value is worth the risk associated with the questions that you’ve been asked.

And I know that you passed over the management, but it’s very important to determine the skill sets of the managers of the companies that you’re considering speculating in are very, very, very closely tailored to the task at hand.  An example would be a mining company executive who made their reputation by operating the gold mine in very ancient rocks in French-speaking Quebec now proposes to add value by looking for, exploring for copper in younger volcanic rocks in Spanish-speaking Peru.  The skill set that the person generated their reputation on is not necessarily appropriate to the task at hand.  So when you assess the probability that they can add value or understand the questions that they’re proposing to ask, you can’t take their track record at face value because it isn’t appropriate to the questions being asked.  It’s the same situation, Frank, that you would encounter yourself in software development or in biotechnology.  It’s very important that the skill sets of the scientists who are asking and answering the questions are appropriate to the tasks they set for themselves in the company.  It’s the same process.

Companies at Vancouver Conference

Frank Trotter
President, EverBank Direct
Morgan Poliquin
Ph.D., P. Eng., President & CEO
Almaden Minerals
Ivan Bebek
President, CEO & Director
Cayden Resources
Christian Easterday
Managing Director
Hot Chili, Ltd.
William Lamb
Presdient & CEO
Lucara Diamond Corp.
Howard Stevenson
CEO & Director
Lydian International, Ltd.
Stephen Nano
President & Director
Mirasol Resources, Ltd.
John-Mark Staude
Riverside Resources, Inc.
Dr. Tim Coughlin
CEO & Director
Tigris Resources, Ltd.
Robert B. Pease
President, CEO and Director
Sabina Gold & Silver Corp.
David A. Caulfield
Interim President & CEO,
Kiska Metals Corp.
Eira Thomas 
CEO and President
Kaminak Gold Corporation
Frank Holmes
CEO & CIO, U.S. Global Investors Inc.
Darin Wagner
President, CEO & Director
Balmoral Resources
Scott Close
Director of Investor Relations
Eurasian Minerals
Robert Friedland
Ivanhoe Mines
Wojtek Wodzicki
President & CEO
NGEx Resources, Ltd.
Andrew Schectman
Miles Franklin Precious Metals
William Dawes
Chief Executive Officer &
Executive Director
Mkango Resources Ltd
John Dorward
President, CEO, Director
R. Michael Jones
President, CEO, & Director
West Kirkland Mining Inc.
Dev Randhawa
Chairman and CEO, Fission Uranium Corp.
Bruce A. Youngman
Strategic Metals, Ltd.
Scott McLean, P.Geo.
President & CEO
Transition Metals Corporation
Michael Kuta
General Counsel & Secretary,
Amerigo Resources Ltd.
Amir Adnani
President & CEO, 
Brazil Resources Inc. 
Resources &
Uranium Energy Corp.
Paddy Nicol
President & CEO
Ron Hochstein
President & CEO
Denison Mines Corp.
Miles Thompson
 Lara Exploration, 
Reservoir Capital Corp.,
Reservoir Minerals Inc.
Ken Cunningham
President, CEO and Chairman
Miranda Gold Corp.
R. Michael Jones
President, CEO, & Director
Platinum Group Metals
Lindsay Hall
Chief Market Strategist
RMB Group
Barry Potekin
Vice President, Managed 
Account Relations
RMB Group
Robert A. Quartermain
President and Chief Executive Officer, Director
Dan Betts
Hummingbird Resources, Plc.

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