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An Hour with Rick Rule


moore_capital54
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Altius, Aberdeen, Primary Capital, Natural Resource Holdings, Sprott Resource Corp many of them.

 

Thanks for posting interview.

 

What's your opinion on SII?

 

I looked at it a couple years ago but missed the boat.

 

With SII you would have managers like Rick Rule,  and Eric Sprott (who owns most of the shares I believe) on the team.

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Altius, Aberdeen, Primary Capital, Natural Resource Holdings, Sprott Resource Corp many of them.

 

Thanks for posting interview.

 

What's your opinion on SII?

 

I looked at it a couple years ago but missed the boat.

 

With SII you would have managers like Rick Rule,  and Eric Sprott (who owns most of the shares I believe) on the team.

 

I've been reading up on them a bit. Not yet sure what I think, but I'm also curious to know other people's opinions (Dazel, are you reading this?).

 

Edit: Actually, I was looking at SCP. Anyone can shed some light on the corporate structure of Sprott? SII and SCP are totally separate, right?

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Also need to mention Cardero Resources, which has kind of by accident become a resource holding co as well.

 

Cardero latest 10Q is that not the sweetest balance sheet you have seen? $122mm in assets vs $800k in liabilities:

 

http://www.cardero.com/s/financials.asp

 

Checkout all the liquid stock positions, IE: ITH - which provides great leverage to gold.

 

Cardero is trading roughly at the value of their liquid investment portfolio giving you their assets for free.

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sorry moore capital  i found the answer to my question. 

your opinion of this sector is appreciated.(ram power and nevada geothermal)

 

thanks

 

Gurjot, I am not as bullish as Rule on geothermal. He has lost a ton of money on RAM and has gotten a lot of people into it. The fundamentals of geothermal are analogous to Solar in my humble opinion. I would rather buy some of these solar co's at a fraction of tangible book as a hedge for higher energy costs. Or out of the money options on Nat Gas such as MGM Energy (MGX CN).

 

I believe Rule's favourite gold plays are Lydian and Atac. We own a nice chunk of Lydian and have been buying more even last week. There is no doubt they have an incredible mine there. Atac is very expensive and lacks the ounces at this point to convert me into a believer. Everyone is so excited that they found Carlin style mineralization but I would much rather own Lydian or even Carpathian than Atac here.

 

One more thing, I am going to make a prediction here that I think Dundee Precious Metals will make a run for Lydian. It is right up their alley and Jon Goodman has unlimited capital from daddy.

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thanks moore capital. i did buy rpg and ngp at much higher prices and have the ability to hold for couple of years to see what happens. 

i own lydian also . i  sold mirasol few months ago to buy lydian. 

with altius i been waiting for a long time for them to do something with all the cash they have  .  they did hire paul van eeden to manage some of the cash but its not much. i am hoping they will put it to work intelligently.

you have any info on it.

thanks

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I briefly looked at Pinetree Capital (PNP)

 

 

Selling at <50% of NAV

http://www.pinetreecapital.com/_resources/financials/fs_pnp11Q1.pdf

 

CEO has been buying shares http://www.canadianinsider.com/coReport/allTransactions.php?ticker=pnp and apparently has been buying all year long.

 

I like their investment themes. http://www.pinetreecapital.com/_resources/presentation/Pinetree-Q2-2011-final.pdf

 

All their NAV is in many junior resource companies.

 

Rick Rule indicated that 90% of junior resource companies have a net present value of zero. For those who invest in junior canadian resources, how can you reconcile this?

 

Market seems to be expressing this disbelief. Management taking the opposite view, as they are puyting their own money in.

 

Value of common cut in half since the spring http://stockcharts.com/freecharts/gallery.html?PNP.TO

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Biaggio Rick rule is talking about all the exploration co's out there which account for 90% of the market but in terms of market cap account for less than 10%. Read my post about the industry from a few weeks ago, in I categorize the industry into 3 groups of companies.

 

Relating to PineTree it definitely seems cheap but I don't think the quality of companies he holds are the kind I like, I see PineTree as more of a leveraged option on the exploration side of the business, with good diversification.

 

The way we see it is either you are investing in a proven deposit that has been defined based on diamond-drilling, or you are investing in an ore body that has already been intersected where you know the assay grades, length of intersection and locations on a map, but has yet to be computed into an initial resource estimate.

 

Investing before is a crap shoot

 

Roy Sebag does a good job of explaining this in his annual letter here:

http://www.nrh.co.il/i/pdf/NRH_2010_Annual_Letter.pdf

 

As does Bill Martin here:

 

https://www.americancentury.com/pdf/Gold_Investing_Core_Explore_Approach_Retail.pdf

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Are many juniors worth zero because they run out of cash before getting the minerals out of the ground or because they don't have the minerals they think they have?

 

No Scorpion they are worth zero because they have not reached the stage of resource definition. 90% of the market are exploration companies with greenfield projects.

 

Again, Natural Resource Holdings has done some good research here cataloguing the ones with actual defined deposits over 1mm ounces:

 

http://www.nrh.co.il/i/pdf/NRH_Research_OneMillionOunceGoldDepositsMay2011.pdf

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Scorpion, a very interesting company. It's still small but we own it. I suggest you read about the Owner/Manager as well, former Value Fund Manager who got into natural resources 3 years ago, and decided to focus on that full-time. He personally owns 60% of the shares and has been increasing his stake on the open market.

 

The current market their listed on does not understand the business, but they have announced a listing on the NYSE AMEX. We are looking forward to that as a major re-rating event.

 

The financials are too difficult for us to find on that site, since its in hebrew a language I do not speak. But I have attached the Bloomberg snapshot of the financials as it parses it in english.

 

This is a low market cap company so I don't want to say too much but I will say this, with what I have seen thus far, I am VERY impressed. Roy has purchased ounces in the ground at absolutely amazing valuations. We own about 4% of the company. At the current valuation of $11mm, there is very little relevance between the market cap and the intrinsic value in my opinion.

 

That being said you are buying shares in an Israeli listed company, which we personally have viewed as a big pain in the butt. 

00150675.pdf

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Scorpion, that is incorrect. The 16.5mm fully diluted share count assumes the exercise of 5.0mm warrants outstanding at levels that are substantially higher (5,10,15,20) so under that scenario NRH would have an additional $17mm in cash.

 

There are currently 9.38mm shares outstanding.

 

And also with resource companies the way to compute intrinsic value is not based on the balance sheet where assets are carried at cost, rather some type of a DCF on their proven resource wealth. In this case you have to ask yourself what are comparable companies being valued at per tonne of iron ore or ounce of gold in the ground.

 

 

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Altius, Aberdeen, Primary Capital, Natural Resource Holdings, Sprott Resource Corp many of them.

 

 

[...]Also need to mention Cardero Resources, which has kind of by accident become a resource holding co as well.

 

Hi Moore,

 

Curious to know which of those is/are your favorites and why? I'm a big fan of Altius, and I'm trying to widen my circle of competence in that sector.

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