Lessons From a Legendary Investor
BY FMT STAFF
Rick Rule on His Biggest Gains!
This past week, I listened to what is probably one of the most important interviews I’ve ever heard in my life. As someone who’s conducted over 800 interviews, my goal has always been to be able to pull gold nuggets from our guests.
I’ve personally interviewed Rick Rule over 30 times since 2011, however, his best interview wasn’t with me – it was featured on SGTReport.com Rick Rule, of Sprott Asset Management, has made himself and many others a fortune – more money than could be spent in a lifetime. So when he talks about the secrets to investing, I’m always at the edge of my seat listening.
During an interview of about 30 minutes, Rick basically spent 2 minutes laying out one of the biggest secrets to gold investing. It’s not buying the physical metal, or even the mining producers. What he shared was a way to supercharge your gold returns by buying the hoarders… a term I had never heard of before.
Here is Rick Rule in his Own Words
SGTReport.com: “Rick, let me come back to you and ask you: as one of the larger shareholders in GoldMining Inc., where do you see GoldMining Inc. in 2-3 years from now? Your thoughts?”
Legendary Investor Rick Rule: “I’m too old and wise to answer that question directly. Let me answer it elliptically. The hoarding strategy, or optionality strategy, as we call it, is something that’s been successful for Sprott for 30 years.
We backed a variety of companies in that strategy in the ‘90s, companies like Silver Standard, that went from $0.72 to $40; Pan American Silver, which went from $0.50 to $45; Lumina Copper, that went from $2 to $160.
The fact is that the strategy makes superb economic sense. You know, one of the reasons it works is because if you believe that the gold price is going to go up, the idea that you can buy gold that’s uneconomic at this price that will reprice itself dramatically when the price goes up is attractive in and of itself. But the second thing that people don’t understand is that if you put a mine in production because you think the gold price is going to be up, it is often the case that when the gold price does go up, you have a hole in the ground where your gold used to be, rather than leaving the gold safely in the ore body to be sold or extracted at a later date.
The truth is that there is no investment or speculative methodology I know that is as well supported by arithmetic as the hoarding strategy in an increasing gold price environment.
If speculators believe, as I believe, that the next 5 years will be good for gold, the idea that you can buy that same gold in the ground now for $2 or $3 or $5 or even $10 an ounce and then monetize that gold in the ground when the gold price does go up, if that’s what you think is going to happen, for some number like $150 an ounce to somebody who builds a deposit, the arithmetic associated with that is overwhelming, and you have no operational risks.
Remember that not mining – this sounds cynical, but it’s true – is a hell of a lot simpler than mining.
Leaving the gold in that first hole in the ground, called a mine, rather than degrading it and putting it in a second hole in the ground, called a vault, and running the high operating costs when gold prices are cheap, is really truly silly arithmetic.”
Rick goes on to say this about what he believes is the gold optionality play for 2017 and the new bull market…
“In the context of GoldMining Inc. (TSXV: GOLD & US: GLDLF) and optionality is that Amir is following the game plan established by his predecessors, by the Bob Quartermains and the Ross Beatys, extremely well.
There’s a couple things you have to do. You have to, first of all, have the courage and the commercial sense to buy ounces in the ground very cheaply. The second thing that you have to do is less well-known, but Amir is doing a good job of this, just like his predecessors. You have to articulate your vision and you have to build financial backing. You have to, in effect, establish a financial brand. This is generally a high-net worth retail brand – not an institutional brand. When you do this, you lower your cost of capital, in other words, you raise your share price so that each successive ounce comes to you on an accretive, rather than a dilutive fashion.
Finally, when your brand value is established enough, when you’re selling at enough of a premium to the other 2,000 junior miners around the world, you can actually begin to beneficiate the projects that you’ve acquired – not put them in production, but, in fact, explore.
It is a truism, as I have been taught by Ross Beaty and Bob Quartermain and Robert Friedland and others, that the best place to explore for gold is in a gold mine in the shadow of a headframe. Having accomplished the acquisition of 20 million ounces and being on his way to have accomplished establishing GoldMining Inc. as a brand for optionality, Amir will enjoy the cost of capital advantages that will ultimately enable him to beneficiate the deposits that he acquired at those low prices. That was the secret sauce in the Silver Standard success, that was the secret sauce in the Pan American Silver success, and it was the secret sauce in the Lumina Copper success.”
To learn more about this Rick Rule gold hoarding company, click here.