Sunday 9th December 2018

Resource Clips


Some Sprott takeaways

Among them, Rick Rule foresees “the absolute heyday of prospect generators”

by Greg Klein

Miners have suddenly become “lean and mean” but not in a good way, according to Rick Rule. Twenty years of under-investment, an over-correction to a previous binge of M&A “insanity,” have left companies with declining resources. “This can’t continue,” the career contrarian contended. “Every day you mine, you shrink.” But the people who build and run mines prefer to outsource exploration. As a result, he says, “we are coming into the absolute heyday of prospect generators.”

Rick Rule foresees “the absolute heyday of prospect generators”

Rule presented his remarks at the Sprott Natural Resource Symposium, held in Vancouver this year from July 17 to 20 for an audience of gold bugs and resource investors. The two strategies can often be employed by the same individuals, showing a stark contrast between hedging against uncertainty and searching for opportunity. And opportunities are there to be had, Rule maintained. While a number of key commodities have gained in price, equities remain low, creating a more attractive ratio of price to value.

Looking at gold discoveries, Brent Cook sees a decline since 1980, with yearly mine production now about three times the annual ounces found in the ground. The pipeline of up-and-coming copper mines currently has the fewest projects of this century. Zinc discoveries peaked in 2016, then fell steeply. With majors showing heightened interest in explorers, he said, “this is a fantastic time to invest in juniors—but be careful.”

It’s very hard to know where the bottom of the market is until you come out of it.—Sean Roosen

Also emphasizing the declining success rate of exploration, Osisko Gold Royalties CEO Sean Roosen agreed that peak gold has arrived. That’s manifested not only in the relative lack of discoveries but the shortened average mine life of current operations. As for the state of equities, “it’s very hard to know where the bottom of the market is until you come out of it.”

Both sides of the gold bug/resource investor dichotomy found support in a slogan displayed by Byron King: “If you can’t save the world, go find some gold.” And from his perspective saving the world, the Western parts anyway, seems beyond hope. An editor with Agora Financial and Jim Rickards’ Gold Speculator, he focused largely on the U.S., which he said faces domestic conditions and foreign rivalry that put all aspects of American power at risk. The country barely resembles its post-WWII self when “we had the money, we had the gold and we had the friggin’ bomb.”

The U.S. and its allies have since squandered their prominence in banking, currencies, capital markets, manufacturing, technology, military prowess and space travel.

We have lost academia to a different form of thought.—Byron King

Where the West outperforms others, maybe, is in the flakiness of its institutions. Canadian and American universities lead the way: “We have lost academia to a different form of thought.”

In a momentous development that policymakers deny, he said, Russia has surpassed the U.S. in the aerospace and high-tech weapons industries. “Incredibly stupid people in Washington D.C.” believe against all evidence “that we can win a war with Russia.”

Mercifully, that kind of war might not happen. But another kind would show no mercy. Relaying Rickards’ ideas, King said real wars have become too expensive and dangerous to fight. So major powers instead sabotage their enemies’ currencies. As China and Russia continue to accumulate gold, the two could team up to defeat the West.

References to stupidity in high office recurred during the conference. Rule reminded the audience of Justin Trudeau’s statement that “the budget will balance itself” and Barack Obama’s notion that U.S. debt doesn’t matter because Americans owe the money to themselves.

Trey Reik of Sprott USA pegged that country’s federal debt at $20 trillion and U.S. total debt at $68 trillion. The country needs another $2.8 trillion in debt just to service the current amount, he added. With such unsustainable levels, he sees a tsunami of defaults coming.

One of the reasons I own gold is the future is much too interesting to be predictable.—James Grant

When the consequences of debt and the state of the economy become known, a gold bull market will return, argued James Grant. The editor of Grant’s Interest Rate Observer and Ron Paul’s choice to chair the Fed called interest rates “the most important aspect of capitalism…. Try to imagine a world without them. We do live in this world.” Today’s negative sovereign debt yields are unprecedented in history, he stated.

In a twist on the Chinese curse “may you live in interesting times,” Grant said: “One of the reasons I own gold is the future is much too interesting to be predictable.”

Throughout the conference speakers agreed, disagreed and overlapped in their perspectives. But no doubt everyone concurred with an insight elegantly expressed by Eric Fry of the Oxford Club: “It’s better to have more money than less money.”

The Sprott Natural Resource Symposium returns to Vancouver in July 2019.


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