I was extremely lucky to interview Rick Rule while he was in London this week. We talked about the recent move in the Uranium juniors, what to do when a trade goes against you, and the fourfold gain that Goviex Uranium has currently experienced. Enjoy!
Welcome back to The Next Bull Market Move Rick Rule. How are you today Rick?
Fine, how are you?
I’m very good. We’re in London here today, and last time we were in London in December we were talking about the uranium market and the spot price was about $18 per pound. Today it’s a lot higher and this is February so only a couple months later. Is this the beginning of what a uranium bull market looks like to you, in your experience?
I guess you have to differentiate between talking about a bull market and the metal itself in uranium or in uranium stocks. You’ll recall that at the time of our last interview, $18 a pound was absolutely a capitulation low. We talked about that in the discussion that you see irrational sell-offs from time to time.
It would appear that that capitulation low was a consequence of some Japanese inventories coming in the market and the brokers being afraid that more would follow. They didn’t, and the yellow cake is cleaned up from $18 a pound to $26 a pound. If you talk about the impact of those pricing on the producers, what we went to was from suicidal to merely catastrophic.
At $26 a pound, the industry doesn’t make any money at all. In fact, it loses maybe $7 less than it lost at $18 a pound. You’ll recall again our discussion that the international energy agency suggests that the incentive price for uranium, including cost of capital industry wide is about $60 US. So $26 a pound is still a catastrophic price.
Despite that, the junior uranium equities have basically doubled. I suspect that the reason for that is, and you’ll see this in the early stages of a bull market, we’ve exhausted the sellers. When you see a bear market give way to bull market, what’s happened is you’ve exhausted the marginal buyer.
The incredible up move that we’ve seen in the uranium equities, I think is a function of the fact that we have exhausted the sellers. It’s a fact of one more thing, that if my memory serves me well, we also discussed in our last interview together, which was that the memory of the last uranium bull market is still fresh enough in speculators’ minds, and it was dramatic enough, 20 to 1 returns, 30 to 1 returns, that speculators are terrified now that they see the stocks go up to miss this next bull market.
For Rick Rule, it is harder to buy at the bottom of a market cycle or is it harder to sell near the top of a market cycle?
Harder to sell up near the top, absolutely. I have trained myself, and besides which I’m pathologically cheap on the buy side, this last bull market cycle was my fourth, and I recall vividly and with disgust at myself in 2010, not seeing very much in the market to buy, which is a classic sell signal, but did I sell?
Well yes a little, but nowhere near enough. Why, one asks oneself, and I asked one of my mentors, Ned Goodman about this very question. He said, “Why? Because if you’re hard working, you have the hubris that comes from hard work. Seeing your competitors work less hard and knowing that you can out-compete them because you work harder. You believe that the management teams that you invest in are better than the market’s management teams, which is true. You believe that you invest in better projects, which is true. You believe that you pay better attention to balance sheets and debts, true, and when the market goes over the edge, none of it matters, in fact.” I suspect that the hubris of hard work will, if I’m as active at the end of the bull market that I think we’re into, as I am now, but I’ll make the mistake a fifth time.
The market is always correct.
Is the market correct? The market goes to extremes. Usually bull markets overstay their rational welcome by two years, as do bear markets.
That’s where the opportunity lies.
Yes, that’s right.
Within the psychology of investing, when you put on a trade and it goes against you and the pain that you feel for that, that’s something a lot of investors can’t deal with. How do you deal with it, and does the pain get any easier with more experience?
Pain absolutely gets easier with more experience. I was just in Cape Town in Johannesburg headed on to Congo speaking to investors really the whole time, and one of the things I noted in my discussions was that, this may not be a correct note, but I don’t think that I have enjoyed a tenfold gain on any stock at any time in my career without in some period of time during which I held the stock, the stock declining 50%.
That is, every 10-bagger that I’ve ever enjoyed, I’ve experienced a 50% decline on the way to a 10-bagger. My most dramatic experience, I think you and I visited about before, which is Paladin, where I bought at 10 cents. It fell all the way to a penny, that’s a 90% decline, before going in four and a half short years to $10.
What’s important for investors and speculators, who experience rapid advances or rapid declines in the shares they own, is to use that as impetus to reexamine your premise. Was your premise correct? What’s the delta, what’s the discrepancy between the price of the company and the value that you perceive in the company?
A 50% increase can be as important in terms of your hold discussion as an 50% decrease is. It’s just a much less painful discussion to have with yourself.
Who does Rick Rule listen to? Your contemporaries are people like Ross Beaty and Lukas Lundin, who do you respect or whose opinions do you listen to?
The answer to that question broadly is yes. I listen to everyone. When I’m talking I’m marketing, but you don’t learn anything talking. I do a lot of listening. I was just on a trip to Congo with Robert Friedland and Robert Friedland is very worth listening to, but so were other people. Robert has a Congolese engineer working for him who built Kibali, one of the biggest gold mines in the world in the Eastern Congo and will build Kamoa and Kakula for Robert. If you want to know about Congo, which of course I do because I have millions of dollars invested there, it’s good to talk to Congolese who have experience in the Congo specifically related to what I’m interested in which is to say mining.
I also engage in broad electronic dialogue, emails with a variety of people in various circumstances, of various ages and various expertise, yourself included, on a global basis. I’ve reached the stage in my career where people feel I have something to say, but as a consequence, I feel no shame in asking them questions when I have them.
It’s only the middle of February so far this year. Has anything surprised you?
Certainly the ferocity of the move in the uranium juniors. It’s been a pleasant surprise. I must say it’s been, it speaks to the new term futility in planning. I had anticipated that the uranium stocks would be absolutely comatose this year as a consequence of the pricing of the metal and that I would be able to do extremely advantageous private placements in mid-summer. That’s certainly blown up. I’m not trying to say that the uranium stocks weren’t ultra-cheap, it’s just that I had been lulled by a market into a false sense of security with regards to my ability to acquire them yet more cheaply. If you look at some of the recent financing’s, Goviex is cheap relative to the capital already spent.
There’s probably $250 million spent on those projects and spent by smart people. The Lukas Lundin’s and the Robert Friedland’s of the world. I think the market cap when we financed it was about $15 million. The price is up fourfold. The price is up fourfold in 30 days. Now, does that have something to do with uranium? Yes. Does it have something to do with the extraordinary range of properties that GoviEx has? Of course. Does it have to do with the providence of Robert Friedland and Lukas Lundin? Yes, yes, yes, and yes, but the truth is a dramatic up move to be sure anyway.
What is the definition of success to you?
I think it’s individual. I enjoy material success, although I really don’t like spending money. I like having the money as opposed to spending the money. Certainly competing against my peers and out-competing against my peers … although it’s no fun to only win. You have to lose occasionally so that the victory becomes more sweet.
I think living a life that you’re proud of, and being involved doing something of interest defines a winner, but I would suspect that a winner is really he or she who gets what they want, provided of course, that they’ve taken the time to be reflective to know what is in fact that they want. By those measures, I’ve been quite successful. It took me a long time to be more reflective than competitive and I think that helps with regards to achieving one’s own success.
Finally, how can readers reach out to you and Sprott and your team?
Our website’s probably the best place to start www.sprottglobal.com. That’s a resource investors in particular will enjoy. There’s about 200 hours of in-structural material, for people who want to be in touch with us on an ongoing basis, should go to http://www.sprottglobal.com/contact-us/ If you go there you can subscribe to our blog, Sprott’s Thoughts. Currently it’s a periodical, we say laughingly, which means we publish it periodically. However, a team has been assembled to begin to publish it first weekly and then three times a week. In that you will get connections to various recordings and YouTube videos that we’ve done and you’ll get the most up-to-date information from people within and without Sprott that we think are important to our various constituencies.
Thank you very much once again Rick Rule.
Always a pleasure, thank you.
As Rick mentioned, if you would to gain more information on what him and his team do, go to www.sprottglobal.com
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