Rick Rule, President & CEO, Sprott U.S. Holdings
FOCUS: Natural Resource Investments
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MARKET OUTLOOK

I believe that we are in the early stages of a broad-based recovery in extractive markets. The earliest movers should continue to be precious metals, and precious metals equities. The continued strength in gold, in conjunction with U.S. dollar strength, is unusual and encouraging. The pullback in precious metals equities pricing, in the face of bullion strength, offers speculators some attractive valuations.

The junior precious metals equities market has been complicated and distorted by the success of the Market Vectors Junior Gold Miners ETF (GDXJ) and its rebalancing. The GDXJ has become so large, relative to the sector, that it has come to distort the sector, rather than represent it. One consequence of this is that individual speculators buy the GDXJ, or double and even triple long derivative ETF products, rather than individual issues, drying up liquidity in individual “manes” which are not index constituents. The companies included in the index enjoy greatly enhanced index buying, and become relatively more expensive than companies which are not included. Sprott believes that the next two years will offer investors the opportunity to arbitrage these valuation differentials by attempting to discover which non-index companies represent strategic acquisition candidates for companies in the index, and to profit from the natural process where companies with a low-equity cost of capital take over their less fortunate brethren.

Sprott also believes that two decades of underinvestment, and malinvestment, in exploration sets the stage for a new exploration bull market. The shortage of high-quality development inventory is becoming a major industry challenge, and high-quality discoveries are readily marketable, as companies like Reservoir, Mariana and Integra demonstrate. As successful discoveries sell well, speculative attention will focus on higher-quality discoveries and exploration teams, a phenomenon missing from the market in recent years.

TOP INVESTING IDEAS

BONTERRA RESOURCES (BTR.V)

SANDSTORM GOLD (SSL.TO)

ALTERRA POWER CORP. (AXY.TO)
 

 
PAST INVESTING IDEAS: SEPTEMBER 28, 2016

IVANHOE MINES (IVN.TO)
Continuing to hold, and adding on weakness. The class of the junior league, three tier-one projects, two world-class joint venture partners, the world’s top promoter, and a superb team. In any other countries this portfolio would trade at double-digit levels.

• Then: $2.31
• Now: $4.99
• Return: 116.01%
• Total return: 116.01%

ALTIUS MINERALS CORP. (ALS.TO) 
Continuing to hold. Great asset allocators at a heap valuation.

• Then: $10.33
• Now: $11.25
• Return: 8.90%
• Total return: 10.06%

ALTERRA POWER CORP. (AXY.TO)
Adding. Mounting free cash flow, rapidly improving balance sheet.

• Then: $6.59
• Now: $5.83
• Return: -11.53%
• Total return: -10.87%

TOTAL RETURN AVERAGE: 38.40%
 

TWITTER: @RealRickRule
WEBSITE: www.sprottglobal.com