Rick Rule, founder and CEO, Sprott U.S. Holdings 
Focus: Natural resource investments

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MARKET OUTLOOK:

Capital is returning to all sectors of the extractive space, as measured by strong relative commodity price performance, a plethora of “bought deal” equity financings on the TSX and the TSX Venture, and increased institutional financings as evidenced by Sprott Inc’s recent US$500-million Institutional Lending Fund financing. Some market participants will always find a way to be disappointed, comparing the pace in early 2017 with the incredible upswing experienced in 2016, but we at Sprott see this market as very healthy.

The newfound capital will hopefully be invested by newly prudent management teams. We believe the misinvestment and malinvestment that marked the epic bull market of the last decade (and resulted in many CEO’s being thanked and replaced) won’t be forgotten by investors and managers. We also believe that for the next two years increasing industry cash flows and newly contributed equity will be intelligently deployed. The expectations in these regards are so low, it would be hard not to exceed them, and we think we’ll be subject to many pleasant surprises.

We see the U.S. dollar continuing strong, irrespective of global antipathy with regards to Donald Trump. While we don’t see overwhelming strength in the U.S. economy, we see strength relative to other currency blocks, particularly Europe. Our European clients confirm that they believe the U.S. will outperform this year relative to the euro zone. Although periods of dollar strength have traditionally coincided with periods of weakness in precious metals and extractive commodities pricing, we believe this year may prove to be an exception similar to 1975 and 2001.

The current junior market space is if anything, a bit too jubilant for our liking. The incredible strength in junior uranium stocks in the absence of any strength in the uranium market is an example. We see the weakness exhibited in the week ending on Feb. 27 as being a healthy thing, a cyclical decline in an overbought bull market. We think that after a much needed correction the rally, at least for the better names, has an awful lot of room to run.

Investors must remember that resource markets are very cyclical and volatile. Bear markets are the authors of bull markets and vice versa. The bear market that we just endured took the TSX Venture Exchange’s resource index down by 90 per cent. With last year’s 100-per-cent recovery, it’s now down a mere 80 per cent. Investors need to remember that these markets are volatile as well as cyclical, as last week’s market action shows. We believe that the next several years will be very generous to investors who both do the work involved in fundamental stock picking, and managing their emotions through market volatility.

TOP INVESTING IDEAS:

NEVSUN RESOURCES (NSU.TO)

ALTIUS MINERALS (ALS.TO)

B2GOLD (BTO.TO)

PAST INVESTING IDEAS: MARCH 7, 2016:

EXCHANGE-TRADED PRECIOUS METAL PROXIES* (PHLX GOLD/SILVER SECTOR) (XAU.O)

Certificated precious metals — proxies for the bullion

• Then: $68.94  
• Now: $85.03
• Return: +23.33%        

DOMINION DIAMOND (DDC.TO)

• Then: $16.46
• Now: $11.19
• Return: -32.02%
• TR: -29.19%

RESERVOIR MINERALS (RMC.V)

***This company was taken over by Nevsun Resources on June 24 2016 – this is taken into account***

• Then: $5.25
• Now: $9.23
• Return: +75.81%

Total Return Average: +22.37%

WEBSITE: sprottglobal.com