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Rick Rule: Newmont & Barrick – This Merger Has To Happen

Into our third week of Palisade Radio’s relaunch, we’re bringing on none other than Rick Rule, CEO of Sprott US Holdings. Rick Rule is a well known speculator and investor in the natural resource sector, and as he himself puts it, he has dedicated his entire adult life to natural resource investing. We brought Rick on to discuss the current state of the natural resource sector, and how investors can reap extreme gains from it’s cyclical upturn.  Rick discusses the importance of the merger talks between the world’s two largest gold companies and why it must happen!

Last year, when Rick was on our show, he predicted a long bowl shaped bottom in the junior resource sector. To date he has been spot on. Rick believes there is a very small chance that the bottom is not behind us, with his bets placed on the bottom having already been put in.

In this bottoming process, stocks have been moving from weak hands to strong hands, and that this is playing out precisely the way that it should be playing out.

Rick further say’s that the kind of gains that makes an investor 20-40 fold returns, can only occur from speculation. They can only occur from very volatile and very risky sectors, like technology startups and mineral exploration.

Speaking on what kind of steps one must take to reap 20 fold gains from speculating in the junior resource sector… Rick says that to turn $50,000 into $1,000,000 – in speculating, one must be able to take gains off the table at the appropriate moment, and not try to “wait for the last dime”, before cashing in. Rick states that with the bulk of his sales, he’s missed the absolute tops, looking back at the rough decline in the sector, he believe he was right.

Speaking on the merger between Newmont Mining and Barrick Gold, he says that this merger has to happen. The consolidation of general and administrative costs will save shareholders one billion dollars a year. One of the great tragedies is the incredible creep in G&A, and the way to lower this number is through mergers and acquisitions (M&A).

Two of Rick’s favorite commodities right now are water and uranium. Water is a localized market, and it’s important to invest in water in a place where it’s scarce. Also, you have to invest in water where people can pay for it. Southern Australia and the South-West US, being good places for investment. But water rights are hard to find, and even more difficult to buy.

Uranium is a very different situation, there are many vehicles for investment in the sector. Looking forward, Cameco suggests that the industry average cost of production is about $70/lb. Currently, producers sell their uranium for $32/lb. The long term consequence of that is that either the price of uranium go up, or the “lights go out”.

Finally, Rick compares resource bull markets of the past with the anticipated bull market ahead. He mentions the 1993-96 bull market in resources as the most viscous bull market he has seen. Rick suspect that this bull market, when it gets underway, will be very, very generous.

Mr. Rule has dedicated his entire adult life to many aspects of natural resource securities investing. In addition to the knowledge and experience gained in a long, successful and focused career, he has a worldwide network of contacts in the natural resource and finance worlds. As Chairman of Sprott US Holdings, Mr. Rule leads a team of earth science and finance professionals who are experienced with resource investment management. Mr. Rule is a frequent speaker at industry conferences, and is interviewed for numerous radio, television, print and online media outlets concerning natural resource investment and industry topics.