Sprott’s Rule: The Bear in Mining Stocks

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FCU.V 11.4.2013

Sprott USA Chairman Rick Rule, the Carlsbad, California based natural resource financier with nearly four decades of experience, joined us for a conversation earlier today on the current mining bear market, which is approaching its third anniversary. As expected, Mr. Rule was upbeat, and sounds to be making the most of the opportunities being presented to him.

“Junior capital markets may be closed but Sprott is not. We are aggressively trying to allocate capital in this market.”

Mr. Rule’s only complaint is that issuers (read: small, pre-revenue, hope and dream mining companies) still think they are entitled to financing terms of the 2003-2010 bull market. Mr. Rule said that during that period, half of Canadian listed junior mining companies were spending more than 50% of their capital on general and administrative expenses.

“The exploration industry was stupidly overcapitalized from 2003-2010. Every truly great party causes a truly monumental hangover. We’re in that phase now.”

Mr. Rule is not at all depressed about the current mining bear market, however. He thinks that the top 10-15% of junior companies have already bottomed, and notes that discoveries, such as RMC, FCU or AOI, are continuing to reward investors with five and ten-baggers.

Rule predicted it will take another 18-24 months for resource equities to fully rebound. The largest mining companies are already starting to show compelling valuations, Rule says, which will ultimately attract global capital flows.

We were able to ask Mr. Rule about a few stocks that he’s mentioned in the past, includingFission Uranium, which he feels is being held back by a weak uranium spot price. “Unless I’m wrong and the exploration becomes less predictable, I’ll own the name until it has a different symbol.”

FCU.V 11.4.2013

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