“The Most Dangerous Constituency… Is the One Closest to You”: Part 3 With Rick Rule

By Eric Fry

Market Trends

Today I’m sharing the final part of my recent conversation with Rick Rule, president and CEO of Sprott U.S. Holdings.

In case you missed the first and second part of our conversation over the past couple of weekends, we’ve covered a lot of ground so far…

We’ve talked about the market sell-off in February, gold, crypto, gold and crypto together, even the electric metals that we write about here at Energy & Resources Digest so frequently…

And that’s just a partial list.

One of my favorite points that Rick made was that the way you should respond to market volatility depends on your personality type as an investor. (More on that here, if you’re interested.)

But today, we pivot to one of the aspects of commodities investing you already know I find most interesting: the macro picture.

Enjoy the final part of our conversation, and make sure you don’t miss the important note at the end of the article.

Eric Fry: Usually we talk about sectors, stocks and so on. We don’t talk as much about domiciles.

Now that’s back in the news with this proposed new mining regulation in the Democratic Republic of the Congo. And we’ve had problems the last two years with reneged contracts in Mongolia and Indonesia…

Is this a trend? Is this something that resource investors need to be truly concerned about?

Do you think investors need to really focus on just Canadian and Australian opportunities? Or could they still dip their toes in the water in a place like Congo?

Rick Rule: I think, unfortunately, that political risk is endemic to extractive industries.

The greatest actual political risk that I have ever encountered occurred where I live, in the People’s Republic… of California.

We have an odd belief – people like you and me, Eric – that political risk is ugliest in places that we understand less well. The truth is that the most dangerous political constituency is the one that you live in because it’s the closest to you.

I know from 40 years of experience that according to the rule of law, money that is stolen from me by Caucasian people is just as gone as it is when it happens in places I know less well.


I’m not excusing things that happen in the Congo. I’m merely suggesting that while we need to be concerned about the Congo, we also need to be concerned about Russia, we need to be concerned about South Africa, we need to be concerned about every jurisdiction that we exist in.

Eric: Right, so to your point – the Congo’s retroactive revision is proposed. It’s in-your-face change. It’s not exactly a theft, but it’s a retroactive rewriting of the existing law. And some stocks have sold off as a result. Stocks like Ivanhoe Mines (OTC: IVPAF).

Do you think this is a buying opportunity for speculators in a stock like Ivanhoe? Or do you think it’s too risky?

Rick: I think that really depends on the speculator. I own Ivanhoe because Ivanhoe has three of the greatest mineral deposits in the world in it. Truly spectacular deposits. They are in countries that are broadly perceived and accurately perceived as being politically risky – South Africa and Congo. If you’re a speculator who is willing to risk the loss of 50% of your capital in hopes of a tenfold gain, if you can afford both psychologically and financially the risk associated with that, Ivanhoe is a wonderful speculative opportunity.

If you are not one of those people, however, you should sit it out.

Further, probably if what you want to do with your speculation as an example is play the broader theme of copper and electrification, you are probably better off buying shares of something like BHP Billiton (NYSE: BHP) or Rio Tinto (NYSE: RIO), companies with very large production of copper from multiple jurisdictions that are in place to benefit now.

You give up the upside. You give up some of the downsides. So it really depends on the way you play the game.

I have enjoyed for many years taking outsized risks with a portion of my portfolio – particularly taking outsized risks with a portion of my portfolio where circumstances have caused panic in the market and unduly depressed share prices.

Now, Congo didn’t suddenly become riskier 10 days ago. The risks became more manifest. The risks that I see in the Congo go back really to my being in Lubumbashi 15 months ago and seeing very active patrols of Congolese troops. Young men in olive green uniforms in Toyota Hilux trucks with .50-caliber machine guns.

My experience in African countries is when they’re paying the troops, they’re paying them because they think they might have to use them.

So the political risk that bothers me in Congo is that the open warfare that you see in Kasai might spread to Katanga, which would make a revision of the fiscal rules look like a piece of cake.

Eric: [Laughs] Got it. All right. Final question: Any other favorite speculations at the moment?

Rick: From a timing point of view, I guess we covered the precious metals. I like the commodities that are deeply, deeply, deeply out of favor. Your aforementioned agricultural commodities would qualify. The price of soft commodities has fallen sharply.

So I like the agricultural mineral space – the potash and the phosphate space. But this play would be suitable only for investors who have a two- or three-year time frame and are willing to take the risk of seeing the market decline further before it recovers.

So again, it really depends on the nature of the speculator and the investor more than it depends on the market for the commodity.

Also, I like the uranium space for people who are willing to endure scorn from their fellow citizens.

Eric: Do you have a couple of names for us in either agriculture or uranium?

Rick: In the uranium space, I guess if you are willing to play the game in the longer term, you would want to look at Cameco (NYSE: CCJ), the biggest and the best. Although Cameco’s balance sheet is a bit challenged. The stock could go lower before it goes higher.

In the agricultural minerals sector, I think that speculators would want to look at the newly formed Nutrien Ltd. (NYSE: NTR), which is the company that has emerged from the merger of Potash Corp. and Agrium. These two companies have formed the best global agricultural minerals company that exists.

Eric: OK, fantastic. Thank you very much, Rick.

Rick: Pleasure, thank you.

If these past three Saturdays have taught you anything, it’s probably that there are few people in the world more informed about the global resources market than Rick Rule.


I hope you’ve enjoyed hearing what he has to say over the past three weekends…

Good investing,