Market Call: Rick Rule's market outlook on natural resource stocks

Key Concepts

• Venezuela Oil Market: Potential impact of US involvement on global oil dynamics, particularly competition with Canadian crude.
• ExxonMobil (XOM): Bullish outlook based on capital deployment and overall oil/gas market strength.
• Mega Uranium (MGA): Attractive junior uranium stock with a diversified portfolio and potential for value realization.
• Spartan Delta (SDE): High-risk, high-reward junior oil and gas company with leverage potential.
• Azon Mining (AZO): Political risks in Burkina Faso hindering investment despite promising gold production.
• Soul Gold: Potential acquisition target with a large copper-gold deposit in Ecuador, backed by Chinese investment.
• Agnico Eagle (AEM): Top-tier gold mining company with consistent production growth and strong capital allocation.
• Denison Mines (DML): Innovative in-situ recovery technology for uranium, but with unproven efficacy and associated risks.
• Elemental Royalty (ELE): Lower-risk way to participate in exploration with a diversified portfolio of royalties.
• Ivanhoe Mines (IVN): High-potential copper producer with significant political and operational risks.
• B2 Gold (BTO): Successfully navigated challenges in Mali and Canada, poised for growth with a strong team.
• Amerigo Resources (ARG): Copper producer with access to large tailings resources, high margins, and a generous dividend.
• SLB N.V. (SLB): Leading oilfield services company positioned to benefit from industry underinvestment and potential opportunities in Venezuela.

Market Call Summary – Rick Rule Interview (February 29, 2024)

This summary details the insights shared by Rick Rule on BNN Bloomberg’s Market Call, focusing on natural resource stocks and global market dynamics.

1. Venezuela & Global Oil Markets

Rule discussed the US involvement in Venezuela, cautioning against premature declarations of “regime change.” While the US has removed Maduro and his wife, the existing power structure remains largely intact. He emphasized that full US control is still a process in its early stages. However, if the US were to gain control, it could significantly alter the global oil market, impacting Canada, particularly its heavy sour crude oil from the Athabasca Oil Sands, which competes directly with Venezuelan and Mexican crudes. He also highlighted substantial conventional oil and gas potential in the Marqibo Basin, which could open opportunities for North American companies but also challenge existing producers. He noted that between 6-8 million Venezuelans have fled the country in the last 20 years, potentially diminishing internal support for change.

2. Individual Stock Analysis – Oil & Gas

• ExxonMobil (XOM): Rule is consistently bullish on ExxonMobil, citing its superior capital deployment within the global large-cap oil and gas sector. He would invest at current levels (around $179).
• Spartan Delta (SDE): Acknowledged as a higher-risk junior oil and gas play, offering potential leverage for patient investors. He doesn’t currently own it but admires the company.
• Ivanhoe Mines (IVN): Rule is a long-term shareholder, attracted by the company’s potential but acknowledging political and operational risks in the Democratic Republic of Congo and South Africa. He believes the company is well-positioned to benefit from global copper demand.
• Amerigo Resources (ARG): Highlighted as a strong copper play with access to large tailings resources, high margins, and a substantial dividend yield. He believes the stock has further upside potential.
• SLB N.V. (SLB): Rule is bullish on SLB, citing the industry’s underinvestment in sustaining capital and the potential for increased demand for oilfield services, particularly if opportunities arise in Venezuela.

3. Individual Stock Analysis – Precious Metals & Uranium

• Mega Uranium (MGA): Rule remains a shareholder, believing it’s an attractive junior uranium stock with a diversified portfolio. He describes it as a holding company where owning Mega effectively grants access to the underlying physical assets at a discount. The portfolio includes assets in Canada, Australia, Argentina, Bolivia, and Colombia.
• Denison Mines (DML): Rule expressed skepticism regarding Denison’s in-situ recovery technology at the Wheeler River project, noting it’s unproven at scale and carries risks of groundwater contamination. He acknowledges the potential if successful but remains hesitant due to the lack of precedent.
• Agnico Eagle (AEM): Considered the “finest operating gold mining company in the world,” Rule is a long-term shareholder and believes the company’s production growth is secure. He would invest at current levels.
• Orla Mining (ORM): Rule has reduced his position in Orla, recouping his initial investment and paying capital gains taxes, but remains positive on the company’s prospects.
• Newfound Gold (NFG): Rule is increasingly interested in Newfound Gold, citing recent progress and a declining share price. He acknowledges the political risks but believes the potential rewards justify consideration.
• B2 Gold (BTO): Rule is bullish on B2 Gold, praising their successful navigation of challenges in Mali and Canada, and anticipating growth from their Canadian operations.

4. Investment Strategies & Risk Assessment

• Royalty Companies: Rule favors royalty companies like Elemental Royalty (ELE) as a lower-risk way to participate in exploration. He is a founding shareholder of companies that merged to form Elemental.
• Political Risk: Rule consistently emphasized the importance of assessing political risk, particularly in countries like Venezuela, Burkina Faso, and the Democratic Republic of Congo. He noted that political instability can significantly impact mining operations and investment returns.
• Dividend Yield: He highlighted the importance of dividend yield, particularly in uncertain markets, using Amerigo Resources as an example.
• Long-Term Investing: Rule advocates for a long-term investment horizon, emphasizing patience and the ability to weather market volatility.
• SPROTT Inc.: Rule is the largest shareholder of SPROTT Inc. and believes it will be taken over by a larger financial services firm. He recommends owning SPROTT Inc. instead of its ETFs to avoid management fees and receive dividends.

5. Notable Quotes

• “If the United States were to get control of the reins of power in Venezuela, that could begin to change the dynamic of the world oil market.”
• “I’m bullish about the oil and gas business over the next five years generally, and Exxon is the best deployer of capital among the global large caps.”
• “If you don't have positions in physical gold and gold stocks, I think the writing is absolutely on the wall, and I would average into these things for portfolio protection.”
• “I think the sum of the parts [of Mega Uranium] is worth more than the price of the whole.”
• “I don't own it [Denison Mines], because I don't understand it.” (referring to the in-situ recovery technology)
• “I like to I like Schumberger before the Venezuelan adventure, because I think that oil and gas is deeply out of favour.”

6. Conclusion

Rick Rule presented a cautiously optimistic outlook on the natural resource sector, emphasizing the importance of careful stock selection, risk assessment, and a long-term investment horizon. He highlighted specific companies with strong potential, while also acknowledging the inherent risks associated with political instability and technological uncertainty. His recommendations focused on companies with strong management teams, solid fundamentals, and the potential for significant upside. He consistently stressed the importance of understanding the underlying dynamics of the global commodity markets and the geopolitical factors that can influence investment returns.