Rick Rule: Oil/Gas Move is Inevitable, but Copper is Next Bull Market

Parabolic stock charts (called hockey stick charts in Canada) have back sides that are just as steep as the front sides, and the descent is less fun than the ascent, so Rule did not care where the reversal would occur.

“I've seen in my life a lot of parabolic stock charts. Canadians call them hockey stick charts. The back side of a hockey stick is just as steep as the front side, and it's a lot less fun. I didn't know where that stick would end and I didn't care.”

Oil and gas represent a bull market 2-2.5 years out, making it a 'certain event' that Rule is willing to accept time risk for, rather than imminent (near-term) opportunity.

“I think oil and gas is two years out, two and a half years out. It's just such a certain event that I'm willing to take the time risk. You may recall in earlier interviews I talked about the difference between inevitable something that had to happen and imminent which means it has to happen soon. I don't know the time side. I just know it has to happen.”

Rule's original price target for silver was 50, but he was wrong and it went to 75; when the reasons to own a position go away, the position must go away regardless of potential further upside.

“My price target was 50. I was wrong. It went to 75. Uh, and when that happened, the reasons that I own the position went away. In my life, when the reasons to own a position goes away, the position goes away.”

Silver thesis remains valid at $100 but has less value than at $20 because much of the required price move has already occurred; therefore, the speculative case for silver stocks is now superior to physical silver.

“The thesis is valid today, but the thesis doesn't have as much value at $100 silver as it did at 20 because some of the price move that had to happen happened.”

Rule procrastinated on selling his silver because he was busy with opening a bank, and by the time he acted the price had risen further; but he does not fear missing out and the timing delay did not bother him.

“I was too lazy to do it at 50. I was doing other things. I mean, to be honest with you, uh, I procrastinated and it wasn't because I thought I would go higher. I actually procrastinated. We're in the process, as you know, of opening a bank. Uh, and that has kept me very, very, very busy.”

Technology has allowed the private economy to generate significantly more GDP growth with less capital expenditure than Rule expected 10 years ago, preventing government spending from completely crowding out private investment.

“I think that people like me underestimate the impact of technology on the economy and the ability through techn technology to generate more GDP growth with less capital expenditure. I would have expected 10 years ago that the level of government expenditure in Canada in the United States that we would have seen would have done a more thorough job of driving private capital out of the market. But one consequence of technology is that the private side of our economy, not the government side, the private side of our economy has been able as a consequence of technology to do a lot more with less.”

Rule is surprised a recession hasn't occurred yet and attributes this to 40 years of benign economic climate conditioning people to be confident, with their actions determined by recent positive experience rather than future risks.

“I'm surprised we haven't seen it so far and I think I understand what's happening. I think uh I think that we've been through 40 years of very benign economic climate and I think that people are preconditioned yeah to be confident. People's actions in the future are often determined by their experience in the immediate past and most people's experience in the last 40 years been pretty good.”

A supply shortfall in copper is 'absolutely inevitable'; the copper industry must spend $250 billion in the next 10 years just to maintain current production, but current production is already in deficit and demand grows ~2% compounded.

“And make no mistake, a supply shortfall absolutely inevitable in copper. Uh Uh I was in London at mining week and uh I heard a really interesting paper I think it was by Wood McKenzie where they pulled the biggest copper mining companies in the world and they said that the copper industry needs to spend $250 billion in the next 10 years to maintain current production. current production's in deficit. The problem is that demand is growing at almost 2% compounded. So, we're going to spend $250 billion dollars, 150 of which we don't have, to maintain production uh at a level that isn't quite sufficient to meet current demand while demand increases.”

Rick Rule bought silver in the $20 range because it was deeply out of favor and hated, and bought it in anticipation that when the hate subsided the price would rise.

“I bought it because silver was deeply out of favor. It was hated. I remember actually having conversations with you about the fact that the hate that silver enjoyed guaranteed it was going to go up.”

Rule avoids fear of missing out (FOMO) because he has made sufficient wealth in his life and maintains discipline to exit winning positions even when others are buying, which has been key to his success as a speculator.

“I don't have any fear of missing out. I've I've made plenty in my life. Uh and one of the reasons why I've kept it through good markets and bad is the discipline that allowed me to sell that silver even when other people were buying.”

Uranium juniors claiming 'great leverage to uranium because we don't have a contract signed' are actually revealing a vice, not a virtue: lacking a contract means they cannot finance because bankers have no certainty of repayment.

“It's important to ask them. A lot of them are going to say, 'We have great leverage to uranium because we don't have a contract signed.' What that means is they can't finance. If you don't have a contract signed and the banker doesn't know that he or she's going to get paid back, they won't lend the money. So, what they're holding out to you to be a virtue is in fact a vice. It's important that you know that.”

Rule's strategy when younger was to buy smaller companies with substantial valuation disparities relative to majors, but current market has less obvious disparities, so he now builds a more beta-centric portfolio focused on large companies like Exxon.

“I made my uh reputation and my living earlier when I was younger buying smaller companies that sold at substantial valuation disparities, pricetoval deltas to the majors. What's happened in this market is that the valuation disparities are much less obvious which is to say the big companies have better pricetovalue relationships at least ranked qualitatively than the small ones. So rather than a portfolio that I would have assembled when say I was your age uh the portfolio that I've assembled in the oil stocks now is a very betacentric portfolio. It's the exxons of the world you know.”

Of ~120 uranium juniors worldwide, only 6-7 have enough uranium to bother with, requiring very careful selection; many juniors have insufficient uranium resources despite marketing claims.

“There's no other mineral resource commodity in the world where a junior can lock in price and terms for the commodity over 10 years. And that means that they can get bank financing which they couldn't have gotten five years ago. The difficulty with that thesis is that of out of 120 uranium juniors worldwide, there's probably only six or seven that have enough uranium to bother with. So you have to be very careful about the rapper that you express your preference for the juniors in you.”

Rule allocated about 25% of silver proceeds to physical gold as his savings vehicle, distinct from speculation, even though gold was a better speculation at $2,000 than at $4,500.

“That's how I save. I maintain liquidity in US currency and I save in gold. Was gold a better speculation at 2,000 than at 4500? Absolutely. But that's how I save.”

More marginal silver producers have outperformed higher-quality ones in the recent rally because less-efficient companies with low margins and high costs generate higher margin expansion when prices rise.

“What's happened interestingly is that uh the silver stocks that have performed have been the more marginal ones. Now there's some rationale for that. If the silver price increases, ironically, the less efficient companies generate higher margin growth because they had low margins, high cost to begin with.”

When evaluating uranium juniors, investors should not focus presentations that dwell on uranium market fundamentals as a red flag; instead, ask the junior about production cost profile and return on capital employed relative to peers.

“If you come into a junior and they spend their whole presentation talking to you about the uranium market, time to leave. You need to ask them where they sit uh in the production cost, you know, profile. Are they in the best cile worldwide? Where they sit in return on capital employed? In other words, are they going to get built against their competitors?”

Even if the Wood McKenzie copper capex analysis is wrong 'by a fair bit,' the outlook for copper remains positive because the fundamental math—capex needs exceeding available capital with growing demand—has sufficient margin of safety.

“They could be wrong by a fair bit and still have a positive outlook.”

Rule sees two bear cases for oil: (1) peace in Iran, Russia-Ukraine, and Venezuela, which would take 5-6 years for those nations to restore oil production and exports; (2) a synchronized global recession or depression that crashes demand despite structural supply deficit.

“No, there's there's two bare cases. One I hope occurs actually, which is to say peace. Uh, I would love to see Iranian society resolve their internal conflict without too many people dying. I'd love to see that. Uh, it would take Iran five or six years to reinvest enough sustaining capital to restore their oil business. I would live to see peace break out between Russia and the Ukraine which would after five or six years allow for the resumption of large quantity oil exports from Russia.”