Rule on mining: Political risk better than technical risk when choosing producers
Rick Rule, founder and CEO of Rule Investment Media, recently told Palisades Gold Radio that the current trend of mergers and acquisitions in gold mining has been a much-needed breath of fresh air for the industry.
"I think M&A is good for the market," he said. "It adds hope and liquidity in a sector that most recently has had none."
About a year ago, Newmont announced a $16.8 billion acquisition of mining giant Newcrest. Since then, several smaller companies have been purchased as gold prices continue to make new all-time highs.
Last month, B2Gold CEO Clive Johnson told Kitco News that he expects to see a marked increase in mergers and acquisitions as the price continues to move upward.
"(Investors) want fewer mining companies. They want better-run ones. We've seen some of that, but at the end of the day, what gold price do you use if you're looking at M&A today? And it's going to be competitive," Johnson said.
Political risk vs. technical risk
Rule acknowledged investor concerns around political risk when choosing mining stocks, especially those in underdeveloped countries such as Congo and Sudan. He also said that political risk has rarely hurt him during his time investing in the market.
"The highest return for me was in Congo. The third highest, I think, was south Sudan," Rule said. "The truth is, I have done very well taking political risk in return for owning truly spectacular deposits at huge discounts to what other people who perceived political risks different than I took."
Rule said many of the areas not believed to be politically risky, such as Canada, have often hurt him the most.
"Alberta is ideally regarded as a riskless jurisdiction," he said. "In Alberta, natural gas prices doubled after they doubled the provincial royalty. That's de-facto partial nationalization."
Rule said he believes that Western investors often consider overseas mining operations to be riskier due to the disparity in appearance, race or creed.
"People that look like you and I believe that money stolen from us by white people in English according to the rule of law is less gone than if it's taken by means we understand less and by people who have different complexions than we do. But the truth is — the arithmetic is the same."
