Rick Rule, who is President and CEO at Sprott US Holdings
Inc., is one of my favorite people to interview, as his wit and intellect are
only exceeded by his experience and knowledge of natural resource investment
strategies. Rick is a highly experienced investor and speculator, focusing on
public and private issuers in natural resource industries. He has personally
structured, led and participated in hundreds of privately placed debt and
equity issuances for resource companies operating globally, and domiciled in
Australia, Canada, Chile, Great Britain, New Zealand, Sweden, Switzerland and
the United States. Rick has over thirty years of experience in metals, mining
and the natural resource sector in general, and is a presenter at hundreds of
resource and investment conferences.
Today we are examining the services that Rick has put
together to help the resource investor. Also, he has offered to give Metals
News Readers the unique opportunity to have their portfolio ranked by Rick
himself. These services offer significant benefits for US gold investors. Receiving
insight from Rick on your natural resource portfolio is invaluable for the
natural resource investor.
Allen Alper
Jr.: This is Al Alper Jr.
with Metals News. I'm here interviewing Rick Rule. And Rick, what I'd like to
ask you today is a little bit about your products and why they're so valuable
to the US market?
Rick Rule:
Well I think that
Sprott is unique in that it is an investment manager that focuses just on
natural resources. We don't offer products, if you will, for the investors
entire wallet. We stick to natural resources. We are a useful investment
sponsor because unlike most brokers, we use our own money. We show clients
opportunities in which Sprott Inc. and its partners are also co-investing. And
it's important to note that we manage money and offer investment services from,
in terms of spectrum, middle class retail investors all the way through to the
largest institutional investors in the world.
We're
extremely well capitalized, with well over 300 million dollars in current
assets on the balance sheet and no debt. Given our predilection for gold
investments, it's important that people know that we eat our own cooking. We
run a very solvent shop in a very insolvent world. And we can help people,
really across their portfolio. We run low cost equity ETFs. We run customized,
managed accounts.
We're
involved in natural resource lending business, and those opportunities are
available to high-net-worth, and ultra-high-net-worth individuals. And we also
offer New York Stock Exchange listed physical commodity trusts: The Sprott
Physical Gold Trust. The Sprott Physical Silver Trust. The Sprott Physical
Platinum and Palladium Trust. And also our newly acquired Central Fund, Gold
and Silver Trust. So we really can help investors in precious metals and natural
resources across the investing spectrum.
Allen Alper
Jr.: How would these
trusts compare to other vehicles?
Rick Rule: Well I think the
beauty of the trust is that they're New York Stock Exchange listed, the cost
associated with them is very low. When people go to buy physical gold from many
bullion dealers, they buy the gold at spot plus a three and a half percent
markup. When they go to sell the gold, they sell the gold at spot less than
three and a half percent markup. And they pay storage and insurance along the
way. Meaning that theoretically if you did a 24 hour turnaround between buying
and selling, you'd lose seven percent overnight.
Depending
on the commission that your broker charges you, buying and selling a New York
Stock Exchange listed trust is 25 basis points. One quarter of one percent. So
it's a much more economical and much safer method for owning physical gold and
silver.
Importantly
also for US taxpayers, complying US taxpayers, when you own physical gold and
silver or when you own physical ETF's, which are regarded as surrogates for
physical. To the extent that you made capital gains, you pay tax at the
collectable, or ordinary income tax rate. But when you own the Sprott Trust
products, those are taxed at the capital gains rate. So high income US
taxpayers enjoy a fairly substantial tax benefit by owning the Sprott Trust as
opposed to owning the physicals directly.
Allen Alper
Jr.: So as a US citizen,
I will get a significant tax break going with a Trust compared to some sort of
physical ETF?
Rick Rule: Correct. And you will
save yourself a lot of cost, and fees, and aggravation along the way. I can't
tell you how many times, in a 40 year career in precious metals, I've talked to
customers, who took physical possession of their gold or silver and tried to
hide, or bury, the bullion at home to avoid the exchange fees. This is
extremely risky. The consequence of having something valuable at home, like
physical bullion, is an invitation to people that you normally would not invite
over to your house for lunch.
I
constantly warn people about, what I call, Midnight Gardening. The idea that
you are owning gold and silver to avoid the risks inherent in the political
economy, while exposing yourself to the risks of people coming by your house
with guns to relieve you of your gold and silver is sort of a strange
proposition.
Allen Alper
Jr.: Absolutely. I've
actually heard a lot of presentations where people advocate storing piles of
cash or bullion in their mattresses.
Rick Rule: I have too and it
scares the hell out of me.
Allen Alper
Jr.: Yeah. Well, this
sounds like a little better way of dealing with gold. So what were the four trusts
again?
Rick Rule: The Sprott Physical
Gold Trust. The Sprott Physical Silver Trust. The Sprott Physical Platinum and
Palladium Trust. And finally, The Sprott Central Fund Trust. Which is both gold
and silver. All New York Stock Exchange trading.
Allen Alper
Jr.: So what are you
thinking right now, as far as your outlook on physical metal?
Rick Rule: I own physical metal
for different reasons from most people. I own it personally, as sort of
catastrophe insurance. Gold has held its purchasing power through many
different circumstances, over a very long period of time. And so I regard gold
and silver personally, as insurance. Meaning, oddly, that although I own a lot
of them, I'm not necessarily anxious for them to go up in price. Though if you
think about it, there's no form of insurance that you own, that you're anxious
to get paid on. Auto insurance means you had a wreck. Life insurance means
somebody died. Home insurance means you had a fire. I regard gold as political
catastrophe insurance. So I sleep better owning it.
The
gold stocks are different. You own gold stocks because you want to make money.
You own gold stocks because you want to see a company do better than other
companies. And I believe that in the next 18 to 24 months, the gold stocks
offer a really compelling opportunity. They have lagged the price of gold and
other commodities for 18 months, and I think they're due for a catch up. They
are also becoming better run companies. They are emphasizing rather the
leverage to gold, emphasizing rational allocation of capital, efficient
operations. And free cash flow growth.
And
finally, I think we're coming into the mergers and acquisition phase in the
gold business. Where the big ones eat up the little ones, and there's also
sideways mergers. So for three reasons, the outlook I have for the gold
equity's, maybe not in the two month or three month time frame, but certainly
in the 12 to 18 to 24 month timeframe is very strong.
Allen Alper
Jr.: Great. That's great
to know. What else should our high-net-worth readers/investors know about
Sprott?
Rick Rule: I think the final
thing that your high-net-worth investors should be looking at is participating
in the junior market, the sub 250 million market cap market, as often as they
can in the private placement side of the business. So that they have the
ability to allocate capital to companies that will give them warrants. Warrants
being the ability, but not the obligation to buy more stock at a later date, if
their speculation has been successful. And Sprott is, I believe, the largest US
retail distributor of private placements from Canada and Australia, in the
United States. So if you have the sophistication and the wealth to participate
in the private placement business, there is no better way to be a speculator
than through private placements, and there is no better place to access private
placements than through Sprott.
Allen Alper
Jr.: And there's
something you do directly with that, isn't there?
Rick Rule: I do. I manage
several pools that invest directly in the private placements, which is one of
the reasons why Sprott is so dominating in the market. Many of our competitors
go to a company and say, “We will try to raise you 10 million dollars.” I, as a
consequence of the size of Sprott and the pools I manage, am able to say to the
company, “I will deliver you 10 million dollars.” And we make those placements
available to our clients.
But
from the issuers point of view, the successful completion of the offering,
isn't a when, it's an if. That's one of the value propositions that Sprott
offers up to its clients. The fact that we have over 300 million dollars in
current assets on the balance sheet, and the fact that we manage, in various
ways, shapes, or form, or administer over 12 billion dollars, gives us
unparalleled access to private placements, because we can assure the issuer
that the private placement will be completed.
Allen Alper
Jr.: Now, if some of our
high-net-worth investor/readers are interested in that, how would they get in
touch with you? What should they be looking at?
Rick Rule: The first way is,
they can always email me. Rrule@sprottglobal.com. That's the best way to get in
touch with me. And to give people, either high-net-worth, or non-high-net-worth,
the opportunity to get to know Sprott, I would like to offer all of your
listeners and readers the opportunity to email their natural resources
portfolios to me. It's important that they put both the name and the symbol in
the text, and I will email them back, on an absolutely no obligation basis, my
rankings of the companies that are in their natural resources portfolio. If the
people that are submitting portfolios are interested in investing in private
placements, please indicate that in the text and we will begin to develop a
relationship so that we can offer private placements, where appropriate, to
those investors.
Allen Alper
Jr.: That sounds
excellent. Thank you very much for talking with us and sharing your insights.
Rick Rule: I thank you for the
opportunity to talk about our services with your audience.
Allen Alper
Jr.: We all appreciate
you sharing your knowledge with us.
Rick Rule: Thank you sir.
You can always email Rick Rule at Rrule@sprottglobal.com,
and Rick has offered all MetalsNews readers/investors the opportunity to have
their natural resources portfolio ranked by Rick Rule. Just email your natural
resources portfolios to Rick. It's important to put both the name and the stock
symbol for each stock in your portfolio in the body of the email. Rick will
then get back, with his rankings of the companies that are in your natural
resources portfolio, on an absolutely no obligation basis.
Sprott US
Holdings Contact Information:
Contact
Sprott
Sprott U.S. Holdings, Inc.
1910 Palomar Point Way, Suite 200
Carlsbad, CA 92008
Brokerage Services
Sprott Global Resource Investments Ltd.
Telephone:
800.477.7853
Email:
contact@sprottglobal.com
Separately
Managed Accounts
Sprott Asset Management USA, Inc.
Telephone:
866.531.8746
Email:
contact@sprottusa.com