Will Coetzer interviews Rick Rule as part of our Interviews with Mining Greats series.
Rick Rule is renowned as someone who works relentlessly in identifying and bringing mining companies to market. Over the years many people, particularly those in the junior space, have told me about times when he backed them when no one else was willing to take a risk. I found Rick to be charming company and extremely gracious with his time. He is a natural storyteller and he could – and should – fill a book with his anecdotes from a lifetime in mining. It’s not without reason that he is one of the most in-demand speakers at mining events and conferences and he is always an articulate and compelling voice for the industry.
Stratum: Hello Rick. How did you first get into mining?
I had an interest in the out of doors and natural resources as a young man. The consequence of that is that I emigrated from the United States to Canada to attend the University of British Columbia, which had a major in natural resource finance in 1970.
It’s odd that a 16-year-old aspired to a career in natural resource finance, or originally natural resource tax law, but I was an odd young man. I’ve become an odd old man, and amusingly my college education is something that I have used every single working day since.
My original interest was more oil and gas than mining, but in the commodities boom that occurred in the decade of the ‘70s, if you had some sense of geology, or rather if you could keep geologists from either lying to you or making mistakes with your money, that was a valuable talent.
So, as a young man I had the extraordinary good fortune to have my talents match a market that, from 1970 to the 1980s, was the greatest natural resource boom market that we’ve ever seen.
I’ve stayed in the business since, I like the people, I like the process, I like the cyclicality in resources, I like the predictability of the cycles. I have the psychological profile where volatility is a tool rather than a risk. I’m uniquely suited to natural resource finance, natural resource investment and natural resource speculation.
Stratum: What would you say was your first big break?
Being born to hard working, curious parents was my first big break. My first big business break would come as a consequence of my wanting to be a tax lawyer. I saw a tax lawyer I wanted to go work for and offered to pay him to mentor me. He said, “If you get through law school I will certainly hire you, but you will be miserable but effective as a lawyer. I’ve been watching you and I think you should be an investor.”
He introduced me to Peter Cundill, who unbeknownst to me was already a world-famous value investor, and also unbeknownst to me had come to like me because of other aspects of my personality. I was personally mentored at a young age, age 20, by an absolutely legendary value investor, and I can’t describe how beneficial that was to me.
We were taught to look at redundant assets, the latent value of investments, and that money is made on the delta between perception and reality. What a company is selling for relative to what it’s worth, and that is the discipline that I’ve followed ever since. It’s uniquely suited to natural resource investing.
The second big business break that happened was really as a consequence of my aggression rather than skill. I came to the attention of some very high profile natural resource investors. I came to the early attention of the generation ahead of me of natural resource investors who used my energy, my ambition and their own talent to help build companies. I was able to learn in the first decade of my career that the early part of natural resource investing is less about the asset and more about the people involved.
And I had the extraordinary good fortune to surround myself with ‘A’ players while I was still in my twenties, I didn’t have to, as many people have, surround themselves with ‘C’ players.
Stratum: If you reflect on your earlier career, what would you say was the biggest learning and the biggest mistake that set you on a different path?
That one’s easy, a young male often makes mistakes because of ego. I was in a market where the oil price went from $3 to $30, I made a lot of money, and I thought it was because I was smart. In retrospect, this is pathetically stupid, I equated a bull market with brains.
And the big thinkers, the Jimmy Carters of the world, believed that the necessary outcome of the ‘70s was that oil would be $200 a barrel by the year 2000, that 20 or 30 million people a year would be starving and that copper would be $10 a pound. In other words, they forgot that high commodity prices lead people to conserve and they increased supply. I wanted to believe that, it was an important part of my own thesis, I became a very wealthy young man and I wanted to become much wealthier.
The Malthusian prescription of the Club of Rome was strangely convenient to me, and I believed, like the big thinkers, the Royal Bank, the World Bank, the International Energy Agency, that markets didn’t work, and that the bull market would last forever.
Then, an interesting year called 1982 happened and the commodity prices collapsed. Towards the latter part of the ‘70s I came to believe that the cheapest capital for me was credit rather than equity. What I learned in 1982 is that although my debts were money good, my assets had ephemeral value. And I went from being a very, very wealthy young man to having a negative net worth very quickly, and that was sobering.
But it was also very useful, it taught me a first-hand lesson about cyclicality and about value, a lesson that’s been responsible for the fortune that I’ve built since.
Stratum: Are there very specific criteria you follow when you assess leadership as to who you are going to invest in?
Absolutely, and that’s a long conversation, so I’ll try and summarise it: blazing determination.
This is a very hard industry. Somebody who is in this business for money, somebody who wants to live rich as opposed to be rich, will absolutely fail. If it’s about a mansion and a Ferrari it isn’t going to work. It’s about outcompeting all your peers. Tenacity as well as determination, and curiosity. The successful person considers three or four models, not just the obvious model, and the truly successful entrepreneur is able to envision the talents of other people and employ the talents of other people.
The alchemy in building a natural resource company is the ability of the CEO to look at the task at hand and assemble the appropriate range of talents.
As an investor, you have a secondary challenge, and that is to identify people whose experience and track record is specifically suited to the task at hand.
People will come to me and say “I have been a success at mining.” But they define success as successfully operating a gold mine in French-speaking Quebec in Archean terrain. While the task that they’ve set for themselves is exploring rather than producing, copper rather than gold…
The skills sets are not equivalent, so as an investor you have to make sure that the skills sets which are described as successful are also suited to the task at hand.
Stratum: I’m thinking about Anthony Hall, the CEO who has just resigned from Highfield Resources. That to me is a sign of good leadership, realising that you’re not right for the next stage of the lifecycle. Would you say that that’s what you would look for in people, that kind of behaviour?
Absolutely, I made the same decision myself. I built a very successful business where a board meeting was me walking on the beach, “Rick, what do you think?”, “Well Rick…”
I sold that business to become a very large shareholder in a competitor, Sprott. I had built my business, a natural resource money management business, as far as my capabilities allowed me.
What I enjoy is securities analysis. I don’t enjoy running companies, the consequence of that is that I fired myself as CEO.
Stratum: Looking back now, what would you say to your 30-year-old ambitious self? What lessons have you learnt?
Align yourself with extraordinarily high quality people. My experience has been, it’s about wanting to be rich as opposed to live rich. The way to get rich is to make rich people richer, rich people enjoy money and they understand the value of people who make them richer. Rich people are more generous; they’re willing to overpay for the certainty of success.
As a young person, use your energy, your creativity to create utility for a very successful person who you both admire and like. And after you have obtained some credibility by assisting a successful person, very, very quickly build a team of people that you can work with and you can mentor. Share the credibility that you’ve obtained from the early successful efforts by other, younger, hungry, honest, determined people that can assist you. The alchemy is what the group can do.
Stratum: I read somewhere that the difference between millionaires and billionaires is that billionaires know how to motivate millionaires.
I think that’s probably accurate, but there’s probably more to it than that. Obviously you can’t build a big business by yourself, many people like to believe they can, many other people take the credit for it, but the truth is that’s not the way it works.
A wonderful example is Jim Bob Moffett, who built Freeport-McMoRan, of course he’s had his ups and downs. In the 1980s Freeport-McMoRan was so far ahead of anybody else in the Gulf in terms of exploration efficiency. I asked Jim Bob one day why this was the case. He told me two very interesting things; he said if they had a young hotshot geologist working for Shell, a guy that was knocking the lights out, that they’d give him a pay rise from $75,410 to $86,392, and if he was politically good in the organisation they might give him a credenza. What Jim Bob would do is give them a profit participation in successful efforts vested over six or seven years so he kept them.
But he said a much more important thing and Robert Freedland said the same thing. Jim Bob would sidle up to a young promising guy who was a bit too cautious, and Jim Bob would say “You know, I have a lot more faith in you than you have in you. We didn’t build Freeport by doing one BCF corner shots, we built Freeport by drilling 300 BCF discoveries. You’re a lot smarter than the prospects that you’re putting up suggest, don’t ever be afraid to drill a smart dry hole for Jim Bob Moffett, don’t make a habit of it, but drill good ideas.”
Robert Freedland similarly empowered geologists, Doug Kirwin who was one of the best geologists I ever met, worked for Robert for many years. Robert’s a very demanding guy, calls you at two o’clock in the morning, things like that. And I asked Doug “Doesn’t Robert’s personality sometimes make him difficult to work with?”
I’ll never forget as long as I live what Doug Kirwin said to me: “Rick, for 20 years as an exploration geologist people told me I had brilliant ideas and Robert drilled them. If you’re passionate about exploration, a fellow who doesn’t give you lip service but gives you a budget is somebody who you’ll take any amount of abuse from.”
Stratum: Is there anyone now in the industry that you’ve got your eye on? Whether they’re veterans or up-and-comers, anyone that you look to and go “Wow!”?
There’s a lot, I mean the young crop is particularly promising. It amuses me to listen to people of my generation describe the millennials in the context of people older than me describe their generation. I hear the millennials described as undereducated, unmotivated, spoilt and I look at the ranks of junior analysts at Sprott, and I think “I don’t know who these old folks are referring to.”
These young kids have remarkably better educations than me, they came out of geology school or they came out of business school in 2008 when there were no jobs available. They’re scared to death, they’re not complacent, and they work like scalded dogs.
The truth is that most of this third generation are not Caucasian, so that’s changed, and that’s all good. 40% of them are female. So if you are less ethnocentric about the human resources that you’re willing to employ, this is the best generation of natural resource professional I’ve ever seen in my life.
And most people my age don’t know that the game of getting ahead isn’t to be right, it’s to be more right than the other fellow, and mercifully for me most of the other fellows have unilaterally disarmed.
Just in this town there’s so many, there’s twenty up-and-comers, there’s young Amir Adnani lowering his cost to capital. There’s the folks over at Sandstorm, there’s Marcel de Groot.
I used to say to my young friend Marin Katusa who I’ve personally mentored, when Marin has asked me what he could do for me, I said “Marin, hang out with people your age and tell me who the folks who are better than you are!”
Rick Rule has dedicated his entire adult life to many aspects of natural resource securities investing. In addition to the knowledge and experience gained in a long and focused career, he has a worldwide network of contacts in the natural resource and finance worlds. As President and CEO of Sprott US Holdings Inc, Mr Rule leads a highly skilled team of earth science and finance professionals who enjoy a worldwide reputation for resource investment management.
Mr Rule is a frequent speaker at industry conferences, and is interviewed for numerous radio, television, print and online media outlets concerning natural resource investment and industry topics. He is frequently quoted and referred by prominent natural resource oriented newsletters and advisories. Mr Rule and his team have long experience in many resource sectors including agriculture, alternative energy, forestry, oil and gas, mining and water. Mr Rule is particularly active in private placement markets, having originated and participated in hundreds of debt and equity transactions with private, pre-public and public companies.
Sprott US Holdings Inc is a holding company made up of three separate and distinct companies: Sprott Global Resource Investments Ltd, a FINRA-Registered Broker/Dealer; Sprott Asset Management USA, Inc, an SEC-Registered Investment Adviser offering managed accounts; and Resource Capital Investment Corp., an SEC-Registered Investment Adviser that manages Limited Partnerships. These three companies make up the US Subsidiaries of Sprott Inc, and are active in securities brokerage, segregated account money management and investment partnership management involving both equity and debt instruments, across the entire spectrum of the natural resource industry.