Leading international commodity investment expert — and CEO of Sprott Holdings US — Rick Rule has said despite a period of difficult conditions there great opportunities are emerging for commodities investors.
Mr Rule — speaking ahead of his appearance at the 2017 International Mining and Resources Conference in Melbourne later this year — said the secret to success was in identifying companies with a strong track record of success.
“Luck favours the trained observer,” Mr Rule said.
“Anyone who has spent any time in commodity investment will know it’s an extremely volatile business, but even in bear markets there are still opportunities.
“The most important factor when assessing any investment opportunity is the quality of the team.“
“Teams that have a specific and highly relevant track record of success in similar projects are where the value lies.
“But that specificity is critical — having experience exploring zinc in South America doesn’t necessarily translate into success operating a coal mine in Australia.
“It’s a cliché, but the best teams are the ones who stick to their knitting. They have the awareness to know what their strengths are and the common sense to apply those strengths to the right projects.”
Mr Rule said he was very optimistic about commodity markets overall.
“Global commodity markets experienced a real trough in 2014 and 2015,” he said.
“Markets have been slowly rebuilding from that low and some commodities are more advanced than other – but most are showing positive signs.
“Zinc and cobalt are more advanced in their recovery than others, but both still have a lot of upside.
“Commodities like potash, copper and uranium are still priced under the cost of production so there’s a lot of room for them to improve.
“I would expect to see most commodities reaching a high point around 2019 or 2020, so right now is a good time for discerning investors to get into the market.“
“But again, the key is picking the right investment — even the strongest bull markets produce plenty of failures.”
Mr Rule said even in commodities investment it was vital to take a long term view.
“Ideally with investment portfolio you want to be as diversified as possible,” he said.
“If you can take somewhere in the vicinity of 10 to 12 high-quality positions you’ll be in a great position to take advantage of the best opportunities.
“But investors also need to accept that even with all the due diligence in the world you’ll still make mistakes – backing serially successful teams just reduces the risk.
“And it’s also important to understand market cycles.
“Bear markets are the best time to find great investment opportunities — they’re basically the investment equivalent of a sale at your favourite department store.
“Good positions will be undervalued, providing an opportunity to secure a cheap stake in quality companies.
“Bear markets are the authors of the next bull market – and it’s when that bull market arrives that investors should start to get more cautious.”
Now in its fourth year, IMARC has quickly established itself as Australia’s premier mining and resources conference.