Last Updated – September 11, 2023
Junior Mining Stocks
Rick Rule’s Unfavorable Opinion
All the Money he now Invests was Made Wildly Speculating on Juniors!
Junior mining stocks (exploration companies) are extremely bad investments due to their capital intensive, non-revenue generating business structures. The odds of success for junior miners are so heavily stacked against them that ownership in them is the equivalent of owning a lottery ticket. In general and over time, one’s investment in a junior miner slowly depreciates in value due to the constant dilution resulting in a lower market capitalization.
The best way to explain how junior mining stocks are bad investments is using Rick Rule’s comments about them. Rick Rule is regarded as one of the most knowledgeable/respected investors in the resource sector and his wisdom is sought after by many.
Rick Rule’s Opinion on Junior Miners
When it comes to junior mining stocks, Rick Rule isn’t a fan of them. Unlike a former boss of his (Eric Sprott), Rick Rule believes”the industry as a whole is a destroyer of capital, not a creator of capital” so most of the sector isn’t worthy of being invested in.
“If you merged every junior in the world (not just the Canadians but every junior in the world), there’s what probably 2500 of them, if you form one company, we’ll call it Junior Explorer Co,” he said. “In a very good year that business Junior Explorer Co would lose 2 billion dollars, that is expenditures over realizations through M&A or something else. In a very bad year it would lose 6 billion dollars.”
“That belies the point that 5% of the issuers, perhaps maybe 10, generate such good performance that they add legitimacy and sometimes luster to a whole sector.”
“90% of them aren’t business, they’re lifestyle exercises or or they’re dreams.”
Having solely invested in junior mining stocks and being extremely active in the sector since 1997, I fully agree with Rick Rule’s gloomy opinion on the exploration sector. When valuing a junior miner’s market capitalizations based on the its projects, most are overvalued due to the fact that most of the sector’s projects will simply remain moose pasture. It is said that only 1 in about 3000 ore bodies becomes something of value. The value of a junior mining stock is mainly based on speculation that it might beat the unfavorable odds.
Why Invest in Junior Mining Stocks?
If the odds of success are stacked against junior miners and they’re bad investments, why invest in them? People invest in junior mining stocks for the same reason people buy lottery tickets or play slot machines at casino……beating the odds can be a life changing event!
Although Rick Rule isn’t a fan of junior miners and doesn’t speak highly of them, his best investment career returns came from junior mining stocks. His successful bets on some junior mining stocks set him up for the sophisticated investing success that followed which he is now known for.
“Listen, I’m not criticizing the juniors. All of the money that I now invest carefully and prudently, I made speculating wildly on the juniors but I leaned a lot of lessons in 45 years…..”
In 1996, Rick Rule invested in a company called Tenke Mining Corporation which was trading at $0.19 (not sure what his average cost was & his exact entry point). Rick Rule said he eventually sold at $16.00 which resulted in a return of ~8,400%!
Another example that he talks about a lot during interviews is his investment in Paladin Energy in 1998. He initially bought shares at $0.10 and within a year the price of the shares went down to $0.01! During the uranium bull cycle in 2001, the shares sky rocketed to $10. Rick Rule says he sold all his shares by the time it hit $8.00 which resulted in a return of ~8000%!
One successful bet on the right junior mining stock (buying & selling at the right times) can provide instant financial freedom. If one is savvy with money, one only needs to get rich once to stay rich. It takes money to make money and this is why the poor stay poor and the rich get richer.
Timing is Everything
Now is the Time
To increase the odds of success, knowledge, experience, proper due diligence and patience are required. The timing of the entry and exit of a stock plays a major role in the total investment return.
The resource sector is cyclical and alternates between bear markets and bull markets. To increase the odds of profits, the best time to buy junior mining stocks is during bear markets when they’re trading at their lowest levels and the enthusiasm for them is also at their lows (like right now!)
Being a contrarian investor requires patience and is the “buy right, sight tight” method. When bull markets occur, junior mining stocks have typically provided the largest returns in the mining sector. Even if one didn’t bet on the right junior that made a discovery and became desirable to a major mining company, one is likely to be able to get out of a stock with profit in a bull market if one bought low enough in a bear market. In a bull market, the tide raises all ships.
Investing in a junior mining stock before a discovery or early in the discovery phase and one that beat the odds results in significant life changing returns if one bought in a bear market and patiently waited to sell at the right time during a bull market.
A resource bull market and the Green Energy Transition (electrification of everything) are going to create a once in a lifetime investment opportunity by triggering a commodities supercycle. These events are aligning together and will become a significant payout multiplier on the potential returns of junior mining stocks in the upcoming “imminent” bull market.
In my opinion with what lies ahead, now is the best time to buy your junior mining stock lottery tickets…..buy right, sit tight!
Examples of Bull Market Returns of Juniors
For examples of the best returns junior mining stocks provided in some prior bull markets, see the following link:
Reference Material
‘The industry is a destroyer of capital, not a creator of capital’ – Rick Rule on the junior miners – YouTube (KITCO MINING 22 June, 2023)
Rick Rule Stock Picks – His Top Investment Wins– Wealthypusuits 24 January, 2023