Rick Rule on resources, especially Canadian Junior Oil and Mining

I’ve been listening to the most recent Chris Martenson podcasts.  In the following podcast, Martenson interviews Rick Rule (December 9, 2011).  Rule recommends investing in undervalued junior oils.  He gives the following scenario:  A junior oil has 1 billion in Net Present Value, a market capital of $300 million.  A larger producer will take out the company for $700 million because of the derisked oil and the larger producer knows that it can make money off the holdings of the junior oil holdings.  This is well worth listening to for all those who are investing in resource companies, as Rule explains how to determine value in the sector.

2 thoughts on “Rick Rule on resources, especially Canadian Junior Oil and Mining

  1. I’ve gone the juniors route before and been burnt on ones that seemingly had everything going for them. Now I go with the big guys who take out the juniors. I came to see the latter as a safer route to investing in the minor leagues of the industry. Plus I get a dividend along the way.

  2. Yeah, juniors are a good way to be burnt, unless you have strong sense of the NPV, and have sufficiently deep pockets (to average down–also risky) and can invest for the five-year picture (instead of the a shorter investment horizen). My best investment, MEL, was just taken out at 4 something and my average cost is $1. But I got to that average price by buying against deep fear in the market when Trafalgar, MEL’s earlier iteration, dropped from $4.25 to 39 cents.

    I also invest in intermediate companies that Pay dividends. Of course, that’s not less risky sometimes. Petrobakken dropped to $6.05 while my average cost was around $22. Ouch. But now it is coming back and I think it is still a deep value.

    But I’ve learned that if you can’t take losses in the 90% range, then stay out of the junior and intermediate sector. Rick Rule says that the companies could still suffer before the fundamentals bring them back to reality.

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