Editor’s note: Today, we’re sharing a conversation your previous Daily Cut editor, Chris Lowe, had with natural resource investor Rick Rule early last month.

They last sat down for an interview in September 2022 when Rick made a recommendation in a notoriously divisive sector that paid off in a big way for readers who followed through…

So, in part one of this two-part Q&A, Chris and Rick catch up on what’s been happening in that sector since Rick made the call… And how succeeding as a contrarian investor largely means you need to learn to “love hate.”

Then tune in tomorrow to hear from Rick about the four sectors he believes are ideal for “easy money” plays in natural resources right now… plus, a number of recommendations in each one.

But first, today’s markets…

Market Data

The S&P 500 closed down 0.3% to end the day at 5,218.22… the NASDAQ lost 0.3% to close at 16,384.47.

In commodities, West Texas Intermediate crude oil trades at $82.03 up $1.23…

Gold is $2,172 per troy ounce, up $6 from Friday…

And bitcoin is $71,162, up $7,267 since Friday.

Now, I’ll hand things off to Chris and Rick…

Q&A With Chris Lowe and Rick Rule … Part I

Chris Lowe: Rick Rule, thanks for talking to me today.

Rick Rule: A pleasure, Chris. It’s been too long. I’ve enjoyed our visits over, what, the last 15 or 20 years?

Chris: I think it’s something like 17 years, yeah.

Just for folks who are watching, I met you through Bill Bonner – my colleague and your friend. We did a few conferences together. You taught us all how to do presentations. I still remember those lessons.

It’s nice to catch up again. We last had a sit down like this in 2022… And we’ll get to that because we’re going to talk about uranium today.

It’s a very exciting topic. You nailed a call the last time we talked, so I hope folks are watching this. It was very profitable. But before we get to that, Rick, what are you up to these days?

Rick: Well, I’m ostensibly retired, Chris. I resigned from my positions at Sprott, having finished my job there. I’m no longer an officer, director, or employee of Sprott… although I am still the largest shareholder. And I remain very proud of the remaining team at Sprott.

Over time, we took it from about $2 billion in assets under management to just under $30 billion today. It’s been a wonderful ride. But I’m delighted to no longer have 240 employees – many of whom are compliance and lawyer types – and just be a coupon-clipper at Sprott.

I am involved in retirement and building a new bank, Battle Bank. It’s the successor to the EverBank, which you might remember.

We built it from a zero asset base to $28 billion. So I’m building a new bank.

The job I have that amuses me the most is I’m building out something called Rule Investment Media. This is primarily an education site where I attempt to teach people to become better investors in mining, oil, and gas – that’s your resources – and, to a lesser extent, deep value in conventional financial services… investments like insurance companies and banks.

There are really three parts to this. If they go to the Rule Investment Media website, I will personally, at no obligation, rank their natural resource portfolio if they submit it to me. I’ve now ranked more than 80,000 of them. I’ve learned an awful lot, by the way, about how people invest and speculate. Spoiler, it’s not all good.

The people who put themselves through that are invited to go to the Rule Classroom. There are now over 200 hours of instructional programming. That includes 11 of a planned 60-lesson series on how to invest in natural resource companies… how to evaluate companies… and how various markets work.

Then, on top of that, the media business does an annual live conference – which you, Chris, will remember as the Agora Natural Resources Conference – now called the Rule Natural Resources Investment Symposium.

We do four online virtual conferences a year. Boot camps. Very detailed, very dense, eight-hour discussions that are topical. It could be uranium, it could be silver, it could be royalties.

This year, we’re going to add a new filmed feature based on the show Shark Tank. We’re going to take one company, and we are going to put them, live, through the methodologies that we describe at the Rule Classroom.

The company will, for 15 minutes, tell us what it is that they’re about from their point of view. And then they’re going to subject themselves to 45 minutes of grilling by me. It’s real, old-fashioned due diligence, except it’s happening live.

Then the last hour will be where the attendees who have gone through the Rule Investment Classroom are allowed to ask their own questions and grill the company for an hour.

The companies always tell you that they’re undervalued, and they always tell you that they’re underexposed. We’re going to give companies exposure to a very large number of motivated, intelligent investors.

If they succeed, they’ll develop wonderful constituencies. And if they fail, they may never raise money again. I’m looking forward to doing this.

Chris: Well, it sounds great, Rick. We’ll definitely link your website for folks to send their portfolios to you (you can find that right here).

I reached out to you this time because the uranium market has been on fire… Or maybe that’s the wrong way to put it. The uranium market has been doing very well.

We last talked at the end of September 2022. It was more or less the end of the pandemic years. You were beating the drum on uranium, a coming rally, and you recommended a large cap – I think it might be one of the largest uranium mining companies – called Cameco.

I just looked it up before we recorded. It’s up 98%… And the S&P 500 over the same time is up 36%. That’s a 3x outperformance.

So, Rick, congratulations on that call, and let’s talk about uranium. What got you so excited about uranium the last time we talked, and how has that progressed?

Rick: As a natural resource investor, Chris, these are all capital-intensive, cyclical businesses.

That means you have to be a contrarian. You have to buy these things out of favor and sell them when they come into favor. Both are difficult to do.

When you and I talked about uranium, it was selling in the range of $40 a pound. And the industry, globally, was making uranium for about $60 a pound.

So they were making the stuff for $60 including the cost of capital… selling it for $40 and losing $20 a pound… and trying to make it up on volume.

The industry was in liquidation. But the industry couldn’t liquidate… Even in countries that believed they could afford alternative energies, like the U.S., nuclear was 20% of baseload power. If the price didn’t return to the incentive price, the lights would go out.

It seemed clear to me that the price had to go up as I didn’t think the lights were going to go out. That was the simple arithmetic.

Two other things that were important to me… uranium accounts for about 5% of the cost of producing nuclear-generated electricity. In addition to the fact that the price had to go up, the price could go up. Access to uranium is more important than price for the utility consumer, which was important to me.

The third thing was that, as a contrarian, I have learned to love hate. It wasn’t just that uranium hadn’t performed or that it bored people. It was how when many people thought about investment in uranium, they thought about Hiroshima, Nagasaki, Chernobyl, Three Mile Island, and Fukushima.

Often, when I talked about uranium in a public forum, people wouldn’t just be bored… they would accuse me of profiteering on misery, not understanding that many other fuel sources are much more deleterious than uranium.

I believed that the price had to go up, the price could go up, but as a consequence of that, it would go up. I believe, too, that uranium as an investment thesis would go from hated… to tolerated… to loved.

We’ve now accomplished the first part of that move. A basket of juniors has probably tripled. I suggested to you two low-risk alternatives: uranium itself through the Sprott Physical Uranium Trust, which has effectively doubled… or buying the least risky Canadian-domiciled, New York Stock Exchange-traded producer, which has done well too.

For your listeners who followed that advice, the easy money has been made. There aren’t very many low-risk, 12-to-18-month doubles in the world. You’ve enjoyed one.

Think about where you want to be. I believe that uranium probably goes into a holding pattern for six to 12 months. But I also believe that the fundamental structure of the uranium business has changed.

I believe that we’re in inning three or four of a nine-inning ball game. And I believe that for those who are sophisticated and patient, while the easy money has been made, the big money is ahead. Your listeners will need to determine which type of investor or speculator they are.

I want to say that for people who like to take the easy money and run, the easy money is on the table now. You’ve made a double on an asset class that’s hated, and I wouldn’t hold it against you at all if you took some money off the table.

For myself – not in Cameco or Sprott Physical Uranium Trust, but in the basket of juniors I bought – I have now sold enough that I’ve recouped my capital. I sold a little more to pay the taxes on recouping my capital. And then I sold a little more to reward myself for being smart.

I have a decent position left over, but I’m now playing on the house’s money. I have no net financial exposure in the space.

And I still have exposure in Cameco, in the big Kazakhstan producer Kazatomprom, and in the Sprott Physical Uranium Trust.

Chris: So you’re saying you’re not expecting that kind of move again over the same time frame? So, if we talked in another 16 or so months, we’re not expecting Cameco to double again over that time. It’s maybe a longer-term play now?

Rick: With the caveat that the world doesn’t experience another Fukushima or Three Mile Island, which derails the thesis immediately – I’m expecting that today’s prices in uranium hold and probably increase at the rate of inflation.

It’s important to note that even though the uranium price over five years has gone from $20 to $100… even a fivefold increase in the price doesn’t increase supply in the near term.

That’s because of the very long permitting times involved in moving new mines to production, financing them, and constructing them. This incredible fivefold increase in the uranium price will not produce an increased new mine supply for about seven years.

Meanwhile, the world is building nuclear reactors like mad. And for maybe the second time in my life, I’ve come to be viewed as politically correct.

President Biden, as an example, who would’ve vilified nuclear investments four years ago, now has decided to subsidize them. While that embarrasses me a little bit… I will say that having Greenpeace, the World Economic Forum, and President Biden by my side is evidence that the asset class is no longer hated.

From being a felon to being subsidized, wallowing up to the government trough tells me something about the growing political acceptance of uranium on a worldwide basis.

Getting away from the narrative is important for a little while. I promise not to bore your listeners too deeply, but it’s important to get a little bit into the weeds.

The structure of the uranium business has changed. It has become unique, I would say, among mined commodities, for potential market stability.

Here’s how that’s happened. At the time that you and I talked in September 2022, over 80% of the volume of uranium traded in the spot market where there was no price certainty and the prices changed overnight.

Today, between 70% and 80% of the new volumes are in the term market. And in the term market, it is possible to have contracts between producers and consumers for as long as 15 years.

What this means is that the companies, the company shareholders, the analysts, and the banks, could look at the revenue from a mine commodity, and look for price stability for as much as 10 to 15 years.

If the counterparty – and the term contract – is an investment-grade credit, say Ontario Power, or the Southern Company, Duke Power… You have a document that you can take to the bank to finance projects into production.

This has brought down the cost of capital for the debt component by half while increasing the certainty and visibility around the topline number in sales.

There is no commodity, that I’m aware of, that enjoys this specter of price stability that uranium enjoys. If you’re building a new nuclear power plant in an efficient place like China – a $6 billion endeavor – in an inefficient place like the U.S. – an $18 billion endeavor – the lenders require the plant constructors to have enough uranium sold forward that they amortize the loan.

With 58 plants under construction worldwide, that means the contracting needs of the banks and the utilities are spectacular. This provides some form of market stability for… it’s usually seven years, but really, as much as 15 years into the future. I have never seen a resource market like this.

What this means is that senior producers like Cameco and Kazatomprom will achieve a level of revenue certainty we’ve never seen in resources before.

But importantly, the development stage companies – the Denisons, the NexGens, the Boss Energies of the world – will enjoy a much lower cost of capital to mine construction finance than anybody else in the natural resource industry, except for the very large investment quality oil and gas companies.

It’s a real difference that will manifest itself over five years… not over three, six, or 12 months because you won’t see these arrangements until 18 months out. But to summarize it, I would suggest to you that the easy money has been made… and the big money is ahead with a four- to five-year time frame.

Chris: How would they play that if they wanted to look at that time frame and say, “I like what Rick is saying. How do I do that?”

Rick: I would suggest that the best way is still in Cameco. I’m much less bullish on the physical uranium. The stuff is already run from under our stewardship at Sprott from $20 a pound to $100 a pound.

Should people hold some in their portfolio? Perhaps, as a diversified energy portfolio. But then, the easy money and the big money have been made there already.

But the lowest-risk way to play is Cameco. For somebody who is a value-oriented investor but can take some political risk, Kazatomprom is a better company.

I know a lot of your listeners, rationally, don’t want to invest in countries that they can’t spell or pronounce, and that’s a game of your name. For those people who are more experienced natural resource investors and speculators, you can come down to the juniors.

Just bear in mind that of 81 public companies that purport to be in the uranium junior mining space, we believe only 12 are viable. You have to pick your spots when you come down market.

Chris: Where does Kazatomprom trade, Rick?

Rick: Kazatomprom trades the over-the-counter market in the U.S. and much more commonly – and with much more liquidity – on the London market.

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