800 junior miners listed on the asx are worthl, page-2

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US resources investor Rick Rule says most mining minnows worthless by: MATT CHAMBERS From: The Australian October 30, 2013 12:00AM Increase

LONG-TIME US resources investor Rick Rule is in Australia to take advantage of what he sees as a once-in-a-decade opportunity to pick up stocks in struggling mining companies. But the Sprott Global Resource Investments chairman has a stark message for the junior sector and its investors: most of the more than 800 junior miners listed on the Australian Securities Exchange are worthless.

"In the good times, from 2003 to 2011, the excesses here and in Canada and on (London's secondary exchange) AIM were legendary," said Mr Rule, in Melbourne to deliver the opening speech at today's Mines and Money conference.

"We need to exorcise all of those sins from the system, which is a different way of saying perhaps 60 or 70 per cent of the junior listings here are truly valueless.

"One would hope that those (equity) issuers ultimately go to their intrinsic value, which is zero, and open up more space for the best 30 per cent of your issuers, the best of which are truly world class." Mr Rule, who has been investing in resources for 40 years, is here at a time when local resource investors have vacated the market and juniors, even those with decent projects, are struggling to stay afloat.

It is a strategy he successfully employed in 1990 and in 1998-99."When this market is in favour, the local punter is excited and (when) London and the Far East are up, it gets horrifically overpriced, but when the sector falls from favour it gets ridiculously underpriced," he said.

"The idea that we can invest in the sub-$500 million market-cap space in absolute best-of-breed management at what are, from our point of view, world-beating valuations, is very attractive. We can't do it mid-market and top market. We have to do it when the locals are on strike.

"He says the junior mining sector is still ridiculously underpriced and predicts it could get worse before it strengthens.Mr Rule became head of the US arm of the $US9 billion ($9.45bn) Canadian resource investment house Sprott in 2010 when Sprott acquired his Global Resource Investment fund. His fund has a range of Australian-based investments, including Regis Resources, Orbis Gold, Papillon Resources, Hot Chili, Sirius Resources and Peel Mining."We're extremely attracted to the management team at Regis," he said.

"For its size, it is probably the best accumulation of intellectual capital in the industry, and we suspect that as the industry returns to favour over the next three or four years it will be a must-own name for gold institutions.

"Although Sprott is open to any opportunity, one area it is keen to invest in is Australian precious metals companies with African projects. "Australians are particularly effective explorers and developers in Africa, but Australian investors tend to be more attracted to companies with Australian assets," Mr Rule said.

"We are impressed with the success of management teams in other countries and believe that success deserves a premium -- a premium which mercifully we don't have to pay."Mr Rule's message to the miners is that while global capital markets appear shut, Sprott's door is open. While the Australian market can still raise $300m and $400m figures, the $10m- $30m raisings are where it is struggling, and that is where Mr Rule is focused. Sprott is particularly interested in guaranteeing equity raisings.

Mr Rule said his most spectacular Australian investment was Paladin Energy, which he bought into at 10c after meeting managing director John Borshoff at the 1998 Diggers and Dealers conference in Kalgoorlie, Western Australia. The stock then tanked to about 1.5c when uranium was deeply out of favour, at which time Mr Rule topped up. By 2006 the stock was at $10, with uranium prices soaring and investors back in love with mining stocks.

As a contrarian investor, he says he left the stock before uranium once again fell out of favour.The Sprott funds are focused on precious metals, which Mr Rule admits was probably too much the case in the boom years.

But he sees no reason to end that focus now, given the precious metal sector's safe haven value.

"The macro ethos that drives Sprott is that there is no circumstance that existed prior to the crash in 2008 that doesn't exist today and no structural problem has been addressed," Mr Rule said. "On a global basis, all levels of society have accepted liquidity as a substitute for solvency and we think those are very different words.

"We have a somewhat terrified eye on the rear-view mirror."

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