Rick Rule says Yeah, very good. Okay, I’d like to ask a couple of questions from some of my email subscribers and readers. The first one, I’ll just read it to you and see your response.
“Rick has recently invested in Sprott Resource Holdings, SRHI, and has been appointed chief investment officer. Could he please outline some of the investment opportunities that he sees in SRHI? What will he be looking at?”
I think this refers to the ‘Collin Kettell’ generation that you were talking a few weeks ago on Colin’s show at Palisade Radio (click here for that interview). Is there an update on that? What’s been going on?
Well, in fairness, I have to say that I’m not going to be very specific with my answers because I don’t want a lot of competition in terms of the investments we’re looking at. We’ll have two styles of investments: tactical and strategic. It’s fair to say that Sprott is looking for circumstances where there is good in place management. We don’t want to supply the management. We want to support the management.
We will look at places where the management team believes that Sprott brings more than money and where they price the opportunity to reflect our own contribution to their success. In the context of tactical investments, we’ll be looking to take a less than 20% interest in opportunities where we assist the management team in obtaining the financing to achieve some sort of catalytic goal.
With the view to after we’ve helped them achieve that circumstance, helping them market either the whole company or our share in the company. In other words, we’ll be looking to provide the finance to allow management teams to achieve some sort of goal which changes the value of the underlying security substantially.
In other circumstances, we will use most of our capital in strategic initiatives where Sprott Resource Holdings in fact takes more than 50% operating control of an asset. In this case, our goal is exactly the same. We aren’t looking to build a mining company or an oil company that annuitizes an asset over 10 years or 20 years. There are plenty of those. We will look to assist the management team in beneficiating an asset with the view of monetizing the asset after we have beneficiated it.
My great mentor Jim Bob Moffett, who built Freeport-McMoRan, once told me that exploration and development is a 35% internal rate of return business. Production is an 8% rate of return business. If you have faith in your ability to manage exploration and development, what you do is you monetize your success. You recycle 8% internal rate of return opportunities selling them to major mining companies and go back to a 35% internal rate of return business.
That’s precisely what Sprott Resource Holdings plan to do. We have a global network of natural resource investors, financiers, and operators. We intend to bring more than money to opportunities that we think are special opportunities. With the view to unlocking the value, monetizing the value, and doing it again.
Very much like we did 15 years ago with PBS Coals where we bought the opportunity, if my memory serves me correctly, for $80 million, spent $60 million on it, and sold it in a year and a half to Severstal, the big Russian steel giant, for a billion dollars. That would be sort of the template.