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Veteran American resources investor Rick Rule explains why he got behind Silver Mines’ $30.2 million debenture funding to support the development of Bowdens Silver Project.
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Why he is bullish on precious metals and especially silver.
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How he sees pure-play silver miners can potentially ‘go ballistic’ in the next silver boom.
Special Report: ASX junior Silver Mines has just won the backing of North American mining industry heavyweights Rick Rule and Harry Lundin, plus MMCAP International, for $30.2 million in convertible debenture funding.
Speaking exclusively to Stockhead, Rule explains the big appeal of Silver Mines (ASX:SVL)’s flagship Bowdens project to Bromma Asset Management, which he co-owns with Lundin, and his outlook for silver.
Rule’s full circle
The largest undeveloped silver deposit in Australia and the fourth largest in the world, Bowdens was last year awarded a rare development approval from the NSW Independent Planning Commission.
The approval came after a long and rigorous process but the project – and Rule’s connection with it – goes back decades.
“I was friendly with the now legendary mining guy named James Askew whose team discovered the deposit in the 1990s. It wasn’t economic at the silver prices at the time so I arranged a sale,” Rule said.
The deposit was bought by Silver Standard, which became SSR Mining, then later sold to Kingsgate Consolidated for $75m before it was acquired by Silver Mines in 2016 for what now seems like a bargain basement price of $25 million.
SVL’s extensive drilling campaigns grew the 2017 resource estimate by 44% to a massive current MRE of 396Moz silver equivalent last year, which includes almost 200Moz of silver. The mineralised domains – and their potential for further growth – are also now much better understood.
But to realise its development and production potential, a full feasibility study is necessary and that’s why Bromma and MMCAP stepped in to support the milestone funding.
“You’re going to approach a fairly granular level of certainty around the deposit. And that almost always, over time, causes a rerate in the stock,” Rule says.
“We provide less dilutive convertible, preferred funding for catalytic outcomes, which reprices everybody’s stock, including the existing shareholders.”
The full bottle
Rule says that as well as Bowdens being “relatively shallow and very well understood”, another key attraction is its location.
“It’s about a two and a half hour drive from Sydney (and) it’s got all the infrastructure in the world – water, power, roads, miners – everything.
“The average punter from Sydney can go visit it and enjoy a nice glass of wine at vineyards along the way. It is uniquely easy.”
He also says the avenues to get exposure to silver within Australia are “extremely limited”.
“When you think of silver, you think of Mexico, you think of Peru. Perhaps if you’re a geologist you think of Siberia, but there are some challenges in Russia right now.
“There are not very many vehicles available to Australian investors to participate in silver.”
When precious metals bulls run
While Rule would not be pinned down to a spot price forecast for silver, he is definitely bullish on silver.
“I don’t have a forecast, but my experience tells me that precious metals bulls are led by gold.
“Maybe halfway through a bull market when the narrative has been established, and generalist investors come into the precious metal space, silver assumes leadership.”
Rule says it can take about two to five years for that to happen, but adds that trying to look for exact guidance from the past is a mistake.
“You can drive yourself crazy, waiting for it to occur. You can spend too much time obsessing over share quotes day by day, and week by week.
“But what I do know is that when it occurs it’s an extremely rapid and violent event. When it switches, silver runs faster and further than gold.”
“A real precious metals bull market occurs because there’s widespread concern among investors about maintaining the purchasing power of their fiat currency denominated savings products.
“Which is to say, if you put it in gold terms, I’m not interested in a move to US$2,500-2,600 gold. I’m in gold because I think it could go to US$9,000 or US$10,000 if we have the same type of debasement of the US dollar that happened in the 1970s.
“If that were to occur, if you had a fourfold move in the gold price, I can’t even tell you what kind of move you could have in the silver price.
“I’m not saying it’ll happen, but making a reasonable bet on that contingency is – particularly in in the case of myself as a convertible investor where you have effectively no downside – a pretty good asymmetric bet.
“When I look at the debt of governments around the world, and the serviceability of those, the only way I see out of it is the debasement of the currency.
“I’m no economist, I’m a credit guy, but if I’m right, the most likely outcome from a historical perspective is higher, perhaps dramatically higher, precious metals prices.”
Leverage to silver price
Rule believes that a company like Silver Mines, which already has silver resources and is not just drilling for them, is highly leveraged to the silver price.
“What has happened in my career in silver bull markets is that when the generalist investor begins to look for legitimate silver development stories, (those companies) go absolutely ballistic.”
The industrial thesis
While Rule sees the expanding industrial uses of silver as important, they don’t play into his thesis.
“it is, if you will, icing on the cake,” he says.
“Clearly there are wonderful utilities around silver that make it spectacular for solar panels for example.”
He says silver’s less well understood use is that it’s an amazing germicide, not just for hospital sanitation and wound treatment, but also the rapidly expanding wastewater and sewage treatment industries.
“It is useful from a speculator’s point of view to see industrial demand. The investment attributes around silver become more broadly appealing to more people.
“But what you’ll notice in prior bull markets is that the market capitalization that becomes associated with silver producers is four times the free cash flow multiples that accrue to other industrial producers, such as copper or nickel.”
This article was developed in collaboration with Silver Mines a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
Originally published as Why resources veteran Rick Rule is bullish on Silver Mines