Famous mining investor Rick Rule says the mining industry would be better off if 85% of the listed exploration companies globally became extinct.

In an interview with Stockhead’s Christina Morrissey, Rule was asked who will fund the explorers and how the next generation of tier 1 mineral deposits will be found.

“I hope it comes from the bankruptcy of all the pretenders,” he says.

“Let’s say there are 2000 junior miners worldwide. I would suspect only 300 of them would have a reason to exist.

“The mining business would be better off if 1700 of them became extinct. But they are cockroaches; very, very tough to kill.”

Rick rule gold 2023
Veteran investor Rick Rule.


‘Shocking’ lack of spend on actual exploration

About 20 years ago Rule had a young intern, who he assigned the job of pulling 25 TSX venture companies at random and reporting the insights he gleaned from their balance sheets and income statements.

“What he found shocked even me,” Rule says.

“The median spend on general administrative expense across 25 randomly selected companies was over 60% of the capital raised by those companies.

“Less than 40% went in the ground.”

If you merged every junior explorer in the world into one company, and that company was called Junior ExploreCo, on a very good year that company would lose US$2bn. In a bad year it would lose US$6bn.

“The exploration industry isn’t underfunded; the industry is overfunded,” he says.

“You say we need more money spent on exploration? Of course we do, when 65% of the money is spent on G&A [General and Administrative], and less than 40% in the ground.

“Society has underinvested in exploration for at least three decades. And it’s been OK, because we have lived off the surplus discoveries from the ’60s, ’70s and ’80s when we did invest substantial amounts of money in exploration.

“But that party is coming to a screeching halt.”


Copper: when underinvestment goes really, really bad

Just look at the geriatric giants of the copper business, Rule says.

“Bingham Canyon, the biggest mine in the US, is 160 years of age. Chuquicamata, the biggest open pit mine in Chile, is 115 years of age.

“The newcomer Grasberg is 65 years of age, while Escondida is 40 years of age.”

Bingham Canyon — the copper mine you can see from space.  Pic: Pavliha, iStock / Getty Images Plus

We haven’t invested anywhere near enough money in the copper exploration and development business, Rule says. Absent big mine construction spends we are going to experience supply shortages within five years.

“I use copper because it is a large and well understood market, but what I said regarding copper could apply to much of the electric and battery metals space,” Rule says.


The 300 good stocks investors should pay attention to

There are, of course, the 200-300 exploration companies that exhibit such spectacular performance they add legitimacy, and even lustre, to a sector that loses US$2-6bn a year, Rule says.

“Certainty we have seen that in Australia where Chalice (ASX:CHN) made a large sulphide nickel discovery. The market sat up and took notice,” he says.

“The market understands these are very rare beasts. They make a lot of money now and they are going to make a fortune in the future.”


One wonderful trend we are seeing now is increasing participation by senior mining companies — smart money — in financing quality juniors, Rule says.

“Typically, in those exploration joint ventures the overhead [cost] allocation enjoyed by the juniors is between 12-15% of total exposure, rather than the 65% funded by dumb money [if they went in alone],” he says.

Average individual investors are often shoved under the “dumb money” umbrella. (No offence.)