Rick Rule makes some good points but I disagree with others.

Financing terms over the last few years were far too generous and this has come to an end. Those JPMs that have not handled their capital well, or were not good investments to start with will die off or underperform, about 90% in Rule’s estimation….since they really don’t have any gold or silver, they are merely looking for it. This will leave the few that do have good properties and have been fiscally prudent will do well and some will be ten to twenty baggers…defying the sector as a whole. So, wise investment selections will be most rewarding. Rule has targeted about 60 JPMs in which he will start nibbling in August, being aggressive with good companies that are under valued, intelligently run and not well promoted.

While Rule predicts higher PM prices over the next few years for all the normal reasons, he fails to mention the fact that there has been extreme intervention in the PMs, that there are unprecedented short positions in gold bullion of more than 15,000 tons by the central banks, that there are unprecedented derivatives/paper shorts held by only 8 or so traders, that there are huge naked shorts in the whole sector, that ETFs are being fraudulently employed to further short gold and silver, that global (not U.S.) demand much exceeds supply, that production is declining, that inflation is far higher that reported, that most world currencies are near the end in a race to the bottom…well you know the story.

While I do agree with Rule’s criteria for a successful co. is one that delivers an individual surprise, one that has good management and employs capital such that they make a discovery, he fails to mention those who have made significant discoveries, some with much infrastructure already in place, some that are well financed, some that are not at all diluted and yet are woefully undervalued. So, these, it would appear even though they have already “surprised” have been totally suppressed….or should I say, have not priced the “surprises” into their price. He cites Arequipa, which I fortunately held from $1 in the fall of 1995 and saw Barrick buy it out at $31 in the summer of 96. It held (no feasibility report either) a potential of 4 to 7 million ounces of gold at an estimated grade of somewhere between 4 to 7 gms/ton. Gold was around $400/ounce then. I fail to remember the capitalization but I stand to be corrected on about 60 million shares out.

So Rick Rule is going to buy companies that are threatening to make major discoveries such as Arequipa did (he never said he bought it though). So what about a co. that has already proven up resources and has a real potential for say, 1 to 2 billion ounces of silver equivalent ( 20 to 40 million oz. gold)…with gold today at $930 and silver at $17? Most of the “surprise” factor has already surprised us but with diminishing value of the share price. I site ECU as one example and there are many more. Would Mr. Rule have paid $30 for Arequipa after the fact? Will he buy ECU with the surprise built in knowing it is worth far more than $1.70?

Seems to me, and I have only touched on the surface of all factors to be weighed, that Mr. Rule has erred much through omission or simply doesn’t buy, or isn’t aware of some most glaring fundamentals in the JPM markets. They say there is no such thing as being a little bit pregnant.

But then again, who am I? …..a miserable gold bug miscreant left to introverted and seemingly misguided speculation of the wildest sort I suppose.

ECU: talk about deserving! Huge built-in value with additional huge surprise potential.

What is it really worth?