The Little Book of the Shrinking Dollar: What You Can Do to Protect Your Money Now

Profit from Playing Commodity Catch-Up

On a global basis we are still living on resource investments made in the 1960s and 1970s. There was a huge dearth of resource related investment in the two decades from 1982 to 2002.

—Rick Rule, founder of Global Resource Investments, an arm of Sprott Asset Management

Juxtapose that with the trends in global population growth. Add in the fact that the emerging markets’ desire for Western lifestyles creates a supply/demand imbalance that will last a decade. It’s worth getting into natural resources.

There will be unnerving volatility. But the nominal price of these commodities—when denominated in depreciating currencies—should increase dramatically.

Ultimately producer margins and profits will rise. Valuations, says Rule, “will continue to be enhanced by strategic buyers, who buy resource producers to obtain strategic access to resource supplies.”

A great example of this we saw at Agora Financial in 2011 was Riversdale Mining. Riversdale sat on a big pile of hard coking coal in Mozambique. Nobody needs high-quality coking coal more than steelmakers, which is why nearly half the company was owned by ’em. China, Brazil, and India’s steelmakers all had a strategic interest in getting the riches from Mozambique. They were each eager to score strategic assets for themselves when the time was ripe. Then giant miner Rio Tinto expressed an interest. The bidding war began.

In the end, we didn’t wait for the final deal, and took a quick 60 percent gain ...