Mickey Fulp | I’m Bullish on Gold, Copper and Uranium in 2019

In this episode, Mickey Fulp, aka “The Mercenary Geologist” shares regarding how he approaches resource speculation and investing.  He shares why he prefers the USA as a mining jurisdiction over Canada and gives insights into how he personally manages his own mining portfolio.  Mickey also provides his thoughts on the vanadium market and his top commodities for 2019.

Mickey is a Certified Professional Geologist with a B.Sc. Earth Sciences with honor from the University of Tulsa, and M.Sc. Geology from the University of New Mexico. Mickey has 35 years experience as an exploration geologist and analyst searching for economic deposits of base and precious metals, industrial minerals, coal, uranium, oil and gas, and water in North and South America, Europe, and Asia.

Mickey worked for junior explorers, major mining companies, private companies, and investors as a consulting economic geologist for over 20 years, specializing in geological mapping, property evaluation, and business development. In addition to his professional credentials and experience, Mickey is high-altitude proficient and is bilingual in English and Spanish. From 2003 to 2006, he made four outcrop ore discoveries in Peru, Nevada, Chile, and British Columbia.

Mickey is well-known and highly respected throughout the mining and exploration community for his ongoing work as an analyst, writer, and speaker.

0:05 Introduction

1:35 Why Mickey likes the USA and dislikes Canada as mining jurisdictions

5:25 Mining is a value industry not a growth industry

7:24 Mickey’s take on the recent major gold miner mergers

10:28 How Mickey approaches short-term trading of junior miners

11:35 What Mickey’s personal mining stock portfolio looks like

13:05 How Mickey managed his mining portfolio during the down-cycle of 2011 to 2015

16:03 Mickey’s thoughts on discerning the top and bottom of a commodity cycle

18:18 Thoughts on Vanadium

22:36 Top commodities for 2019

BEGIN TRANSCRIPT:

Bill: You are listening to Mining Stock Education. Thanks for tuning in and welcome back. I’m Bill Powers, your host. Joining me today for a discussion concerning resource investing is the Mercenary Geologist, Mickey Fulp. If you follow the resource stocks and those that commentate on mining stocks, you already know who Mickey is. If you don’t know who Mickey is, then this interview will be your introduction. Mickey, thanks for joining me and welcome to the podcast.

Mickey: Thanks a lot, Bill, my pleasure.

Bill: I was talking to one of my kids today, and they said, “What are you doing this afternoon? And I said, “I’m interviewing the Mercenary Geologist.” Then my son said, “Dad, what’s a mercenary geologist.” So, let’s begin there. Mickey, what’s with the moniker Mercenary Geologist?

Mickey: A mercenary’s someone for hire, and most geologists are for hire. We don’t really have regular jobs. We don’t collect paychecks every two weeks. We’re mercenaries. We’re for hire.

Bill: Both of us are based in the United States. I’ve heard you speak favorably of the US as a mining jurisdiction and not so favorably at times regarding Canada as a mining jurisdiction. Can you elaborate on why that is your perspective?

Mickey: Canada has lots of issues right now, including a socialist government that’s anti-development, both at the federal and provincial levels. It is generally a left-leaning society. There is throughout the country … It varies from province to province, but there are native land claims issues all over the place that can affect timely permitting and development. There are social and gender issues that must by federal regulation be addressed for such things as pipelines. So, generally, Canada, with the exception of a couple of provinces, is a place that I avoid at this juncture.

You had problems during the Obama administration, but those went away once Trump was elected.

Bill: For the sake of playing the antagonist here, I had a fund manager on this podcast earlier this year, and he shared with me that he’s not hot on the US. Some of his reasons were that it’s been well-explored, and therefore it’s less likely to yield a world-class discovery. What would be your response to that point?

Mickey: Well, where is he based, and what is he speculating in? In what parts of the world?

Bill: Based in Toronto, but he invests all over the world.

Mickey: Well, if you invest all over the world, you will be hit by resource nationalism in many countries in the world, as regimes change. Certainly the US is for the most part a mature geological province, but we have discovered many new deposits over the last 20 years, and I expect that to continue as our technologies advance. Certainly, we don’t have the obvious geological potentials sticking out of the ground in places like, perhaps, the Democratic Republic of the Congo or a place like Bolivia, the Andes of Bolivia, but I would rather accept geological risk for reward versus geopolitical risk for a potential reward.

Bill: What about when it comes to permitting? Those that aren’t hot on the US, they would say, “Well, permitting could be difficult due to all the anti-mining groups.” Then, because the US is so populated, you don’t get those places in the middle of nowhere. Therefore, you’re going to have more anti-mining group in resistance towards developing a potential mine in the US.

Mickey: Well, I would say, “Look at the track record over the last few years and the deposits that have been found, the deposits that are being put in production.” I think the record speaks for itself.

Bill: You’ve said that mining, and especially gold mining, is a value industry and not a growth industry. Can you impact your statement a little more?

Mickey: Yeah. It’s all about margin per unit of material produced. You want to be in the lowest quartile of whatever commodity you produce. That way you are hedged against falling prices. Too many companies … It goes beyond gold mining companies; it’s mining companies in general … over the last couple of decades have approached the industry as growth, and that really doesn’t work. You deplete reserves. If you’re on a growth profile, it is impossible to replace those reserves.

I think the mining industry has developed what I call a Wall Street style of capitalism, where they want to generate increased earns for earnings’ sake with little attention paid to the bottom line. It’s not revenues that are important. It’s the net revenues, your ability to generate enough cash flow to cover your obligations, which includes exploration for new resources, development of new reserves, the capital to put those reserves into production, the ability to generate dividends for your shareholders. So, it basically comes down to gross revenues out versus cash flow at the bottom line, and many mining companies do not meet those criteria at this juncture.

Bill: What’s your take on the Barrick-Randgold merger and now the Newmont-Goldcorp merger?

Mickey: The Barrick Randgold merger: One bad company, Barrick, merged with one good gold company, Randgold. Luckily, they put the CEO of Randgold in at the top; so, hopefully, he will turn that combined company around. It goes back once again with the inability of Barrick to replace the reserves that it produces on a yearly basis. Hopefully, with the Randgold merger they will turn that company around, which historically, at least since 2003, has not rewarded its shareholders.

Newmont and Goldcorp: That’s two of the four largest gold companies in the world, the others being Barrick, even before the Randgold merger, and AngloGold. So, you’ve got two bad companies merging to form a bigger, badder company in my opinion. I fail to see now that merger benefits shareholders in any way, shape, or form. If you look at the stock charts of both those companies since the announced merger, Wall Street agrees with me.

Bill: What are the implications in your view with that Newmont-Goldcorp merger for both mining investors and the smaller mining companies?

Mickey: Well, I don’t think it helps the investors in either of those two companies, either for potential share price increase or dividends. Regarding other smaller companies, these mergers and acquisitions become trends. So, in any given 10 or 15-year period, the big companies grow into bigger companies, and they find that doesn’t work. Then they spin out assets or they spin out companies and they become smaller, and that doesn’t work either. So, they wash, rinse, and repeat.

Certainly, I think, the way that the business works, kind of in a sheep-will follow-the-herd mentality, we can expect other mergers and acquisitions to happen now. The only possible benefit to smaller companies will be spin-out of what these companies, larger entities now, consider to be non-essential, non-core assets. So, at times the small junior resource sector can benefit with those properties offered at fire sale prices.

Bill: I’ve heard you say numerous times that every 52 weeks a specific junior miner’s going to have a low and a high of probably at least a double. Can you talk about how you use trading to gain profits in your mining stock portfolio, especially in down years?

Mickey: Well, you look at most juniors, and they will have a double in any running 52-week period. So, as contrarians and employing a trading philosophy under a contrarian banner, we want to buy stocks when they are unknown, unwanted, unloved, and undervalued, with the idea that if we pick them at the right time, they will double in 12 months or less, as most juniors do. We can sell half our position, maintain our capital, still have half of that position to trade with a zero cost basis, and we find another junior, take that capital we’ve taken off the table with the previous company, and deploy it again. We call that the Power of Two trading philosophy.

Bill: What’s the breakdown in your portfolio between explorers, developmental companies, and producers, and royalty companies, percentage-wise?

Mickey: I’ll start from the back end of that. I own two royalty companies, one which I inherited, a major royalty company … I inherited it because a smaller royalty company was taken out by that one I own … another small royalty company called Ely Gold Royalties. They sponsor my website, and I’m a shareholder; so, I’m biased in that regard. I own three, or four, or five miners, not by choice, generally. Those have come from takeovers by a larger company of a junior, or in a couple of instances, juniors that have graduated from exploration companies into small mining companies. My sweet spot is advanced explorers, and that constitutes most of my portfolio. I own somewhere around 35 juniors at this juncture, and most of those are either startup deals where I’ve gotten in early or advanced explorers, because those offer the highest leverage in the business.

Bill: For those of us that follow closely the junior mining sector, sometimes it’s hard to keep our capital on the sidelines. We want to jump in and we want to continually search for value and opportunities. However, as you know, in a down market you can lose a tremendous amount of money in junior mining stocks. So, my question is, from about 2011 to 2012 at the last peak, specifically in gold and silver, until about 2015, how did you personally manage your portfolio?

Mickey: I did not take as much risk. I sat on companies that I knew were good and were downtrodden and beaten. Sometimes I bought more of those companies. I used the ones that had no hope or had rolled back as tax losses to offset gains that I made. I continued to take profits through that period of time by picking and speculating … I refuse to use the word invest … in these junior exploration stocks. Few of them are miners, so I don’t call them junior miners; I call them junior explorers in mining companies. Very few of them are miners.

I, as a philosophy, do not sell stocks at a loss, even though they may have been malinvestments or mal-speculations, because I can save those up and use them for tax loss sales. I haven’t paid capital gains. I would have to go back to … Well, probably not even possible to go back, because as an American, you shred … If you’re smart, you shred all your tax records after seven years, because that’s as far as the IRS can subpoena those back. So, there’s no reason to keep those. I don’t think I’ve paid capital gains taxes for any IRS filings that are still in my desk drawers.

Bill: Do you mean short-terms capital gains? I mean, you would make long-term capital gains, wouldn’t you, on some of those?

Mickey: Yeah. Well, even if you have long-term and short-term capital gains, once you hold them for a period of it, they all go into tax losses, and they can be applied against both short-term and long-term capital gains. So, I generally don’t take short-term capital losses, because I hold those losses longer than a year. But it all goes in the same basket eventually.

Bill: In terms of deciphering, discerning the top and the bottom of the commodity cycle, and consequently, the mining stock cycle, how were you able to do that in 2011, 2012. What were some of the things you look for to judge a peak or a trough?

Mickey: Well, you look at prices. When prices go exponential, they will go parabolic. So, it was obvious to me, when gold went to $1,900 … You can go on my website and find a couple of interviews at that period of time where I, against the herd, said, “Gold will never reach $2,000 an ounce.” It did not. It got to $1,895 in a close. It briefly went over 1900 intra-day. When you see those spikes in prices, you know that the market is frothy and bubbly, and it’s time to get out.

I took a lot of profits in 2010, 2011, and I basically got out of gold explorers at that point. You can get out too early; but, as Bernard Baruch said, he made all his money by selling too early. So, taking profits is never a bad thing. I saw it coming. I got out. I probably didn’t get out as quick on some things or as fully out as I should have. You take your profits, and you sit on the sidelines, and you get more conservative, which is what I did in that period from 2013 to 2016.

In 2016, I started to acquire gold explorers again. I took a little bit of a break in 2018, because the market did not perform as well as I thought it would.

Bill: One commodity that went parabolic last year was vanadium. When you see a commodity do that, and now there’s been a pullback, would you even touch investing in a mining company that focuses on vanadium at this point?

Mickey: Well, I am invested … I can say invested in this case … in a uranium company that is producing vanadium as we speak, Energy Fuels. Currently I would not tend to speculate, or I have not, and I have no intention of speculating in any startup vanadium companies, because vanadium is a by-product mineral.

There’s only three primary vanadium mines in the world, two in South Africa and a new one in Brazil. They are all doing quite well. The reason for the vanadium spike to $34 had a lot to do with the fact that 10,000 tons a year came off the market with the shutdown of a third South African vanadium mining company.

This idea that vanadium redox batteries are going to result in significant amounts of vanadium demand in the near-term future is fallacious. The vanadium market is very small, 80,000 tons per year. Over the last five years it has not grown. Now, I have not seen the 2018 world production yet. That will be coming from USGS soon. But I do not expect it to jump above that 80,000 tons per year mined.

Vanadium is used in 92% in 2017 in the steel industry. It is a product of steel slag, a by-product of uranium mining, a by-product of oil residues. Exxon is now working on producing more vanadium from its refineries in the Gulf Coast of the United States and also from fly ash as a waste product from coal-fired power plants. So, the idea you can go and put a new vanadium mine in production in the Western US is a pipe dream in my opinion.

Bill: Behind my question, I was thinking more in terms of a Largo Resources, not an Energy Fuels. With Energy Fuels, in my view, you still have all that upside potential from a rising uranium price. So, you get exposure to vanadium with that company, but a lot less risk than a pure vanadium play.

Mickey: Right. Largo Resources has done quite well with their project in Brazil, at least the last time I looked at it, which was probably in the late spring, early summer, when I did an interview for Kitco on their commodity show. A monthly commodity show for kitco.com was on vanadium, and a lot of my thoughts on vanadium are in that. You can find that on my website under the Interviews page. I think we did that interview at the end of May.

My opinions on vanadium have not changed since then, except the price went from $34 at the time to $16 as we speak. I don’t expect it to stick at $16. It has been subject to spikes.

We just finished the Cambridge House Conference here, and I’m actually coming to you from my office in Vancouver. I’m in two residences: one in New Mexico, one in Vancouver. I did a vanadium panel, and that should be up on the Cambridge House website sometime within the next a couple of weeks.

Bill: Mickey, as we conclude, what’s your top commodity for 2019?

Mickey: Well, that’s a very good question. I haven’t really thought of it that way. I can tell you that I’m bullish on gold, I’m bullish on uranium, and I’m bullish on copper in 2019. Regarding the base metals, we need the current trade tariff impasse between the US and China to resolve itself, or partially resolve itself, in one way, shape, or form. Then the base metals are going flying upwards, and copper supply/demand fundamentals look very good.

Gold, as a safe haven. A weaker US dollar will support a higher gold price. Trump’s on record as wanting a weaker US dollar, and we’ve seen, generally what Trump wants, Trump gets. The Fed is backing off from three interest rate rises, and now we’re talking about two or perhaps less, as Trump continues to push Powell in the Fed. So, that also is positive for gold.

Uranium, which is up significantly, 35% since April … now at $29 a pound … with a Section 232 decision coming in the end of the 1st quarter, early 2nd quarter. We expect that to be positive, which will give a boost to domestic uranium producers and developers. So, very positive on that commodity, too.

Bill: Most listeners, I’m sure, know how to find you on the Web; but, perhaps there are some listening that don’t. For their sake, how would they find you on the Web?

Mickey: MercenaryGeologist.com is the website. We run a free subscription service, a sponsor model. So, the price is right. To get my stock picks, you must be a free email subscriber. We’re up to about 6800 subscribers now. We’re very active on Twitter, @mercenarygeo, with 52,500 followers. Twitter followers, take a look. I think you’ll be entertained.

Bill: I appreciate your time. Thanks for the conversation today.

Mickey: Thanks for inviting me.