For investors in the metals and minerals sector, the past several years certainly have been challenging. While most are hoping for a potential catalyst to spark a roaring bull market again, others are being a bit more proactive in searching for opportunities in this rocky market. Equities.com recently had the chance to speak with Mickey Fulp the Mercenary Geologist to discuss his take on the current market, and whether a major bounceback are in the works from a macro perspective.
Fulp will be speaking at the upcoming 2014 Metals and Minerals Investment Conference in New York on May 12-13 at the Marriott Marquis. He will be joining other notable speakers including Bud Conrad, Chief Economist, Casey Research, Rick Rule, Chairman/Founder, Sprott Global Resource Investments Ltd., and many more.
EQ: You have an extensive background in this space. Can you talk about your experience and tell us about yourself?
Fulp: I have a Master’s degree in geology. I’m a Certified Professional Geologist and have almost 30 years field experience as an economic geologist. I concentrated mainly in the Americas, but have worked in over 30 different countries.
For the last six years, I have been a full-time analyst, writer, and speaker. My expertise is focused on the junior resource sector because I worked exclusively for juniors and have been involved in the Vancouver and now the Toronto stock markets for the past 22 years.
EQ: You use the name Mercenary Geologist. How did you come up with that?
Fulp: Well, I often seem to wake up at 4 a.m. with epiphanies and this was one of them. To tell you the truth, I can’t remember when I first thought of the moniker, but I’ve had it in the back of my mind to become an analyst at some point in my career, and that was going to be the name I would use. I first coined it publicly in the fall of 2007.
EQ: What are some of the unique insights that readers and subscribers can find at mercenarygeologist.com? How is your approach different?
Fulp: I have a distinct advantage because I’ve seen most of the different rock types in the world, and I very much emphasize project evaluation as a starting point to decide whether to speculate in a company. That’s quite different from most newsletter writers. A quick project evaluation allows me to eliminate a lot of companies from further consideration quickly.
At MercenaryGeologist.com we offer a free subscription service, and we’re able to do that because I run a sponsor model. With the companies that I’m invested in, I’ll offer a very select few of those companies—the best of the lot, if you will—an opportunity to be sponsors of the website. That’s the way I make my money, and it’s allowed us to reach a much broader audience than many of our peers.
We have about 6,700 subscribers and are approaching 36,000 Twitter followers, and by offering free products via the website and to numerous syndicators, I can reach many more potential investors.
EQ: The sentiment in the metals and minerals space may be described as cautious optimism right now. We’ve seen some interest return, but it’s still far from its peak. Have you seen any signs that conditions are improving in a meaningful way?
Fulp: I certainly have. We’re starting to see good companies prospering. Success is being rewarded, and there are financings available. We didn’t see that interest last year.
Let’s use the S&P/TSX Venture Composite Index as a proxy for our business. The high was reached right before PDAC in 2011 at about 2440, and it was essentially downhill from there. We’re now into plus three years of a bear market, but we have seen some encouragement since mid-December.
The index has been bouncing around 1000, and it’s very much range-bound, but that’s up significantly from mid-December. We’re up almost 12 percent this year and I find that encouraging.
Recently I’ve done some comparisons with the last bear market, and for those interested, they can read my musing from about a month ago, “It’s Getting Better.”
EQ: In a bull market, investors can generally throw a dart and pick a winner. That is obviously not the case right now. How should investors approach this market when it’s critical to be as selective as ever?
Fulp: Selectivity is the key word. The evaluation model we run has a four-tier approach.
First, we want the share structure to be tight with insiders holding significant positions. The second is we want people in management to have previous experience in the sector with proven success. I don’t consider someone who has bankrupted three companies to be an entrepreneur or a venture capitalist. Those types are too common and simply mine the stock market.
The third, which I mentioned before, is the project. The project has to be good geologically and a commodity I like, and in a geopolitically-favorable part of the world. I don’t care if the share structure is good or the people are the best in our business — the company is not going anywhere unless the project is right.
The fourth one, we added over two years ago because of the bear market, and that’s cash in the bank or the ability to raise funds without significant equity dilution. That’s a critical element at this juncture.
This is the highest risk, highest reward business that exists in any stock market in the world. So we choose to employ a very conservative trading philosophy to the market in order to mitigate that risk, and skew the odds in our favor.
If people are interested in my methodology, they can read “The Power of Two: A Primer for the Lay Investor” from May 2010.
EQ: Where are the most attractive long-term opportunities right now to you? I understand that you’re pretty bullish on copper and uranium.
Fulp: Well, I’m a contrarian so most everything I do employs that underlying philosophy. We try to get in early when sectors are beaten up and no one else wants them. That’s when we want to buy but realize that contrarianism often requires patience.
In the commodities space, I’m very committed to uranium producers in the United States. I’m also very bullish on the mid- to long-term outlook for copper. Short term, I’m neutral on copper and I’m certainly not bullish on uranium for the short term. These are longer-term holds than some of the more speculative things that I own in other commodities, in particular gold and oil and gas.
I’m also bullish on tungsten, which I think is the one specialty metal that offers compelling opportunities for the junior resource sector.
As for the types of companies, we like the US producers in uranium space. I may do some speculation with uranium explorers in the near future; of course that would be in the Athabasca where there have been recent discoveries.
In copper, I like developers and advanced explorers.
And we always favor prospect generators for any grassroots plays, although you have to be very selective with them. I’m involved with a couple of prospect generators that have done very well and also a couple that are likely to wash up on the shore soon. In this business no one is going to hit on all his speculative stocks; that’s a certainty in a bull or bear market.
EQ: What are some of the catalysts that you’re watching to play out in these spaces?
Fulp: The main catalyst for uranium is going to be the startup of the Japanese reactors; that will be a psychological boost to the market. We saw quite a run-up in some uranium equities in the first three months of this year. They’ve since come off, as the uranium price continues to go south. But the cure for low prices is always low prices and once the price reaches a level at which producers can start making money again, I think you’re going to see this business turn. If history can serve as a lesson, once uranium prices start to move, they can do so very quickly.
In copper, I actually don’t think we need any catalysts. We have solid mid-to-long-term fundamentals of increasing demand, 3-4% per year. Each year we add 85 million more humans to this planet, and a significant number of those are in parts of the world that do not have electricity. Copper is required to transmit electricity. 25 percent of the world is still lives in the dark, but that’s changing rapidly, and is the fundamental reason why I’m such a bull on copper in the mid-to-long term.
EQ: Your sessions at the upcoming Metals and Minerals Investment Conference really dig into how investors look at the junior resource stocks. Can you tell us more about why this is an important area that investors need to be more knowledgeable about?
Fulp: It’s a micro-cap niche market, so if people are willing to attempt to understand it and take the risk involved in this business, they can potentially reap significant rewards. During the bull market, we had doubles across the board in 12 months or less and commonly had five, 10, or even 20 to 30 baggers. Even in this bear market, we recently got our double in nine weeks with timely coverage of a domestic uranium producer.
We love to get in when markets are down. For people that have the risk appetite and a discretionary portion of their asset portfolio, I would encourage them to take a look at the junior resource sector. It has on the order of a 95-percent failure rate over a five- to seven year period of time. But that doesn’t mean you can’t make significant profits on many of these stocks before they eventually fail.
What we try to do is try to find those no brainers that have significant upside in the short-term combined with the idea that one of those will be the one-in-20 with ultimate success. We apply our contrarian philosophy of buying these stocks when no one knows, wants, or cares about them for one reason or another.
EQ: Any advice or suggestions for attendees of the upcoming conference?
Fulp: For the retail lay investor, I suggest you go with a plan. Look at the conference agenda before you get on the floor. Have a daily walk-about in mind. There’s at least one session going on at all times, and then you have the floor with all the trade exhibitors. Decide who you want to hear speak, and make sure you allocate the time for that.
But also take a look at all the companies in the brochure and do some due diligence before you go to the floor. Have an idea of the companies that interest you and the reasons they do, and you’ll be less swayed by the always slick promotional displays. That’s because everybody on the floor has a story and it all sounds good when the promoter is promoting you. Please remember that’s what they get paid to do, i.e., to get you to buy their stocks. Realize that they’re all competing for your hard-earned dollars and it’s incumbent upon you as a diligent speculator to do enough solid research to separate the few contenders from the many pretenders.
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