Leveraging the System

 

 

On Friday we brought you part one of an interview I had with legendary investor Jeff Phillips.

As promised, here is the second part of that interview...

Jeff gets into specific companies that he has his eye on in the commodities sector that we discussed earlier. We hope you enjoy this one just as much as last weeks'.

As a reminder, non-resource company interviews like this will no longer be sent to you through Resource Stock Digest, but instead, by our affiliate publication Daily Profit Cycle.

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Let's get it!

Gerardo Del Real

Gerardo Del Real
Editor, Resource Stock Digest

 


 


 

Gerardo Del Real
Gerardo Del Real: This is Gerardo Del Real with Daily Profit Cycle. Joining me today is financier, friend, one of the most respected voices in the resource space, and one of the best contrarian voices in the resource space, Mr. Jeff Phillips. Jeff, how are you today?


Jeff Phillips: I'm good, Gerardo. Thanks for having me.


Gerardo Del Real
Gerardo Del Real: Thanks for coming back on. You and I spoke last week about the multi-trillion dollar infrastructure slash stimulus spending packages, which frankly I believe is just the counterfeiting of money. It's hard for me to fathom an end game scenario where it all works out well without a restructuring.

With that being said, you and I spoke last week about commodities that you like, that you think will benefit disproportionately from the current environment that we're in. You mentioned copper, you mentioned uranium and you mentioned gold.

We chatted about having you back on... See if you could give us some specific companies possibly that you like, and why you like those, in each of those commodity sectors. I would love to hear your thoughts, and get a few names in each of those.

 


Jeff Phillips: That'd be great, Gerardo. On your note, it's not just the printing of money, which we obviously have massive amounts of, it's the leverage in the system.

You saw, a week and a day ago, or something like that, a major disruption in the market, where several banks took massive losses on a hedge fund that bought in a margin call for billions of dollars. It's actually going to affect several banks' balance sheets, big banks, not small banks.
  
So it's the leverage. It's not just the printing of the money. It's the leverage people are using off of the money supply. It's beyond me to completely understand. But I think when the leverage runs the other way, and we see these margins and these derivatives and these complicated products that I don't even think the people making them understand, they just understand they get big commissions, it's going to be very... It's not just the printing of the money. It's the leverage in the system.

Hard assets are what we talked about. I think, again, owning a cross section of hard assets, and being able to protect your wealth, because I absolutely think there's going to be a debt cycle that's going to reverse and be one to remember.


Gerardo Del Real
Gerardo Del Real: With that being said, can you give us a couple of uranium names? Let's start in that sector. We talked about how it costs more to produce it right now than the price that you can actually sell it for in the spot market. I've noticed that hundreds of millions of dollars have recently been raised by uranium companies that would rather buy it than produce it at these prices.


Jeff Phillips: Correct, Gerardo. Again, for your listeners, everybody's different. I've got a portfolio of a whole bunch of different hard assets. We talked about real estate, and coins, and art, and different things that I put cash into, because cash is being devalued, and I want to own physical assets. So again, a portion of my portfolio is in natural resources. Underlying that, besides owning physical gold, is owning speculative companies.

Again, this isn't what I have all my money into. Each of your listeners is different.

Again, these are speculative plays that, again, you aren't putting money you need in for next month. This is highly speculative. Again, if you want to speculate on the metals, there's exchange traded funds, there's large producers. I focus on the smaller companies.

On the uranium front, one company I've talked to you about before, that I've owned for a number of years, and I'm up a little bit, but I plan on being up a lot more... I'm a consultant for all of these companies and a large shareholder, so your listeners know that. The uranium company that, again, on a speculative front, would be Azarga Uranium.

It's got the Dewey Burdock project in South Dakota. It's in final permitting at the state. That's got its federal permits. It's one of the highest grade ISR uranium projects. It is a US-based project. Being that we're starting to see resource nationalism, and the Chinese have been doing that for years, but it's becoming more important for us to secure our supply chain. Uranium is critical.

So I like Azarga Uranium. They have several other assets. The Gas Hills projects in Wyoming, which could be a satellite project for the Dewey Burdock project, or it could be a standalone project, but those are US-based uranium assets. The company has plenty of cash. It won't be raising money soon.

So I like Azarga. It's what they call a micro cap. It's a 27 or 28 cent stock. I suspect it can move up. Uranium's starting to move. I'm looking to hopefully see that company bought out by a larger uranium company in the 50 cent or higher range. So I like Azarga Uranium. I believe the symbol's AZZ on the Toronto Venture Exchange.


Gerardo Del Real
Gerardo Del Real: That's correct.


Jeff Phillips: Yeah. If your listeners are looking for something more secure, that's more of a buyout, what I specialize in, trying to find companies I think larger companies will buy ... I don't want to actually put something into production, or the company I'm a shareholder in. But obviously, if you're looking just to have exposure to uranium, there's several ETF funds.

There's also Cameco, which has some of the largest deposits in the world, and is a major producer, even though some of their production is shut down because of the price of uranium being lower than it costs to sell it. It's easier to buy and fill their contracts on the open market. But Cameco is a very interesting company if you want something bigger.


Gerardo Del Real
Gerardo Del Real: Excellent. Let's do a couple of names in the copper space.


Jeff Phillips: Some of the bigger names, like Freeport, have moved quite considerably. I think copper has gone from $2.40 a pound or so to over $4 in the last 12 months or so. You look at something like Freeport, which has moved from $5 to I don't even know. I think it was over $25. Some of the bigger copper companies have had pretty good moves that are producing.

Again, I speculate in the development and resource definition type companies, again, to sell those to larger. One of those companies would be a company... It's in Peru, which is a higher risk area of the world. It's not the United States, but still has a history of mining. That's Chakana Copper.

The symbol on the venture exchange is PERU. I believe it trades right now around 50, 51 cents. Something like that. They're working on a very interesting project. They'll have the first resource estimate and have had incredible drill holes and make great discoveries. Their largest shareholder is Gold Fields, the major miner.

They basically are coming out with their first resource. I think Gold Fields owns 19% of the company, so obviously you have a potential buyer there for the whole company as they come out with this resource and move down the pre-economic assessment and the different things.

But I think that Chakana Copper's an excellent speculation. They've got lots of drilling going on, lots of news coming. The stock's been stuck in this range for six months of 50 to 60 cents. I suspect they've raised money. They've worked through some of the less long-term shareholders. I suspect that stock should move up here and do well. So Chakana Copper would be one.

Another one would be Kutcho Copper. Kutcho has an excellent high grade, medium sized copper project in Canada, so a very safe jurisdiction. They're in their bankable feasibility phase right now. The company's undervalued compared to the net present value of the project.

Their largest shareholder, and who has backed them, has put almost as much money probably in as the market cap, is Wheaton. You'll have to correct me, I think it's Wheaton Precious Metals, right?


Gerardo Del Real
Gerardo Del Real: Correct.


Jeff Phillips: Yeah. They changed their name, so I get confused. Wheaton's a massive royalty company and has spent 20 million to acquire the project with the company. The market cap of the company right now might be $35 million. I think as that project moves forward, that becomes very interesting to some of the Japanese companies that are processing copper. So I think Kutcho Copper, the symbol's KC on the Toronto Venture Exchange, is an interesting copper speculation.


Gerardo Del Real
Gerardo Del Real: Excellent. We did uranium. We've done copper. How about gold? Can't let you go without getting a name or two in the gold space, right?


Jeff Phillips: Yep. Gold stocks have come off quite a bit here, because we've seen interest rates on the government bonds going up. That affects the gold price. Again, I'm a long-term believer in gold. You can bet that there's a lot of major gold producers that, even at today's price of what's at around $1,700 or a little lower, wherever it is today, are making great money. They still have a lot of those reserves, and production numbers at $1,200 gold. So there's a lot of money being made in the gold space.

We've seen a 50% pullback in the highs. We had a pretty good run in the speculative gold companies last year. We've seen a pullback. I think it's an excellent time to speculate on some of those development stories.

Again, your listeners should look into all these companies. These are higher risk. These aren't where you put... You're not dividing one third of your money into each of these companies, or one fifth of your money. These are speculations and should be taken that way.

I've liked Revival Gold for a long time. Revival Gold has three million ounces in Idaho at the Beartrack project and the Arnett project, both next to each other. They have infrastructure there. It's a past producing mine. In the 1990s, it was the largest producer in Idaho in history.

There's three million ounces of gold still there. About 600,000 of those ounces are oxide, which are cheaper to produce and could be put into production sooner. That's where the company's heading with excellent exploration potential. That company, I believe, is trading around 65 cents on the Toronto Venture Exchange. Its symbol is RVG, I believe, right?


Gerardo Del Real
Gerardo Del Real: Correct.


Jeff Phillips: Revival Gold's an interesting gold company, with 3 million ounces trading at probably $10 an ounce on the market cap wise. So I think it's a great speculation. Again, higher risk than buying a Barrick or a Newmont, which should be your first choices if you want exposure to gold in companies making money. My goal is to finance companies and be a shareholder in companies that get bought out by those companies. So Revival Gold is one of those companies, I think, has that possibility.

There's a number of gold companies. There's Almaden Minerals, which has been disappointing for me, because they didn't get their permit in Mexico. Often you don't get your permit on the first try. That's an incredible gold resource at the bankable feasibility study in Mexico. I know a number of major mining companies have visited the property over the last several years.

I think that things will get worked out in Mexico. They've just added a very keen Mexican businessman and a very connected mining person to their board of directors. I suspect they'll resubmit their permit. They're going to be exploring that property, which is already a resource of over four million ounces. Not all of that falls into the mine plan, but it's still, if you look at the numbers, the company would be worth many multiples with that permit, five to 10 times their current share price.

The advantage to Almaden is they also trade on the US exchange under the symbol AAU, so it's listed on a big board. So when people gravitate, and right now they're not, towards the gold space, that will be one of the companies that's easier to buy for US investors. So I think Almaden Minerals, as long as you're patient, there's a ton of value in their project. There is risk with Mexico, but again, I think that will be realized.


Gerardo Del Real
Gerardo Del Real: Fantastic. Jeff, it's been insightful, as always. I appreciate the generosity of your time. Is there anything else that you'd like to add today?


Jeff Phillips: Yeah. Just again, that your listeners are all different. I have younger friends that are speculating with money they can afford to lose. They're single. They play the stocks. And there's people that are managing their retirement accounts. So again, I'm not giving financial advice. I'm just saying what I'm doing in this small sector where I have part of my portfolio. I specialize in the resource sector. Again, you should do your due diligence. Anyway, that's all I can add.


Gerardo Del Real
Gerardo Del Real: Thanks again, Jeff. Appreciate it.


Jeff Phillips: Thank you, Gerardo.


 



For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Resource Stock Digest, Junior Resource Monthly, and Junior Resource Trader. For more about Gerardo, check out his editor page.

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