3 “Lottery Ticket” Commodity Stocks to Invest in Today

Gerardo Del Real:  This is Gerardo Del Real with Daily Profit Cycle. Joining me today, once again, is one of the most successful resource speculators in the space, Mr. Jeff Phillips. Jeff, how are you today?

Jeff Phillips: I'm doing well, Gerardo. How are you?

Gerardo Del Real: I am well, thank you for asking. It's great to have you back on. The last time you and I spoke, we had a conversation about tax-loss season and how you kind of take a contrarian approach and trade around that. And I wanted to have you back on because I wanted to pick your brain a bit about jurisdiction, which we got into a bit last time. We talked about share structure and we talked a bit about jurisdiction and it left me wondering... are there countries or places in the world right now where you're willing to step in that may appear to be contrarian jurisdictions to the average speculator out there?

Jeff Phillips: Yeah, I think that definitely there's areas. I don't do a lot of investing in Africa because of the political risks and some of those things. People do very well and your upside can be substantial for taking that extra risk on. But typically we see a lot of the copper plays in Canada, the small public companies, getting higher valuations than some of the copper plays in other areas that may have better deposits but are trading at lower valuation because of the country's risk. 

What you really want to look for is when things get mispriced in what would've traditionally been friendly countries. When they get mispriced or misunderstood and you can take advantage of a contrarian opportunity there in that country. You tend to be able to get some assets that are quite interesting much cheaper than some of the other jurisdictions as long as you're willing to take a little bit more risk on. And if you're right about the contrarian play that other people have overreacted, you can do very well.

Gerardo Del Real: Do you put more of an emphasis on the management team, the share structure, the asset itself or a combination of the three?

Jeff Phillips: All of the above. They're all important. My most critical thing always is share structure and management team. And then even if they have several projects and one doesn't work out or they need to pick up other things… it tends to be people that pivot and a good structure gives them the flexibility to do so. That’s if they’re really trying to build a company, not just mining the stock market, which is what a lot of these junior mining companies are doing. They're rehashing old projects that didn't work the first six times companies promoted them... and they're not going to work the seventh time either. But before you even look at an asset, you have to have a good share structure and you have to have a management team that's honest.

Gerardo Del Real: For those that missed our prior conversation, are there metals that you are gravitating towards more right now in the midst of tax-loss selling season? And I'm going to have to ask you about hopefully a couple of names in jurisdictions that maybe don't appear on the surface to be the most in favor or the most in style. But before we get into that part of it, I want to ask, are there other metal types that you're favoring right now, Jeff?

Jeff Phillips: Oh no. I think with the inflation we're seeing in many assets and consumer goods that many of the commodities do well. You're seeing oil do very well. You're seeing uranium finally starting to do well. You're seeing copper prices at record. Gold sort of lagged a little bit but it's still trading at $1,800 an ounce and I think people are going to start discovering that gold sector again and there will be more speculation on the gold stocks. You and I talked about maybe doing an interview mid-November on gold companies that are being sold off because of tax-loss selling. I think there's going to be some great opportunities in the next month there. But no, I'm not commodity-specific.

To answer your other question, I'll give you a country that's sort of a contrarian play right now. It is a contrarian play and I'm playing it. That would be the country of Peru, which is a very large mining producer. I believe it's the second-largest copper producer in the world behind Chile, and produces other commodities too. They just went through elections last year and somebody who was considered communist or definitely socialist far left was elected president because the competing right candidates divided up the vote. Everybody sold everything Peru-related and the fear was that mining was going to end. There was fear the new administration was going to nationalize all the mines and though there is still rhetoric about nationalizing gas companies and reforming the constitution, the fact is it’s going to be hard to move that agenda forward given the political divide. Mining's too important in Peru and so there's a contrarian play there because people sort of exited those companies and that country.

But the political state situation is stabilizing. They have a prime minister that is not far left. They've been appointed. They have a respected minister of the economy and finance in Pedro Francke. And the head of the central bank was retained from the past administration and is definitely a business-friendly person. I think President Castillo, who is the new president, has to work with the pro-business center-right because he can't get anything in Congress without doing that. I think that there's been fear of new mining laws but I don't think there's going to be radical changes there. I think people have overreacted to the situation in Peru which has created a contrarian opportunity and a number of mining companies with different commodities.

Gerardo Del Real:  Care to share a name or two?

Jeff Phillips:  Yeah, I consult and I'm a large shareholder for several of these companies. Let me give you a couple. I'll start with a company called Chakana Copper (TSX-V: PERU)(OTC: CHKKF). It's a new copper-gold discovery that was made in 2017. It's in a tourmaline breccia pipe geological setting. They drilled about 60,000 meters since then into ten breccia pipes there. Six of those ten breccia pipes will be in the upcoming resource that's due out by the end of the year. But for safety, let's say beginning of next year because mining companies are always a little bit slower. I suspect their goal is to have a ten million tonne resource at +2% copper equivalent there in this initial resource.

But what's key about Chakana is that of the ten breccias that they've drilled, six of them are going to be in this resource. Two other ones will probably be in the resource later. And two of them are sort of may or may not, aren't priorities, not as good as the other ones. But of those 10 breccias, they have 110 targets on the property. They've only drilled 10% and they've got 60% to 80% very good grade breccia pipes.

They have Gold Fields (NYSE: GFI) as a major partner — the major miner that owns 19% of the company. Chakana sort of sold off with the Peru situation, which is improving as we've discussed, and also because it's tax loss selling time. Their stock's gotten hit but that's a stock I can see easily going to new highs... especially with their new resource out. It's trading at roughly C$0.32, and I think it's been as high as C$0.70 or C$0.80 last year. You've got tax-loss selling, but it could easily go back to that new high, especially with the political environment changing and the resource coming out. That's one. You want another one?

Gerardo Del Real: I'll take another one. Absolutely.

Jeff Phillips: Chakana obviously has a discovery so these are a couple companies that don't have any resource or a discovery per se yet, but I think that they offer that type of lottery ticket. They have real management teams and good share structures that really have the ability to offer ten-to-one type returns if you're patient over the next year if you can handle the risk. One of those companies would be Hannan Metals (TSX-V: HAN)(OTC: HANNF) run by Michael Hudson. Hannan has basically put together over a 2,100 square kilometer mineral tenure in Peru. They're one of the top ten concession holders in Peru, along with many major mining companies. Again, remember Peru's a major copper producer, major other commodities producer, so it's a big deal in the world of producing commodities. Hannan is one of the largest landowners.

They're really looking for district scale, large type deposits using new thinking, not rehashing the old stuff like we talked about before. Most interesting is their San Martin project that they joint ventured. It's a massive project. I can't even remember, I believe it's almost 120 kilometers but they joint ventured a third of that out to JOGMEC which is the Japanese government’s natural resource — basically, it's how they supply the Japanese industries. It's backed by the government and they've done a joint venture there that calls for JOGMEC to spend $35 million to earn into that one-third of that land position. It's got significant large copper, silver deposits in that part of Peru. Again, I think the upside there's tremendous.

They also have the Previsto project, which is also another very large area that they're doing. And they've already identified five to seven porphyry mineralizing systems over a 140-kilometer area. You're talking about a company that, again, is looking for new things, using new technology — and in areas that previously were underexplored. Hannan is trading at C$0.30 cents, and I think it's been as high as C$0.50 or C$0.60 cents. If you're patient next year, they're going to be drilling with JOCMEC at one of their projects but it's the type of thing you're looking for something that's a difference-maker to a major mining company, not some small rehashed project that's been around since the gold rush. These are big deals. If you want to be patient and you want to play a big lottery ticket, Hannan is a company that I think is very interesting, they have cash, they have a major joint venture. That's another company in Peru that's worth looking at.

And then I'll give you a third company, which is Palamina Corp (TSX-V: PA)(OTC: PLMNF). Palamina is run by a gentleman by the name of Andrew Thomson who's treated me well before. I was in his original company called Soltoro, which had a silver deposit in Mexico that he was able to develop and sell to Agnico Eagle (NYSE: AEM), the major miner. When he sold that company, we all did really well but there was a spin-out of some of the other assets in Soltoro and that's what became Palamina. And he's been focusing on Peru for the last five years, putting together land in this area called the POGB — the Puno Orogenic Gold Belt in Peru. He put together five very large gold projects. The flagship is Usicayos.

They're currently drilling that now. I'm very excited. I've had my own independent geologists look at the project. My geologists hardly ever think anything deserves to be drilled, they think everything's a rehashed pile of crap. I was stunned to have one of my — I call him “the glass isn't half empty... it's broken, and you're about to step on it with your foot —  geologist. He came back and said, "This is a very exciting project. It needs to be drilled." Palamina is drilling that project now. They also have a 19.95% interest in a smaller Peruvian explorer called Winshear, and they'll be drilling their Gaban gold project, which is a very exciting project early in the first or second quarter of 2022. And again, what's interesting about Palamina is you've recently seen Eric Sprott come in as a major shareholder and another company called GoldSpot (TSX-V: SPOT)(OTC: SPOFF).

And why that's interesting is that there's been a very big success in an orogenic gold belt in a company called Newfound Gold, which you're familiar with. It has gone from C$0.50 cents to $10. I believe they just raised another $75 million on the discovery they've made there. Well, Eric Sprott's their major shareholder and GoldSpot is the AI geological firm that's done a lot of the work to help that discovery become possible. To see Eric Sprott and GoldSpot both get involved with Palamina in the last several months was a very positive sign. Again, there's another stock that's trading at C$0.30 cents that is higher risk because you are drilling but these are new things. These aren't rehashed things. Again, with a discovery, you can see what happens with someone like Newfound Gold going up 20-fold inside of 12 months. That's what you're playing.

It's like baseball... you're trying to get one in three right. I've given you three stocks in a country that's extremely important in the mining world. It's extremely important to the Peruvian people. And I believe people have overreacted to the elections so you're getting some good assets and some new drill hole type plays that can offer that type of return.

Gerardo Del Real: Jeff, insightful as always. You not only gave us three stocks… but you also gave us exposure there to gold, copper, and silver — all of which I believe are headed higher and likely on a historic run here soon. Jeff, thank you for your time. I appreciate it as always.

Jeff Phillips: Thanks. I look forward to talking to you as we get closer to the middle of tax-loss selling. We'll pick some gold stocks that look like they've sold off for a two-month play.

Gerardo Del Real:  It should be interesting. I feel like I should be charging for this. Thanks again.

Jeff Phillips: You can buy lunch or dinner with the gains you make — because 80% of the time the tax loss plays work out by the end of January. Unless this is one of the times they don't.