Gerardo Del Real,
Editor
Dec. 16, 2022
Editor’s Note: Jeff Phillips is one of the most successful and respected natural resource speculators in the game today. In the new interview below, he shares his insights on the current market, the prospect generator model, and three companies he’s invested in across multiple commodities, including gold, copper, and uranium.
Enjoy,
—Gerardo
Gerardo Del Real: This is Gerardo Del Real with Daily Profit Cycle. Joining us today is legendary contrarian resource investor — Mr. Jeff Phillips. Jeff, we normally do this series for the sister company, Resource Stock Digest. It's great to have you on Daily Profit Cycle. How are you today?
Jeff Phillips: I'm doing well, Gerardo, getting ready for the holidays and great to be on your show.
Gerardo Del Real: Well, thank you so much. There's still some year left, and I know for those that aren't familiar, you and I are friends. You're somebody that's been a mentor to me. I think we've known each other for well over a decade now, some 14, 15 years. You've always prided yourself, and done very well I should say, on being a contrarian. Meaning that you like to buy when people aren't looking and you like to establish bigger positions early on.
So, for people that may not be familiar with your background, can you give us just a quick overview of the background and the experience and kind of the approach that you take?
Jeff Phillips: Basically, Gerardo, I've been in the natural resource business for almost 25 years now and in different facets of that business. But mostly, I invest my own money now and have other people that often follow me into deals because they know I'm going to help guide the company and hopefully get most of that money into the ground and into exploration.
Junior resource development and exploration is a very difficult high-risk speculative market; 90% of those companies aren't doing what's best for shareholders. They're trying to make their options and their shares, and the finance people are trying to make their shares worth more. A lot of times they're not even working on real projects, or they're old projects that aren't going to turn into anything — but they rehash them.
So what you're really looking for in that space is people who have a track record of success in the past with other companies. You're looking at structure, which means, how is this company structured? All of these companies are not making money. That means they have to raise money as they develop their assets. And if they're successful, they've got to raise more money to keep developing their assets.
So you want a good share structure and a good shareholder group that is going to be supportive of that and hopefully limit dilution as you go along and see increased shareholder value because of that. So people, structure, and then, of course, projects, the right commodity at the right time and being patient.
And I like to find projects that aren't something that has been worked on many times. I like to find new things, which are higher risk, but people that have boots on the ground and are trying new concepts… not the same old tired deposit that's been drilled by 20 companies over the last 50 years. So those are the main things to look for.
Gerardo Del Real: You mentioned the inherent risk in exploration and in financing these junior companies. And I know that throughout the years you've been very successful with and very fond of the prospect generator model. Can you explain that, and then, if you have a second or two, I would love to pick your brain on some companies that you may like how they're employing that prospect generator model?
Jeff Phillips: Yeah, the prospect generator model, just to correct you, I wouldn't say I necessarily like the model. I understand the model. And just having a mix of commodity exposure in your exploration portfolio — whether you're investing in a couple gold companies, a couple copper companies, or a uranium company — I think there's room to have a couple prospect generators, which could be looking for any of those types of commodities or all of them.
The prospect generator model probably started, someone coined it, it came from the oil and gas business, and people like Brian Fagan and Rick Rule have been using that sort of definition — and I agree with it.
A prospect generator is a company that generates mineral prospects and does the initial work. The true model probably would be that they do the minimal work to get ready for drilling, and then they try to joint venture those projects out to either preferably larger companies, majors, but sometimes other juniors that are well cashed up and may not have the geological experience to spend their money drilling those projects, which is the expensive part of exploration.
So they give up a big piece of the project, and the other company can earn in, sometimes starting at 50%, and meet milestones and get 70%, 80% of the project by spending quite a bit of money and hitting milestones. But the prospect generator who generated the prospect doesn't have to continue to raise capital to explore that. That's the theory behind a prospect generator.
So I think it's good to have a couple prospect generators in your portfolio. I prefer a hybrid model where a company might joint venture a number of their projects out but also keep a project or two that they control the development on and spend their own money. I think a hybrid prospect generator gives you the best of both worlds. You control some of your news, and then some of the other projects you may not control the news flow but you're getting someone to spend money on those projects.
Gerardo Del Real: You are constantly vetting projects and deals. Are there companies recently that maybe stood out to you?
Jeff Phillips: You mean prospect generators?
Gerardo Del Real: Yes, sir.
Jeff Phillips: I just recently financed a company called Latin Metals (TSX-V: LMS)(OTC: LMSQF). It's a very small company and run by Keith Henderson, who's got a good track record and has been with a major and helped build a couple of juniors and went off on his own.
This is a company that I looked at — and it's a true prospect generator — with 9 or 10 projects. They're split between Argentina and Peru. Peru has had some political issues of late. Argentina is actually very favorable right now. Latin Metals trades at about C$0.14 with about 60 million shares out. So it's a very tiny micro-cap company.
Yet, in the poor market we've been having the last 18 months in the resource space, they've accomplished a couple of JVs on their Argentina properties. One with Barrick Gold (NYSE: GOLD)(TSX: ABX), which is a recognizable name, and the other one was with AngloGold Argentina Exploraciones S.A., a subsidiary of AngloGold Ashanti Ltd. (NYSE: AU).
And they've also done a third joint venture in Argentina with Libero Copper & Gold (TSX-V: LBC), which is more of a junior but appears to have the money to work on that project. Before Latin Metals turned to a prospect generator model, they were drilling that project — the Esperanza Copper-Gold Project in Argentina — themselves and they had 387 meters of 0.5% copper and 0.2% gold.
They didn't do a very good job of getting that story out to the market. They weren't really reaching out market-wise as they’re more of a group of geologists. So again, I've recently financed that company. I think Latin Metals, if you're patient, is an interesting company. As the resource market continues to improve, I think they'll do well. They've got three joint ventures that should see drilling in Argentina next year funded by partners, and I suspect they'll have some other joint ventures in the beginning of the year in Peru.
Gerardo Del Real: Excellent. Anything else in the copper-gold space or precious metals space that you like?
Jeff Phillips: Well, there are lots of companies I like in those spaces but not necessarily prospect generators. The other prospect generator I like is a uranium company called Skyharbour Resources (TSX-V: SYH)(OTC: SYHBF). And Skyharbour has probably one of the larger land positions up in Saskatchewan, Canada, in one of the premier uranium jurisdictions.
They have six or seven joint ventures at this point in the Athabasca Basin region, including a large French national company, as well as smaller companies, already with some drilling on some of their projects. I believe this coming year, they’ll have the most drilling ever on their projects — somewhere in the neighborhood of 25,000 to 30,000 meters.
They also have their own flagship project — the Moore Uranium Project. And they recently did a deal with Rio Tinto (RIO) to acquire the Russell Lake Uranium Project with Rio becoming a large shareholder. Rio Tinto is a major company; they're going to be drilling that project themselves starting in January, I believe. So Skyharbour is more of a hybrid prospect generator — which I like.
So with Skyharbour, lots of JV partners putting lots of money into the ground drilling this year. Plus, they'll be drilling their flagship Moore property, which looks quite promising. So from the uranium space, I like Skyharbour Resources. I think they're an exceptionally well-run company.
Gerardo Del Real: Latin Metals, Skyharbour Resources… good commodity diversification there. Any other companies?
Jeff Phillips: Well, we could go on for a long time. We’re nearing the end of tax loss selling right now, Gerardo, which is where people sell their losers to knock off against any of their gains that year. So there are a lot of companies we could go over… and maybe we can do that in our next interview.
I think the resource market will start off quite well next year. In your sister company, Resource Stock Digest, we’ve talked a lot about Almadex Minerals (TSX-V: DEX)(OTC: AAMMF), which was a prospect generator at one point. I don't know if I'd call them a prospect generator currently.
They have about a dozen properties, and they have another half dozen or so royalties on other projects. They're run by a very good father-son geologist team with a successful track record of mineral discovery.
What's interesting about Almadex right now is that it trades at about C$0.35, and I believe it has right around C$0.30 in cash. It also has a couple of royalties on projects that are moving along rather slowly in Mexico but with a combined 4 million ounces of gold-silver with one at a Bankable Feasibility Study. They also just made an initial discovery at one of their own projects in Mexico.
Almadex owns six of their own drill rigs, which means they can drill very inexpensively. They rent those rigs out and actually made money on them over the last six months. They cover a lot of their operating expenses via those rentals — a unique advantage in the junior space. So Almadex Minerals is a company with a proven team, trading close to cash, with some great royalties and some great projects that are going to see drilling. So Almadex will certainly be an interesting junior to watch next year.
Gerardo Del Real: That's a lot of shots-on-goal between those three companies. I would absolutely love to have you back on Daily Profit Cycle to discuss some other ideas. And perhaps we can have a conversation after tax loss season to discuss the seasonality and cyclicality of the calendar year and the opportunities therein for people that may be newer to the space.
Jeff Phillips: Absolutely, Gerardo. It's a high-risk space… speculators have got to realize that. You and I have been lucky enough to participate in a number of companies in the last couple of years that have been very successful, including Patriot Battery Metals (TSX-V: PMET)(OTC: PMETF), which I know you were recommending to your audience between C$0.16 and C$0.50.
I participated in a couple of the early PMET financings, and the stock has gone as high as C$10 in just the last few weeks. Next year, depending on the overall markets, I think their flagship Corvette-FCI gold-copper-silver-lithium project in Quebec is going to command an even higher valuation.
So that's what we're looking for in the junior space. Hopefully, at least one of the three companies we talked about today will become the next Patriot Battery Metals success story. Or perhaps we’ll get a strong resource bull market to start off the new year and all three will do well in 2023.
But again, it's a highly speculative space… and if you're going to be in it, you’ll want to be in the habit of taking profits off the table. If you get a double or triple, take your initial capital off the table and let the rest ride. Always be harvesting gains. That’s the best approach for success in the resource space. These aren't companies you want to be holding for 10 years.
Gerardo Del Real: Well said. A wise man once said, rich or poor, it's great to have cash! Jeff, great to have you on. Thank you so much.
Jeff Phillips: Thank you, Gerardo.
Gerardo Del Real
Editor, Daily Profit Cycle