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Al Alper Interviews Mickey Fulp, The Mercenary Geologist at PDAC 2018

on 3/22/2018
The Mercenary Geologist Michael S. “Mickey” Fulp 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

The Mercenary Geologist Michael S. “Mickey” Fulp

Dr. Allen Alper: This is Dr. Allen Alper, Editor-in-Chief of Metals News, interviewing Mickey Fulp, the Mercenary Geologist. He is going to share his considerable knowledge and insights on the metals and mining market with us.

Hi Mickey. Could you give our readers/investors an overview of your thoughts on what's happening in the mining sector?

Mickey Fulp: Hi Al. Thanks for the opportunity once again. I welcome doing this with you every year since 2009 from the PDAC.

We're in a somewhat puzzling market right now. On January 20th, 2016, a little more than two years ago, commodities prices hit rock bottom. Included were market lows for oil, gas, copper, other base metals, iron ore, and coking coal. Since then, prices have recovered nicely.

In January 2016, it was doom and gloom at the Vancouver Cambridge House Conference. That said, by early March at PDAC, people were walking around with quicksteps and there was a much better mood, basically driven by a recovery in the gold price. That was a false start, especially in the gold business, with the gold price shooting up well above 1300 dollars an ounce but it didn't last. In the early to late fall of 2016, the bloom came off the rose on that one, overbought gold equities went down the toilet again, and suddenly, you couldn't raise money again.

That said, about a year ago and in conjunction with the new Trump administration, the base metals recovered and that paradigm has continued. We were recently at an eleven year high for zinc, a seven year high for lead. The one that has lagged behind, over the last six months or so, is copper. Oil has also had a nice run up, trading at 2.5 year highs.

However, gold is still range bound in the $1300 to $1360 range. It just can't seem to get above $1360. It has repeatedly bounced against this very strong resistance level and gone back down. But note that it goes down in conjunction with US dollar rises. Since President Trump was elected and excepting the four months after he was inaugurated, there has been a very strong negative correlation between DXY and gold, at or above minus 0.90. So at least part of this resistance level for gold is the US dollar. All in all, I'm positive about the price of gold if it can get and stay above $1360. And I think it will at some point, because Trump is a proponent of a weaker US dollar.

Dr. Allen Alper: Why do you think there is a gap between the gold price that has recovered quite a bit and the junior mining companies that are lagging?

Mickey Fulp: Well it's not only the junior sector that is lagging, it’s the major gold miners, the mid-tier gold miners, the junior miners and with some notable exceptions, the junior gold explorers. Some of the latter have been well- rewarded for new discoveries but the reason for overall underperformance is that gold mining has been a crappy business since the bull market began in 2003. The gold miners have performed horribly; none have rewarded their shareholders. The underlying problem is that miners have treated gold mining as a growth business.

Mining is a value industry, not a growth industry. It's all about margin and the gold miners, from the top to bottom, from the big ones producing millions of ounces per year to the little junior gold miners producing a few 10s of thousands of ounces per year, have all sacrificed margin for growth. In the mining sector, you should strive to be the last man standing when metals prices are low. You should still be making money and you will if you are producing high margin ounces or high margin pounds. Investors are fed up with this sector based on past performance. And I agree with them. It has been a very bad sector for shareholders for a number of years.

The exploration companies are a much different story. We've seen a further bifurcation in the junior exploration sector over the last year. The good companies have prospered but the majority of junior gold explorers are bad companies and they have continued to go further south. There are still about 1200 resource companies on the Venture Exchange and that remains far too many.

Dr. Allen Alper: What are your current thoughts on the mining sector? What elements and metals are worthy of investors’ consideration?

Mickey Fulp: I'll tell you where I'm putting my money and that is mainly in gold projects in the western US. This has to do with President Trump’s policies, rollback of regulations, reducing bureaucracies, streamlining of permitting and development, re-opening of federal lands to mineral entry. Here’s an example: 10 million acres of so-called “sage grouse habitat” in the western US where Obama, with the stroke of a pen in the last days of his lame duck administration, created a huge mineral withdrawal. Trump reversed that order in the fall and it cannot be revisited.

We have seen over the last few months, a number of deals by majors vending non-core assets or orphaned assets to new juniors. So that's where my speculating money has gone and continues to go, to startup juniors with gold deposits, which have resources in the ground that were considered reserves until the price of gold fell to $255 or $275 an ounce in 1999-2001. So we're seeing new companies with good management, taking on significant past-producing projects in the western US. They were mined via shallow open-pits and still have hundreds of thousands to millions of ounces of gold resources left in the ground and with big exploration potential.

Dr. Allen Alper: Well that sounds very good. Are there any other areas that you think are worthy of investigation?

Mickey Fulp: I like copper. And I would not restrict copper to the western US, but certainly the Americas. I’m looking at a new copper play in Mexico. I'm involved with a company in northwest Alaska, with arguably the two best undeveloped copper deposits in the world. So certainly copper is second on my list. That said, it's much harder for me to find copper projects of interest, than gold projects because copper projects have to be two orders of magnitude larger to make a play that is salable. That is, unless you go into copper oxide opportunities but viable oxide projects are even harder to find. In summary, I am looking for opportunities in copper, gold, and other base metals.

Dr. Allen Alper: Which base metals? Zinc or lead?

Mickey Fulp: They seldom occur separately. But I think the real opportunity in the mid-term is zinc. Specific types of lead-zinc deposits have significant silver, too.

Dr. Allen Alper: Are there any specific companies that you could mention that are worthy of investors’ consideration?

Mickey Fulp: Sure. I'll mention the five companies that I cover right now. I've already alluded to Trilogy Metals Inc (formerly Nova Copper) with two projects in Northwest Alaska. It just delivered a robustly economic pre-feasibility study on the Arctic volcanogenic massive sulfide deposit; it’s polymetallic, but most of the revenue will come from copper. They also have an adjoining sedimentary copper-cobalt deposit. In total right now are about 8 billion pounds of copper equivalent in these two deposits. These are giant high-grade deposits.

I cover Integra Resources Inc, aka Integra 2.0. These are the same guys that sold Integra Gold last year for over US$400 million to Eldorado. They bought the old DeLamar mine, if you remember that in southwest Idaho, then raised 27 million bucks. Get this Al, they recently permitted a 10,000 meter drill program in four weeks!

Dr. Allen Alper: That's fantastic.

Mickey Fulp: Couldn't have done that under the Obama administration.

Dr. Allen Alper: Would have been years and years.

Mickey Fulp: Yep, assuming you were even able to get it permitted. They have something on the order of 3.5 million ounces of shallow open-pit gold and silver resources there. In addition, there are targets that have never been drilled: the historic, deeper high grade veins feeding the shallow bulk minable deposits. They are drilling these now.

I cover Allegiant Gold Ltd, which is a recent spin-off from Columbus Gold. They have 14 projects in the western USA, 10 of which are in Nevada. The CEO of that company is Andy Wallace, the famous geologist from the Cordex syndicate, which has the best track record of discovery of producing gold mines and deposits in Nevada over the last 45 years.

I cover Ely Gold Royalties, which is a recently-rebranded hybrid prospect generator/royalty company, with 70 exploration projects in Nevada, 25 of which currently generate option payments or advanced smelter return income. It holds royalties on a significant package of properties but is still being valued as a prospect generator. Ely has less than a $10 million market cap right now and its peers have market caps of anywhere from $50 to 100 million.

And finally, to keep the Canadians placated, I cover one company in that jurisdiction. Eagle Plains Resources is a prospect generator in Western Canada, public since 1995. In 23 years, it has never rolled back. It's one of the very few prospect generators that is self-generating, with a well-designed business model. And I'm covering it because it’s spinning out a group of properties in Saskatchewan, already with joint ventures with the former Silver Standard, now called SSR Mining, and junior Aben Resources. Their properties are adjacent to SSR’s operating Seabee and Santoy high grade underground gold mines. Both partners are drilling the initial programs on, what are soon to be, Taiga Gold’s properties in northern Saskatchewan.

Dr. Allen Alper: Wow, that's great. I just did an interview and published an article on SSR Mining, a few weeks ago.

Mickey Fulp: Those are the companies that I cover; full disclosure, I own stock and they pay to sponsor my website. I may have a couple of new picks from this PDAC and timing of a month or two before they come out, but, rest assured I have some things I'm interested in. I've been accumulating some stocks. So at some point, at the right time for both my subscribers and the company, I'll roll out some new picks.

Dr. Allen Alper: That sounds great. I appreciate hearing your insights on the industry, on different areas of interest, and also on some companies that are worthy of consideration by my readers/investors.

Mickey Fulp: I will make one last comment. We should always remember that a day without learning is a day wasted.

Dr. Allen Alper: I agree. Learning is what keeps us alive and healthy. That's really important.

Michael S. (Mickey) Fulp
M.Sc., C.P.G.
Mercenary Geologist

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