Mickey Fulp at the Cambridge House Vancouver Resources Investment Conference
Although the equity markets are well past the "weary" stage of worry about the European Union debt crisis, commodity investors continue to enjoy high prices. The commodities markets should remain strong in 2012, asserts Mickey Fulp, the "Mercenary Geologist".
We caught up with Mr. Fulp at the Cambridge House's Vancouver Resource Investment Conference, held on January 22 and 23. Mr. Fulp spoke at the conference about his bearish view on natural gas but before his talk, he spoke to us about the broader commodity and resource markets - about which he feels optimistic.
We had a brutal tax loss selling season in the junior resource sector," Mr. Fulp said. "And we had a predictable rebound after the first of the year," Mr. Fulp added. "The sector is still a bit downtrodden as a whole but valuations are better and I'm cautiously optimistic for the first half of this year."
We spoke briefly about his overall optimism and why he's looking forward to 2012: "Commodity prices remain strong across the board: Gold is over $1700, silver is $34, copper is in the upper $3 range, oil is $100 a barrel. Since the commodity sector looks relatively strong, we would expect the juniors to follow suit… But as with any secular bull market, we will go through bear dips and bull rushes. China's growth is slowing but it's not slowing much. With annualized GDP growth at nearly 9%, there is still high demand for commodities. We've seen recent strength in the copper price, which has been driven by Chinese buying. I remain bullish for most commodities in 2012. I expect we'll have a good year but I don't expect record prices across the board as in 2011."
Next, we spoke about some of the companies that he has started following:
He told us: "I've recently covered a copper company in Arizona called Curis Resources (TSX: CUV) that expects initial copper production this year from the in-situ recovery (ISR) process. And I remain committed to the other companies that I cover and in which I have significant shareholdings."
Another company that he's mentioned in previous interviews is Mawson Resources (TSX: MAW). Their most recent news is really good for investors: "They have just announced what amounts to a 3-for-1 spinout, including rolling their gold assets in Peru into a separate company called Darwin Resources. In addition they are selling their uranium projects in Sweden and Finland to a revamped junior that will become European Uranium Resources. What that is going to do for Mawson shareholders is this: You get a new company with Peruvian exploration plays and you get a piece of the uranium company. Mawson will retain its flagship bonanza gold-uranium project in northern Finland. It's essentially a dividend to shareholders. The company has performed marvellously since I first covered it in November of 2010, going from 97 cents to a high of $2.75."
Tasman is a company he stopped covering recently. But Mr. Fulp remains quite positive about the company even though he has chosen to focus on other things: "We picked rare earth element explorer, Tasman Metals (AMEX: TSA) at a dollar in late May 2010 and it went to $5.98 in less than 12 months. After 18 months, I considered that my job was done. I always want the challenge of finding new ideas and companies to bring to my loyal subscribers. That said, I still have the majority of my holdings in Tasman and I will continue to take profits on strength in that stock."
In spite of his optimism, there are a couple parts of the resource sector that he is not as excited about – natural gas and rare earths.
First, we spoke about natural gas: "I do not see the end in sight of the bear market for natural gas. We've found too much shale gas and we don’t have the infrastructure to develop it in the United States. Gas is hard to transport and hard to store. We don't have the pipelines, the separation and processing plants and the storage capacity where the gas is being discovered. We don't have a single liquefied natural gas (LNG) conversion plant in the continental US." He added surprising facts that reveal just how big the opportunities and the potential losses are: "The US is the world’s largest producer and currently has 110 years of natural gas reserves. We could be the Saudi Arabia of natural gas. But we don't have the necessary infrastructure to develop and export our gas and we encounter rabid environmental opposition for development of that infrastructure."
The second part of the resource sector that Mr. Fulp is not quite as excited about is rare earths: "The rare earth sector took a very big hit in the last half of 2011 after a record run-up in the first half. In the early to mid-spring, stocks were at all-time highs. It was predictable that they would come off. Rare earth oxide prices went parabolic, the few good companies went parabolic, and of course, the throng of bad companies followed suit."
"However, since tax loss selling season," Mr. Fulp continued, "the sector has rebounded tremendously… especially companies with news. Rare Element Resources (AMEX: REE) was touching the lower $3 range. Within a few days after the New Year, it had bounced all the way back up to $6.50 and is now trading over $7. I expect the good companies in the sector to continue to show strength and I think a bunch of the lesser companies – the "penny stocks" – are on their way out. We're seeing a herd of poorly-run companies that stampeded into this space now starting to leave for the next green pasture. They are now picking up a gold project in the Yukon or a uranium project in the Athabasca or a silver project in Mexico."
2011 was a classic year for parabolic rises and falls in both stocks and commodities. We diverted briefly to a discussion of how that behavior looks for good companies and good commodities. Mr. Fulp described the rapid rise and fall to be lopsided; when the price falls it reaches a low point that is not as low as when it started the rapid rise: "If they are commodities with good supply and demand fundamentals, the parabolic fall ends up at a base higher than when the rise started," Mr. Fulp explained. "That's what we've seen with gold, silver, and the rare earth element prices. They tumbled off their peaks but remain comparatively high. Good stocks behave in a similar manner."
With an overall bullish opinion on the sector, we wondered what Mr. Fulp was most excited about. Uranium is the big opportunity he sees: "I remain a uranium bull," he said. "There is a buzz in the business right now. We've established a very strong base at $50-$52 for the spot price. It's hovered there for probably on the order of 6 months."
Similar to the gold, silver, and rare earths parabolic rises and falls, uranium has made a similar move. "We saw a parabolic rise in the uranium spot price from July 2010 at $40 to February 2011 at $73. Then came the rapid fall resulting from the nuclear reactor incident at Fukushima. But the spot price base has been established at a much higher level than when the market started to move in July 2010."
Along with this indication that uranium is strong, there's more good news. Mr. Fulp reports: "There has been some positive news in the uranium sector over the past few weeks: China has announced that they are going to buy uranium on the spot market again. The other news from the supply/demand equation is that the Ranger Mine – the world's second largest uranium mine – had another flood, they cannot access high-grade ore in the pit, and they will not meet their production guidance for 2012. So that's a supply disruption in a very tight market. There was a major acquisition of a Namibian deposit by the Chinese. The uranium stocks I hold are up 25% to 50% since the end of the year. I remain very bullish on the sector but you must choose the right companies. For me, those are advanced stage exploration, development, and new production stories in North America."
As we wrapped up our interview, we asked Mr. Fulp if he had any advice for would-be investors interested in taking a closer look at the resource market. As usual, Mr. Fulp gave some great insight: "Successful human beings are genetically optimistic," he said, "I am an optimist, although as a scientist, I remain skeptical until shown facts. Therefore, I would encourage people to be optimistic about the markets but to do very thorough research. Be skeptical of what you're told by company promoters. Do your own due diligence and learn the facts before speculating in any junior resource stock."
Mickey Fulp's websites: www.mercenarygeologist.com; www.mercenarygeologist.asia
Curis Resources: http://www.curisresources.com/s/Home.asp
Mawson Resources: http://www.mawsonresources.com/s/Home.asp
Tasman Metals: http://www.tasmanmetals.com/s/Home.asp
Rare Element Resources: http://www.rareelementresources.com/s/Home.asp
Mickey Fulp's DISCLAIMER
I am a shareholder of Curis Resources, Mawson Resources, Tasman Metals, and Rare Element Resources. Curis Resources and Mawson Resources pay fees to sponsor my website.