Mickey Fulp Sees Bullish Opportunities Among Improving Markets

By Mickey Fulp / Mercenary Geologist
on 10/27/2010

The smartest, most successful investors take in all of the information they can get before they sit down and make their own decisions about which stocks to buy or sell. It's that way in every investing sector – whether someone invests in high tech, healthcare, or the metals sector.

In the metals sector, smart investors listen to Mickey Fulp – the "Mercenary Geologist" – for his expertise in specific aspects of the sector as well as his uncanny insight into trading tips and techniques that investors are hungry to learn about.

We've enjoyed our occasional interviews with Mickey Fulp and this time was no different. We spoke about three hot topics in the metals industry right now – gold, rare earths, and uranium – and Mr. Fulp shared some ideas about a business model that investors may want to look at when they're looking for potential investments.

We started by asking Mr. Fulp about gold, which seems to be everyone's favorite topic right now. Unlike other commentators who give sweeping generalizations, a conversation with Mr. Fulp usually means we'll dig deep. He didn't disappoint. "Gold has touched $1380 an ounce," Mr. Fulp said. "But it didn't stay there very long. In my opinion, the latest move is just part of the continued uptick in gold, which we've seen since 2001."

In spite of the economy, the rise in gold has been generally moving in one direction: "It's been a steady rise. You can draw a straight line through it – with the usual dips and corrections and perturbations on both the upside and downside." Not surprisingly, he moved to the real reason that so many investors are interested in the price of gold: "A robust gold price is always going to lead to a boisterous junior resource market. We've seen that especially over the last few months."

Next we asked about where he sees gold headed and what kind of opportunities are evident in today's markets, especially in light of last year's recession. "The TSX-Venture index, which I watch regularly to look for trends, is on the rise. But it's still less than 60% of its valuation from its highs in mid-2007 when it touched 3,300 at one point. TodayI looked at the index and it was around 1,900."

"I'm bullish on some gold stocks," Mr. Fulp continued. "But I think you need to be selective. Lots of gold stocks are overvalued right now but there are still some values among the advanced explorers. Look at companies like Amarillo Gold (TSX-V: AGC), Otis Gold (TSX-V: OOO), and Goldgroup Mining (TSX: GGA). Then calculate a dollar per-ounce of resource market valuation and these companies are still in the $25 to $30 range when the entire market as a whole is something on the order of $85 to $90 per ounce of gold in-the-ground for advanced explorers."

As usual, Mr. Fulp was careful to guide investors from thoughtlessly jumping onto any or all of the stocks mentioned above: "I would encourage investors to tread cautiously. Do thorough due diligence and look for peer group undervalue in the gold sector."

Next we spoke about the rare earth elements , a sector that has been heating up in recent months. Mr. Fulp gave us a brief overview of the state of the rare earth markets: "The rare earth elements sector has completely blown up over the two months, led by Molycorp (NYSE: MCP). Molycorp went public on July 29th at $13.85. It was [expected] to be about $17 per share and it came in at less than $14 per share. The IPO was poorly received, it muddled about for 3 weeks then it started to take off. There was a 30 day waiting period before any participating house analyst could write about it. After that 30 day waiting period, a couple of research reports came out, which stimulated the market and led to public awareness. Since then, Molycorp has been on an incredible run and went to nearly $36, before correcting to its recent price of about $33. Combine Chinese environmental restrictions, crackdown on illegal mining, and export quotas , add in some geopolitical intrigue , and the results have been wildly increasing metal prices across the board for the 16 elements in the rare earth group. We've seen a 300% average increase in the prices of the commodities since January."

Next we asked Mr. Fulp about what rare earth companies he was watching. He pointed out that he watches several although that doesn't necessarily mean that he is or will be investing in them. He said: "Rare Element Resources (AMEX: REE) reached an all time high of $13.71 recently. Quest Rare Minerals (TSX-V: QRM) hit an all time high of $5.72. Tasman Metals (TSX-V: TSM) has been over $2.00– another all time high. I watch 14 rare earth elements companies and they've been mostly all green on the board. The best ones have flown off the charts. The penny stocks in the sector are on an uptick, too, and I expect them to go higher. The most important catalyst has been Molycorp. It's created public awareness that has reached the retail American investor and institutional funds."

And what's Mr. Fulp's prediction for the future of the rare earths sector? "It's just gone nuts and I think it's going to continue. These valuations are speculative; they're not in any way justified. It's very hard to put numbers or fair valuations for any of these companies, but I'm bullish on the sector. Would I go in and buy Rare Element Resources for $13? Absolutely not. But, do I think it could be a $15 or $20 stock? Absolutely. There is a lot of risk right now. If you're going to speculate in that sector, perhaps you want to look at other good companies that are earlier on and haven't had a run-up like the cream of the crop."

So we asked Mr. Fulp what he has been doing. He pointed us to Medallion Resources (TSX-V: MDL). "You could have bought it six weeks ago for 14 cents and it's up to 70 cents now. But it has the right combination of share structure, people, and two projects, although they are early stage."

Related to the rare earth elements sector is uranium and we know Mr. Fulp has had some good thoughts to share on uranium in the past so we asked him about his current position. "I'm still very bullish on uranium. The spot price has gone over $49 in the past week. The sector is waking up but the valuations for the companies haven't really risen commensurately. So look for advanced projects with near- to mid-term prospects for development and production, and put some money into those companies at their present valuations. Look at them as longer-term speculations where you may sit on them for a year or two and be significantly rewarded."

As for specific companies he's following, he told us: "I've always liked Strathmore Minerals (TSX-V: STM), trading lately at its 52 week high of over 90 cents. I also like Uranium Energy Corp (AMEX: UEC), although with its present status I am cautious. Developing mines almost always have a little shake-down to get up and running fully and efficiently until significant cash flow is generated. I might be looking at UEC within the next quarter or half-year. However, I'm very bullish on that company's long-term prospects. A penny stock I've gone into is Forum Uranium (TSX-V: FDC). I think they have a good chance of making a discovery in Athabasca this winter with drill hole results around the PDAC in March." Summing up, he said: "It's a 15 cent stock but they have over 120 million shares outstanding. If a uranium drill hole discovery is made, there's a double quite easily. So that might be something to consider. However, the company has too many shares to be a long term investment for me," he cautioned.

Our time went quickly but we wanted to hear about the prospect generator business model, something that investors may be interested in learning. Mr. Fulp said: "The prospect generator is a junior company with a very strong geological staff that has expertise in specific deposit types and/or geographical areas. So the company continually generates new prospects. The model is this: They operate joint ventures on those early prospects with another company who puts up the money to explore and develop the project. These prospect generators essentially have a pipeline of projects that someone else is spending money so they[the prospect generators] can preserve their working capital. Four companies that I'm invested in and/or covering are basically self-sustaining and have potential to be cash flow positive: Eurasian Minerals (TSX-V: EMX), Almaden Minerals (AMEX:AMU), Millrock Resources (TSX-V: MRO), and Tarsis Resources (TSX-V:TCC."

Mr. Fulp has some compelling things to say about gold, rare earths, and uranium, and investors may want to find out more about the prospect generator business model and the investing opportunity it presents to them.

Disclaimer: I am a shareholder of Amarillo Gold, Goldgroup Mining, Otis Gold, Rare Element Resources, Quest Rare Minerals, Medallion Resources, Strathmore Uranium, Forum Uranium, Eurasian Minerals, Almaden Minerals, Millrock Resources, and Tarsis Resources. Amarillo Gold, Goldgroup Mining, Otis Gold, Quest Rare Minerals, Tasman Metals, Strathmore Uranium, Eurasian Minerals, and Almaden Minerals are sponsors of my website. I am not a certified financial analyst, broker, or professional qualified to offer investment advice. Nothing in a report, commentary, interview, and other content constitutes or can be construed as investment advice or an offer or solicitation to buy or sell stock. Information is obtained from research of public documents and content available on the company’s website, regulatory filings, various stock exchange websites, and stock information services, through discussions with company representatives, agents, other professionals and investors, and field visits. While the information is believed to be accurate and reliable, it is not guaranteed or implied to be so. The information may not be complete or correct; it is provided in good faith but without any legal responsibility or obligation to provide future updates. I

accept no responsibility, or assume any liability, whatsoever, for any direct, indirect or consequential loss arising from the use of the information. The information contained in a report, commentary, interview, and other content is subject to change without notice, may become outdated, and will not be updated. A report, commentary, interview, and other content reflect my personal opinions and views and nothing more. All content is subject to international copyright protection and no part or portion of this report, commentary, interview, and other content may be altered, reproduced, copied, emailed, faxed, or distributed in any form without the express written consent of Michael S. (Mickey) Fulp, Mercenary Geologist.com LLC.

REFERENCES

Mickey Fulp, Mercenary Geologist