"Mercenary Geologist" Mickey Fulp at PDAC 2011News media can be pessimistic at the best of times. Even investors who might watch the news to learn about global conditions that could lead to an investing opportunity may still find the news depressing. But buried in even the darkest of news are bright moments of opportunity that investors can add to their portfolios.
At the recent PDAC convention, we met up with "Mercenary Geologist" Mickey Fulp, whose industry expertise and crystal-clear insight always proves to reveal compelling opportunities.
We started by talking to Mr. Fulp about the current market conditions but our conversation quickly broadened to the many difficult news stories taking place around the world: "All commodities are at record or near record prices, including energy, metals, industrial minerals, and soft commodities," said Mr. Fulp. "And, the world is a place of turmoil right now."
He quickly summarized the news items of the day: "Libya is in a civil war. There's turmoil in the Middle East that may spread to other countries. My fear is that it will spread to Eastern Asia." [Editor's note: At the time of this interview, Japan's earthquake, tsunami, and nuclear crisis had not occurred yet, but Mr. Fulp would have doubtlessly added these to his list, as well, particularly as he continued with this sobering conclusion of global conditions:] "We know there is rampant food inflation throughout the world. You see it when you go to the grocery store. It doesn't affect us too much because our country's population doesn't spend most of its daily wage earnings to put bread on the table. That's not true in most of the world, especially in emerging market countries. If food inflation spreads to Eastern Asia, specifically Indonesia, India, and China, the world is going to be a very violent and dangerous place for a while because of food riots."
While this is understandable – people want to be able to feed their families affordably – it does have a cascading (and negative) impact on economies. Mr. Fulp explained: "You will see brakes put on economies; you'll see commodity prices fall, and if commodity prices fall, the junior resource sector is going to suffer."
For investors who are looking for a precedent, hoping that it will guide how they build their investing portfolios, Mr. Fulp offered this one: "What's going on right now looks very similar to me to what happened in mid-2007 to mid-2008: Commodity prices soared; costs of mines soared; productions costs soared; engineering firms were unable to put hard numbers on capital expenditures for mines; and banks and funding institutions were reluctance to put money into mega-mining projects with multi-billion dollar capital expenditures."
So, how does all of this "bad news" influence Mr. Fulp and investors who model their investing style after his own? He described his current investing methods: "[These global conditions] lead me to start taking money out to the junior resource sector and putting it into cash and gold. However, there are a lot of new opportunities and start-up companies that are quite attractive. So I've found myself taking money out of the market but I've also found opportunities that are no-brainers that I can't seem to turn down." So Mr. Fulp is taking profits but not turning away smart opportunities. (Note: Mr. Fulp is not a licensed financial advisor and does not offer investing advice).
And there are some good opportunities out there, in spite of the world being a scary place. Mr. Fulp told us about one area that he's very bullish in: "Uranium is going to be the story of 2011, in my opinion. My bullishness on uranium continues. The uranium stocks I cover have had significant returns and I expect them to continue with good returns for shareholders… for both the short- and long-term." Then he gave us the reason for his bullishness: "We consume 1/3 more uranium than we mine and that uranium has to come from somewhere. For the last several years the mine supply deficit has come from stockpiles and dismantling of Russian nuclear weapons. We're running out of stockpiles and the Russians are going to cut their program to the West in 2013."
As usual, whenever we talk to Mr. Fulp, we're always eager to find out what companies he's looking at right now. He gave us a few that investors will want to explore. The first one he told us about is Medallion Resources (TSX-V: MDL), a rare earth elements explorer. "They have the right combination of projects, people, and share structure (the projects being the promise of future acquisitions)," he said. "They have a different business model and they're looking to acquire heavy mineral sands projects that can be processed for monazite (which has produced rare earth elements). They are also looking for ionic clay deposits outside China in locations that have a similar climate and geography to China, including the Amazon Basin."
The next company he's just started to cover is Avrupa Minerals (TSX-V: AVU). He described them as "a new prospect generator focused on Eastern and Southern Europe, specifically the underexplored countries of Kosovo and Portugal. There is geopolitical risk in Kosovo but the company is well-versed in the area. The CEO has assembled a strong team to explore a mineral belt in Kosovo that, historically, has been Europe's largest lead-zinc producer.They are also focused on massive sulphides in Portugal, which contains Europe's largest copper mine andalso have a tungsten play in Northern Portugal called the Covas Project."
Because of his interest in uranium, Mr. Fulp told us about two of his favourite uranium companies: "My favourite uranium company in the junior resource space remains Strathmore Minerals (TSX: STM). They're a uranium project development generator with two flagship properties and another seven non-core assets available for sale or joint-venture. That's down from ten non-core assets last year, so they've monetized three projects in the last year and I expect that to continue. I also cover Mawson Resources (TSX: MAW), a hybrid gold-uranium exploration company with a very exciting new grassroots discovery in northern Finland. They've found bonanza-grade gold and bonanza-grade uranium in the same [surface channel] samples. It's very early on."
What's next for Mr. Fulp? As usual, he's busy travelling the world to uncover opportunities and to examine resource companies on site: "I'll be on the ground looking at Avrupa, Mawson, and a rare earth element company I cover called Tasman Metals (TSX-V: TSM) in the late spring. I'm going to tour Kosovo, Portugal, Sweden, Finland, and Estonia. Estonia has the only fully functional rare earths separation plant outside of China – it's called Silmet. They're now a private company but I think they're going to be acquired by a publicly listed company at some point."
Mr. Fulp does see challenges in today's global markets. But he also sees exciting opportunities –in rare earth elements and especially in uranium. Investors with the same outlook as Mr. Fulp will do well to consider adopting a similar outlook and strategy, and taking another look at the companies he covers.
Disclaimer: I am a shareholder of the companies mentioned above and they are sponsors of my website.