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In Spite of the Bear Market, Mickey Fulp Sees Opportunities in Copper and Tungsten

on 12/22/2013

Market sentiment among metals investors is extremely low. Investors are exiting the markets and even those investors who were once bullish are right now skeptical that the bear market will turn around any time soon. But that doesn’t mean investors shouldn’t be investing.

At the recent San Francisco Metals and Minerals Conference, we spoke to Mickey Fulp, the “Mercenary Geologist” who shared his always insightful viewpoints about the market and the opportunities that exist.

During the conference, Mickey was a panelist, spoke in a workshop, and presented a short course, but he was generous enough to give us a few minutes for a one-on-one interview.

We first asked Mr. Fulp for his assessment of the market: “We are arguably in the deepest bear market we have seen since post Bre-X days, from 1998 to 2003,” he said frankly. As for the market we’re in now, he said: “It can be argued that this bear market started in March 2011. There were a couple of catalysts at that time that probably tamed the irrational exuberance that had gone on before that.”

The first catalyst was the selling off of private placements: “If you looked at the private placements that were done in late 2010 and early 2011, there was a lot of smart money that poured in. With the four month hold on private placements, that paper started coming out and selling started coming in the early spring of 2011.”

The next catalysts included a typical economic reality of the stock market, as well as some realities of the market in 2011: “In the early second quarter of 2011, [the sell-off] was exacerbated by ‘sell in May and go away’ and by another episode of the Greek crisis that corrected commodities for a while.”

Mr. Fulp then described why things haven’t gotten better since then. Readers might be surprised to discover that one resource whose price remains high is actually contributing to the problem: “So we are arguably at the 2 ½ year point of an increasingly bear market for the resource sector. Part of that is driven by falling commodity prices. Gold is off its 2011 high by about 35%. Copper is off 20%. Uranium is in the toilet. The only thing that has maintained its price is oil. High oil prices have made it worse for energy-intensive industries like mining, which face high energy costs, depreciating metals values, and shrinking margins.”

Next, we asked what it will take for the market to turn around – to shift from bearish to bullish once again. What Mr. Fulp describes won’t be pleasant for investors to read but will help to fix the problem: “It will take the mining companies to get their houses in order by writing off bad acquisitions and worthless assets,” said Mr. Fulp. “They have to increase their cut-off grades and improve cash margins. They have to treat the mining business for what it really is – a value industry not a growth industry. The goal should be not quantity of ounces or pounds or tonnes produced but the quality of those. Mine the high margin deposits. It’s an old rule of thumb - your operating costs need to be 40% to 70% under the price for which you sell the metal.”

“Until the mining companies start making profits and returning value through stock price increases or real dividends, investors aren’t going to come back into the market. With respect to the explorers, there just aren’t that many good projects in the world that can support 1700 Toronto-listed juniors. We need half or more of these companies to go away and never come back.”

In spite of his bearish assessment, Mr. Fulp still sees some opportunities so he shared some with our readers: “I particularly like two commodities at this juncture, copper and tungsten, and am currently trying to put project deals together on them.”

About copper, Mr. Fulp said: “There are 80,000 more people in the world every day. 25 per cent of the world’s population lives in the dark and can’t turn on a light switch at night. A significant number of those people live in Eastern Asia. That’s where infrastructure is coming; that’s where electrification is booming. So there is an inherent demand for copper. Look at a copper chart of world production since 1900. For 113 years, it grows on average about 3.5% per year. The world demands more copper because we have more people on the planet. Also if you look at a chart of the average amount of copper consumed per person in kilograms per year, over the last 20 years it has gone up from a little more than 2 kilograms to almost 3 kilograms per person. Copper demand will continue to increase.”

About tungsten, Mr. Fulp said: “Tungsten is a specialty metal that the free world needs and most production comes from China. There are good deposits that can be developed in North America. There are good tungsten deposits in Sweden and Scandinavia and Portugal. I own shares in two companies that have tungsten assets in Portugal. I own shares in a company that has tungsten assets in Sweden. And I’m working on a tungsten deal in the United States.”

Mr. Fulp also shared with us how his investing practices are changing in light of this bear market:

“In this bear market, I am acquiring the cream of the crop – the best of the best juniors – and have developed a longer-term outlook on how long I will hold those stocks before I expect a return. I’m moving into assets in stable geopolitical jurisdictions like the good old US of A.”

The United States, he said, offers a very special protection that he thinks will attract more investors in the future: “Certainly there is risk in the USA. There are long permitting timelines and NGO opposition but there is one thing that won’t change: The concept of secure mineral tenure is paramount in the United States. The takings clause of the Constitution gives us a protection that does not exist in most parts of the world. That’s not saying the US government couldn’t come in and put a royalty on metal production from federal lands… but that hasn’t happened despite concerted attempts for the past 30 years. Because of resource nationalism wreaking havoc in many countries in the world, I see investors coming back to the US. There are still good undeveloped deposits in the US and maybe it’s time to dust off some of those projects and take another look at them.”

Investors might not like hearing that the bear market could continue for some time. But that doesn’t mean Mr. Fulp is out of the market. In fact, he is pursuing some specific opportunities in copper and tungsten, and paying attention to opportunities in the US. Investors who are wondering if there is any light at the end of the tunnel may want to take a closer look at these same opportunities.



Mickey Fulp’s website

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