Legendary Investor Jeff Phillips Shares His Junior Resource Investing Strategy and a Few Companies He Likes

May 3, 2017

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Gerardo Del Real: This is Gerardo Del Real for Resource Stock Digest. Joining me today is President of Global Market Development, Jeff Phillips. Jeff has been involved in the natural resource space for over two decades. He's a large shareholder of and consults for several companies in the junior resource space and he's one of the most influential and well-respected people in the business. I think Mr. James Dines said it best recently at a conference when he described Jeff as a high-states individual that works to bring together people to the benefit of everyone involved. Jeff, thank you so much for joining me today.

Jeff Phillips: Thanks for having me, Gerardo.

Gerardo Del Real: It's been a bit since the last time I interviewed you and a lot has happened since then. Donald Trump is President now. It seems like we're one tweet away from war. In the resource space, companies are exploring again. You've seen multiple cycles. I mentioned that you've been involved in the natural resource space for over two decades. You've built a fortune being a contrarian investor. Can you share a little bit about what you look for in a company when you decide you want to finance a company? Can you give me your take on the metals markets in general?

Jeff Phillips: The easy question is people, as far as financing a company. I look for people first. People are the most important thing. You and I were discussing when you first called here, I just did a financing on a company that has nothing, but I know the people and the structure's very good. I believe they'll get some very good assets. People are the most important thing. Assets are second but important obviously. Structure of course. You can get some good people and some good assets, and if the structure of the company wasn't something they put together or there's legacy issues on what the shared capital is, that can be a big problem when you're trying to build out a company.

It takes a while to do that and most junior resource investors, specifically the brokerage firms and so forth, are more of warrant collecting and aren't helping a company build out over two, three, four years. They're looking to maximize, get their capital, redeploy it, and collect warrants. It doesn't work very well if you're trying to develop a resource asset.

Gerardo Del Real: The second part to my question was what's your take on the metals markets right now? We're going into the summer. I mentioned you being a contrarian. I somewhat consider myself a contrarian and that's obviously where the money is made. You got to buy right. What are you seeing out there? What's your general take on things?

Jeff Phillips: Basically, I think in the first quarter of 2016 you probably saw a bottom in a pretty long bear market in the resource sector. I'm pretty confident of that. You've had a decent market since then. Shareholder appreciation, a number of companies doing better and being able to raise money. Lately, here in the last few months and the end of last year, the beginning of the year was buoyant again and after PDAC, as usual, you've started to see some selling pressure and I'm sure anybody who owns resource stocks just like myself has seen their paper portfolio go down in value over the last couple months.

To answer your question, I think we've seen the end of the bear market. I think over the next three or four years, we're going to see a bull market in a number of metals and commodities and some not. Again, when you say all, you can't really say the whole metals market, because there will be good and bad in that. In general, I think what I'm looking for at this point is I'm looking for solid assets that make sense at today's prices. I'm not necessarily betting that prices can go higher, although I do think we're in that area. You can make money, and that's what I really focus on is how am I going to help this company develop and find an exit strategy that allows me and the other shareholders to make money, regardless of what the underlying metal price is.

That being said, Gerardo, obviously underlying metals price dropping 40% isn't going to help any company in that space. Again, if your listeners believe that we're about to hit a bear market or this is just a huge bump in a bear market, then you wouldn't want to be buying any metal stocks. I don't believe that.

Gerardo Del Real: Sure, now as a contrarian, do you use the summer months to add to positions in the names that you like?

Jeff Phillips: Absolutely, but I'm always adding when things get cheaper in the names I like, especially when they're developed assets. It's not really a question of when it's bought out or becomes a mine, it just depends on what cycle it fits into when that happens. I often do that. I have some companies that I've owned for six or seven years and I've added to those positions throughout that time when share prices get weaker, because I know at some point I'm going to sell that company for more in the right market.

Gerardo Del Real: Good. I mentioned you're one of the most respected investors in the resource space. You also have a very disciplined approach. You're somewhat out of the loop. You're based out of San Diego. I'm based out of Austin. When you look at the junior resource sector, how do you identify red flags? I know that you don't run with the typical brokerage crowd per se but you're very well-known and you know pretty much anybody who's anybody in this business.

Jeff Phillips: If the brokerage crowd's involved, it's probably a red flag. Again, it's really about three things. It's about people first, structure, and assets. Those are the three things you need to look for. Again, I don't go into financing a company or sticking with a company with a large shareholding because I think the commodity price is going to double. If that happens, all the crap out of Canada will go up, too. That's the resource sector, all these ridiculous promoters and everybody else. Those companies do well, too, in that. What I look at is, you know, in a generally flat market if this asset's developed and de-risked would someone pay more than it's currently trading at? There's always opportunities in all markets for those types of situations. That's really what I'm looking for, is people.

Again, I don't do lots of deals. Part of my thing when I finance a company is, look, myself and the people that follow me tend to be longer term shareholders. That's what I tell the company, we're not going to be four month shareholders. You're not going to be on a treadmill having to constantly raise money without any support. We're going to be good shareholders as long as you meet your milestones, we'll finance at higher prices. We like that.

I've often told companies, "Look, I like your company. I like everything about you, but I would rather write you a check at twice the price after you've achieved this." Sometimes I have to explain that to them. They're like, "Why would you want to?" "Because I want to see you achieve this, and I'm happy to pay double the market cap because I think that you de-risked it and there's plenty of upside."

Again, I'm not looking for higher commodity prices, I'm looking for companies that have people that have done it before or assets for some reason that I believe they can de-risk regardless of what the commodity price does.

Gerardo Del Real: Do you find that the better management, the honest people in the business, attract the best assets?

Jeff Phillips: Not always. I find the honest people in the business have a better chance of developing the asset. There's a lot of dishonest people and people that don't know what they're doing that can have a good asset and never get it developed because bad structure, they couldn't finance it. Again, it's a costly business, de-risking something from exploring, discovery, PEA, pre-feasibility study, bankable feasibility studies, tens of millions of dollars. You know, $40 million, $50 million for a deposit that's going to actually be something that's worth half a billion to several billion dollars. Again, a great management team can take an asset that's not the best asset but a good asset and make something happen with it because they do it efficiently and attract a buyer.

Gerardo Del Real: I know you don't do a lot of these interviews, so I want to thank you, Jeff, and I can't let you go without asking for a couple of names. You mentioned great management teams and great assets. What do you like in the junior resource space right now?

Jeff Phillips: That's such a large question, because there's so many different commodities and different things, but we've talked before, obviously, in the precious metal and for more advanced assets, I'm a large shareholder and I consult for Midas Gold which has the Stibnite project in Idaho and six billion plus ounces. Again, I think they can double that if they wanted to. I think it's undervalued for what they have and they're advancing that deposit through permitting right now. I think they're going to hit a good gold market and get bought out for a lot more money than they trade at now. Another one with a developed asset which you and I have discussed before is Almaden Minerals, a very respected father-son management team. A grassroots discovery to a four plus million ounce deposit in Mexico.

Gerardo Del Real: And a mill?

Jeff Phillips: A mill, yeah, you know a lot about the story. Again, I'm a large shareholder. I've added to that position in periods of weakness in the market. I feel pretty confident that the right time and place, Almaden's going to get bought out and I'm going to make quite a bit of money. It's a good asset. That being said, if gold decides to drop $200 an ounce over the next three months, I may be buying some more stock, I hope so, at cheaper prices because eventually I believe gold will be much higher, and these are well-run companies that aren't diluting shareholders unnecessarily and I will profit.

Again, I've made most of my money when things haven't gone right in the overall markets but the company's developing. I continue to buy more shares and end up with a larger position than I would have had without the financial crisis or a resource meltdown or whatever happens. I end up with fairly large positions in these companies, and in the right market, the real assets and real people. Those are two developed companies.

I also finance smaller companies across different commodities. A company I advise and I'm a shareholder in that I think is a great lithium play, if you like lithium, you have to like the commodity and the underlying demand as these batteries for the electrification of cars continue. Advantage Lithium's a very interesting company. I think it's AAL. I participated in their last financing at $0.75, I think it was. I think you can buy the stock today for $0.51. Again, the market's gotten weaker and some people have sold. That's a very real lithium company.

Who else? In the uranium space, I've been a consultant and a shareholder at Fission Uranium for a long time. I really like that asset in the right uranium market. I think that goes to someone else. I recently financed a company that's private, that was the uranium company that again is run by real people that developed Uranerz, which was the uranium company that did real well in the last uranium boom and eventually merged with Energy Fuels. They've got a new deal that should be a public company in the next few months, things like that, early stage.

As you and I have discussed, I'm a shareholder in a company called K2 Gold, which has some very early stage B.C. properties. The chairman of the board is John Robins, who was the chairman of the board of Kaminak, which was recently sold to, who was it, Goldcorp I think?

Gerardo Del Real: Correct.

Jeff Phillips: Guys like that, it's a very well structured company where the directors own shares and are fully reporting and I can see that. It's a very interesting company just for the people. I think the stock trades at $0.28, $0.29 and that area of the world's hot for exploration and these guys have done it before. K2 Gold's a very interesting company. I'll just leave it at that for now. That's an early stage company that I plan on working with over the next two or three years.

Gerardo Del Real: Their asset is nearby. I think it's south of Kaminak's coffee property if I'm not mistaken, right?

Jeff Phillips: Yeah, basically John feels that there's an area, I can’t remember if it's south or west of where a lot of the exploration work's gone on in the past, including Kaminak's. There's a large area that he feels is pretty prospective. It hasn't seen as much exploration. There was a discovery made there, that was their initial acquisition, a private company. They're following up on it this summer and I'm very excited to see. They're going to do some drilling and again, this a team that's built companies out before. Very interesting company.

Gerardo Del Real: We've seen some big deals in the copper space, Jeff. Is there anything out there either early stage or more advanced that you like?

Jeff Phillips: You and I discussed this, and actually discussed it because you brought it to my attention a while back, and I think it's a company that you recommend, also. Abacus Mining which has the, now I'm drawing a blank. What's the name of the deposit they have?

Gerardo Del Real: The Ajax property in BC and the Willow property that they're drilling here at the end of summer.

Jeff Phillips: I like Ajax as a call option on the price of copper. Again, you brought it to my attention, and I really liked it as a copper deal and recently financed the company. I think, again, if you think copper prices are going lower, then you don't want to own any copper companies. But that's a company that's joint ventured with a major copper producer, carried to production their 20%. The stock has actually been restructured also recently, so even at a $1.00, $1.20 share price, there's lots of meat left on the bone for someone who comes in and wants to take out that, either stream that royalty or buy them out or an actual end user.

Again, I think if you think copper prices have the ability to be at $3 or higher in the next 18 months, that becomes worth a lot more money. As you added, they're also joint ventured with a project in Nevada which is a very, very interesting exploration play. They're very excited about it, and so you kind of get that for free. If it works, great. If it doesn't, you've still got Ajax, which is, in the right copper market, is worth a lot more with a major partner carrying it to production right now.

Gerardo Del Real: Jeff, I want to thank you for your time. Is there anything else that you'd like to add? I know you got a lot on your plate.

Jeff Phillips: No, just again, I think you really need to look at the management teams. You need to plan that things aren't going to go according to plan in the overall market, so you want companies that can weather the storm and when the times get good, know how to run a company. Again, people always ask me, what do I think the gold market or what do I think of the zinc market's going to do. I have no idea. Neither does anybody else who tells you they do. Like you said, one tweet can change everything. Really look for good assets that again, you want to be a shareholder in for the period of time it takes to get a good return on those. You may have to go through some bad times and good times, but eventually, those assets tend to reward you.

Gerardo Del Real: Excellent, Jeff, again, thank you so much for your time. Thank you for the insight. It's always interesting and hopefully I can have you back on here in the next couple of months as the summer doldrums come in and leave here come September, October.

Jeff Phillips: That's a great time to be buying some quality assets that you already own. I add to my positions, so I hope we got some good summer doldrums.

Gerardo Del Real: There you go. Thank you, Jeff.

Jeff Phillips: Thank you, Gerardo.

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