Contrarian Legend Jeff Phillips with Three Picks for The New Uranium Bull Market
Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is President of Global Market Development based in San Diego, California, Mr. Jeff Phillips.
Jeff is a high net worth investor who has been involved in the natural resource sector for over 25 years. He consults for select companies in the resource space and has made a fortune by being a contrarian and getting ahead of trends before the crowd.
Jeff, I know you don't do a lot of these interviews, so thank you very much for your time today. How are you?
Jeff Phillips: Thanks for having me, Gerardo.
Gerardo Del Real: In the intro, I mentioned that you've done very well for yourself and many others as well by taking a contrarian approach to investing in the natural resource space. You're coming up on nearly three decades of experience, it's a very cyclical business. Can you talk a bit about your approach?
Jeff Phillips: Yeah basically, Gerardo, the natural resource sector is a very high risk sector. A boom and bust tied to the commodities, tied to exploration risk, development risks. First off, most of the companies that I'm an investor, and I consult for, and I work with ... The natural resource space is really for those people who understand the boom and bust nature of it. I'm always leery of doing interviews because you never know who's listening and the simple fact is that unless you've had some experience in the natural resource space or invested in some commodities, commodity stocks before. Understand that it's a small portion of your portfolio, it's not your entire portfolio. The natural resource space, if you don't know what you're doing, is a good place to take a large fortune and turn it into a small fortune.
Again, this is really, when I'm talking about this, it's geared towards people that have some familiarity with the resource space. They listen to analysts, brokers in that space, have a portion of their assets allocated in that space, and understand the risks. It's a boom and bust type cycle, there's fantastic money to be made in the underlying booms and there's opportunities to lose 80% of your money if you're not following what you're doing and not investing at the right time. So, the right time is key in these resource sectors, especially when you're looking a junior mining or development stocks.
Gerardo Del Real: Well, you mentioned timing and I mentioned earlier that you've made a fortune, frankly, by being a contrarian and getting ahead of the trends and getting the timing correct. It appears that the precious metals space is consolidating. Base metals, actually, like zinc and copper, they appear to be in a new bull market. What do you see out there as the most overlooked or maybe underappreciated opportunity in the resource space?
Jeff Phillips: As you said, I think the precious metals and the base metals have gone through a bear market. I do think we've seen the end of that bear market. You’ve seen easy credit pushing asset prices up in all classes and I think that probably will continue, at least for a while longer. So, I think you're going to see money looking for things that haven't performed as well in the massive overall bull market that we've experienced. I think you're starting to see that in the gold and the base metal prices. Well, really precious metals and base metals. You're seeing people start to gravitate in to those spaces because they've been in a bear market and they offer value.
So your question, I think both of those spaces are in early stages of new bull markets. Something I think is very contrarian investment right now is the uranium space and the price of uranium. Back in the early part of the century here, we had a bull market that lasted until 2007. We saw uranium prices go from, I don't know, below $10 a pound to over $130 a pound, which is what, a 12 or 13 fold increase in that timeframe when you saw uranium move up. That was a 6 year period that moved those prices. You saw 10 and 20 and 30 fold returns on small equity investments. A lot of those companies didn't even have uranium they just had uranium in their name. A lot of the bigger companies that had uranium assets, or actually had discoveries, performed even better. So again, you had that bull market in uranium. You had a fantastic bear market in uranium prices and the underlying, most of the equities and small cap exploration discovery plays went by the wayside so there's a lot less companies in a bear market. I think after this 10-year bear market you've seen prices for uranium are down, what, 85%, 80% from their highest, something like that. Right now around $20 a pound. The cost of producing uranium is north of $50 a pound, give or take, again.
Gerardo Del Real: Right.
Jeff Phillips: So you have a situation that's not sustainable. The only question is the timing. Me investing in either physical uranium or an uranium stock, it's how long do I have to wait? It's not a question of whether prices are going to rise, they are going to rise. They have to. So I think you're very close at this point, I think we've seen uranium come off the bottom. It had a nice move last year, the price of uranium. You saw some uranium stocks come back to life. You've seen uranium pull back, which is typically what happens in a beginning of a bull market, or even an advanced bull market.
So I think uranium's bottomed, the price. And again, so I think taking a look at a lot of these, everything from producers down to exploration plays in the uranium sector is a very contrarian investment and I think it's going to pay off.
Gerardo Del Real: That's interesting. Another point that's interesting to make is there's a lot of very quality management teams that stayed away from the sector for years that are finally coming out of hibernation with some very quality deals. What do you like specifically, obviously the food chain is pretty broad, everything from producers to explorers as you just mentioned. What do you see out there that is attractive on a valuation basis, if indeed we are in a new bull market and uranium is bottomed?
Jeff Phillips: Well I can only speak to what I find attractive to myself and that has to do with my own portfolio and what I'm trying to do. But again, if you believe, as I do, that the uranium price is going to have to move up, again, 20% of the U.S. uranium supply comes from nuclear energy. I think 10% of world supply comes from it. Nobody can produce at current prices and make a profit. The only reason they're still selling uranium is they've signed long-term contracts at higher prices. When these come due over the next couple of years, they're not going to be signing contracts at current prices because they won't make any money doing it. They won't stay in business.
So again, I think if you believe the scenario that uranium, when prices get cheap enough they have to move back up and that's where we're at in uranium. I can speak to my own portfolio and what I'm doing, but again, if one of your listeners run a major fund and believes that absolutely uranium is going to double over the next two years, well obviously you'd look to by an ETF or something that's connected to the physical uranium market. That's not what I do. I look for higher leverage. Again, if you wanted to buy a bigger company and you're running a hedge fund or something, you're going to look at something like Cameco or some of the other producers that are obviously going to respond well in, again, in a higher price uranium market that I see coming.
But I tend to look for more leverage. So that means somebody who's got a discovery, a development play, or exploration potential that's very good heading into a bull market. So I've invested in three or four smaller companies that I really like and I think offer tremendous leverage to that bull market I see coming. I just don't quite know when it's going to start.
Gerardo Del Real: Excellent. Well, with the disclaimer of course, that this is what you're doing with your money and opportunities you see in the space, your background and your track record speaks for itself. Could you share some of those names further down the food chain there, explorers and developers?
Jeff Phillips: Well one of the developers that I've been involved with for a while now, seven, eight years. I do consult for the company. I'm a big shareholder. Fission Uranium (TSX: FCU), That's the company that's made a couple of discoveries. Sold one of the discoveries five years ago to Denison, which paid off wildly for the shareholders because we ended up with Denison stock plus we ended up with a new company, which is the current Fission. We also, they spun out other assets and we ended up with a company called Fission 3.0, but Fission's is my main interest for someone looking for development play.
Fission has the Patterson Lake discovery, which is probably one of, if not the best, discoveries in the last couple of decades in the uranium space. Unfortunately they've made that right in the middle of a uranium bear market. But it's a world class asset, shallow, high-grade, in one of the best producing regions of uranium in the world. So I think Fission offers fantastic, not only leverage because they have a proven resource in the ground, which is expanding every time they drill they keep expanding this thing. It's going to get much, much bigger and it's already big.
So think Fission's an excellent development type play, which offers you more leverage than a Cameco or someone who's producing. Fission Uranium would be my development play that I've got money into.
Gerardo Del Real: Interesting. They're also very well cashed up if I recall correctly. I think they have somewhere in the order of $45 to $50 million in the treasury from a strategic shareholder and I think that's important because you mentioned timing and risk and frankly, the biggest risk is that the uranium takes another 6-12 months to actually turnaround and completely bottom. But if we are at a bottom I believe the leverage is absolutely there with Fission. World class team, world class asset.
How about explorers? Maybe explorers with in earlier stage asset. Maybe a great team that's looking to make that kind of discovery, but has pounds in the ground and credibility from previous cycles?
Jeff Phillips: I'm a shareholder in a company and a consultant, just recently, to a company called Skyharbour Resources (TSX-V: SYH). Skyharbour’s run by Jordan Tremble, a young gentleman who's very hungry, very smart, is always out working hard, which is what I want to see as a shareholder. He's just a young, hungry, knowledgeable, constantly on the road working for his company. So Skyharbour's an interesting company. Their flagship project actually has uranium and they've drilled uranium in it. They have several joint venture projects. One is joint ventured with a French uranium company and producer, AREVA, who's drilling one of their other properties. They've got several other properties joint ventured out to others and they're going to see a lot of drilling here over the winter both on their flagship project and the joint venture projects.
Skyharbour is a very interesting company if you think the uranium space is probably bottomed and we're going to head into a new bull market, those are the kind of companies that you can really move. I think the stock's a $0.40 stock Canadian right now. Again, their lead geologist has been involved in several companies. The last of them he watched go from $0.25 to $4, $5 dollars. So that's what you're looking for in these companies and you're trying to get the timing right. So Skyharbour is a very well run company and Jordan Tremble is first class.
Gerardo Del Real: Yeah Mr. Tremble, Jordan's executed brilliantly and I think we're going to get a lot of exciting news here in the winter and the spring time from Skyharbour. I mentioned earlier, there's a lot of teams, quality teams with very successful track records coming out of hibernation and bringing quality deals to the market in the uranium space. Are there any of those plays on your radar, Jeff?
Jeff Phillips: Yeah there's several. I can't be invested in all of those companies, obviously. So I pick and choose. I actually invested in a company and consult for a company that is called URZ Energy (TSX-V: URZ). The deal was put together by Dennis Higgs and his entire team from his last year uranium deal has basically come back out into the uranium space. Uranerz was their original company. I think when they came out of the gate they were at $0.25 stock Canadian and reached a high in the uranium boom of $8 a share. They also did something that most management teams didn't do in the last boom, which is actually put a project into production, an ISR project. So a very quality team that knows what they're doing, knows how to put something in production and they decide to come back in the uranium space.
URZ is a public company now, again, just recently. They have several assets with pounds in the ground in the United States, which is obviously a safe jurisdiction. Someone that I think needs to be worried about the uranium supply. But really, what I like about URZ is you've got a team that's actually put something into production in the last uranium bull market. They're back to do it again. They know all the assets out there, they know what can be put into production, so I suspect that team will be making some strategic acquisitions in the short term because right now is the time to be buying things with uranium still at the $20 a pound price. Again, I think those will pay off in spades if you see, which I do believe you will see, uranium trading back at least about $50 a pound, because that's what it costs to produce it.
Gerardo Del Real: Excellent. Well, we have Fission Uranium, we have Skyharbour Resources, and URZ Energy, three picks from Jeff Phillips. Jeff, I want to thank you again, very much. Like I said earlier, I know you don't do a lot of these so I appreciate your time. Is there anything else that you'd like to add before we leave here?
Jeff Phillips: Yeah, I'd just like to say again, that if you don't know a lot about the resource space, it's probably not something you should be investing in unless you want to put the time in and understand. Because the resource space, people talk about the junior resource space. But there's all kinds of segments to that. Precious metals, base metals, strategic metals, uranium, oil and gas. Again, if you don't have somebody that you're talking to regularly you shouldn't be doing something just from listening to someone. You need to have someone, whether it's a professional newsletter writer that covers that space or a broker that specializes in that space, because again it's risky capital in any of those sectors in the junior resource space. It needs to be properly allocated and you need to have someone there who's either watching out for you or you're spending a lot of time in that space. Otherwise, it's probably not for you.
Gerardo Del Real: Absolutely. Well, I know you did very, very well getting ahead of the herd back in, I want to say seven or eight years ago with critical metals and rare earths, you did well there. That sector, the critical metals space, seems to be heating up again. I'd love to get your take on a different day if you're kind enough to come back on the show, Jeff.
Jeff Phillips: Love to do that.
Gerardo Del Real: Excellent. Thanks again. Jeff Phillips from Global Market Development everybody.
Jeff Phillips: Thank you, Gerardo.
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