Jeff Phillips on the Brexit, Trump, Junior Resource Investing, Contrarianism, Uranium, and Fission

June 26, 2016

Gerardo Del Real: This is Gerardo Del Real for Resource Stock Digest. Joining us today is Jeff Phillips. Jeff is president of Global Market Development in San Diego, California. He specializes in finance, marketing, and corporate communications for natural resource companies. There's nobody in the resource sector who's opinion carries more weight with me than Jeff's. Jeff typically works behind the scenes helping companies achieve their benchmarks. I really appreciate him taking the time to talk with us today. Jeff, how are you?

Jeff Phillips: I'm great, Gerardo. Thank you for having me.

Gerardo Del Real: Absolutely. We're excited to have you on.

For listeners that aren't aware of what you do, can you please give us a brief overview in your own words on your background and what you do?

Jeff Phillips: Yeah. I guess you gave me a little background there, but a lot of that stuff's stuff I used to do over the last 25-plus years in the natural resource market. Really, all I am now is a high net-worth individual that's invested in natural resource stocks. I consult for those companies to make sure that they're using their capital in the most efficient manner to create shareholder value. The reason I'm concerned about that is I'm usually one of their large shareholders, so I would like to see a value creation. You're basically taking, in a lot of these cases, a piece of land... It's just like developing real estate houses. You're taking something and you're trying to improve the value of that land. In this case, what I specialize in is financing people who believe they can increase the value by finding a certain commodity.

Gerardo Del Real: Absolutely.

Jeff, it's been a wild 24 hours. What's your take on the Brexit vote and the reaction in precious metals markets and specifically the affect on the junior resource market?

Jeff Phillips: I guess the two things I would say, Gerardo ... First off is to answer the last part of that question, the affect on the gold market or any markets in general. We've had a long bear market in the precious metal sector, the natural resource sector. When things are in a bear market, the underlying asset, it's usually a good time to buy, and when they're in a raging bull market it's usually a good time to sell. Everybody says that. Nobody actually can execute that very well. Even the biggest players in the world don't execute it perfectly. I've been in those situations before. I think simply, separating Brexit, I think precious metals has turned a corner here. I think you've had a very long bear market, you're due for an upside and that's what you're seeing.

As far as the Brexit vote goes, I think that's a symptom of a larger movement that you're seeing going back to the real estate and financial crisis in 2007 and 2008 when you saw a number of these protests, the 99% against the 1%, that cropped up all over the place. That was quite surprising seeing these tent cities and different things. I think that was a start of what you're seeing, people getting angry. The government flooded the markets. Governments around the world flooded the markets with money and economic stimulus, and in my opinion quieted what could have been a very bad situation. However, nothing's been fixed.

Look at the candidates here in the United States. Donald Trump clearly has the support of the working person, the person who's tired and fed up and feels like they always get the short end of the stick, really the 99%. I think what you're seeing in the Brexit vote is a large population of people that hadn't voted before that were the working class that stood up and said we're tired of you politicians, whether you're Labor Party or whatever party that they call themselves over there. They're all tired of it. You see that same movement here with the Tea Party, with the 99%, or the Donald Trump supporters. That's what's happening.

Gerardo Del Real: It's interesting.

Transitioning back to the junior resource market, you mentioned aligning yourself with companies and obviously having a vested interest in those companies succeeding, companies that you finance. What do you look for when you're helping structure or guide a company to meet those company benchmarks? What do you advise a company do to make sure that your shareholder interest is aligned with the way that they're executing the business model?

Jeff Phillips: There's a number of things you can do. One is that the money that you're putting into private placements, which is how these companies are ultimately financed, is going mostly into the ground as opposed to find something. They're spending the money on increasing value. Most of what I specialize in are development-stage or exploration stories. Development being they've discovered something, they may have a resource, it could grow a lot bigger, we're financing to try to make that happen. Exploration being that they've got some sniffs or some smoke and they believe there might be something big there, but they don't have anything yet. Whether you're looking for gold or copper or oil or rare earths, graphite, lithium, whatever it is that you're looking for, these companies usually don't have a lot of it and they haven't proven its economic to get it out of the ground. I'm speculating on that. I want to see most of my money go to proving those scenarios and increased shareholder value as opposed to salaries and options and just wasteful spending, which unfortunately is a majority of the companies in the junior resource space.

Gerardo Del Real: Fantastic. Don't put it in your pocket, go out there and find something.

Jeff Phillips: Absolutely.

Gerardo Del Real: Makes sense. Sounds simple.

It appears that we're either entering a new gold bull market or we're at that very last leg of this most recent bear market, which has been brutal. It's going to bring out a lot of new speculators, of course, and the best and worst in people. What advice can you give somebody that's attracted to the upside and looking to navigate the junior resource sector waters, because you know those can be tricky waters sometimes? What advice would you give a new speculator looking to enter the space?

Jeff Phillips: It's a multi-loaded question there, Gerardo.

Gerardo Del Real: Yes.

Jeff Phillips: You've heard the saying when the wind blows hard enough the turkeys fly, right?

Gerardo Del Real: Yes, sir.

Jeff Phillips: The wind's been blowing. In a full-out bull market for precious metals, the wind can blow a lot stronger than it is right now, and we've seen some pretty fantastic returns. Some of the best returns in the junior space have been some of those companies, in my opinion, are marginal assets, but they've been well-promoted in past booms, so they have a large shareholder base with a lot of people that want to average down or think this is a new bull market. I do believe it's a new bull market, so you really have to ask yourself as an investor in the resource space... Again, nobody ever complains if you get involved with a bunch of bad guys that can make a turkey fly, so to speak, and you buy the stock at $1 and it goes to $10 and you sell it at $9. You're pretty happy, to be honest.

Gerardo Del Real: Right.

Jeff Phillips: If you're in a real company that's got a real asset that sells it to Barrick Gold at $9, you made the same amount of money. There's a lot of money made. What I'm saying to junior resource space speculating on that these things are really going to move, there's a lot of companies I know now that are up 200%, 300%, and they're never going to be mines, they're optionality plays, as some of the industry bigwigs like to call them, but what they really are is they're waiting in the bull market for the bigger players to separate the smaller players from their money.

Gerardo Del Real: Right. That makes sense.

Jeff Phillips: Your question is how long is this going to continue?

Gerardo Del Real: That would be one, yes.

Jeff Phillips: Yeah. Again, I think you've had a very long bear market. I think when you've had a bear market like this in resource stocks of this length, you're due for a bull market. Doesn't mean you're going to have one, but you're due for you. I would suspect our next bull market is going to be pretty big. I believe we have started that. I believe a lot of people think there's going to be a pullback, I know you and I have talked about it, and I wouldn't disagree that that's a sound scenario that you could come up with, there'd be a pullback after this run-up.

What I'm noticing is a lot of players that are high net-worth individuals, people I talk with on a daily basis, professionals that own brokerage firms or analysts, again the high net-worth IR people, and what I'm noticing is most of them are excited about this market and a lot of the stuff they were stuck in over the last four and a half years is doing much better, so on paper they've made more money. Those people who were smart enough to have cash didn't redeploy that cash because they were too scared about their investments that had already gone down.

Gerardo Del Real: Right.

Jeff Phillips: I hear from a lot of people right now that I'm going to wait for the pullback and I'm going to buy some precious metal stocks, this is definitely the start of the bull market. Here we are almost to July. I think if there is a pullback, there will be a lot of buying into that in the precious metal space. I think it's going to be volatile with what's going on politically out there. I'm looking at precious metals. I guess at the end of the day if you want to buy a stock, I want to buy something I think there's going to be a mine or something that can be bought out so whatever happens in the short term I'm not affected.

I'm looking for, let's use gold for an example, I'm looking for gold deposits that are large and can be bought out. In the short term, the stock may fluctuate, but I think over the next three or four years we're going to see gold do quite well, we're going to see majors need to replenish their depleting reserves, and we're going to see people bought out. I want to own those stocks, even if they don't go up quite as much as some of the optionality or well-promoted stocks. I want to own the real assets because I think I'll be in the game when the they get taken out and I'll do well there. Does that make sense?

Gerardo Del Real: Absolutely. There's a lot of good stuff in there.

Anything else you'd like to add, Jeff?

Jeff Phillips: I think, again, people in the junior resource space, and we're mainly talking about precious metals, I think this is a good time to be looking at quality companies, but again realize it's very risky, it's highly volatile, and you really need to plan you're not going to be right in the next three months but you're right over the next three years. Look for quality things and get multiple opinions, do your own due diligence on companies. I spend all day long doing due diligence and I have a large network of people that I know and I can still get things wrong.

Gerardo Del Real: Absolutely.

One last question while I have you on the phone, Jeff. For the nearly a decade or little over a decade that I've known you, I've kind of gotten to know you as what I would call a contrarian investor. Are there any other sectors right now that are on your radar that appeal to you either because supply/demand fundamentals seem appealing or just they're in a situation that's not sustainable and they're bound for a turnaround?

Jeff Phillips: Oil.

Gerardo Del Real: Oil. Okay.

Jeff Phillips: I don't think it's going to take off any time soon, but I think if you're someone like me you look for sectors that have been beaten up to kingdom come. I think it's going be a rough period of time here, but you can start looking at oil assets. Again, as you know, I've been buying gold assets for the last couple of years. They weren't going up, they continued to slide down slowly. I think oil is interesting if you're looking for things that are out of favor. That's something you should be looking at. Doesn't mean you have to do it this month, it could be a year from now. I think you can buy quality assets at a deep discount right now.

As you know, I collect old vintage cars. That's a market I'd avoid. They're overvalued along with commercial real estate I believe is a very overvalued asset at this point. It's why it's always hard to buy something when it's not exciting.

Gerardo Del Real: Right.

Jeff Phillips: Oil obviously hasn't been exciting. There's a lot of companies that are yet to go bankrupt, so again I wouldn't be rushing into that sector, but there's going to be opportunities there.

Here's one for you, uranium. Do you mind if I name a stock, Gerardo, that I own?

Gerardo Del Real: I actually would prefer if you named a couple of stocks if you don't mind, Jeff.

Jeff Phillips: Yeah. I own a company called Fission Uranium. It's one of the best uranium discoveries. I think it ranks up there all time as one of the best uranium discoveries up in Canada.

Gerardo Del Real: Agreed.

Jeff Phillips: They discovered that deposit exactly in the middle of a bear market. I think it happened around 2011 when the market rolled over, 2010. They've outline a world-class high-grade, shallow uranium asset. Uranium had a spike. After Fukushima, it obviously sold off quite a bit. It had a small spike last year. It sold off pretty close to the lows over the last five years. Uranium's not going away. World-class assets like what Fission has aren't found every day. Four months ago, I couldn't find someone, or five months ago, to buy a gold stock, a 7 million ounce, what looked to be an economic gold asset. There were no buyers for certain development-type gold stocks. Four months later, everybody wants to know if they should be buying at 300% or 400% higher, and this is the real deal and Brexit's happening and all this is happening. It may be true, but again the time to buy the gold stocks is when nobody else is buying them.

I'd look at uranium right now. I think uranium is down. It's not going away. It's the energy of the future. It's clean. You have a company like Fission that's a once-in-a-generation discovery that's not getting the proper value for that because the underlying commodity is on its ass right now. It won't remain there.

Gerardo Del Real: Right. Yeah, I agree with you 100%. I actually had the privilege of speaking with the president of Fission the other day, Ross McElroy. What struck me the most from that interview was just how underexplored their land package is and how early stage it is despite the fact that they've already outlined a world-class asset, so I agree with you 100%.

Jeff Phillips: Yeah. The other thing you can look at, the largest end user in China, that subsidiary, just bought into Fission in the last six, eight months.

Gerardo Del Rea: Correct.

Jeff Phillips: At a higher price in the stock trades that now. Again, that's smart money as long as you're patient. The junior market's made up of a lot of people that want to jump on a stock that's up 200% and went up another 20% today. That's great, you can trade and do stuff. I have large positions and over time I like to buy quality assets, and that's just my specific area. Fission's a good example of buying a very high-quality asset that I'm not going to worry about this month or next month. At some point, you'll call me up or someone will call me and say, "Is Fission a good buy here? It's up 300% in the last five months. Uranium's moving."

Gerardo Del Real: Right.

Jeff Phillips: I'll say it's always been a good buy, it's a great asset.

Gerardo Del Real: Jeff, it's been fantastic. A lot of really good stuff in there. Hopefully, we can have you back on soon. I'd love to talk a little bit more about your thoughts on the oil market, maybe some opportunities in that sector and then ...

Jeff Phillips: Absolutely.

Gerardo Del Real: ... let's see how markets develop here over the next few weeks. Thank you so much for your time today. We'd love to have you back on soon. Again, thank you.

Jeff Phillips: Thank you, Gerardo.

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