Gerardo Del Real,
Editor
Oct. 5, 2021
Editor’s Note: Last week I had the pleasure of speaking with contrarian investor Jeff Phillips about uranium, the bull cycle, and how he uses his contrarian approach to position himself ahead of the herd.
This week we talk about harvesting profits and why he’s now allocating capital into high-quality gold deals. Enjoy.
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GERARDO DEL REAL JEFF PHILLIPS
Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me once again is one of the most respected contrarians in the resource space, and a close friend of mine, Mr. Jeff Phillips. Jeff, how are you today?
Jeff Phillips: I'm doing well Gerardo, thanks for asking. How are you doing?
Gerardo Del Real: I am well, thank you for asking. Also, I learned from you very early on that the best way, or one of the better ways to make money I should say, is by looking at things when no one is looking at them; it served me well in my career. I've done very well recently with uranium picks, we touched on uranium last week and how all of a sudden it was the flavor of the month and how we thought there was a lot of runway there.
But we left last week's conversation by talking about gold, and I asked you if you were looking at possibly harvesting some profits in the uranium space, and/or allocating new capital to high-quality gold assets, and you actually said that that is exactly what you were looking to do.
So I would love for you to give us a bit of a primer on how you harvest profits and rotate into something like gold, which right now, frankly, most people don't think is very exciting.
Jeff Phillips: Okay Gerardo, first off, let me let your listeners know, I'm not giving you investment advice, and everybody's different. The amount of capital that they're using might be far greater or far less than what I use. And depending on how much of a company you're buying, especially of micro cap, small cap companies, some investments aren't right for people that are buying millions of dollars worth of shares, and some investments are great if you're trying to put $5,000 to work and see it double.
So there's different investments for everybody. So again, this isn't geared towards anyone, it's just what I'm personally doing. And I tend to take large positions.
So as you said, the uranium stocks nobody liked the uranium space. Everyone’s called a bull market, and uranium's cheap, which has been correct for the last 5, 6, 7 years. Finally you're seeing that market turn; you've seen these stocks go up two or threefold. By no means, me taking some of my uranium profits and moving them into the unloved gold sector means that I don't think uranium can go higher. I actually think this is probably the start of a bigger bubble.
And again, if you have no uranium exposure, I'd want to own some uranium stocks. I have a lot of uranium exposure. I spent five or six years buying uranium stocks, a lot of times cheaper than I bought them the first time. And now all of a sudden I'm up very well. So harvesting some of those profits makes sense.
But absolutely I'm looking at the gold space as we head into, and other commodities, but in specific companies, as we head into tax loss selling season, where people are looking for losses and they're selling things because they've got gains in other areas, and they're not really looking at the fundamentals of the company, they're just looking at the tax loss they can achieve to offset their tax bill that will be due next year.
Investing in High-Quality Gold Assets
Gerardo Del Real: So with that being said, I think it's a perfect time to kind of segue into what are you looking at? You said that you've taken some profits and allocated capital into what you called, "High-quality gold assets." What is a high-quality gold asset to you? How do you quantify that?
Jeff Phillips: Oh, there's lots of different ways to quantify that. I'd probably narrow down during tax loss selling season, which typically — for me to look at things — runs anywhere from October 1st to the Thanksgiving holiday. And, again, in some of these instances, I'm buying stocks now because I'm trying to buy a million, 2 million, 3 million shares. And that's not something you're going to wait until the low and be able to just buy that many shares because they don't trade that many shares.
So in my case, I start buying. If I was a larger investor than me you might start even earlier. If I was a smaller investor looking to establish a $10,000, or $5,000, or $3,000 position, those companies can be different. So there's a whole basket of companies you can look at.
In the gold space I narrow it down to a couple of dozen companies and usually buy 12 or 13 before Thanksgiving, and then a few of those I plan on holding longer term. Some of those that are smaller, not millions of share positions, I will flip to make a profit in January, February, and March. And usually that profit can range from 30% to 100%, especially if you get a better underlying commodity. So does that help?
Multiple Commodity Exposure in One Stock
Gerardo Del Real: Absolutely, absolutely. Now I can't let you go without asking for a couple of names that are on your radar, maybe positions that you've added to, or have initiated here recently.
Jeff Phillips: Well, one of those companies that I've been buying and I'm still buying is a company I also consult for and give them financial advice, although they don't need a lot of that right now because they're sitting on a lot of cash, is a company called Almadex Minerals. Almadex is a spin-out of a company called Almaden, which I also own a lot of shares in.
The reason I liked Almadex Minerals (TSX-V: DEX)(OTC: AAMMF) is they recently sold one of the royalties for $10 million US, they currently have about $16 million cash in the bank, and they have three other royalties, one on the spinoff company that they formed Almadex from, which is Almaden, which is going through a very slow permitting process in Mexico. It's taking longer, and it's had setbacks, but I believe it will get done. So Almadex's market cap right now is $16 million, and they have about 16 million in the bank.
So I get the other two, they have a dozen royalties, but two of them, I think are quite interesting, both the one on the Almaden Ixtaca deposit, which is being permitted, the final stages after a bankable feasibility study. And the other one is Caballo Blanco, which is a project that Agnico Eagle just put some more money into and owns 20% of the company that is operating that project.
So on top of that, I get the cash, which is backed by the securities, plus I get another dozen or more, probably two dozen properties that that team has selected over the last 15 years. And there'll be drilling a lot of those properties. They have some joint venture partners drilling properties, but at the end of the day, I'm paying cash for Almadex right now, everything else is for free. That's a good speculation to me.
Gerardo Del Real: It's probably worthy to mention that they also own six diamond drills, and that makes them extremely nimble in a space where that can be the difference right now with supply chain bottlenecks, between getting a drilling campaign executed and having to wait until 2022, right?
Jeff Phillips: Absolutely, absolutely Gerardo. And they make money with those drills, contracting them out to other mining companies in the area. So again, it's a very, very interesting company at these prices. And again, you might be able to buy it a little bit cheaper as we get closer to Thanksgiving, but I'm perfectly happy to buy it at cash value and get all the other assets for free right now.
Gerardo Del Real: No, I think you're spot on, and you get multiple commodity exposure, right? There's copper, there's gold, there's silver. Touching on copper a bit, are there copper plays that you're looking at right now? How do you feel about the copper space?
Two Mining Stocks to Watch
Jeff Phillips: Let me give you two picks. Let me give you one more gold pick, another gold company I liked that I do consult for, or did consult for, I no longer, but I'm still a major shareholder, is a company called Revival Gold (TSX-V: RVG)(OTC: RVLGF), which has the Beartrack-Arnett gold deposit in Idaho, which is a safer jurisdiction obviously than being in Africa, or some of the South American countries.
They have a 3 million-ounce, 43-101-compliant resource there. They're trading at a 52-week low heading into tax-loss selling. So I think the next month-and-a-half, I don't see it getting a lot cheaper, but it could, but I think it's good value at this point; you're paying less than $8 an ounce for gold that they have that's compliant. So I think that's highly leveraged book-to-the-gold-price, and they're currently drilling.
So last year they moved from the 60, 70 cent level all the way up to almost $1.30, $1.40, Canadian I'm speaking. So I think that stock can do that again unless gold falls out of bed, the price of the commodity, which I don't see happening, I actually see it strengthening in the new year. So again, I think that's an excellent gold leverage play.
And if you want me to pick a copper play, it's funny that I've probably got six that I'm looking at because of the tax-loss selling season. But the one I'm going to talk about, I do consult for, I am a large shareholder, is a company called Kutcho Copper (TSX-V: KC)(OTC: KCCFF), and Kutcho has the Kutcho deposit in British Columbia. It's advanced, they'll have a feasibility study out here I believe by close to November 1st.
The numbers on that project looked good before, with a company that's got a market cap of $50, $60 million, I believe at this point, just the old numbers with an underground operation, but this new feasibility study is going to take in an open-pit scenario.
They've got some good agreements with the First Nations in that area, which is important for your permitting, which they're going through now and doing their baseline studies.
I think when we see this new feasibility study we are going to see much better economics, which are already showing that this is undervalued for the old economics. So that comes out November 1st.
I think the property has a ton of exploration potential, and hopefully soon we'll... I've pushed them for a year to look into exploring some of the rest of the property outside of this known copper-zinc deposit, that they already have, that's advanced stage.
So they've also got a major royalty company as a backer. Essentially I think that's another stock, it's not trading at a 52 week low, I think it's high is about 90 cents. And it's currently around 70 cents, you'd have to look it up.
But again, I can see that stock easily in the new year trading in the dollar-plus range. So that's a potential of a 40-50% gain. But again, you're not going to buy millions of dollars’ worth, I'm talking about smaller amounts and being able to make a profit into the new year. So that's another interesting copper company.
And maybe next time we do an interview, I can go over a few more I'm looking at, we should do this again in three weeks because things change.
Final Note on Kutcho and What's Coming Next
Gerardo Del Real: Absolutely. No, that was fantastic Jeff. I always appreciate your time and your insights. A quick note on Kutcho, it has over 1.1 billion pounds of copper equivalent. I think it's 765 million pounds of copper, 1.1 billion pounds of zinc, and then you get 288,000 ounces of gold, and 20 million ounces of silver as a kicker. That's a heck of a resource for the market cap it's commanding right now. Jeff, anything else to add to that?
Jeff Phillips: No, I think that again, everyone's got to do their own due diligence, but those are three interesting names to me. One trading at cash, one trading at the lowest $8 per ounce of gold in the ground, and the other one where I think it's going to get a re-rating on this new bankable feasibility study; but let's do this again in a couple weeks, and I'll give you a couple of things I'm going to continue to buy, and I have been buying.
Gerardo Del Real: Looking forward to it, looking forward to seeing which direction gold and copper takes, and seeing if more bargains appear. There’s a lot of them out there right now. Getting some good high-quality gold names and copper is an excellent way to make money going into the new year. Thanks again for this, Jeff. Appreciate it.
Jeff Phillips: It's good to be patient, Gerardo. We were patient in the uranium space and that's paying off, and I think patience will pay off in these other spaces too.
Gerardo Del Real: I agree. I agree, and my checkbook hopes you're right. Thanks a lot.
Jeff Phillips: Have a good day.
Gerardo Del Real: You as well.
Let's get it!
Gerardo Del Real
Editor, Resource Stock Digest