Gerardo Del Real
May 8, 2023
Joining me once again this week is contrarian resource speculator Mr. Jeff Phillips. We discuss the broader markets, gold, and an opportunity in the copper space. I hope you find it insightful.
Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is a friend, mentor, and one of the most respected contrarian voices in the resource space. Once again, it's Mr. Jeff Phillips. Jeff, how are you today?
Jeff Phillips: I'm doing well, Gerardo. Thank you.
Gerardo Del Real: Let's get right into it. I've gotten a lot of positive feedback from having you on the program here. Your conversations are always insightful. You bring decades of experience and, frankly, the network that you've been able to build within the resource space is top-notch.
There's a lot happening on the macro level in the resource space. You and I recently have written checks for several copper companies. I'm uber-bullish on copper and where it's headed in the mid to long term. And so I thought we could have a conversation about the resource space and more specifically what you're looking at right now and what you like out there.
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Jeff Phillips: Well, not to repeat our previous interview but I'm not overly excited about the general financial markets… so I'm being cautious and buying only certain things. And we talked about a couple of new deals I recently participated in. And, again, I'm not giving anybody investment advice because I'm just talking about what I'm doing, and it may not be right. You should conduct further due diligence to see if it fits with what you're doing and so forth.
But as a natural resource professional and speculator, I'm just talking about what I'm doing and what I'm looking for. So the couple of companies we talked about last time were newer deals. And we were talking more about share structure and insider ownership and having a vested interest with other people that aren't short-term players.
But if you’d like to talk about something different, then let's talk about a copper company that I recently wrote a check for. I've owned shares in the company for several years — probably three or four years — and I think I'm about breakeven at present. I originally financed the company at around C$0.20. The company is Kutcho Copper (TSX-V: KC)(OTC: KCCFF). I believe I've participated in every financing since that initial one.
And I just recently wrote another check in their C$0.25 financing. In that timeframe, in those four years, they've gone from C$0.25 to almost a dollar… and they're currently back at around C$0.25.
I was a financial consultant and shareholder in Kutcho; a fairly large shareholder. And I still am a fairly large shareholder. And now that they've had a somewhat, I won't say a “change of direction” but an added component, I'm interested in consulting for them once again and hopefully steering them so that they can go to new highs and develop their projects.
So Kutcho Copper has the high grade — the same name as the company — the Kutcho high-grade copper-zinc deposit. They have about 140 million shares outstanding because the company has been around for quite some time; it was spun out of Capstone Copper and another vehicle.
The Kutcho deposit has a feasibility study on it. So what I like is that you've got Capstone Mining owning roughly 7% of the company. And then, you've got Wheaton Precious Metals, which is a large royalty company, that has basically given them a financing package of close to a hundred million dollars to develop the Kutcho copper-zinc deposit with that bankable feasibility study.
They've also already committed C$34 million of that, and they're a major shareholder in Kutcho. So again, the actual feasibility stage deposit that they have — at current US$4/lb copper — has an NPV of C$536 million at a 7% discount rate. Again, that was at US$4 copper… I believe copper is going much higher in the near future.
The Kutcho deposit is a medium-sized copper deposit so I think there are certain larger companies that aren't going to be interested in that. And there are certain metals procurers that aren’t going to be interested in that. But again, the internal rate of return on the existing deposit is 30 points — call it 30% IRR — so you're talking about close to 1.1 billion pounds of copper equivalent.
But what's really interesting is that it’s a VMS deposit. For the last several years, Kutcho has been advancing that project through permitting and working with the First Nations and doing all of the environmental reviews to permit the project. What they haven't been doing while focused on that is looking at the entire land package that they have.
Remember, VMS deposits typically occur in clusters. And this is a very nice VMS deposit. As a large shareholder, I have been saying all along that I wish they’d been looking at their broader property for other deposits in what could be a VMS cluster. Well, they are now. The team is committed to exploring some of the other targets on their property.
As a result, Kutcho now has half a dozen priority targets that have similar signatures in different ways to the existing VMS deposit. So it's very exciting to me. You want me to tell you more about it, Gerardo?
Gerardo Del Real: Absolutely… if you've consulted for them in the past and you’re looking to consult for them in the future to help get the company to new heights — I absolutely want to hear more!
Jeff Phillips: Okay, great! So a key reason why I'm reinvigorated is because, again, it's backed up by a deposit at a bankable feasibility study level. Kutcho’s current market cap at roughly C$0.25 per share is around C$35 million to C$38 million — basically, less than what's been spent on the project.
And again, I think the blue sky potential is excellent. The company has some very large shareholders and it’s an advanced project. So what I like is that they're going to explore some of these other targets for other potential VMS deposits.
And they recently raised money so, as a speculator, you don't have to worry about a new financing popping up any time soon… which is something you always have to look at in these junior companies.
We’ve seen it countless times before: a stock starts to move up and then all of a sudden it moves down because the company needs to raise money. The brokerage firms and the shareholders start selling shares to participate in the financing.
Well, Kutcho just completed a financing at C$0.25 a share, which is right where the stock is trading now. They have enough money to explore some of these VMS targets while also continuing to move their existing deposit forward. So I think, again, for me, it’s a speculation that’s already backed up by cash and, as well, by larger companies. To me, it’s an undervalued asset with a lot of runway.
I also think copper is going significantly higher in the coming years. And I believe Kutcho has an excellent chance of discovering more copper, potentially in clusters, that could turn the project into something that even the biggest copper companies may be interested in.
So for me, it's exciting to be buying Kutcho once again at these prices. And I think if history repeats, it can certainly return to a dollar… and if we get a bull market in copper and in the broader resource sector — it could go much, much higher.
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Gerardo Del Real: Do you see a bull market in the copper space in the mid to long term?
Jeff Phillips: I do. But it's always how someone defines the short, mid, and long term. Again, I'm not super bullish on the financial markets in the short term, and that could easily stretch out to a year or more. But in the mid term, which I see as being a year to three years, I believe copper is going to do very, very well.
Commodities tend to do well coming out of corrections in the financial markets… so in the longer term, it's a no-brainer that copper is going a lot higher. Industrywide, we're under-exploring for copper. The “easy” deposits have already been found, and it’s getting more and more expensive to get metals out of the ground. And that means copper has to go higher over time.
Gerardo Del Real: I absolutely agree. Jeff, I enjoy our conversations. I know our audience does as well. I'd love to have you back next week or the week after.
And perhaps we can have a conversation about how risky the junior resource space is and also how rewarding it can be. And maybe we can have a discussion about some things that have worked and maybe some things that haven't, right?
Jeff Phillips: Sure, we can talk about a company that's worked really well in the last couple of years along with a company that I'm currently buried in that hasn't worked very well at all but that I'm still buying… and what I feel my risks are there.
Gerardo Del Real: I like it... and looking forward to it! Thank you as always for your time, Jeff.
Jeff Phillips: Thank you, Gerardo.
Gerardo Del Real
Editor, Resource Stock Digest