How Resource Stock Insiders Are Handling This Market

Editor’s Note: My ongoing interview series with Jeff Phillips has proven extremely popular. He’s one of the most respected strategic investors and consultants in the junior metals and mining space. Today, we talk about how he’s handling the current softness in the market and the junior resource stocks he’s buying now. 


How Resource Stock Insiders Are Handling This Market.

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is legendary contrarian investor — Mr. Jeff Phillips. Jeff, I just saw you down in Beaver Creek. How are you doing today?

Jeff Phillips: I'm doing well. How are you, Gerardo?

Gerardo Del Real: I am well. Thank you for asking. I mentioned Beaver Creek and look, it's a precious metals summit, so I want to see if we can get an update on a few of the stocks that we talked about the last time you and I chatted publicly. 

But before we get into that, I'd love to hear your take on the Beaver Creek Precious Metals Summit, and then just see if anything stood out to you while you were there. I know that you typically are not one to frequent a lot of conferences, so it's always nice to have you out.

Jeff Phillips: Yeah, I thought it was an interesting conference. Everybody in the natural resource sector is pretty much an optimist, whether you're exploring or what the markets are doing. So I think people talk a good story there, but the gold stocks and gold are not attracting as much attention. And I think people have large positions, family office funds and the like, and some of these funds have had redemptions. So again, I think the gold space is pretty weak right now.

There was some interest, obviously, in the electric metals, which seems to include just about everything, Gerardo. But realistically, copper is down… essentially all of the commodity prices are down with the market crashing. But there's some interest in, obviously, the growth through the electric car market both here and in China. 

And you've seen record lithium prices so there's certainly interest in that area. We talked about that last time. But for the most part, I think people are worried about the overall markets when you have a liquidity bloodletting, so to speak. People don't want to write checks for just about anything at the moment — and I understand that.

Gerardo Del Real: I share that sentiment. You have to be very picky in these markets. With that being said, the last time we spoke, you were actually really generous. We talked about Almadex Minerals, we talked about Nevada Sunrise, both of which — despite the overall indices selling off — have held up very well. We talked about Patriot Battery Metals. Patriot, I believe, was south of C$5 the last time we chatted and it just hit a new high of C$7.49 and looks like it has a lot of runway.

And we also talked about Hannan Metals. And it's interesting, at that time you mentioned the five porphyries that Hannan was onto in Peru. That number has now grown to seven. Hannan already had a C$35 million joint venture, which, by the way, is more than the entire market cap of the company for only a third of their land package. But they just had some big news recently with Teck coming in and taking a 9% stake in the company. Any thoughts there on the stocks you mentioned before? Any updates?

Jeff Phillips: Yeah, on Hannan, you mentioned the news. I think that's incredible news. You've got Teck coming in for 9%. It obviously sends a message to the market. That money should carry them for a good 18 months. I suspect that Teck and even JOGMEC are looking at some of these porphyries they've outlined and looking at potentially doing joint ventures at the project level. And I'm sure there's others looking at this.

We discussed Hannan. It's a long-term hold for me. I've been buying it. When we talked last time, it was probably C$0.25. I think on the news today that Teck's putting money in at C$0.28 — it’s up to C$0.30 but it's sort of a long-term holding for me. I think that'll develop. 

It’s in Peru, so it's going to take longer with the current politics. But again, I think you see some big companies coming in, and it wouldn't surprise me to see some other big companies coming in at the project level there. These are massive land packages. So yeah, Hannan's a great company. 

And I like companies that are raising money like that because you don't have to worry about everybody in the retail brokerage community out in Canada selling shares to buy back at the financing. It's just not going to happen. They don't need to do a financing. So if you want to own Hannan — and you're a broker, and you told your clients to sell it — then they're going to have to buy it back in the market because they're not going to participate in the financing.

Gerardo Del Real: A lot of runway for Hannan. We both saw Michael Hudson at the conference. I know he has said publicly that he believes this land package will yield multiple major discoveries. Look, Mike's been at this for over 30 years. And when it's all said and done, he believes the discoveries he's going to make in this basin are going to be the best of his career. And that's saying a lot for someone as accomplished as Mike. So Hannan, obviously, is a company that you feel is building a great long-term company… not just jump on the copper trend to try to get a bid and sell one-penny shares, right?

Jeff Phillips: Correct. Again, the stock has held up fairly well in all this chaos. And I mean, it is a high-risk stock but it has traded in a pretty good range. And I don't think it really matters if you paid 5 cents more or 5 cents less for it. You're buying it for what you see out two years from now. And when I buy things, I'm looking for the potential of a ten-for-one return. There's no guarantee… but I see that they have the assets and are developing something the right way. 

And like some of the other companies you mentioned, Almadex, nothing's really changed there. They've got tons of properties, royalties, and they're trading at basically cash value… maybe slightly more now. But again, that's a team, the Poliquins, that have been around for 25 years; very well respected in the business. Of course, that doesn't mean it couldn't get cheaper but it's trading for their cash in the bank, essentially, so that hasn't changed.

You mentioned Patriot Battery Metals. That's a tremendous discovery. And again, I think I said that when you see the new chairman of the board get options at C$7 and C$9 — and he is a very famous lithium mine developer and builder and built a company from scratch to C$10 billion — you know he thinks it's going to go a lot higher. My only worry with something like that is the overall market. But again, I think that asset is world-class and that it could command multiples of where it is at now, which is, double-digit figures.

Again, I don't think the overall markets are done going down… so you have to pick your spots. But if you like lithium, Patriot’s a company with a major discovery with some highly experienced people getting involved. 

The other high-risk lithium play we talked about was Nevada Sunrise. They've made a clay lithium discovery. Lithium is obviously in the news — both from Tesla applying for a new refining plant in Texas — and it seems like every week, more and more car companies are announcing new battery plants. 

In fact, an announcement came out recently that Hertz is buying electric vehicles from GM and they've already bought some from Tesla. So lithium is definitely in the news. Nevada Sunrise is going to be drilling hopefully soon. It's taking longer than I thought but hopefully we'll see some news soon that the drills are turning. And they have indicators that they've got some brine there. They've hit some lithium-bearing clays in two holes that were a mile apart — so it's an interesting speculation.

Remember, though, all of these stocks are speculations… not investments. I'm looking out at least 12 months because, over the next few months, I think the markets continue to come down. I think it's going to be rough until at least the beginning of the year when it truly settles in that we've raised interest rates quite a lot, which is definitely going to slow the economy. But as we all know, coming out of a bottom is generally where the resource sector does its best.

Gerardo Del Real: I think it's worth noting with Nevada Sunrise — and you mentioned the clay and obviously the big prize there would be an economic brine — that Cyprus Development was recently able to produce battery-grade lithium concentrate from clays. And I know that the company rallied some 20-something percent on the back of that news. 

That I took as an important development for the entire region, which, of course, includes Nevada Sunrise. Because if they are able to find a process — and it looks like they have — that takes that clay and produces battery-grade lithium, given the scale of some of these potential deposits, that can be a major milestone for, again, not just Cypress — and congrats to them — but a lot of the players that are in the valley looking to develop these clay deposits.

Jeff Phillips: Definitely. And I think, overall, there's great value out there in the resource sector. Like everybody else, I don't want to commit all of my capital at once, especially considering I like to buy things cheaper. So I’m buying and buying cheaper if I like something. So there's a few other companies that I've been buying. 

And full disclosure, some of these companies I am a financial consultant for, which basically means they pay me to make sure that they do the right financing. So Hannan is a good example. 

I had offered to do a financing with some other large recognized shareholders because I knew Hannan would need some additional capital to get through the next year and a half, and, of course, we liked the project. And they kind of went quiet, said yes, and then went quiet again. Finally, they announced this deal. And this deal is a much better one for Hannan shareholders. So I think it's great that they did that.

Another company I’ve consulted for on and off — and I'm a large shareholder — is Palamina, which is also in Peru; Andrew Thomson's company. It's a very cheap stock at C$0.08 a share. He made me money in his last company five or six years ago called Soltoro when he sold it to Agnico Eagle. I think he'll do very well in Peru. 

He's got a great land position, and the company has a C$5 million market cap right now. And they've had some good news no one's paying attention to. So Palamina is another one I bought shares in recently.

But I think right now, the important thing is to make sure you're keeping your cash in a healthy position because, again, I suspect we're going to see a lot of asset classes — including real estate — head lower since we’re not at zero interest rates anymore. We're probably going to have somewhere between 4.5% and 5.5% at the federal funds level when this is all over, unless, of course, they chicken out, which just means we'll have that a year and a half later. So it depends on how much resolve they have.

But the fact of the matter is that capital is getting more expensive so real estate is going to come down in value. Exotic cars — as you know I like — are going to come down in value because people were previously paying top dollar when money was cheap. All of that stuff is going to come down.

Gerardo Del Real: So hard assets may present an opportunity here in the near to mid-term is what you're saying, Jeff?

Jeff Phillips: Yeah, in the past 20 years, you and I have talked about these cycles… with the dot-com crash… yes, I was around for that. Damn, I'm getting old now! And then, also the financial crisis and real estate bubble of '07 and '08. Coming out of that was one of the best markets we’ve ever seen in the junior resource space.

Look, people aren't going to be jumping back into cannabis stocks or the 2,000 different cryptocurrencies you simply can't keep track of. They're going to be buying hard assets and commodities… and a big part of that are the resource stocks. 

But we're not at the bottom just yet. There’s no telling how far the Fed’s willing to go. Predicting the future is always a losing game. The bottom line is that the cost of capital is going up considerably. And that's going to depress all of these asset classes that people have been borrowing against and investing in at near-zero rates. 

Once this all runs its course, the resource sector is going to do very well… which means there’s an opportunity right now — and over the coming months — to buy some of these better names very, very cheaply. 

Gerardo Del Real: I couldn't agree more. And I know your contrarian nature probably smiles at this pullback because I do appreciate your fondness for classic cars and hard assets — I’ve seen your exotic car collection and your art collection — and I’m sure you’ll have your eye out for some incredible deals out there.

Jeff Phillips: Yeah, I think there's going to be some amazing opportunities coming up. So it'll be interesting, Gerardo.

Gerardo Del Real: Jeff, always a great time. Thank you so much for your time. Let's do it again soon!

Jeff Phillips: Absolutely. Thank you, Gerardo!

Let's get it!

Gerardo Del Real

Gerardo Del Real
Editor, Resource Stock Digest