The ‘Mercenary Geologist’, Mickey Fulp sits down with Maurice Jackson of ‘Proven & Probable’ to discuss the current state of the Natural Resource Space. Investors with a position in gold, silver, platinum, palladium, uranium, oil, gas, iron, and copper will be delighted to hear Mickey’s insights and what is peaking his interest in the sector.
Maurice: Welcome to Proven & Probable. I’m your host, Maurice Jackson, and joining us today is one of the preeminent names in the natural resource space. He is the mercenary geologist, Mr. Mickey Fulp. Sir, thank you for joining us today.
Mickey: Hey, thanks for the kinds words, Maurice.
Maurice: You know, it’s an honor to have you with us today to discuss and share your insights into the current state of the natural resource space. For those that may not be familiar with your work, please share with listeners your background as a geologist and your contributions to the natural resource space.
Mickey: I have a Bachelor’s Degree in Earth Sciences from the University of Tulsa. That’s an oil school. I spent one summer working in the oil business and decided I want to work outside not work on a well and look at squiggly line. So I went to graduate school, University of New Mexico. Did a thesis on the copper prospect which I sold my claims to a mining company and I got to drill my thesis project which is unusual. Of course, it failed as most projects do, but it launched a 30-year career as a field geologist. In 2007, I decided I want to be an analyst in the business so I put the word out. A couple of months later, I landed my first analyst job and the mercenary geologist was spawned a few months later.
I was told when I became an analyst by a fellow newsletter writer that I would write a newsletter within a year and I said, “That’s one thing I don’t have the patience or the dedication to do is write a newsletter,” and 11 months later, I was writing a newsletter.
Maurice: However, your work is out in the public domain and is quite impressive, I must say. I’m a follower.
Mickey: Well, thank you very much. We run a free subscription service, so at least the price is free and I’m fairly prolific. I do lots of interviews. I probably put on an average about 200 products a year and so there’s lots of content.
Maurice: Yes, sir, there is. May I ask you this, as a geologist, as an analyst and as an investor, in your experience, what are the major difference you see with natural resource investors such as myself that don’t have a background in geology? Are we parallel in our investment analysis or do you see a major bifurcation?
Mickey: Well, without sounding egotistic, I see a great difference in the ability of the lay investor even the professional investor who does not have a technical degree, either a geology degree or mining engineering degree in evaluating projects. So that’s what I can bring to the table, you know, I’ve got basically 35 years in this business and so I have an ability to look at a project from various angles, the commodity, the geopolitics, the geology on the ground, the resources and make a very quick decision that most lay investors just really don’t have the training to do that. It’s a lot like—I mean you probably know some people, maybe you’re one of them that can look at a balance sheet, financial statements and immediately go and find red flags on that. And, you know, I have to really study financials and statements to get an idea what they actually mean, but I do have the ability to look at a project or resource estimate and immediately go and look at the fatal flaws, and this really is a fatal flaw business, you know. In the good times, there’s arguably 1500 junior resource companies listed on the Toronto Exchanges. My due diligence will allow me in very quick fashion to eliminate 98% of those. So, immediately I’m down to just a few companies for consideration.
Maurice: Well, that is quite impressive because I believe investing is a team sport and as you’re correct in your assumption that you were able to bring something else to the table for all listeners that don’t have that background, which is geology and to marry the two together really does help with analysis for one’s portfolio. So I’m glad you’re here sharing your wisdom and experience with us. Well, I mean to ask you this. Sticking with the theme of natural resources, are we finally out of the bear cycle in this secular bull market?
Mickey: Well, you would think so, but it’s still early on. Yeah, I’m looking at a chart of the Toronto Venture Exchange Index right now and it’s gone from an all-time low of 466 on January 20th and we’re now sitting at 638. So that’s a gain—let me calculate this. In my head, it’s about a little bit more than 35% gain in, what, less than 3 months and so the price of gold is up. Commodities other than gold are not doing particularly well, but it looks to me like we’ve hit bottom. It’s still probably early but—bear markets don’t last forever and the baddest bears spawn to biggest bulls, so I’m hopeful. I’m optimist.
Maurice: Well, as a value investor, I love opportunities such as this right here. I have a 2-part question for you here. What effect do you believe the elections will have in this space? And do you see a benefit to investors if one is elected versus the other?
Mickey: Well, I’m a libertarian, so I’m probably not going to vote for Billary or Trump the Chump assuming that those two people end up with major nominations, major party nominations but that’s—as a libertarian, I’m a free market conservative, so I would say that a Republican administration would be better for the natural resource sector simply because if they stay true to their colors or to their platform, which doesn’t always happen, they would tend to back off some of the onerous regulations that the present administration has put on the natural resource industry.
Maurice: Well, we sure are in common. I too am a libertarian and I come to the same conclusion as you have there, sir.
Mickey: Well, you know, sometimes I subscribe to the PJ O’Rourk thesis: “don’t vote it only encourages the bastards” and I say that with tongue in cheek because I generally will vote for a libertarian candidate, you know. Gary Johnson who ran in 2012 is ex-governor of State of New Mexico where I reside and he did quite well as a republican—as a libertarian leaning republican. So I think you’ll probably end up with libertarian nomination and there’s polls that show he’s going to pull something around 12% of the vote in general.
Maurice: You know, I tend to believe that if you are a democrat and I view both parties as Keynesians but I think—
Maurice: Yeah, yeah. Well, I tend to think that that bodes well for precious metals, but we’ll see here in the coming months.
Mickey: Yeah, I’m not sure that American politics has a whole lot to do with the price of precious metals and anymore. It really becomes the state of the world economy perhaps and gold is favored and is looked upon as safe haven, you know. I have about 20% of my net worth in gold, physical gold in my physical possession and so in times of financial distress, I think that’s when gold does well.
Maurice: Well, that leads me right into my next question here. Here on ‘Proven & Probable’, we advocate the stewardship of bullion as gold, silver, platinum and palladium. And specifically, we favor the white metals over gold at the present. What are your thoughts on bullion allocation to these metals in one’s portfolio?
Mickey: Well, I do a lot of work on ratios. In fact, I hope on Friday if not this Friday, the following Friday, we will have a seminal piece on the gold/silver ratio which we appraised since 1792 when the first monetary system in the U.S. was established: And the gold/silver ratio was way out of whack right now. It was well above 80 or most to the last 6 weeks or so has now dipped a bit as silver has caught up, but it’s still very high around 75, 76 right now. So that becomes a buy signal for silver. That said, if you ask me would I be buying gold or silver right now, I would tell you I’d be buying platinum because the platinum to gold ratio is less than 80 and it touched 75 a couple of weeks ago. I think it was probably about—or I should say it touched 0.8, 0.78, 0.75 and there’s only a couple of times in the history since Nixon took his off the gold standard in 1971 as the ratio been that low. So, from that point of view, I think platinum is the real buyer right now.
Maurice: Yeah, I concur with your thesis there wholeheartedly. I love platinum and palladium and—although you didn’t mention palladium specifically. I do love the white metals more than the gold at present. Last week, I attended the Oxford Club Investment U Conference and one of the things they highlighted there was whenever the gold/silver ratio is at above 80, which is every 5 to 6 years, they showed that it immediately goes down to 50 shortly thereafter. So as you mentioned, we’re right around upper 70’s, is that correct, right now, the gold/silver ratio?
Mickey: Yeah. Right now, I think on Friday, it was 77 and so it’s going down. But the fact that it was above 80 quite unusual. You know, when you have these rallies in precious metals, silver generally follows gold but being more volatile, it usually goes up or down more than gold. It really hasn’t happened in this rally of the gold market from, what, $1,046 or something was low if memory serves back in October. So, from that point of view, silver has got some catching up to do but trouble is silver is mainly industrial metal. Well over 50% is used in industry and is basically—most of that is lost. Very little of it is recycled, somewhere on the order of maybe 20%, 25% of silver used in industrial processes is actually recycled. Whereas gold, 98% of the gold that has ever been mined is still above ground in hoard someplace either in jewelry or held by central banks or private investors, only 10% used in industry.
So, from that point of view, ultimately you want to own gold. You buy silver—at least I would buy silver, I always want to have a little silver on hand. A bag of junk silver is a good way to do that. But, you know, if you buy significant amounts of silver, you’re buying it when it’s undervalued with the idea that when the gold/silver ratio as you pointed out goes back to something more normal, which normal is probably average 55 or so since 1971, then you turn that back into gold.
Maurice: Yes, sir. You know, sticking with the theme there in reference to silver, you mentioned junk silver specifically. I like the merits of only junk silver because of its divisibility specifically dimes. I’m assuming you’re in this for the same reason?
Mickey: Yeah, yeah. I got some bags of junk silver. I’m fairly agnostic as to whether I own dimes or quarters, but it doesn’t really seem to—because I have the same amount of silver them, but yeah it’s interesting for listeners out there who have never bought a bag of junk silver. You know, that stuff was bagged up in 1964, 1965. You know, a couple of bags I own have NYDOT on it—New York Department of Transportation—and they’re from parking meters in New York City from the ‘60s, so my anecdote, I thought—
Maurice: Interesting. You know, as I mentioned earlier, last week I attended The Oxford Club Investment U Conference and the theme there was energy. What are your thoughts right now on oil and gas and uranium?
Mickey: Well, the price of oil at $40 a barrel, that’s not really sustainable. But the problem is, we have a glut oil somewhere in order of a million and a half barrels per day. Demand continues to increase. Last year, we were up to about 2 million barrels a day as a surplus, so demand is increasing but as the price went down, we thought that lots of production would come off. And what’s really happened is a lot of countries—emerging market countries, if you will, and the major oil producers, U.S., Saudi, Russia, etc., everybody produced more oil last year. So a lot of these countries are dependent on oil revenue, so when profit margins go down or netbacks go down, they increase production. So, the fact that we have a glut oil, we’ve got a glut gas in North America, I think that’s going to take a while to work off.
Uranium has no short-term demand right now. Priced at $27—actually it hit $25.75 on Friday. That is a 12-year low for the price of uranium. All in all, though, uranium is answer with base load of electricity if the world is going to reduce the carbon footprint from energy, so I have a very long-term—or let me put it this way—a mid- to long-term very bullish view on uranium.
Maurice: You know, I have to admit that when the HEU Treaty, which is Highly-Enriched Uranium treaty when it expired in I believe was December 2012 or 2013, I thought that that was going to be the catalyst to get the spot price of uranium up and I was admittedly mistaken. Adversely, you had the averse situation there in Fukushima. We had additional supply come online. So I just wondered, what do you believe will be the catalyst for uranium to turn the corner?
Mickey: Well, it’s going to be the fact that there are 66 reactors under construction. We are putting on average another uranium reactor or another nuclear plant online every 2 months. There’s something in the order of 160 or 170 that are planned at this point, which means they either have a footing porter or at worst they’re your financed, so it’s just long-term demand for uranium is going to be the catalyst. You know, the uranium market can remain depressed for a number of years, but when it comes back, it comes back very rapidly.
So, the HEU to LEU agreement supplied about 24 million pounds a year, that’s been replaced by another agreement between the US and Russia for enrichment of uranium to the tune of about 12 million pounds per year. So the fact that Japan took all of its reactors offline reduced demand at the same time that 12 million pounds went off the market that net 12 million pounds. You are not the only person that got fooled. I think it was analyst’s consensus that this would be a catalyst and it really was not.
Maurice: Well, thank you for sharing that as well. I was not aware of the new agreement.
Mickey: Yeah. That new agreement actually replaced the old agreement and that new agreement was in place somewhere in the order of 2010 to 2012 and the megatons to megawatts agreement didn’t expire until the end of 2013.
Maurice: Now, the new program, does it go under a different nomenclature? Is it still as the HEU Treaty?
Mickey: Well, it’s not an HEU Treaty at all but this is not converting nuclear weapons but what really happened with the HEU to LEU program was the Russians set up a lot of enrichment facilities to downgrade those nuclear bombs. So they have this enrichment capacity that they need to fill. So now they’re supplying not from nuclear weapons but either through production that they buy or underfeeding—enrichment underfeeding, etc. They have lots of enrichment capacity and so that’s where that uranium is coming from.
Maurice: Well, thank you for sharing that. Let me ask you this. Too often, I see natural resource investors only focus on gold and/or silver. Since your work literally covers the entire natural resource space, where do you believe investors could and should also be deploying capital that are peaking your interest right now?
Mickey: Well, it’s a lot more—this market really functions on gold. It’s driven by gold, but if you look probably the majority of companies listed on the exchange, you’re looking for some other commodity, I am a copper bull, mid to long-term fundamentals of copper compelling, you know. There’s 85 million more people on the planet that demand electricity 25% of the world still those have been in the dark. So long-term even the short-term demand for copper remains strong, you know, as copper is going to grow 3%, 3.5% to 4% on a yearly basis and so I’m always looking for a good copper company. You know, I own various companies. I own uranium companies. I own oil and gas companies. I own a tungsten companies. I own a graphite company. So there’s a lot commodities out there and that’s where my expertise in commodities, analyst and a geologist really helps because there’s a lot of commodities you want to stay away from and very few that have good fundamentals for the junior resource sector. So I think I mentioned a few of those.
Maurice: Yes, sir. You know, recently you were doing some work regarding iron, were you not?
Mickey: Well, I do a biweekly program for Kitco radio program called Mercenary Musings Radio and we basically pick an element off the periodic table and discuss the supply-demand fundamentals and the use in the world and where it comes from and if it is a commodity that a junior exploration or development company should be involved in. So we did our program on iron last week. We have follow-up today with another reprogram on iron ore which iron is 95% of the metal produced on planet is iron, so we devoted two shows on it.
We are now—of the 92 naturally-occurring elements on the periodic table, we now covered about 85 of those, so we just have a few more programs to do and then we’ll switch the focus of that radio show to something else.
Maurice: Yeah. I found it to be quite interesting. Thank you for sharing that with the listeners here. In closing, your site, the Mercenary Geologist is officially endorsed on Proven & Probable. One more time, please share with listeners the benefits of subscribing to your site.
Mickey: Well, I run a sponsorship model which means that companies I cover, I own them and I pay to advertise on my website or to sponsor my website. So it allows me to put my products out for free to the general public. If you subscribe to my newsletter, you get my stock pick. If you do not subscribe, you get all the ancillary commodities analysis and things I write and speak about. So the advantages, it’s free and it’s informative. You know, a lot of what I do is designed to educate the lay investor because I operate under this paradigm or of this idea that if I can educate the lay investor and make him a better investor or speculator really is what this is all about, then he will have more success in the market. He will continue to put his money into these general resource stocks and that will increase the volume and we all know the volume on the stock exchange liquidity tends to increase prices so it becomes a win-win for all involved.
Maurice: Yes, it is. If you would, please do share the website one last time, sir.
Mickey: It’s mercenarygeologist.com. We have about 6300 subscribers. We also run a Twitter feed @mercenarygeo with 52,500 Twitter followers and this interviewee as all my interviews goes up into the rotation on our 24/7 streaming audio internet radio station, mercenarygeologist.fm.
Maurice: Ladies and gentlemen, I do highly endorse that if you’re listening to this program and you’re one of the subscribers of Proven & Probable, this is an absolute must for you. So, Mr. Fulp, thank you again for joining us today on Proven & Probable.
Mickey: Hey, thanks a lot, Maurice. It’s been my pleasure.
Maurice: All the best to you, sir.
Mickey: Thank you.
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