Interview of Mickey Fulp, the Mercenary Geologist, May 2018

At the New York Mines & Money conference of May 8th-9th, I had the pleasure to once again interview the legendary Mercenary GeologistMickey Fulp.  Mickey is a candid and keen observer of the junior resource market and a very prolific commentator — on podcasts, video clips and in writing.  His Mercenary Geologist website is one of the best places to find free information on commodities, the markets and companies that propose to exploit key metals.

He’s a Certified Professional Geologist with a B.Sc. Earth Sciences with honor from the University of Tulsa, and M.Sc. Geology from the University of New Mexico.  Mickey has 35 years’ experience as an exploration geologist & analyst searching for economic deposits of base & precious metals, industrial minerals, coal, uranium, oil & gas, and water in North & South America, Europe & Asia.

Mickey has worked for junior explorers, major mining companies and investors as a consulting economic geologist for > 20 years, specializing in geological mapping, property evaluation, and business development.  Readers can follow Mickey on Twitter at: https://twitter.com/mercenarygeo

As one will see upon reading the following interview, Mickey is unusually focused on a narrow segment of the market, an area where he’s especially well versed, and has high conviction in.  NOTE:  {I Peter Epstein, CFA, of Epstein Research, have no prior or existing business relationship with Mr. Fulp or any company mentioned in this interview.} 

Please describe to readers the state of the TSX-v metals/mining/minerals sectors as of May 8th, 2018?

There is no interest junior resource stocks right now.  There was a lot of optimism 4 months ago, in early January — when the TSX Venture Index (“TSX-v“) touched a 3.5 year high of 940, but it’s down about 18% since then to around 770 — back at tax loss selling season in December.  {~790 as I write this on Monday, May 14th (down 16%)}  Average daily trading volume was quite strong at nearly 180 million shares/day at the beginning of the year, but is off by a whopping two-thirds to around 60 million shares/day.   

A lot of the excitement was in the marijuana, crypto-currency & lithium bubbles and record highs in the major market indices.  Once these turned, the TSX-v followed. 

The Gold price has been range-bound, trading between around US$1,300 and US$1,360/oz. since the beginning of 2018, with a strong negative correlation to the U.S. dollar.  The monthly coefficient on May 11th was -0.93.  This scenario has played out since mid-July of last year: when the dollar goes up, gold goes down, and vice versa. 

Finally, junior resource sector financings have been at abnormally low levels.  In the first quarter they were reminiscent of the bear market bottom from late 2014 to early 2016.

What’s needed to turn the junior resource sector around?  Or, are we stuck in a flat to down market for months to come? 

That’s a great question that I get asked a lot.  The answer is, I don’t know.  Perhaps a breakout in the gold price above US$1,360…. a price sustainably above US$1,400/oz. would help.  Given the high negative correlation with the U.S. dollar, a weaker dollar is most likely a prerequisite.  I’ve been surprised by the recent strength of the dollar, up about 3% in the past month, that’s a big move.  The Euro’s weakness has been a big factor in the dollar’s strength – they still have negative interest rates in Europe. 

If we’re going to see a bounce in the juniors, we better see it soon because July and August are historically the weakest months for gold. 

Are there any pockets of strength?

The top 20% of the junior resources sector can still get financings done for advanced projects, but 80% of the market is suffering.  Those 80% will fail and the sooner the better.  We have way too many bad companies and even the good companies have traded down, some down by a lot.  There’s no sense of urgency to buy any of the beaten-down stocks. 

Nothing good to write home about, nothing at all.  So, what are you focused on in this morbid market?

I’ve been focused on gold plays in the western U.S., especially Nevada.  A number of companies are trying to bring past-performing mines back into production.  These are mines that were spun out by majors like Kinross, and Yamana, mostly open-pit projects.  I’m bullish on the western U.S. due to the Trump Administration’s easing of regulations, cutting back of bureaucracies, and fast-tracking of permits.  

If one goes to my Mercenary Geologist website, on the “Musings” tab, one can find write-ups of many of the juniors I’m backing.  In the past six months or so, I’ve written about Columbus Gold (TSX: CGT) and its Allegiant Gold (TSX-V: AUAUspinout, Trilogy Metals (NYSE: TMQ), Ely Gold Royalties (TSX-V: ELY), Integra Resources (TSX-V: ITR), and Eagle Plains Resources (TSX-V: EPL) and its spinout Taiga Gold Corp (CSE: TGC) … there’s a lot of free content to browse.  NOTE:  {readers should check out Mickey’s excellent January 29th Musing, “Nevada is Simply the Best.”

Mickey, you must like more than just western U.S. gold juniors, how about Copper?

Well, yes– I’m extremely bullish on Copper (“Cu“), but not necessarily in the short-term.  Copper demand is strongest in late Winter / early Spring, so we’re through the highest demand months and the price will likely meander over the next 4-6 weeks.  I love Cu, but it’s difficult to find good projects.  Trilogy Metals is my only Cu pick at this time. 

A lot of otherwise promising Cu projects are in unfriendly jurisdictions like Indonesia, the Philippines, and the DRC.  For the most part, I will only consider projects in the U.S., Mexico, Chile & Peru.  I typically don’t like Cu porphyry plays in the hands of juniors, they take too much drilling and too long a time frame to explore.  I’m not finding good Cu grades– 0.6%-0.8%, or large scale deposits that majors would want to take over.  

Are there other metals that are attractive?  

None that the markets care about!  Zinc was exciting for a time, but the price momentum ended last month when the trade war was in vogue, and investors are moving on to other things.  I like uranium over the long-term, but few investors have the stomach for it.  It’s been in a bear market for 7 years.  No one wants to talk about uranium, but contrarians (e.g., me) love markets like this.

I should mention also that retail speculators were burned in late  2017 by a few high-flying stocks that were pumped and then were unable to deliver any good news (like decent drill results).  One example of this was New Nadina.  Its share price soared late last year, from 8 cents to over $4 bucks, only to come crashing back to 20 cents.  Bad actors like that are horrible for market sentiment.  

We need to see some exciting new discoveries, followed up by solid drill results and run by credible management teams.  We need to see more M&A activity, something that pundits have been saying is right around the corner.  Without these things or a sustained breakout in the gold price, we will be stuck in the doldrums through the Summer. 

Thanks very much Mickey.  Always a pleasure catching up with you. 

NOTE:  {I Peter Epstein, CFA, of Epstein Research, have no prior or existing business relationship with Mr. Fulp or any company mentioned in this interview.} 

Mercenary Geologist website

Readers can follow Mickey on Twitter at: https://twitter.com/mercenarygeo