On March 5th I sat down for 30 minutes with Mickey Fulp, the Mercenary Geologist at PDAC Toronto. I asked him a number of questions. It turns out that Mickey did something like 16 interviews last week, so I kept our conversation relatively brief. The following article summarizes what we talked about.
Mood at PDAC
Mickey thinks that the mood at this year's conference was modestly better than last year's. While the overall market is still depressed, it seems that people are more willing to at least listen to stories. Investors have actually seen a handful of winners over the past few months. When good news moves a stock and doesn't just provide a liquidity event for an exit that sometimes marks a turning point in a bear market. We will have to wait and see though if the, "PDAC curse" returns. PDAC frequently marks a proximal high point for junior natural resource companies and Mickey thinks that March to May will be quite important this year.
Importance of Developments in Ukraine?
On Monday, March 3rd, markets were whacked by news out of Ukraine. Stocks were down over 1% and both oil and gold prices spiked. I asked Mickey about his thoughts on this topic. Mickey noted that the situation in Ukraine reminds us that geopolitical events can pop up anywhere and any time. Russian supplies of natural gas and oil to Europe are key pawns in the Ukraine story, but other commodities are at risk in other global hot spots. That's why natural resource projects in safe jurisdictions will be increasingly important and valuable.
The Mercenary Geologist Continues to Like Uranium ...
Mickey and I have spoken at length about the Uranium sector on multiple occasions. He still likes that sector over the mid-to-longer term. In fact, his December 27th free pick to new subscribers of the Mercenary Geologist was up about 85% as of March 5th. Mickey felt that Energy Fuels Inc. (NYSEMKT:UUUU) was oversold late last year and poised for a strong rebound and his pick proved timely.
Two weeks ago, Mickey introduced another U.S. uranium company to free subscribers. [Please click on this link to see his latest pick]. While he likes the Uranium story, he reminds investors not to expect a rapid increase in the spot price in the short-term. Therefore, it's probably best to stick with established producers in low-risk jurisdictions that can ramp up production as prices rise.
And, He Continues to be a Long-Term Bull on Copper
What other sectors does Mickey continue to like? Copper. Why Copper? Because it is one of the single best ways to play the growing global population and the increasing proportion of middle class consumers. Recently, Dr. Copper has been sending mixed signals. For example, recent warehouse data has shown a marked decline in inventories. Yet, news of slowing Chinese growth and weak emerging market currencies is sending a different message. That's why the copper price was stuck around $3.2-$3.4/lb for the past six months and has recently fallen to the low $3/lb level.
Generally, Mickey thinks the supply / demand dynamic is tighter than people realize. Pundits and analysts typically factor in an allowance of about 4% to account for potential, "supply disruptions." Lately, that 4% figure seems like it could be too conservative. Resource nationalism, labor strikes, indigenous opposition, permitting and water / power issues are occurring all over the globe. The time it takes from discovery to production is stretching ever longer as well, now approaching 12-15 years.
Supply constraints are a real problem given that a net 80 million people enter the world each year. Electricity use is almost certain to continue rising robustly as a quarter of the world still lacks access to it. There are no safe, effective, large-scale, substitutes to Copper for transmitting electricity. Mickey feels the fundamental backdrop for copper remains quite compelling.
U.S. Copper Junior Curis Resources a Favorite
Mickey is a long-term investor in a couple of Copper names, one of his favorites is Curis Resources (OTC:PCCRF). In 2010, Curis acquired a copper asset in southwest Arizona now known to host more than 2 billion pounds of recoverable copper. Extensive geological, engineering and pilot In-Situ Copper Recovery test work has been done. Curis has the potential to be in production next year. Construction should start next quarter. What really stands out vs. its copper peers is the relatively small amount of capital required to reach initial production. Mickey believes there's a good chance that Curis will not need to issue additional shares at all. Project level investment discussions are well under way, according to management.
This project is robustly economic with a after-tax NPV (7.5%) of $505 million, and an upfront capital requirement of just $195 million. At a long-term copper price of $2.75/lb, the after-tax IRR is 31%. At a $3.0/lb copper price, the IRR jumps to 34%. Economics are supported by low, total life-of-mine production costs of just over $1/lb. This is an amazing project, even more so due to its politically safe location in Arizona and ready access to labor, infrastructure, power and water.
Another Copper name that Mickey likes is Avrupa Minerals (OTC:AVPMF), a company that he was a founding investor in, so needless to say he's biased. Having said that, Mickey has participated in multiple private placements and has NEVER sold a single share! Avrupa operates under a prospect generator model whereby it has a very low cash burn because partners help fund a significant number of projects. The main focus is on Avrupa's assets in Portugal. Partnered with Chilean copper producer Antofagasta, Avrupa just announced a blockbuster discovery of massive sulfide mineralization.
Mickey strongly suggests that investors read the press release [linked above] regarding this tremendous discovery. A full explanation of its importance is beyond the scope of this article, but as an experienced geologist, Mickey is of the opinion that this is a big deal.
I've spoken with Mickey Fulp a number of times. He has long-term, high conviction ideas about Copper & Uranium and follows several other natural resource sectors. Readers of this article are encouraged to visit Mickey's FREE website.
Disclaimer: Mickey Fulp is a shareholder of Energy Fuels, Curis Resources and Avrupa Minerals and these companies are sponsors of MercenaryGeologist.com
Disclosure: I am long UUUU, PCCRF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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