Investors are often told the resource industry is cyclical — but where are we at right now?
“[We’re at] the bottom of the second in a nine-inning baseball game. So we’ve got a long ways to go,” said Mercenary Geologist Mickey Fulp at the recent PDAC convention.
“The bottom was in January of 2016, prices bottomed,” he added. “They’ve gone up, but they generally go up two steps forward and one step back, or in step-wise fashion. We really like seeing that because that’s a healthy market. We have a long way to go in this bull market.”
When asked which commodities he’s interested in right now, Fulp pointed to gold and copper. The gold price, he explained, has front-run gold equities, meaning that stocks are due to catch up at some point.
Meanwhile, copper is a longtime favorite of Fulp’s. One of his current picks in the space is Trilogy Metals (TSX:TMQ,NYSEAMERICAN:TMQ), which recently released a prefeasibility study for its Arctic deposit. “You’ll be hard put to see an economic study that looks better than this one does,” said Fulp.
Watch the interview above for more insight from Fulp, or read the transcript below. You can also click here to view our PDAC 2018 playlist on YouTube.
INN: Today we’re here on the second day of PDAC. To me it’s feeling quite optimistic. What are your thoughts, and do you feel like that optimism is justified?
MF: You’re probably asking the wrong guy, because I’m an economic geologist and we have to kind of have eternal optimism in this business because the chance of failure is so high. But that said, it’s certainly better than last year, which is better than the year before, and that’s understandable. We’re obviously in a better market for commodities than we were over the last couple of years, and I think we will see that in the attendance this year. I don’t know how many, but 24,000, 25,000 — so it’s better. No doubt.
INN: Good to hear. Are there any themes that have stood out to you so far as you have been going around talking to people?
MF: I think one of the themes would be that the commodities have front-run the stocks, especially in the gold space … we still have a very good gold price, over $1,300; it almost got to $1,360, which is where resistance is, but the gold stocks have lagged. The producers, the developers, the exploration companies have all lagged. Sometimes the prices front-run the stocks, and other times the stocks front-run the prices. The fact that we have strong commodity prices I think is positive because the stocks, equities will catch up at some point.
INN: Yesterday you gave a talk titled “What Trumps Dollars and Gold?” Can you briefly go through the points that you made?
MF: What trumps dollars and gold? Nothing does, because the world’s currency is US dollars, and gold is the only real money. But the real gist of the talk was the new economic paradigm that was established in the US when Trump was elected president. You can go back before the election 20, 100, 200 days —there was no negative correlation of gold and the US dollar. Since the election that’s been, for the most part, the rule.
So what does that mean? Well, it means that basically the dollar goes up, gold goes down. We’ve had a weaker dollar for quite some time now. It reached 103 on the DXY before the inauguration, and now it’s down in the +/-90 range. It’s a significant drop in the US dollar, and what we have seen is a significant rise in the gold price. With Trump expounding on a weaker US dollar to … balance the trade deficit, I think that bodes well for gold going forward.
INN: Thanks for explaining. Investors are often told that the resource industry is cyclical. Can you share your thoughts on where you think we’re at right now in the cycle?
MF: The bottom of the second in a nine-inning baseball game. So we’ve got a long ways to go. These bull markets for commodities start gradually … well, the bottom was in January of 2016, prices bottomed. They’ve gone up, but they generally go up two steps forward and one step back, or in step-wise fashion. We really like seeing that because that’s a healthy market. We have a long way to go in this bull market. Bull market cycles, bear market cycles, [each end of it] will last something on the order of four to six years. We … might be not much more than a year and a half into it right now.
INN: We spoke last at VRIC in January, and you highlighted a few companies you’re interested in. If I remember correctly, you were mostly focused on gold. Are there any companies focused on different commodities that you’re interested in right now?
MF: I cover one copper company, Trilogy Metals, listed on the New York Market Exchange; it’s been trading somewhere in the range of $1.40 to $1.55 over the last couple of months. They just put out a prefeasibility study on one of their deposits, Arctic — robustly economic. You’ll be hard put to see an economic study that looks better than this one does, with a net present value 150 percent of the CAPEX. You don’t see that very much in the business. I’m very enthusiastic about that particular company.
They have a partner, South 32 (ASX:S32), spun out of the BHP Billiton (ASX:BHP,LSE:BLT,NYSE:BHP) a few years ago. It’s putting another $10 million in exploration on the Bornite deposit — the Arctic deposit was the one they published the prefeas on — and that company can form a joint venture in about another year and a half by committing $150 million to the project, earn 50 percent.
INN: Last question. [Are there any] commodities aside from gold that you’re interested in — or even excited about — this year.
MF: Obviously copper. Always looking for good copper projects, good copper companies. [They’re] hard to find. Much easier to buy and trade gold stories. Although I did just come from lunch and [was] looking at a new copper company that looks quite interesting. I’m focused specifically, for the most part, in the Americas looking for things. A lot of that has to do with Trump and the US — easy to permit, limited bureaucracy, can-do administration right now. I own a zinc play, I’m looking at other zinc players, but really I’d say my focus is on gold and copper at this stage.
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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.