Discussing Junior Resource and Mining Stocks With Michael S. Mickey Fulp

by ARJUN RUDRA on JANUARY 18, 2010

http://www.investingthesis.com/analysis-insights/discussing-junior-resource-and-mining-stocks-with-michael-s-mickey-fulp/

Mercenary Geologist Michael S. “Mickey” Fulp

Biography: The Mercenary Geologist Michael S. “Mickey” Fulp is a Certified Professional Geologist with a B.Sc. Earth Sciences with honours from the University of Tulsa, and M.Sc. Geology from the University of New Mexico. Mickey has 30 years experience as an exploration geologist searching for economic deposits of base and precious metals, industrial minerals, coal, uranium, oil and gas, and water in North and South America, Europe, and Asia.

Mickey has worked for junior explorers, major mining companies, private companies, and investors as a consulting economic geologist for the past 22 years, specializing in geological mapping and property evaluation. In addition to Mickey’s professional credentials and experience, he is high-altitude proficient and is bilingual in English and Spanish. From 2003 to 2006, Mickey made four outcrop ore discoveries in Peru, Nevada, Chile, and British Columbia.

Q: Mr. Fulp, you are on record saying that you do not buy the idea of $1500/oz gold in the foreseeable future, why is that?

A: I’ve been told since 1980 that gold was going to $1000/oz and it took 29 years for that to happen. I’m not a gold bug; I just do not see the scenario under which gold would reach $1500 anytime in the near future, let alone $2000, $5000 or $10,000 or whatever price the gold bugs pick out of thin air. In 1982, a prominent newsletter team came out and said that gold was going to $4000/oz so I’ve heard this for so long that I just don’t buy it anymore.

Q: Are current prices viable for gold producing companies and discoveries to continue?

A: Of course. If you can’t make money at $1100/oz you don’t belong in the gold mining business. If you’re a gold miner and you can’t make money at $900/oz you don’t belong in the business. I think gold is overvalued based on pure speculation right now. Lots of gold-bugs will tell that gold is an instrument to protect you against inflation. In 1980 the price of gold hit $850/oz. If you use the government statistics on inflation which we all realize are downgraded from real inflation rates, gold would trade at $2200/oz right now. Therefore I conclude that gold is not a protection against inflation; gold is simply a safe haven, a hedge, and an insurance policy against financial calamity and nothing more. Gold is not viable long-term investment.

Q: So what would you say if someone argued that the gold prices have been rising as a reaction to the billions in stimulus money that has been printed by governments around the world?

A: That point can be made. However, supply and demand fundamentals do not support the current price. And we’re in a deflationary environment. There is no rampant inflation on the horizon right now. It can be argued that when the quantitative easing is over and the US raises interest rates that we will once again be in an inflationary environment but that doesn’t mean that gold is going to the moon. Gold generally retains its purchasing power and that’s about it. An ounce of gold buys about the same amount of oil today as it did in 1950. An ounce of gold bought a nice suit in 1935 and it buys a nice suit today.

Q: With the discoveries of Ventana Gold in Columbia and Keegan in Ghana drawing the attention of a number of investors, Mr. Fulp, with your vast travelling experience, what are some emerging areas of resource potential that you are focusing on?

A: I think it’s doubtful that you are going to find major gold deposits in most areas of the world that are completely geopolitically safe, unless you are working around the head frames of old mines. Look at the new discoveries that have been made in Columbia, Armenia, Haiti, and the Aceh province of Indonesia for example, in the last couple of years. Those are all countries that have been recently opened up to gold exploration either because of unacceptable geopolitical risk in the past or they were part of the former Soviet Union. The idea that you can go into mature provinces and find major gold deposits I think is a fallacy. You have to accept geopolitical risk if you are going to find major gold deposits, e.g., Colombia. Now Ghana is a bit of a different story as there has not been much political turmoil there but historically Ghana’s producing regions have been controlled by AngloGold Ashanti, and more recently Newmont has come in. It’s just for the past few years that some of the juniors are starting to work in Ghana.

I personally like areas in Eastern Europe for major gold deposits because they were part of the former Soviet Union and they have not seen modern day exploration.

Q: I reckon you are probably referring to companies like Lydian International?

A: Right, Arjun and Lydian (LYD: TSX) has made a major discovery in Armenia. I don’t think that their discovery is likely a Newmont size deposit so I expect Newmont will pull out of that venture. I don’t have any firm evidence that’s going to happen but if they do, Lydian has a pipeline of prospects that it has worked on in its reconnaissance efforts and I expect their geologists to do quite well not only in Armenia but in other countries as well, perhaps in the Balkans.

Q: I first heard and read about Lydian on the Mercenary Geologist website but I don’t think too many people know about this company. Is Lydian making efforts to get the word out about their discovery in Armenia?

A: We’ve been trying to get the word out. The first article I wrote about Lydian was in February 2009 and was titled ‘Flying Under The Radar‘ the second musing that I wrote about Lydian was in October 2009 and entitled ‘Now On The Radar Screen‘. So investors are slowly learning about Lydian. They’re re based in Jersey off the Channel Islands, so they don’t have a particularly strong North American presence although they do have an investor relations company in Toronto that represents them. Lydian attends some of the investment conferences, I’m certain they will be at the Prospectors and Developers Association of Canada (PDAC) show in Toronto. Sometimes it is good when companies are relatively unknown, those are buying opportunities for people like me and the readers who follow the companies that I cover.

Q: With regards to geo-political risk, do you just stay out of the places that are too risky or do you work that risk into your valuation of the company?

A: I do that on a country and company basis. If you look at the companies I’ve written up over the last year or so, I’ve taken on some that work in areas that have significant geopolitical risk. You have to discount the value of exploration potential by the perceived geopolitical risk.

Q: Mr. Fulp, in one of your earlier articles entitled ‘My Investing Philosophy‘ you write that you source your investment ideas from peers, analysts, friends and newsletter writers, so in a similar vein I would like to find out your favorite stock picks in the gold and Uranium sector. With gold over $1000/oz, let’s start with your favorite gold story right now and why you like them?

A: I’ll talk about some of the stocks we cover right now. We’ve already talked about Lydian (LYD: TSX) in the gold arena. Two other companies I like are Animas Resources (ANI: TSX-V) and Pediment Gold (PEZ: TSX). I was an early investor in Animas Resources. They’ve been knocked down recently based on a few drill results but they’re exploring a very large Carlin-type system in northern Mexico. The potential for large deposits is very good there and it is a very well run company with solid people and a well-managed share structure. I may look at Animas Resources, which is currently trading recently in the $0.60 cent to $0.70 cent range, as a buying opportunity.

Another company I follow is Pediment Gold. Pediment has had quite a run recently. When I started coverage in July, it was a $0.80 cent stock; it’s a $1.65 stock right now. It has two advanced flagship properties in Mexico, a stable geo-political environment. In my opinion Mexico is the best country in the world to develop gold deposits for various reasons including exploration potential. I think Pediment Gold is possibly a takeover target and perhaps there is additional upside to it in that scenario.

Q: Looking at the drill results of both Animas and Pediment, what kind of blue sky potential do you see for these companies?

A: Animas Resources has tremendous blue sky potential. They are exploring deeper into a Carlin-type system looking for a large deposit. Historically the district has produced somewhere on the order of 700,000 ounces of gold but that was from 22 different shallow open pits so the blue sky in the district is quite good.
(Click Here To Read The Most Recent Mercenary Geologist Write-up on Animas Resources)

With regards to Pediment Gold, I was recently on the ground at their flagship properties. The San Antonio project in the Baja Peninsula has a moderate size resource right now but there is lots of gravel cover within the area they control so there could be other buried deposits there.

(Click Here To Read The Most Recent Mercenary Geologist Write-up on Pediment Gold)

Q: Moving on, with Uranium prices bouncing around in a range between $40/lb and $50/lb, who would your top pick be in the Uranium sector and why?

A: The spot market of Uranium is only on the order of 15 or maximum 20% of the total market. Uranium is not sold as a worldwide commodity; it is generally sold through off-take contracts. So a more pertinent price for Uranium is the long term contract price and that’s been hovering around the $65-$75/lb range over the last year. However, the junior market generally rises and falls with the spot market which is a minor part of the total uranium sales in the world. There is a reason why the spot price is low and that basically is because the US Department of Energy has announced plans to dump about 12 million pounds of uranium a year on the spot market to fund some cleanups at Oakridge, Tennessee and in neighbouring Kentucky. I am still bullish on the midterm prospects for Uranium companies and my favourite is Strathmore Minerals (STM: TSX-V). Strathmore has advanced projects that are two of the most robustly economic uranium development projects in the world and certainly the premier ones in the United States – Roca Honda in New Mexico and the Gas Hills project in Wyoming. On a per pound in the ground basis, Strathmore has the lowest valuation of any uranium development company in North America. I very much like the management and the share structure is well managed. These are development projects that were slated to be the next generation of mines in the early 1980’s when the incident at Three Mile Island caused the collapse of the uranium industry in the US. Strathmore submitted its mine permit application about 2 months ago at Roca Honda and that is progressing nicely. As for the Gas Hills project in Wyoming, Strathmore is in the midst of completing their mine permit application to state of Wyoming so we should see near to mid term production from both of the these Uranium projects.

(Click Here To Read The Most Recent Mercenary Geologist Write-up on Strathmore Minerals)

Thank You Mr. Fulp!

Tagged as: Animas Resources, canada mining, commodities, gold, investing, junior mining stocks, mining stocks, Pediment Gold, resource stocks, strathmore minerals, uranium