Jeff Phillips on Why This Metals Bull Market Is Just Getting Started & The Juniors He Sees Running First
We sat down with revered mining financier Jeff Phillips to get his take on the current bull market. Enjoy the interview.
Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is a friend and mentor — and one of the most successful contrarian speculators in the resource space — none other than Mr. Jeff Phillips. Jeff, how are you today?
Jeff Phillips: I’m doing well, Gerardo. Thank you for having me.
Gerardo Del Real: Great timing. Gold is up $115 and silver is up over 4% today — gold over $4,100 and silver over $50. You and I caught up at the New Orleans Investment Conference. You even presented and sat on a panel, which isn’t the usual Jeff Phillips MO. What was your take on the conference?
Jeff Phillips: I’m actually still recovering — it was a long week as you know. But overall it was one of the best conference experiences I’ve had. Like you said, I don’t speak on many panels but Brian Lundin and I have been friends for a long time so I agreed to do a couple and lead a floor tour. I met a lot of great people, including some new to the space, which is always good to see.
I saw a lot of companies doing good work, and capital is clearly being raised. What struck me — and I mentioned this on panels and during my tours — was how many people were suddenly worried that the market had topped. Gold pulled back, a few stocks pulled back, and people seemed overly concerned.
My point was that we’ve had a fantastic run. Pullbacks are healthy, and this one was minor. I thought it might last a bit longer but here we are after New Orleans and gold is up over $100 in a day.
As you know, I don’t invest or speculate based on where I think commodity prices will be in a week or a month. I invest in companies I believe can execute and grow asset value. So yes, a great conference — and when everyone’s worried it’s a top, that usually tells me that it’s not.
Gerardo Del Real: I couldn’t agree more. It was as busy and upbeat as I’ve seen in a long time, and hearing the ‘is this the top?’ question so often made my contrarian heart smile — which, as you said, makes me think we’re not at the top.
There were a lot of good companies doing real work as you noted. You’ve seen multiple bull markets, Jeff. I've only been around this space for 16 years, and I witnessed a mini bull market in 2010 followed by a lot of misallocated capital. That’ll happen again to some degree but I’m seeing far more quality exploration this time. Which companies stood out to you at the conference.
Jeff Phillips: First, full disclaimer that seven or eight companies I’m a large shareholder of and consult for were there at the conference. So this isn’t investment advice; it’s simply what I’m doing with my own capital. I covered several on stage. Maybe we do a follow-up and I’ll go deeper on two or three, then another round later so we don’t run long. Does that work?
Gerardo Del Real: Absolutely — I’d love that!
Jeff Phillips: So let’s stick to a theme beyond pure exploration. Let’s talk royalty and streaming and prospect generators. First, Empress Royalty Corp. (TSX-V: EMPR)(OTC: EMPYF) is a royalty and streaming company with revenue entirely from gold and silver.
CEO Alexandra Woodyer Sherron is one of the sharpest in the business, and corporate development lead Michelle Borromeo did a great job; their booth was packed. In four and a half years, they’ve taken the company from scratch to cash-flow positive with revenue growing. And with today’s gold move, the stock hit a new 52-week high. I think they’ll continue to execute, and I wouldn’t be surprised to see more deals in the not too distant future.
And consequently, the stock is one of the smaller profitable streaming companies out there. There are plenty of others in the space — both streaming and royalty — that aren’t yet profitable. But Empress is, and I see a lot of upside ahead.
With today’s gold price, they’re hitting a new 52-week high. My mentor Jim Dines always used to tell me, ‘Look, don’t think!’ I believe gold and silver are heading higher, and Empress Royalty — a company that’s executed from day one — is well positioned to keep doing just that. It’s a great example of why the royalty and streaming model remains one of the better ways to invest in the junior resource space.
On the prospect generator side — a model Rick Rule popularized — you farm projects out to partners who spend their own money drilling. You give up a piece but avoid constant dilution, which keeps the structure tight.
Two I recently financed with Rick Rule joining me as lead order are Kincora Copper Ltd. (TSX-V: KCC) and Headwater Gold Inc. (CSE: HWG)(OTC: HWAUF).
Kincora, led by Australian CEO Sam Spring, has an extremely tight structure of about 42 million shares outstanding. Roughly 30% is owned by insiders and management and another 20% by folks like you, me, Rick Rule, Bob Bishop, and Brian Lundin — and we’re all locked up for a year at our own request.
Most of Kincora’s projects are in the Macquarie Arc of Australia with one additional project in Mongolia. Their technical team includes several of the geologists behind Cadia and other major discoveries that ultimately became part of Newcrest, now owned by Newmont. They’ve just finished a joint venture drill program with Anglo and are starting another shortly — again, with partners’ capital. I’m looking for a big discovery there.
Headwater Gold, led by Caleb Stroup — a young, up-and-coming geologist with major-company experience — follows the same prospect generator model. The company has assembled an impressive land package mostly in Nevada, along with a couple of projects in Idaho.
Centerra Gold owns roughly 9% and Newmont owns about 4.5%. Both Newmont and OceanaGold have separate joint ventures on projects that are currently being drilled.
Caleb was getting updates while we were in New Orleans, and with multiple partners advancing exploration, Headwater offers plenty of shots on goal without the heavy dilution typical of single-asset juniors. It’s a strong example of the prospect generator model at work wherein you don’t have to worry about constant dilution, and there’s a lot of drilling happening right now across multiple projects.
So Kincora and Headwater on the prospect generator side; Empress Royalty on the streaming side. I own a lot of all three and consult with them on structure and alignment.
Gerardo Del Real: Before I let you go, where do you think we are in the cycle? Using a baseball analogy, what inning is the junior equities bull market in — not the metals prices but the juniors specifically?
Jeff Phillips: It’s layered. Metals move first, which they have. Then, the big producers move, which we’ve seen. Then, the one-mine producers start to move, and that’s starting now. I’d call it the third inning, maybe fourth.
Near the end of a bull market, you’ll see the explorers and developers really move. And when they move, they really move. And I don't mean just doubling and then worrying about them pulling back 10% like everybody was at the show. I mean they really move to the point where you're kind of dumbfounded. So I think we're not even close to being there yet.
That being said, these explorers and developers aren't even being priced at $3,000 gold or even $2,700 gold. They haven't moved with the gold price, and that's going to come. Naturally, you will have a rain delay, using baseball terms, where something goes wrong with the overall financial markets in this broader bull market in the resource sector, and it will be more scary than what happened over the last two or three weeks.
So I don't know when that's going to happen. But at the end of the day, this resource bull market is going to see these stocks go a lot higher.
Gerardo Del Real: Exciting, historic, and interesting times! Jeff, thank you so much for your time. I look forward to having you back on soon.
Jeff Phillips: Likewise, Gerardo. Thanks for having me.
Gerardo Del Real: Cheers.