Hard Asset Digest May 2021

Jeff Phillips: Everyone's doing well, Mike. Thank you for having me on. And yes, it looks like things are starting to get somewhat better and we go from there.

Jeff Phillips: Well, Mike, you've definitely seen a high late last summer, early fall. You've seen a pretty good consolidation, and they're starting to move back up off of support.

And like you said, I think gold is around $1,860 an ounce right now which is great. But as I've told you before, I don't predict what something's going to do in the short-term because there's a lot of asset bubbles out there and a lot of unprecedented policies going on — which makes things very difficult to gauge in the near-term.



In the longer-term, there's no doubt in my mind that this is a massive asset bubble and interest rates are going to rise over time regardless if the Fed wants that or not. And gold will do well because you're going to see inflation. However, I don't know if that's going to play out in the next three months or the next three years.

Jeff Phillips: Sure. The first thing you have to remember in the junior space is that the vast majority of these exploration firms don’t have a proven asset. They’re looking for one. And that increases the risk factor.

So what I do is I look for well-run companies that already have a resource at the PEA level, which is a pre-economic assessment or even a feasibility study or, even better, a bankable feasibility study.

You're trying to analyze companies to say, “Gee, at current metals prices, can they raise the requisite money and put this thing into production?” Or can a larger company such as an intermediate or major producer look at it and say, “Gee, we want to buy this out because it's going to be profitable for our bottom line.”

So I tend to speculate on companies that can do well at lower metals prices. And again, this is a speculative market. When it becomes in-favor, valuations can get completely out of whack where companies that are simply looking for gold can go up 10-fold or more.

I believe that type of market is coming at some point. Yet, to be honest, it's really a disadvantage to someone like me because what I’m trying to do is analyze companies to see if their assets are worth an investment stake. And in a raging gold bull market — which we will have at some point — everything tends to go up rapidly. And that includes a lot of the pretenders. So it’s tricky.

At the end of the day, I’d rather own companies that are going to be there when the game gets started because a lot of juniors inevitably get restructured and end up becoming overly diluted. So investing in quality companies with quality assets is my focus as they’re able to withstand the downside while also benefiting from the upside.

Jeff Phillips: Well, I don't have a crystal ball, Mike, but they are in final permitting and it's quite an advanced process. Perpetua is half owned by John Paulson — the well-known hedge fund manager who made a ton of money shorting the real estate market during the housing crisis.

Perpetua is his major gold holding. It’s got over 6 million ounces plus the antimony component. I think he owns 42% of the company. So when you're a shareholder of Perpetua, you're on the same team, so to speak, as John Paulson. Obviously, he's going to try to maximize his value. This is his leverage to inflation and everything else. He has other gold holdings but this is one of his most significant.

I think the stock is going to do well. It could go up five-fold in the right speculative market. But realistically, if they get their mine permit this year and a larger company offers them double their share price — perhaps Paulson would sell. And I think most shareholders would be more than happy with that.

But again, the real money is made in these markets not just on value but on speculation as speculative capital moves in. But yeah, I think Perpetua is going to be a takeout candidate without a doubt.

Jeff Phillips: Yeah, Revival Gold is definitely an interesting speculation, Mike. As you said, it's come down a bit in price. I've bought it at higher prices. And again, it should be noted, all of these companies so far that you've asked me about — I'm a financial consultant for and a large shareholder.

My main goal is to make sure these companies do things that are in the best interest of shareholders and try to limit dilution until we can get to one of these really speculative markets in the resource sector that we tend to have every five, six, seven years.

Revival raised a large chunk of money last fall; around C$13 million if I remember correctly. There are warrants attached to that so inevitably you get some selling. We also had that temporary pullback in the gold price as you mentioned. So it has come back some.

I think Revival is one of the cheaper speculations out there. With a market cap below US$40 million and a current gold resource of 3 million ounces, the company currently trades for less than US$13 per ounce in the ground.

They’ll have the drills turning on a 5,000 meter program starting in June along with a potential restart of heap leach gold production with a goal, I think, of around 70,000 ounces per year.

People tend to get excited about those sorts of developments. But just on a value basis alone, Revival is extremely cheap for its ounces in the ground. It's a past-producing asset in Idaho. It was the largest past-producing gold mine in Idaho. They've discovered quite a bit more gold there.


So yeah, Revival is an excellent speculation. Like I said, I've bought it at higher prices. Just last week, I think I bought 100,000 to 200,000 shares. I had some bids in there — and the market was weak last week — and I got filled. But I think it's probably washing out with some of the financing, and I suspect it'll start heading back up to where it was last year as they begin to drill.

Jeff Phillips: Yeah, Ixtaca is an incredible deposit in Mexico. Both South America and Latin America — and the various countries therein — have lots of different issues that these North American exploration firms have to navigate. And it's certainly part of the reason why some people tend to focus on US, Canadian, and Western-friendly mining jurisdictions like Australia, which, of course, you pay a premium for.

But what happened with Almaden is you've got a government that's being more cautious on permitting and so forth. And so, basically, Almaden’s initial permit to build the mine was rejected. And again, it's a long story because it's all politics. But my belief is that it was part of the posturing that politicians do because, again, Almaden has done a great job in the local community. They're offering jobs; they're very well-supported locally.

It's mostly outside influencers that have put a monkey wrench in the deal. I suspect Almaden will be submitting their mine permit again this year. They've added some people to the board that are well connected and that have helped build mines in Mexico and are Mexican individuals themselves.

So I think it's a give and take. I think they're going to end up doing some things for the Mexican government and the mine will get permitted. There's a lot of profit in that mine so there's a lot of money to go around. Thus, at current prices, Almaden is a very good speculation, and they’re going to be drilling again this year.


Ixtaca has been a grassroots discovery for Almaden that's turned into a global resource of about 4 million ounces of gold equivalent; about 50/50 silver and gold. And they haven't even explored the entire property. It's a massive land package so there’s a ton of exploration upside.

Drilling is resuming and I think they'll make some additional discoveries. It’s a team that has a lot of experience in making new discoveries. They’re in the right gold market. I think this time next year, we’ll be talking about Almaden at much higher price levels.

Jeff Phillips: Yeah, like you said, we’re not seeing any uranium production in the US because prices remain low. To get mines going in the US, you really need a uranium price north of $50 per pound. We were sort of stuck below $30 for a while, and now prices are starting to tick back up.

A number of uranium juniors have done quite well of late, as you noted, based on a combination of assets under management and the prospects for higher uranium prices. And I think prices eventually do need to move up toward that crucial $50 level.

I own Azarga Uranium as well. They recently doubled the size of their Gas Hills ISR resource in Wyoming, and they’ve got final EPA permits in hand for their flagship Dewey Burdock project in South Dakota. So lots of great news on the development front for Azarga.

I think their stock recently hit a high of C$0.35 and has since come back just a bit. Again, without a doubt, uranium prices have to go higher in the future. It’s really just a timing thing. I'm perfectly happy to be buying something like Azarga Uranium with its multiple permitted ISR projects in the US. And just like Perpetua Resources, I think Azarga is a prime takeover target.


I also think it's one of the better uranium assets out there. And with the US government moving to secure some of our strategic metals, I think Azarga is exceptionally well positioned. Yet, I'm happy to be patient, Mike. I’ve bought it at higher prices and at lower prices.

Over time, I think it’s going to see a fantastic return. Will that be in one month or one year… well, it’s difficult to say. But I think now is a good time to be pecking away at the higher quality names in the uranium space — and Azarga is certainly one of them.

Jeff Phillips: Yeah. I've taken profits on MP Materials because it did really well from the SPAC to the acquisition. Again, we could have a whole interview on this, but rare earths are controlled by China and they go into virtually everything. I saw today that President Biden was at a Ford plant touting his infrastructure plan and stating that if we don't go all-in on EVs — we’ll lose to China. And that’s true.


Yet, the problem is that we hardly produce any of the rare earth elements that go into EVs and solar panels and wind turbines and other green energy technologies. They’re mostly mined in China — and very environmentally unfriendly I might add. I mean, you want to talk about the Bitcoin hazard to the environment from all of the electricity generation required… just take a look at what they're doing to mine rare earths in China!

So rare earths are going to be extremely critical to a cleaner/greener future. The US government is going to have to spend lots of money to ramp up our rare earths production, including supply chains, refining, etc. It’s an extremely interesting sector. At different times, we’ve seen this market explode 10-fold from where you could have bought the stocks. We’ll probably see that again in the not too distant future.

As of right now, the only rare earths stock I own is Leading Edge Materials, which, as you mentioned, has the Norra Kärr heavy rare earths deposit in Europe. And so I like Leading Edge as a speculation.

Jeff Phillips: Yeah, there really is no shortage of political elements to the copper space right now. You had Chile with elections just this last weekend with discussions about increasing the royalties mining companies pay. And, mind you, Chile is the world’s largest copper producer.

Peru, which is number two in global copper production, held its general election last month and will announce its run-off winner on June 6th. It’s between left-wing, or communist-leaning Pedro Castillo and right-wing, pro-business Keiko Fujimori. She’s the daughter of former president Alberto Fujimori who’s currently in jail.

Castillo is currently ahead by a couple of percentage points… so we’ll see how that shakes out. Fujimori is very pro-business but she obviously has a lot of baggage as far as her family goes.

A win by her would likely usher in a very pro-business environment wherein a lot of these Peru-focused explorers could really bounce. A win by Castillo… well, I think a lot of that is already baked into the mining stocks. They could get hit with a bit more of a downdraft, but, again, I don’t see Peru nationalizing its copper assets. They still need to attract outside investment into their mining sector.

So, to me, the uncertainty right now really is the worst thing. Once the run-off is settled, I think these stocks become very interesting. So if someone wants to wait a bit and see what the run-off brings — there’s probably a good case to be made for that.

Both Regulus and Chakana have tremendous copper assets. And I think they're both worth a lot more than their current market caps. So again, for those currently on the sidelines, you could potentially end up paying slightly more if the run-off goes the right way… or pay a little less but require a bit more patience if it goes the opposite direction.



But, like I said, both companies have tremendous copper assets.

Jeff Phillips: Yeah, I kinda saw that one coming, Mike! So, without a doubt, there are a lot of bubbles out there right now that are being driven by a lot of speculation and a lot of greed. And one thing you always have to remember is that all bubbles eventually burst.

Just look at cryptocurrencies… and I’m not even talking about the big three or four. Even those have come off significantly recently. But then you also have these lesser ones — ones created daily practically as jokes — that are of equal concern. Many have already met their predictable demise and it's a safe bet most of the others eventually will as well.

The bottom line is that asset prices in a number of sectors are going to come back to earth. Interest rates are going to go up to combat rising inflation. So again, people can speculate and gamble on mania-driven stuff like crypto and NFTs all they want. And maybe some of them go up another 50% from here. But eventually, the music stops and there are no chairs left.

Again, I prefer to own hard assets with real value. And that includes rare coins, art, and real estate. There’s always demand for those sorts of things. And getting back to resource stock speculation, it’s all about owning companies with solid assets that are run by management teams with a history of past success.

We talked about Revival Gold. To me, with the amount of gold they control — it’s an incredible speculation. For those interested in the junior space, buy a little Revival Gold at current prices. But always keep in mind that you are speculating. We talked about gold… and I think gold is going to do exceptionally well as people begin to realize that there are massive bubbles out there.

As these bubbles pop, and as inflation rears up, a lot of the smart money is going to find its way into gold which has been a store of value throughout human history and particularly during times of uncertainty. And I think we’re heading there once again.

Jeff Phillips: Any time, Mike. I appreciate you having me on. Talk soon.