PODCAST - M&A, market miners and mature jurisdictions - Fulp
Mickey Fulp discusses why he likes uranium and copper and why there seems to be a bit more optimism in the junior sector.
mineweb.com
Interviewer: Geoff Candy
Posted: Friday , 07 Mar 2014
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GEOFF CANDY: Joining me here at the PDAC 2014 conference is Mickey Fulp, The Mercenary Geologist. Mickey, we spoke here last year, there are about 5000 fewer people here than last year, it does feel a little quieter, but a little more optimistic?
MICKEY FULP: I would agree with you, but quieter is better. Last year it was just so busy here it was hard to even manoeuvre around the floor. But, that is to be expected, the business is into its third year of a bear market, although we have seen the Venture exchange go up about 15% since the x loss selling saw it test its late June low of about 880 in mid December, we have seen it rally since then and it has led to a better mood at the conference.
GEOFF CANDY: I think part of the shift can be attributed to a little more M&A action beginning to take place, we saw the mood life noticeably when Goldcorp made its bid for Osisko. That obviously still has issues but there does seem to be a smidgeon of hope coming back into the sector.
MICKEY FULP: Your points are well taken. The index is up, that is not very broad brush ,it is probably the best companies, the cream rising to the top. We have seen a big attempt at a takeover with Goldcorp and Osisko, but it has also filtered down. We saw GoGold take out Animus, and that deal was consummated on Monday. We have seen some other hostile takeovers being attempted in the smaller end to the mid tier juniors and even for lack of a better word, the low tier explorers, so we have seen this consolidation of the business, which is a logical thing to happen in a bear market, and that is good for a market.
GEOFF CANDY: I suppose there are two conflicting forces taking place in the market at the moment, where a lot of these juniors are reluctant sellers if they are sellers at all because their valuations are so low. Do you think there is going to be some compelled selling by companies that are under the cosh from a cash point of view.
MICKEY FULP: Yes, there certainly will be. There are some cash-rich juniors, I know of one right now that is fighting off a very hostile takeover and they would of course expect a white knight to come in with a better offer. We have seen some merger activity in the uranium space in the last year, this unitisation, rationalisation, consolidation is, I think, overall good for the market. Part o f the problem with the Venture exchange in this latest boom is that we just have too many companies. The market cannot support 1,650 juniors in the natural resources sector; we do not have enough good geological projects in the world to support that many companies. So, a lot of those companies need to go away, but the exchange policies have been loosened to allow them to hang around. The exchange I think, has a bit of a conflict of interest, as a public company it needs to generate profits. It does that through compliance fees and listing fees, reports ,etc , so they have lowered financing requirements a couple of times in the last year in order to keep some companies around and really those companies need to go bankrupt, become shells and go dormant and that is not really happening.
GEOFF CANDY: Its interesting because, we spoke about this last year ,in that there were a lot of companies that were expected to capitulate a lot sooner than perhaps they have, and the reasoning you have given makes sense. Do you think there has been a situation where, and this does seem to be the trend overall over the last few years, everything has taken a bit longer than expected.
MICKEY FULP: Yes, and a lot of that is coming from the regulatory environment, it keeps increasing. I get the news releases from the various Canadian regulatory agencies the securities commissions and there are more regulations every year and there are more and more fees put on to become a lister, so the bureaucracy of that is increasing. Not only that, but the permitting and lead times to projects being developed in the mines and even advancing as projects is increasing, so the slowdown in the bureaucracy that has been added in our business, in both the regulatory environment and the regulations and resource nationalism of countries is of great concern because it takes longer and longer to build a mine in a world where we are adding something of the order of 80m people to the planet every year that demand resources. That's 220,000 people per day; additional mouths to feed, that want electricity, 25% o f the world still can't turn on the light. That's changing but a real concern is lead times, you can't transmit electricity without copper so these long lead times are really of concern.
GEOFF CANDY: I was listening to a presentation by Richard Schodde from Minex yesterday, talking about this very thing and the fact that we have seen a lengthening of the lead time between discovery and development, and a lot of that has to do with regulation as you say, but another theme that has come through this conference so far is that corporate social responsibility, the needs of stakeholders other than shareholders is increasingly becoming non-negotiable. Do you think juniors are sufficiently aware of this?
MICKEY FULP: I think they are being made aware of it by the fact that so many countries that ten years ago, five were targets for exploration and mine development are off limits now for geopolitical considerations. This creeping resource nationalism that you see, especially in emerging market countries, the lack of security of mineral tenure, its forcing the better companies back into safe jurisdictions. Especially in the US, I mean we have very long lead times for permitting but there is security of mineral tenure and rule of law. And so we will see companies pulling back and going to safe jurisdictions. And, we see that happening now, where the rule of law and the security of mineral tenure is paramount.
GEOFF CANDY: Which is interesting given that a lot of the newer resource discoveries have been made in places other than those jurisdictions.
MICKEY FULP: That is because they are mature jurisdictions. There are no more outcropping copper porphyry ore bodies in the US. But, we are finding them deeper with drills and geophysics and good geological sleuthing and the building of cross sections. We have seen that in Arizona with some big discoveries, buried quite deeply. So, it is tougher, but ultimately you need to go where you can develop a mineral deposit and make money and, if the perception is in some far off country in an emerging market (really what we would call the third world) you don't think you can develop it, then there is not much reason to spend shareholder money developing in those regions.
GEOFF CANDY: Do you think shareholders need to start taking a longer term view of returns.
MICKEY FULP: Yes, this boom has really focused on very short term goals and lead times for the success for a company and shareholders, I think, have been disappointed in a lot of regards on that. That is not to say you can't get in and get out quick, but that becomes a matter of timing on some companies. And, certainly, I like to bemoan the fact that a lot of these companies are mining the stock market (it's a phrase I coined a few years ago) but as speculators we are all trying to mine the stock market. Ultimately, I separate my holdings into segments. I have my trades and my long term holdings. And, the long term holdings I am much more patient with and those are the ones I feel most confident that they can build mines. Some of my other trades are just, I see an opportunity to speculate and I play those speculations.
GEOFF CANDY: What sectors of the market and what minerals are you focusing on at the moment. Where do you see the most potential?
MICKEY FULP: I don't think much has changed since the last time we talked a year ago. My top minerals would be, I may have flipped them around, copper and uranium, now I would say uranium first and then copper. I am always looking for good prospects, tungsten is certainly the specialty metal of the year and I have my tungsten company. So, those are the metals that I am most interested in at this time. |
