Legendary Investor Jeff Phillips on How He's Playing the COVID-19 Panic Cycle & a Couple of His Favorite Junior Resource Companies (Part 3)

On March 19, 2020, I had the opportunity to speak with one of the most successful contrarian investors in the resource space, Jeff Phillips, about the COVID-19 panic, how he has positioned himself, and a few of his favorite junior resource companies. Here's the conclusion of our three-part conversation.

Click here for part one and here for part 2 of our conversation.

Gerardo Del Real: Any other names that stand out to you right now, Jeff, that are worth looking at?

Jeff Phillips: Well, again, everyone's got their own portfolio. I mentioned I wrote a check and financed a company. I'm a large shareholder in Almaden Minerals (TSX: AMM)(NYSE: AAU), which has a deposit down in Mexico that's in permitting. It was held up. We won't even go into the reasons. I believe that once the governments get to working again, I'm pretty sure the Mexican government at the highest levels wants to see that move forward. Again, there's no guarantees, but what I'm understanding that's the case. So, the stock sold off like everything else. I originally bought the stock before they made that discovery at $0.70 Canadian. I watched it when they made the discovery back in the last gold bull market go from $0.70 after 10 drill holes, to $5 a share. The stock today is trading at $0.37 with a complete deposit, a bankable feasibility study and moving forward. So absolutely, I'm interested in buying. I don't know if the current price at $0.37 Canadian, I don't know what the US price is, it trades on the US, it's AAU, I don't know what the price is today.

Gerardo Del Real: $0.27.

Jeff Phillips: Yeah. You're definitely two years out when you look back or 18 months, it won't make a difference if I'm correct whether I paid $0.37, $0.47 or $0.30. I'm buying an asset that again, in the last bull market, with just the discovery of this deposit and the drill holes coming in went from $0.70 to $5.

Gerardo Del Real: And they own a mill.

Jeff Phillips: Yeah. You know a lot about that company obviously, also. I'm not trying to go into everything on the interview. You just asked me what I'm just starting to buy. I'm really focusing on some of the companies I own because I'm already heavily invested in those companies. But again, like I said, there'll be another half dozen to a dozen companies that I track and follow that I'll probably also be buying because their socks are down tremendously in the last six weeks and I know they will do well.

Gerardo Del Real: Yeah. Before I let you go, once upon a time I was brand new to this space and you were kind enough, and continue to be actually, in giving me good advice on pitfalls and things to look out for and where to start as far as my due diligence adventure in the junior resource space. And again it's a sector that I love and that I invest for the cycle, looking forward to this next one that we're coming into. 

What advice would you give to the newbies that are going to be coming into this space that maybe were crypto traders or cannabis stock traders that are now looking for a trend that they can leverage and that they can hopefully make some money with? What advice would you give to those new people that may be coming into this space that are thinking about investing in the junior resource space? Or speculating, which is a more accurate word.

Jeff Phillips: It's such a large group of people, Gerardo, depending on your age. The first thing I always recommend to people is that it's a high-risk environment. Obviously, if you've been in for the last five years, you realize that. And usually, like I've told you before, most of the money I've made in this space happens in a two-year period every 10 years. And a lot of that stuff, I'm down in times like this. And again, I did so well out of the last bull market because I was buying in the financial crisis. So it wasn't easy. It's not easy.

It wasn't easy writing a $200,000 check to a company today when you already own a ton. But again, people are worried. Again, we have a toilet paper problem because people are panicking and there's not a supply problem. It's a demand problem and a mass psychology problem. So I think that mass psychology will play out into the gold market. But again, depending on your age, when you and I first met, again to use sort of an example, you were new to the resource space and this was what, going on almost 15 years ago, right?

Gerardo Del Real: Yeah.

Jeff Phillips: So basically, you were extremely excited and believed gold was going higher, which it did do. But what I told you is you can't leverage your house and everything else and you understood that. Because again, I'm very sure that gold's going higher, but if for some reason I'm wrong, instead of being six months, it takes four years. If I run out of capital during that time or need to sell things, then I don't get to partake in the upside, which could be 10, 20 for 1 in a good bull market.

So you have to stay in the game. So whatever you do, obviously if you're 25 years old and you have a lot of time ahead of you and you want to take more risks, you take more risks. I did the same thing when I was 27 years old and learning the business from people like Rick Rule. I thought I knew everything and didn't invest properly in the space. Sometimes you get lucky and that's the worst when you get lucky like I did right off, because then you think you know everything. 

So it takes a long time to learn the resource space. Looking back now over, gosh, almost 25 years, there's been some really good learning experiences. But overall I've done well following the adage that I don't have to sell things when things are selling off.

I haven't had to sell anything in the resource space to raise money over the last five years and I'm not having to in this health panic that's creating a financial situation that is going to be very bad. So again, my advice to people stepping in this space is understand what you're trying to do, understand your financial limitations. Don't over leverage yourself and look for people to give good advice on companies. And do your own due diligence. 

Do some research, do some reading. It's not like it was 25 years ago when I came in the business that you sat by your fax machine to get faxes to what was going on. Now you can find multitudes of things on any company, even those two companies I mentioned, Midas and Almaden. 

Do your due diligence. Look at the price charts. Go back 10 years, see where they've been and what they've done. But at this point in time, these gold stocks, the producers are doing better. They're down somewhat too, because everyone's looking for liquidity. But these companies that are about to become permitted mines and most likely will be sold or put into production, these are selling at the lowest level I've ever seen. But that was the same four months ago before the Wuhan virus hit. So now they're selling even cheaper. So is it possible they can get cheaper? Yeah. But with things like Midas Gold, you know they have $35 million in the bank. They're not going out of business. So you're going to be in the game. 

If we're right about that game starting here in the not too distant future, you're going to do very well as opposed to buying a company, if you don't do your due diligence, and buy some company because somebody told you it was a good investment in the gold space and you think it's great because it's trading at $0.03 a share and it used to be $0.50, but they have no money left in the bank and they can't raise any money, then that's probably not a good investment because if the gold market doesn't take off in the next two months, they aren't going to be able to raise money. So make sure whatever you're investing in, you have a clear idea that they're going to be in this, still playing the game when the game starts.

Gerardo Del Real: Well said. Jeff, I know I've taken a lot of your time. I think the interview is timely. Thank you for your time. It's appreciated and thanks for all the guidance and the advice. I think it's well worth everybody's time to give it a good second listen, or second read over.

Jeff Phillips: Yeah. I appreciate it, Gerardo. I hope you and your listeners are careful and follow instructions and we'll get through all this.

Gerardo Del Real: Stay safe out there, everyone. Jeff, stay safe. Thanks again, appreciate it.

Jeff Phillips: Have a great day, Gerardo.