Digest Exclusive: More market opportunities from our interview with a resource insider...

Digest Exclusive: More market opportunities from our interview with a resource insider... Spanish yields hit panic point... A full-scale Spanish/Italian bailout in six months... The best junior mining stock to own today... What's a CUSIP number?...

 Yesterday, we published the first half of our exclusive interview with natural resource financier Jeff Phillips. Jeff normally doesn't grant interviews. He likes to fly under the radar... and make his clients a fortune without any bother from the media. But we've developed a strong professional relationship with Jeff over the past few years, and he agreed to share his priceless insight into the resource markets with Digest readers.

You shouldn't miss out on the rest of this interview. Make sure to look for it just below today's feedback e-mails...

 It's amazing how quickly a government can waste 100 billion euros... Just days after the European Union agreed to float Spain's financial sector, the yield on Spanish 10-year debt breached the all-important 7% mark – its highest yield since the euro was created in 1999. Yields jumped after Moody's cut Spain's credit rating yesterday... You can always count on Moody's for timely warnings.

 The market has dubbed 7% as "the point of no return" for European sovereigns.

Portugal, Ireland, and Greece were all bailed out after their government debt yields climbed above 7%. In Spain's case, it's the point at which the country will need yet another bailout.

 Sean Egan runs Egan Jones, an independent, well-respected credit ratings agency. His firm also downgraded Spanish debt yesterday... It was their fifth downgrade this year. In an interview with CNBC, Egan said Spain and Italy will see the "real" bailout within six months...

 The TSX Venture Exchange is the bellwether index for small resource stocks... And it's been crushed in the past year:

Some of the best small resource stocks in the world are down 50% or more from the peak. Meanwhile, the price of gold has held steady. As we discussed in Tuesday's Digest, we're bullish on gold stocks. We think they're due for a major rally. And when small resource stocks rally, they soar hundreds of percent.

 Phase 1 Investor editor Frank Curzio recently prepared a report on what we think is the best junior gold miner to own today. One of our contacts in the gold sector – and one of the most-respected gold investors in the world – brought this company to our attention. He believes it will be taken over at double today's share price. And the deal could go through any day now… We're sending you an e-mail with full details about how to take advantage of this opportunity later tonight. But if you don't want to wait, you can access this information (without having to watch a long video) here...

 New 52-week highs (as of 6/13/12): Utilities Select Sector SPDR Fund (XLU) and Integrys Energy Group (TEG).

 Have you had success investing in small resource stocks? Let us know about it here... feedback@stansberryresearch.com.

 "Okay I'm not the brightest bulb in the house, but with that said tell me what the heck is Rite Aid 8.5% and how did it get such a crazy symbol? I read it every time it is listed in the top 10 open recommendations and of course I can't find it or anything about it. I am trying really hard to read and learn but it comes very slowly for me. And my Scottrade account comes up empty each time I try to search for it." – Paid-up subscriber Linda R.

Goldsmith comment: You're talking about the Rite Aid bond we recommended in True Income. The "8.5%" you refer to is the bond's yield. As for the "crazy symbol," that's the CUSIP number... which is essentially the ticker for a bond.

Regards,

Sean Goldsmith

New York, New York

June 14, 2012

Editor's note: Today, we present the second half of our exclusive interview with natural resources financier Jeff Phillips.

As we said yesterday, Jeff is among the world's great resource investors... even though he prefers to keep a low profile and doesn't make headlines the way many of his peers do. As managing director of Global Market Development, he's been integral in the financing of some of the most successful resource winners of the past 15 years.

For more on the big opportunities Jeff sees in the resource market... read on...

Hunt: There's been some buzz about graphite stocks. Could you tell our readers what is going on there? Are you at all interested in that sector?

Phillips: Yes, I am interested.

The resource sector is built on speculative exploration and development. Hopefully, your readers know that out of thousands of companies that are resource-based, 90% of them are not really in the resource business. They print paper and promote their ideas. They never have real assets.

The resource sector is always looking for something to promote, whether it be uranium at a certain time, or rare earths.

Graphite is a member of a group I call "strategic metals." These metals aren't used in huge quantities, like copper is. But they are extremely important metals. Some of them are antimony, graphite, and rare earths. These metals are used in high-tech applications, like cell phones and electric car batteries.

The Chinese dominate a lot of these markets. China began producing these more and more in the '80s and '90s. Because of its low environmental standards, it was able to produce a lot of these strategic metals cheaply. Nobody in the West wanted to invest in this sector because the margins weren't good enough. China was selling them too cheaply.

But in the last decade, the Chinese – as their economy has grown and they've moved away from being a low-end manufacturing economy – have begun using more and more of these as resources in high-tech applications... and imposed tariffs on the export of these raw materials. That's why we've seen the price of some of the strategic metals move up.

Graphite is very interesting because the Chinese depressed the prices for years... So we've seen very little exploration and development in the graphite market. The traditional uses for graphite have been growing steadily, and there are a number of new uses. One example is the lithium-ion battery. Lithium-ion batteries use more graphite per weight than they do lithium. So graphite is very interesting.

I financed a company called Flinders Resources, which is going to put a mine in Sweden back into production in 2013. I liked it because it was a company that I could see had a clear path to production. Back then, there were three or four exploration companies in the graphite sector. That was a year and a half ago. As of today, I'm tracking 60 graphite exploration/development companies... And there are only really four or five development stories that have resources. The rest are all exploration. So many companies have sprung up because people move into the "next big thing."

I like graphite. I just think your readers have to be very careful here. Most of the graphite companies will never be anything but companies that create stock and options. In the right market, it doesn't mean you can invest in the company, double your money, and be done. But if you're talking about building a mine and actually providing the graphite that will be needed, you have to be very careful when you're selecting that. In this market, Flinders Resources is a company I'd like to add to.

I believe Flinders financed ("raised money") recently at $1.70 per share. It is fully financed to produce. You could see that stock back off as some early investors take some profits. It may or may not. Again, this is something I own. I'm not selling any. And if it dropped 20% with some of the institutions having to sell at the $1.70 level or lower, I'd be looking to add to my position. If you look out to 2013, you have a stock that has the potential to double from current prices.

Hunt: On the strategic-metal topic... the rare-earth element sector, in which I know you have extensive experience, enjoyed a tremendous amount of hype a couple years ago. But like a lot of other sectors, it has been hammered over the last 18 months. And a lot of these stocks are at 52-week lows.

Could you help us separate the facts from the hype surrounding this sector? Are you interested in any of these companies?

Phillips: Separating the fact from the hype would take a long time because there is so much hype. But you also have a lot of facts, too. First of all, rare earths comprise 17 different elements, which makes the sector more complicated than investing in a single underlying commodity.

The big picture here is similar to what we just talked about. The Chinese had depressed prices for many years and then began restricting the export of rare earths. The only operating mine in the U.S. was the mine that Molycorp now owns. It was shut down in the late '80s.

Rare-earth elements are going to be increasingly important... especially in high-tech and "green" technologies. China has imposed tariffs and export restrictions on a lot of those metals, and that's all fact. The Western world needs multiple suppliers outside of China.

When I got involved in the rare-earths sector about four years ago, there were six companies.

I really liked one of them – a gold company called Rare Element Resources. It had a known historic rare-earth deposit. Back then, no one cared about rare earths, even though the Chinese had been restricting exports at that point. Prices began rising.

When the media and everybody started talking about rare earths, a lot of the factual stuff was about, "Gee, you know these are critical metals to many industries and we can't depend on China." That was all true.

But then, you had 250 companies spring up around the world that were all rare-earth companies... And they were going to solve the problem. Out of those 250 companies, 240 of them are going to go away.

Many of your readers are familiar with the "discovery cycle." A number of people – like Rick Rule, who is a fantastic entrepreneur and runs a brokerage firm here in the States – will tell you that whether you're talking about rare earths or gold, when you make the initial discovery, everybody jumps in and speculates and their stocks run way up. But once the discovery is known, the stock slides back down... usually after the first year and a half after discovery.

Then, you get on the backside of the curve where it gets boring. This is when the company is doing metallurgy, resource-definition drilling, and permitting. During this time, the stock price often deflates down to sometimes as low as before the discovery was made... which is an excellent time to buy stock.

That's where a lot of opportunities are right now. That's the opportunity because often, as a company begins to develop a mine, things begin to fall into place... And it's closer to possibly someone buying it out or getting its offtake agreements. [Offtake agreements are agreements to purchase future production.] When that happens, these stocks will start back up that curve and reach new highs.

So if you looked at long-term charts of some of the rare-earth stocks, you'll see this tremendous run-up. Then, all the speculators leave... and the stocks get cheap. They will climb back up as assets are developed.

If someone wants exposure to the rare-earth space, I consider the leader in the industry to be Molycorp. It has a past-producing mine that's coming back into production. It also just recently bought a very profitable processor of rare earths. Molycorp is what you would call the bigger blue-chip stock in that space. It's a speculation on a larger-market-cap company that is down 70% from its highs.

I don't own any of Molycorp because I have exposure farther down the rung in the development stories. One of the companies with a resource that I'd look at is Tasman Metals (TAS), which has the Norra Karr deposit, a 43-101 compliant resource. The deposit is in Sweden, a very friendly country. Obviously, a number of the car companies and end-users in Europe are concerned about where they're going to get their rare earths, and they do not want to depend on China.

I think Tasman is a great speculation. With Tasman, you're taking more risk than with Molycorp, but you have more upside.

Another stock that I like is Rare Element Resources (REE), which I mentioned earlier. Rare Element Resources has a deposit in Wyoming called Bear Lodge. It's a very interesting light earth deposit, which is wide open to get a lot bigger... and is already something I believe would be economic.

That stock reached a high of $18, and it's currently trading in the $4 range. It's another speculation people can consider. There's probably more upside in these "further down the food chain" stocks, but there's also more risk.

And the last one would be Quest Rare Metals (QRM), which has a heavy rare-earth deposit in Canada. It's in a remote location, but it's a very large, heavy rare-earth deposit. And it's in Québec, one of the most mining-friendly regions of Canada. So it offers a high leverage to the rare-earth sector and is down, probably from a high of $8 to $1.50.

All those companies are very interesting speculations. I don't own Molycorp. I do own Quest. I do own Tasman. And I do own Rare Element. I also do financial consulting for Tasman and Rare Element, just so you're aware.

Hunt: We've covered a lot of material about the current environment. But you have a tremendous amount of common-sense education in the natural resource sector that you can share with our readers. Can you give us some guidelines on making money over the long term in this sector?

Phillips: Sure.

I think it's important for your readers to understand that – although you should be active in managing your portfolio as a whole and, specifically, natural resource stocks – you really need to get good advice if you're not a professional. And don't listen to any one person.

I believe my advice is good. But again, I encourage people to subscribe to a number of natural resource newsletters that specialize in the field. I like your products, and I like Matt Badiali's research. I like Brent Cook's letter, Exploration Insights. John Kaiser writes a very good independent newsletter, called Kaiser Research.

It's also a good idea to have a knowledgeable broker or brokerage firm that specializes in that arena so you can bounce ideas off them.

This way, you can get a few good natural resource newsletters to build your due diligence and talk with a knowledgeable professional about the ideas you've learned. Brian, you and I both know Rick Rule's firm, Global Resource Investment (now a part of Sprott Inc.) in San Diego is one of the top resource brokerage firms. Of course, Rick runs major funds... and he is not someone you're going to talk to on a daily basis, but you should listen to him when you go to conferences.

Rick has a number of good brokers there. People like Steve Todoruk, who is a geologist that understands grade and metallurgy and location and can comment quite well on why a 2 million-ounce gold deposit may be far better than a 5 million-ounce gold deposit. Michael Kosowan is also a good broker there. Michael is a mining engineer. If you're serious about making money in resources, having some great newsletters and having a great broker is a big help.

Don't rely on any one person. Everybody has a different game plan and different goals. I would get as many opinions as I could and cross-reference those opinions.

Hunt: That's great advice. Any parting thoughts?

Phillips: Just to emphasize – I think we are near a bottom in the natural resources and especially the precious-metals producers and development-companies sector. These stocks are cheap right now. Of course, they could easily get cheaper... But I'm buying right now, and I plan to keep buying.

Whether you get the lowest price today or three months from now, I think you're going to make a profit on any of those stocks you buy in 2013. I think we'll look back on this time period a few years from now and say what a great buying opportunity we had.

Hunt: Thank you very much for your time.

Phillips: You're welcome.