Gold at $10/Ounce in the Ground!
(00:05) Lior: Welcome to the Metalionaire’s mining executive interviews. I’m really excited to have on Mr. Amir Adnani, founder and chairman of GoldMining Inc., formerly Brazil Resources, and a founder of Uranium Energy Corp. He has been the president chief executive officer, and director of the company since its inception in January of 2005. This interview is a rare chance to ask hard questions and get honest and critical insights from an individual who heads a nuclear energy company and a gold optionality model that is considered by experts to be the most brilliant strategy for the coming cycle. Amir, how are you, sir?
(00:49) Amir: Lior, it’s great to be with you again.
(00:51) Lior: Amir, turning to gold, I want to start with comments made by the legendary Pierre Lassonde, founder of Franco Nevada. He’s a brilliant man, well-respected in the community. He has said that the discoveries are all but gone in the gold sector and that production will go through a severe reduction going forward. How does this impact large gold companies’ decision-making policies? You must be with CEOs all the time. What are they thinking in terms of solutions for their depleting mines?
(01:20) Amir: This is the single biggest point that got me very excited back in 2010 about developing what, at the time, became Brazil Resources, and then we changed the name to GoldMining. It was this trend… this trend really has to do with a bit of a perfect storm in the sense that the average grade of gold being mined in the world has been in a perpetual decline. The discoveries have become harder and more expensive to find. The low-hanging fruit for decades – if not centuries – of mining something as ancient and historic as gold means that there needs to be more money spent on exploration to find resources. But despite all of that, we had a bear market from 2012 to early parts of 2016 that meant major gold mining companies completely starved their exploration divisions and activities of oxygen, that being capital for exploration, and as a result, gold resources and reserves are currently at a decade-low for the gold industry. What is even more compelling to me, Lior, is the fact that despite increased explorations in 2016, we’re still not seeing the new discoveries come about at a rapid enough pace to make a difference here. This is absolutely a key trend that any gold investor needs to pay attention to – the fact that these total resources and reserves are at a decade-low. Gold miners that are mining gold on a weekly and monthly basis need to replace reserves that they produce from with new resources, and exploration is a long-term activity. It takes years to spend the money, move the rigs around, find those discoveries, and do the permitting. From the first exploration drill result to when a project can become a mine is 10-15 years. So again, this is definitely a very important dynamic to be aware of, and it’s why we’ve been so focused on acquiring resource-stage gold projects during the bear market from 2012 all the way until this year.
(03:39) Lior: GoldMining Inc., the company you founded, has proven to be an exceptional performer during this bear market, at times even outperforming the S&P 500. Could you give a blanket overview of assets, balance sheet, and strategy for the company?
(03:57) Amir: The strategy of GoldMining Inc. is one that has been tried and tested over many decades in the mining industry. Many successful mining companies, names like Randgold, Pan American Silver, looked at the fact that the mining industry is one of the most cyclical industries out there. The cycles tend to be extremes. When we end up in a bear market, you end up with very extreme cases of valuation, where things can get extremely bearish, and when we end up in those upswings and those markets that are extremely bullish, valuations can become frothy. Many successful mining companies today started out acquiring resources and projects during the extended bear markets, looking to create value based on what they paid for an asset. They were minimizing exploration risk and not taking on exploration risk when the market a) wasn’t rewarding it and b) you could pick up previously explored resources for cents on the dollar, basically acquiring gold resources in the ground for less than their discovery cost. This, Lior, is not some revolutionary idea that we invented at GoldMining. Again, this is a strategy that, over many decades, has proven and demonstrated to be one of the best ways to create shareholder value and return in the mining business. Over the last 7 years with GoldMining, it’s allowed us to establish our own track record, demonstrating that this strategy, as executed by GoldMining over 6-7 years (7 years as a company and 6 out of 7 years we’ve been a public company), works. You can look at the share price performance, and it’s remarkable to see that this model truly works. Since the IPO in May of 2011, our share price has gone up over 130%. But during the exact same time frame, the TSX Venture is down 60% and the GDXJ is down 75%. Last year, when we had that run in the gold market, we saw an incredible outperformance that shows the ultimate leverage that we have to the higher gold price. Last year, as you know, the GDXJ did extremely well. It was up 150% or so. GoldMining was up over 300%, and you can see that leverage. That is not something that is out of a business school case study – this is based on our actual experience, our actual share price performance, and over 6 years of track record and establishing ourselves as players that, over 6 years, year in and year out, look for acquisition opportunities, make acquisitions, complete them, and keep adding to our total gold resource inventory that we’ve been building now. It’s now one of the largest gold resource portfolios anywhere in the Americas for pre-production companies, especially a portfolio that is diversified. You don’t have all the eggs in one basket, we have a diversified gold resource portfolio across the Americas, and in fact, it is the biggest one today, and that’s why it’s the ultimate leverage to a higher gold price.
(07:32) Lior: Are there any analysts covering this stock?
(07:34) Amir: Again, just last week, a new analyst at Roth Capital initiated coverage of GoldMining, with the target price of, I believe, over $4.00 per share. That brings the total analysts covering this company to 3. All have very similar target prices and buy recommendations. It is a great endorsement, Lior, because when you look at the kind of return implied by these target prices and the buy recommendations, I think where the share price is right now is a great vote of confidence in what the company is doing and endorsement by the capital markets on the company’s strategy. It’s a unique strategy because in the junior mining business, we have many companies that are focused on single assets and de-risking those single assets, and what GoldMining managed to do during the bear market would not have been possible unless we had a very brutal bear market, like we did in 2013, 2014, and 2015, which were just absolutely brutal. That’s the environment that we were able to capitalize on and make the acquisitions that we did, establishing this very large and diversified portfolio.
(08:53) Lior: Go to WealthResearchGroup.com/Amir to get access to these analyst reports on GoldMining Inc. and Uranium Energy Corp. Amir, you have a significant position with this company as well, is that correct?
(09:08) Amir: Yes, GoldMining, similar to Uranium Energy, are two companies that I had founded, Lior. I’ve been with both companies since day one, as CEO of Uranium Energy and chairman of GoldMining. In both companies, I’m the single largest individual shareholder. I’ve invested in the company in various investing rounds with GoldMining, but so did the rest of our insider group. In fact, in GoldMining, our insiders collectively own over 20% of the company, close to 25%, which is quite strong for any company to have. One of our board members with GoldMining, Mario Garnero, who cofounded the company along with myself, has been on the board since day one. He and his bank in Brazil own about 10% of the company. It’s great to have a strategic partner like that, Lior, on the team, and a very substantial group in Brazil. It invested over $16 billion in projects between Brazil and Columbia, which are countries that we’re very involved in. You look at individuals like Marin Katusa and Doug Casey, with their Casey Research fund, who have been our largest institutional shareholders since day one, and they have kept adding to their position. There’s the Sprott Group, led by individuals like Rick Rule, who have been major backers since day one. So, you see, there are very long-term, very like-minded shareholders that really have made money on this set of strategies before, and they see the execution that GoldMining has had, which meets the ultimate criteria for sticking with the investment. If there’s execution, if there’s value fruition, I think these large, institutional shareholders will board companies that do that, and we’ve had, again, 6-7 years of execution, year in and year out, and that’s really key to how this story has unfolded and reached the critical mass that it has right now.
(11:05) Lior: Amir, since gold junior miners have been truly volatile for a number of years, Rick Rule has said that shareholders need to be as driven, full of conviction, and enduring to pain as the CEOs running the companies themselves. I agree with that completely, but I also want to know the emotional effort and the self-discipline that shareholders exhibit will be rewarded as the market conditions become favorable. Could you quantify or help shed light on how to value the potential market cap of a company such as GoldMining Inc., given the proven NI 43-101 projects you control, when gold is priced at $1,500 or $1,800 per ounce, and not like today’s prices?
(11:48) Amir: There are a couple of perspectives I’ll share some light on. First of all, I go back to the analyst reports that you pointed out as well. There’s 3 independent analysts that covered a company with extensive research, so to begin with, that’s a great way to understand how to market and how analysts that are covering the company value our current portfolio. But just to simplify it, what these analysts look at, and what the 3 analysts that cover us today look at, is GoldMining’s global 43-101 inventory of resources in the ground. Today, this is comprised of roughly 19 million ounces of gold resources in all categories of 43-101, and just about 2 billion pounds of copper associated with our gold-copper periphery projects. That translates to roughly 24 million ounces of gold-equivalent resources. Now, this does not include our last two acquisitions of the Crucero project, in Peru, and the Yellowknife project, in Canada. Those are projects that will have 43-101 resource reports based on disclosures we’ve made and all the work that’s been done on those projects, so expect, in the next 3-4 months, that new additional gold resources will be added to our inventory. But as-is, the existing 43-101 inventory is being valued at roughly $7 per ounce in the ground. That’s taking the company’s enterprise value, so our market cap, less the amount of cash that we have on hand, which is over $15 million, with no debt, and coming up with a metric that every major brokerage house and analyst in the industry uses. Roughly, at $7 per ounce in the ground… let me give you some perspective here. The Royal Bank of Canada analyzed mergers and acquisition multiples paid for gold resources in the ground, in the same category of 43-101 that we have. Between 2012 and 2016, the average paid for gold in the ground in mergers and acquisitions, as reported by the Royal Bank of Canada, is $69 per ounce. Today, if you look at the indexes covered by companies like the Royal Bank of Canada, Bank of Montreal, Scotia Bank, companies focused on single assets and de-risking them today (something that we’re not currently doing because we’re just buying and adding to our total inventory), averages tracked by these major banks show valuations for gold in the ground ranging from $70 to $100 per ounce. At $7 per ounce in the ground, you can see why the 3 analysts that cover us have strong buy ratings, with target prices at multiples of where our current share price is. Also, we don’t have the financing overhang, because with the current cash on hand, we have sufficient funding for the next few years based on our current working capital requirements and burn rate, Lior. So once again, for a junior resource company, it’s very important to be risk-managed by having a strong treasury, strong backers, and resources in the ground that you know you can look at for value. It’s not about drilling holes and hoping to hit – the work and the projects that we have had historically received hundreds of millions of dollars of exploration by the companies that used to own these assets. In fact, if you look at our last 5 acquisitions, we spent over $60 million in stock making them, and these same companies that we bought were all public (or their assets) and used to have over $800 million of combined market cap, when you look at their market caps back in 2010, 2011, or 2012, when the gold and copper prices were higher than during the period when we bought these exact same companies. They’re the same assets, except the difference in the gold price. The difference in gold price meant we bought these 5 companies for $62 million, which are the exact same companies that were worth over $800 million at a higher gold and copper price, as based on their market caps. So it’s not even an analyst report or an analyst recommendation. Just based on where the market has been, you can see that. Now, that doesn’t include our last acquisition, which hasn’t closed yet, so if you throw that in there, you’d be looking at $70 million in total acquisitions for combined historical market caps of over $900 million. So again, it’s this cyclicality and these opportunities in bear markets that are such a tremendous way to create long-term value, and I think that has been the disciplined focus for us, to stick to this strategy, stick to our admitting. To put it into perspective, if you add it all up today, we are, for sure, at the current 43-101 resource total of just under 20 million ounces, definitely one of the largest diversified gold resource portfolios anywhere in the Americas for pre-production companies, at a time when major gold producers and intermediate producers had their resources and reserves at a decade-low. Lior, I love the position we’re in with GoldMining, because this is just a perfect positioning to have, given everything going on in the gold industry today, where we’ve been in the last 5 years, and where we all expect the gold price to go higher in the coming years, this is the position to be controlling gold resources in the ground.
(17:34) Lior: Amir, last question. What’s in store for the company in 2018, in a nutshell?
(17:38) Amir: It’s going to be about some of the things that we’ve already talked about, so complete the acquisition of the Crucero project. It will be very exciting to release two new 43-101 resource reports, so as we go into 2018, our total gold resources will increase with the addition of new gold resources being added from our Crucero acquisition and our Yellowknife gold project acquisition. If we continue to see weakness in the gold price, trading below $1,300 an ounce, we will continue to make acquisitions. We already see a pipeline of opportunities in front of us that will make up the next round of deals that we look to do and continue to grow our project portfolio with. If we see a sustained uptrend in the gold price over $1,300, then we’re very excited about looking to develop the existing portfolio that we’ve put together. It’s very expensive, and it gives us projects that we are ready to go tackle, like our São Jorge project, in Brazil, and our Cachoeira project down there. We would look to prioritize the existing portfolio, Lior, and look to develop them and look for ways to also monetize and joint venture these projects, but at the same time, we really want to initially do the work ourselves because we see tremendous potential.
(18:57) Lior: Amir, I’ve been a shareholder since the company was priced below CAD$0.90 and continue to accumulate on dips today, and I know my partners do as well. Our complete overview of the company can be downloaded at WealthResearchGroup.com/UltimateGold. It’s been a great interview.