Interview Part II: Explaining Gold Leverage via the GoldMining Consolidation & Acquisition Strategy
Publisher's Note: Yesterday we brought you Part I of our interview with GoldMining executive Amir Adnani. He and Gerardo discussed gold market dynamics and forecasts, and how profitable acquisitions are made in market cycles. Part II, below, expands on those themes along with an explanation of gold leverage and how accumulating cheap ounces can really pay off via a re-rating when prices rise. In addition to the interview, our most recent research on the gold price and gold stocks can be found here.
To your wealth,
Founder, Outsider Club
Gerardo Del Real: Now yesterday we talked about the current state of the gold market, and we talked about how sustainable this bull market we believe is going to be. Can you please explain for those that are new to the GoldMining Inc. story, can you explain GoldMining's business model and how it provides leverage by adding ounces at a significant discount, and ounces that in theory are going translate to leverage in a better gold market?
Amir Adnani: Yeah. The GoldMining business model is one that has been executed and successfully done and realized substantial gains for investors in other commodities at other points in time. For example, in the 90s, you look at what Silver Standard did in the silver business by acquiring silver resources in the ground, basically being a real estate company, a developer company, where you are acquiring resource-stage projects that have been drilled off. Where you have a qualified or 43-101 resource in the ground, and during market downturns, these projects will be valued or trading in the market for less than the replacement value of the work that has been done.
You're basically buying things for cents or a dime on the dollar. This has also been successfully done by companies like Lumina Copper, who in early 2000 were buying pounds of copper in the ground and then successfully realizing a re-rating when the copper prices rebounded and without taking on exploration risk or too much development risk were able to create significant value for shareholders. Of course, for us, our primary focus as the largest shareholders of GoldMining ourselves — management, myself, and insiders, we own 25% of the company — we are strictly focused on value per share, increasing value per share, and making sure we have minimal dilution in how we grow the business.
We now have a seven-year track record, executing on a model, as I mentioned, previously done by the likes of Silver Standard or Lumina Copper, and that's what we set out to do in 2011. Starting in 2011, we have managed to complete a number of acquisitions in Brazil, in Alaska, now in Colombia where by combining total resources underground you look at where we are now in terms of our total resources of gold in the ground. We have in the measured and indicated category just about 9 million ounces of gold, and we have in the inferred category about 10 million ounces of gold in terms of our total global gold resources.
We've managed to spend about $50 million in acquisitions in stock that we've issued to make these acquisitions, and the companies or projects that we acquired, if you look at what the market caps of these companies or businesses were in 2011 or 2012, they would have been worth or trading in the market at well north of $500 million. You can almost see that the whole concept of buying on 10 cents on the dollar or cents-on-the-dollar type of thing. We just believe this is a mathematically proven and superior way of creating shareholder value. By buying at the bottom of the cycle, we're able to minimize dilution. We're able to aggregate and build a very large resource space that's diversified in three different jurisdictions, multiple projects so you don't have all your eggs in one basket. This manages risk better.
Now having had a six-year track record since our IPO, as I mentioned at the very beginning, you look at the performance of our company since IPO over a six-year period. We've seen a tough bear market. We've seen a bull market last year, so we've seen the good and the bad over six-years.... Standing here today since our IPO, we've outperformed all of our key benchmarks, industry benchmarks, including even a broad index like the S&P 500 over the last six years. We believe that our version of this acquisition model, and a lot of companies might try consolidation strategies but just because you're trying to consolidate doesn't mean it's going to work.
We believe now after a six-year track record or doing deals year-in and year-out, demonstrating rationale and logic in our acquisitions, demonstrating that our acquisitions are accretive, not dilutive. This is the key to this exercise. You have to make acquisitions where each subsequent acquisition increases your value of total resources and total gold in the ground on a per-share basis, more than the dilution that you realize. That's what's making it accretive. This is a mathematically superior way of doing things because ultimately, you're always building that value per share and you're not just growing for the sake of doing deals and consolidation.
Of course, if management and insiders have skin in the game, they care about dilution because it's coming out of your own pocket, so to speak. That's always been the hallmark of how we've managed to grow this business is that we've been so heavily involved as shareholders since founding the company, myself, and the rest of our team, and our board. That has been really the driving concept behind all of our acquisitions. Make sure that you're increasing your total resources on an accretive basis, and I think moving forward, the market, as long as it stays in this kind of territory where it's a bit of a lukewarm market; it hasn't taken off; it's two steps forward one step back and you have that window to make more deals, I think it's a fantastic situation for us to do more of what we've done in the last six years and having six years to demonstrate that the concept works. It works in a bull market; it works in a bear market.
In the bull market, you reap the benefits of what you've built because the market gives you significant re-rating on those ounces and resources that you're sitting on. In a way, Gerardo, it's about de-risking and enhancing what you acquire by doing consolidations that make sense. Look at the Titiribi-La Mina consolidation. Never before in the last five or six years were these two projects under one umbrella under one roof, and now that they will be, you realize an incredible amount of, again, technical and administrative synergies that will inevitably create a different project than what these two things were when they were two separate public companies in 2012 and thriving.
Bellhaven and Sunward Resources, the company that owned Titiribi, these two things in 2012, just these two companies that owned the La Mina-Titiribi projects that we now own, had a combined market capital of over $400 million. Now they're consolidated under one roof, and they're just one leg of our story out of a three-leg and three different countries situation.
Gerardo Del Real: Excellent, excellent. Now you mentioned the lukewarm market, and despite that lukewarm market, you currently are trading near the $1.80 level, but analysts have price targets in the $4 range, $4 Canadian. You also mentioned value per share, right? How does GoldMining compare to its peers on a gold-per-ounce basis?
Amir Adnani: I think the analysts that cover us look at our total resources and assign various multiples for an ounce of gold in the ground. I think they also look at the fact that two of our projects now, our Sao Jorge Project in Brazil and our project in Bellhaven, La Mina, which again, after closing will be in our portfolio, that those two projects also have historic PEAs, preliminary economic assessments, and hence some of these analysts might be looking at the value with projects that are a bit more advanced with the historic PEA, assigning a higher multiple maybe to M&I, or measured in indicated resources, and also recognizing the very large inferred resource base that we have. I think today with the total of 8 million ounces measured in indicated category, the total of 10 or 11 million ounces in the inferred category, and that's just gold only, on a gold equivalent basis because remember I mentioned we've been acquiring gold-copper porphyry projects.
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I believe there's another 5 million ounces of gold-equivalence in copper resources that I'm not even acknowledging when I'm talking about our gold-only resources. Now just 5 million ounces of gold equivalent resource in copper is more gold than most junior resource companies have, and here we're not even acknowledging it. The bottom line is I think on a EV ounce or enterprise value to ounce of gold in the ground we're trading at a very attractive multiple or valuation right now. Part of the consolidation or acquisition strategy is that as you focus on acquisitions, you're spending less time de-risking assets, and so as a result, I think you realize more upside for those resources when the market re-rates them, when you switch focus on developing those assets.
That's part of the excitement as to why you have such a great leverage and optionality to the higher gold price. Because again, you're trading on the low end of the multiple compared to other companies that are single asset, just focused on that one asset and de-risking that one asset and have created more value around those ounces today. I think that's what we saw in 2015 coming out of the bottom of the gold market, if you look at our performance in 2016 where we had a decent gold market, GoldMining, as you know, and some of the newsletters associated with you have covered the story very well, it was one of the best-performing gold stocks last year.
I think when you look at that, you can see why there's such a great demonstration of that out-performance that the stock was able to have and will do again when you end up in a bull market for gold and that leverage and optionality to such a big resource space is unparalleled. It's difficult to match that with smaller deposits.
Gerardo Del Real: Now, Amir, people ask me all the time, "What do you think about Amir?" I often use the phrase, "He's a gifted deal maker." You've been very opportunistic. You've made some great deals. You mentioned the out-performance of several benchmarks. What's the cash position with GoldMining Inc., and are you looking at other deals, Amir?
Amir Adnani: We have about $20 million of cash on hand. We have no debt, and as I mentioned, insiders own 25% of the company. You've got a very organized capital structure, major shareholders like Sprott Asset Management, the people over at KCR Funds with Doug Casey, Marin Katusa, Ruffer Gold Fund, which is one of the largest gold funds out of London, U.K., and BrazilInvest, who's the oldest investment house in all of Latin America. They've completed about $16 billion of investments in Latin America. They're great partners and backers in both Brazil and Colombia, and they own about 10%. The chairman of the bank sits on our board of directors. You see just a very diverse group of stakeholders all with vested interests and very involved along with our management group.
To answer your second question, we're working on more acquisitions, Gerardo, just sticking to our knitting, sticking to what we're good at in terms of identifying these deals at the right time in the market and executing them. I would expect to deliver more, and I believe we'll continue delivering more as long as we see the weakness in the gold market and that's the environment for us to be productive.
Gerardo Del Real: Absolutely. Amir, I want to thank you for your time. Is there anything else that you'd like to add?
Amir Adnani: Stay tuned and we've got a brand-new website with our GoldMining.com. Have a look at that. There's new information there. As you know, our company was called Brazil Resources previously, and as we expand it beyond Brazil and ended up in Alaska and Colombia, we needed a name change, so with the new name GoldMining, GoldMining.com, we have more information there that you can take a look at to become familiar with the new face and brand of the story. Yeah, I'd love to come back and talk to you more as we make more news and acquisitions and talk more about how things are progressing.
Gerardo Del Real: Well, I'd love you back on, Amir. It sounds like it's going to be a busy rest of the year for you as far as news flow goes, so hopefully we have you back on soon. Thank you again very much for your time, Amir.
Amir Adnani: Thank you, Gerardo.
Hope you enjoyed my interview with GoldMining Chairman Amir Adnani.
His is one of 10 precious metals stocks that Nick is recommending right now. He thinks all of them have a shot at 10-bagger gains once the upcycle in gold kicks into high gear.
To your wealth,
For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.
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