Nick Hodge interviews the GoldMining (TSX-V: GOLD)(OTC: GLDLF) chairman about the landbanking strategy in gold.
Nick Hodge: Hi I'm Nick Hodge. I'm sitting here in the Coal Harbour Room of the Pan Pacific in Vancouver with Amir Adnani, the Chairman of GoldMining Inc. (TSX-V: GOLD)(OTC: GLDLF). Amir you know it's funny, we met a couple of years ago just down the street at another hotel here and your company wasn't even called GoldMining then, it was called Brazil Resources Inc.
Amir Adnani: I remember that meeting.
Nick Hodge: Quite a lot has changed since then, so you've expanded beyond Brazil both northward and southward as you continue to execute on your strategy of accumulating ounces of gold and other minerals in the ground and I thought it was time for an update, to sit down and then see how the strategy's been going because it's been paying off quite well. So can you tell me more about how you're executing this land-banking strategy?
Amir Adnani: It's one where you have to be disciplined and you have to also sometimes be able to educate and explain to investors how this type of strategy creates value, creates value for shareholders. I was recently traveling and I almost had to remind an audience, that room full of investors that I was presenting to about the company, that sometimes they are the reason for the demise of some of the companies that we're buying at the bottom of the cycle, because investors in the junior resource sector have become so accustomed to believing that the only way to create value is to punch holes in the ground. Well when we have a bear market and you take a dollar off of your balance sheet and put it into the ground, whether you get results or not, even if you get stellar results, if the market is not in the right mood because sentiment is weak, you're not going to get the right reward felt in your share price. You're not going to be able to raise money at progressively higher levels.
You're diluting and you can really destroy value and destroy great deposits by doing this in bear markets. What we wanted to do was take advantage of this dynamic in the resource market, going back over six years ago, or almost seven years now with GoldMining, where when you see this predictable downturn, the markets are so predictably cyclical when it comes to commodities, right? Over 20 years we see the bull markets, bear markets, bull market, bear market. So the bottom of the cycle, when you're at bear market territory, mathematically you can acquire drilling that has been done for a fraction of what it costs to go drill a new hole. You can buy a resource in the ground for a fraction of what the same resource would be worth if the market was in bull market territory.
So in a way this is really not a new concept, many people before us have implemented this model successfully. You look at companies like Silver Standard, even Randgold was founded on the back of buying assets at the bottom of the cycle and then building those assets out. Silver Standard did the same thing, alumina copper. Some of the biggest names in the resource sector have recognized the benefit to taking advantage of the cycles is to create shareholder value. To get back to your point, the Brazil focus for us was initially important because you also just can't go out there and buy things randomly. There has to be a focus on specific jurisdictions and after seven years we've managed to now have established ourselves in northern Brazil, in Para State, the central Cauca belt in Colombia and in southcentral Alaska.
In every area we've created large district-scale opportunities. It doesn't happen overnight but you need one thing to go in your favor to make this kind of model a reality: a prolonged bear market. We've had a prolonged bear market since 2012, when the TSX ventures started to break down and the gold prices started to break out. Since 2012, in the last seven years we've had probably, what six good months last year? Between the Brexit event and Trump's victory. Six good months in a context of seven years. That's the ideal environment that we needed to have at GoldMining to execute the kind of strategy that we're talking about.
Nick Hodge: Well so many people are fearful during times like that, you know they're frozen, they're deer in headlights, they don't want to act. You've been contrary to them in that respect and you've done really well in executing these acquisitions at a time when no one is looking, right? Investors are fearful, the idea is to buy low and sell high but often human psychology just makes us do the opposite of that. How have you been able to gut check yourself or how have you been able to say, you know, now is the time to buy, we can do this with minimal dilution, we can head in here while asset prices are cheap. How do you gut check yourself for that?
Amir Adnani: Well first of all I've seen this strategy play out in the uranium sector. As you know with Uranium Energy Corp where I've spent the last 12 years developing. We've had even a longer, harder bear market in uranium and in 2010 for example right before the run up in uranium prices we managed to acquire at the bottom of the cycle in uranium prices assets from Uranium One, a big player back then. That helped transform us into a producer and we were able to buy again for cents on the dollar, assets that allowed us to join the exclusive club of uranium producers. So I've seen firsthand what it can do in terms of value creation in the resource market, when you do buy at the bottom of the cycle. In the resource business, I feel, more than any other business depending on what you pay for an asset you can either destroy a lot of value or create a lot of value.
So part of the gut check has really been having seen and lived through another commodity with another company, and executing that. By the way, we're still executing that with UEC, because as you know we've had a real prolonged bear market in the nuclear side. Maybe to some extent is also about aligning yourself, so a part of the gut check isn't just your own team and your own board, and having likeminded people as the team but having likeminded people in terms of the stakeholders. So you look at some of the long-term backers that we've had at GoldMining, people like Rick Rule and Sprott Asset Management. People like Marin Katusa and Doug Casey, other large institutional investors throughout the world that over the years we have laid out our vision and our strategy to them but then we've gone and executed.
We've managed to demonstrate through the combination of vision and execution, vision and execution and this snowball effect of building a larger critical mass and today having one of the largest resource spaces throughout the Americas for any pre-production company. It's that alignment with likeminded stakeholders who get you to a point where I think you have the right platform to be able to carry on and that to us has been a very important part of this whole strategy. As the shareholder base, the asset base and then sort of having that commitment, and that vision to just be very disciplined. To keep taking advantage of the last thing, being the cycle. If you have that sort of long-term cycle, as I've talked about, then all the stars align and you can really take advantage of this concept.
Nick Hodge: So you talk about creating value for shareholders by buying at the bottom of the cycle or the bottom of the market. Clearly the strategy has paid off if you look at your stock performance over time, compared to some of its peers or to some of its benchmarks, like the GDXJ ETF. You've clearly outperformed, can you speak to that?
Amir Adnani: Well after having been a public company now for six years it really does become an interesting case study almost, to put our share price performance next to some of the indices that you've talked about and just say, well look Amir keeps talking about this acquisition model, well how does it work out? How does it translate to share price performance? Today if you look at our share price performance from our IPO in the middle of 2011 to now, we have outperformed the TSX venture, which is a very good barometer of how we function as a junior resource company. The GDXJ as a junior gold ETF, even the SMP500, and that's a remarkable concept to think about, after such an extended period of time. But more importantly between 2012 and 2015, when the TSX venture lost almost 90% of its value, our shares were practically flat during that time.
Nick Hodge: That's great.
Amir Adnani: Last year, as you know very well, when the market did take off, we outperformed. We were the second-best performing stock, or mining stock on the TSX venture and made the TSX50 List. So we've demonstrated that we have quite a bit of downside protection when things are bad and we're making accretive acquisitions as opposed to dilutive ones and when the market turns around there's so much leverage with the size of resource that we've accumulated now that you see that immediate outperformance on the way up. So look it's an exciting concept. We have a lot of money as insiders tied up in this company ourselves. Insiders in GoldMining today still own close to 25% of the company, which is again very meaningful. So we feel very passionate about the vision and model, we've been at it for seven years. We have a lot of our own capital tied up and it's an exciting time. It's exciting to have that window still be open, to continue to grow the business.
This interview was filmed in Vancouver on the sidelines of the International Metal Writers Conference. Click here for Part II of this interview.