The Bullish Case For GoldMining Inc.

| About: GoldMining Inc. (GLDLF)


GoldMining has continuously created shareholder value which is rare in the gold sector.

GoldMining is a fantastic acquirer with an enviable portfolio of de-risked gold assets.

GoldMining stock is valued like as if it’s 2015 again, and it has the potential to be a 5-bagger under the right gold setup.

This article is meant to highlight the beauty of GoldMining Inc. (TSX-V: GOLD) (OTCQX:GLDLF) to create shareholder value, which should underpin stronger price appreciation going forward. As such, I do not attempt to go over the current assets of GoldMining in detail. For readers interested to know more about the assets, I would encourage you to visit the company's website and to read the excellent article from Mr. Peter Spina at

On the company

GoldMining is a US$150MM market cap junior mining company based in Vancouver, Canada. Despite its relative low market valuation, the company owns a portfolio of 8 million oz gold measured and indicated and 18 million oz gold in total with inferred. Byproducts include 29 million oz silver and 1.8 billion lbs copper. In addition, GoldMining owns 75% of a Canadian uranium project it inherited from the acquisition of Brazilian Gold.

The company has a pristine balance sheet with US$16MM cash and no debt. Not reflected in its balance sheet is the US$150MM (GoldMining's current market cap!) worth of exploration work spent by the previous owners of the projects. GoldMining burns less than US$2.5MM per annum, and has a lean organization tailored to execute its long-term strategy.

On the business model

GoldMining's current model is to, simply speaking, function as a mining bank since the bull market in gold has yet to be confirmed. This environment provides an opportunity to expand its portfolio of gold projects at a deep discount. To support its strategy, the company raised US$9.2MM in cash in a private placement last November.

GoldMining is an amazing acquirer. In the last 4 years, the company acquired multiple projects at extremely low multiples thereby creating shareholder value (see the acquisition history in the table below) as it trades now at 7.9x compared to a weighted average multiple of 3.7x per oz for its acquisitions. Almost a year ago, the company was trading at the same valuation multiple as today but its stock price is 80% higher. I expect future acquisitions to do the same.

On valuation

There is remarkable room for a significant appreciation of GLDLF stock due to an expansion of its valuation multiple. Although the stock price may increase more than its peers due to a mean reversion in the short term since it underperformed them year-to-date by more than 20%, the main driver remains a resumption of the gold price upwards. On August 1st, 2016, when gold closed at $1350 per oz, GLDLF stock traded at 26.6x, which would imply a price of $4.20 per GLDLF share today (228% gains).

Among the 14 non-producing junior gold miners in the Americas that form my benchmark (see note in the table below), the median trading multiple is 25.9x today. That same benchmark was trading at 51.0x on August 1st implying a price of $7.93 per GLDLF share (520% gains).

This demonstrates the potential of a repricing of GLDLF stock under the right gold setup. Given the geopolitical environment, expensive fiscal policies of the new administration in the White House, and the new interest rate hike cycle embarked by the Federal Reserve, I believe gold will trade above the price achieved on August 1st 2016 within the next 12 months. Interestingly, Cantor Fitzgerald has a 12-month target of $4.20 per GLDLF share since September 2016.

Readers who follow the gold market must have heard of peak gold, which ought to be bullish for the gold price in the long term. The sector reached its peak discovery in 1985, and given a 20-year average lead time to bring a mine to peak production from discovery, the supply of gold is expected to dwindle from here. Plus, the producers face the problem of replacing their gold reserves. For example, Barrick gold (NYSE: ABX) reported a 6.5% fall in reserves for 2016 and Newmont Mining (NYSE: NEM) 7%.

And it's not their decreasing exploration work that will replace those mined ounces. As a result, the producers are expected to accelerate their M&A activities, which should support higher multiples for the explorers like GoldMining going forward. According to RBC, the average multiple for M&A transactions in the last 4 years was 69.0x implying a price of $10.68 per GLDLF share (734% gains). It is therefore conceivable that a multiple expansion reaches this level as well in the future.

As soon as the bull market in the gold sector resumes, the company may decide to either commence resource expansion programs to add ounces to its portfolio and/or advance some of its projects to become an emerging gold producer. Either way this is bullish for its shareholders. On top of it, the uranium price has increased by 45% to US$26 per lbs from US$18 per lbs on November 1st, 2016.

It should provide opportunities for management to monetize its Canadian uranium project that virtually accounts for nothing in its current valuation. In the table below, I have added where the emerging gold producers are trading to illustrate the potential of GoldMining given that I believe it can become a new Goldcorp (NYSE: GG) in the next 5 years.

Source: Author's estimates, company websites, Thomson Reuters

Note: Benchmark includes Sandspring Resources, Continental Gold, Eastmain Resources, Falco Resources, Integra Gold, Pure Gold Mining, NovaGold Resources, Premier Gold, International Tower Hill Mines, Victoria Gold, Seabridge Gold, Sabina Gold & Silver, Atacama Pacific Gold, and Midas Gold.

On risks

GLDLF stock is highly sensitive to the price of gold. The correlation coefficient is close to 80% for the past two years. A collapse of the gold price would consequently have a negative impact on GoldMining. Based on the cost of its assets and current working capital, I place a floor between $0.40 and $0.50 a share. The price of assets in the gold sector would as well be negatively impacted. No doubt, management would profit from such a massively depressed environment by swallowing additional ounces of gold. Therefore, I view any pullback in the gold sector as another opportunity to create inorganic shareholder value by management.

A failed acquisition due to a mismanaged due diligence or an overzealous management during the negotiation process seems to be the most significant unsystematic risk. However, GoldMining's track record speaks for itself, and insiders own 25% ownership of the company including 5% by its Chairman & Founder Mr. Amir Adnani. Any dilution would simultaneously be felt by management ("skin in the game" factor). The fact that the company has kept its burn rate to less than US$2.5MM per year while increasing its gold portfolio by several folds leads me to believe that it is serious about adding value and managing risks.


GoldMining is an extremely well managed non-producing junior gold miner with over 18 million oz gold underground. It has accumulated gold through wonderful acquisitions that have added tremendous shareholder value. With a strong balance sheet and miners trading at attractive multiples (again), no doubt that the company will take advantage of the situation to add cheap gold oz in its portfolio.

And compared to its peers, GoldMining has a portfolio of de-risked assets evidenced by the US$150MM spent on the projects in the past. In my view, GoldMining is a multi-bagger stock company with much lower risk than its peers. Its stock can be volatile, but long-term investors will be largely compensated. This is one of those stocks that belong to any core portfolio that needs leverage to gold without much risk.

Disclosure: I am/we are long GLDLF.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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