GoldMining Inc.: An Inferior Way To Buy The Dip

Summary

• GoldMining Inc. is one of the worst-performing gold juniors this year, down over 35% year-to-date vs. a 24% decline in the Gold Juniors Index.
• Despite a massive surge in exploration spend sector-wide in 2021, we've still seen minimal funds committed to advancing projects here, with less than $1.0 million spent year-to-date at principal properties.
• With a ~16.0 million-ounce M&I resource base, GoldMining always looks cheap on a per ounce basis, but with projects being advanced at a snail's pace, it's cheap for a reason.
• Based on limited exploration spend, and a low likelihood of any of these projects heading into production before 2026, I continue to see dozens of better ways to play the sector.

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It's been a rough year for investors in the Gold Juniors Index (GDXJ), with the ETF giving up a significant portion of its 2020 gains, weighed down a weaker gold (GLD) price, and inflationary pressures. One of the worst performers in the sector has been GoldMining Inc. (NYSE:GLDG), which is down nearly 40% year-to-date. The poor performance can be attributed to another year with limited progress advancing its projects and much worse sentiment sector-wide for developers. Based on limited exploration spending and a low likelihood of any of these projects heading into production before 2026, I continue to see dozens of better ways to play the sector.

(Source: Company Presentation)

On the surface, GoldMining Inc. (“GoldMining”) always looks cheap, trading at a sub ~$300 million market cap with ~16.2 million gold-equivalent ounces [GEOs] in the measured & indicated category, translating to a valuation of less than $20.00/oz. However, while $20.00/oz may appear cheap for a commodity trading above $1,700/oz, an ounce of gold under the surface is only worth something if there's a probability of it being extracted at some point. When it comes to these projects, there's no clear line of sight to gold extraction any time soon, suggesting that the stock is cheap for a reason. Let's take a closer look below:

(Source: Company Presentation)

In a year where we've seen a surge in exploration spend and development sector-wide for many developers and producers, GoldMining Inc ("GoldMining") has certainly not been one of the big spenders. Over the past nine months, the company has spent less than C$1.3 million [US$1.0 million] in exploration on its five principal properties and less than C$1.6 million [US$1.3 million] million across its vast portfolio. This is less than many junior gold companies are spending in a quarter elsewhere in the sector on a single project, not across nine projects combined like GoldMining. In fact, there has been less than C$25 million spent on exploration in the past decade on these projects.

"In addition, as a result of the above-described restrictions and other measures, the Company determined to delay certain work programs that were planned for 2020 and 2021 on certain of its projects due to restrictions on the ability of its personnel and contractors to attend sites".

- Management Discussion & Analysis

GoldMining states that work programs have been delayed due to the global pandemic in the company's prepared remarks. This appears to be an effort to point out that exploration/development spending would have been much higher if not for COVID-19. However, a look at previous spending would suggest that this isn't the case because there was no global pandemic that I'm aware of in 2018/2019, but there was an absence of spending in these two years as well. This is evidenced by combined exploration expenditures of less than C$2.0 million [US$1.6 million] in the same periods during 2018/2019 across its portfolio.

(Source: Company Filings)

(Source: Company Filings)

Given the limited spending, we don't appear any closer to gold production on any of the projects, and capital costs to build projects only continue to increase each year due to inflationary pressures. Therefore, the sit-on-projects and hope that someone acquires them or they magically advance themselves is not working, given that the cost to build any of these projects increases each year. This is the exact opposite of what we're seeing from many other developers sector-wide. In other cases, developers are sharpening their focus to single projects, fast-tracking them as quickly as possible, and even ordering equipment/completing work ahead to offset build costs when the time comes.

The expected catalysts for 2022 are three economic studies due for the La Mina, Yellowknife, and Sao Jorge Projects, in Colombia, Canada, and Brazil, respectively. Given the ability to use inferred resources in the studies, these projects could see decent-looking studies, but it still doesn't place them any closer to moving into production, in my view. This is because none of these three projects have a resource base of more than 1.50 million GEOs in the measured & indicated categories, which is what ultimately matters to a Feasibility Study. It's hard to justify building any operation without a minimum of 1.5 million GEOs unless the mine is leveraging existing infrastructure, like a mill already in place.

(Source: Company Technical Report)

In Yellowknife's case, the project is home to less than 1.1 million M&I GEOs, and it's in a relatively remote location, north of Yellowknife. In La Mina's case, the project is home to ~1.0 million M&I GEOs and lies northwest of Bogota, with an average gold-equivalent grade of 1.09 grams per tonne gold-equivalent. A decent asset in a less favorable jurisdiction, but nowhere near a large enough resource base to justify building a stand-alone operation based on current M&I resources. Finally, Sao Jorge is home to ~710,000 ounces of gold at 1.55 grams per tonne gold in Brazil, a country where we are seeing double-digit inflation readings currently. A resource base of this size does not justify building a stand-alone operation, and high double-digit inflation readings certainly don't help upfront capex for building this project.

Unfortunately, the one project where GoldMining does have a significant resource base is Titiribi, which is home to nearly 8.0 million GEOs in the M&I categories. However, in May of this year, the Municipal Council in Colombia issued a Territorial Ordinance Scheme [TOS] that prohibits mining and mineral exploration activities in the municipality. GoldMining believes that the TOS is unconstitutional and outside the municipality's authority. The plan is to challenge this decision through appropriate proceedings, where it has been successful previously, but this certainly is yet another speed bump in moving this project along, not helped by the fact that less than $3.0 million has been spent on exploration here in the past decade.

To summarize, while GoldMining may have a large portfolio of exploration assets, the cost to develop these assets is increasing nearly every year due to inflation, and I would be shocked if any of these assets headed into production in the next five years. So, for investors looking for a developer that could become a producer by 2025 to cash in on $1,600/oz plus gold prices, I do not see GoldMining as an ideal candidate. Since the Gold Royalty (GROY) IPO, which has handed off royalties on these properties, it's worth noting that these projects have actually gotten worse. This is because new royalties in place will further hurt their economics when combined with increased build costs/higher labor costs.

(Source: Company Website)

There are several high-quality names to choose from among the junior sector with world-class projects, where I would be shocked if major gold producers were not sniffing around. These include Skeena Resources (SKREF), Sabina Gold & Silver (SGSVF), and Marathon Gold (OTCQX:MGDPF). However, I do not see any of GoldMining's projects meeting these criteria; one of its best projects remains under dispute (Titiribi); and news-flow continues to be lacking, with very limited spending across the portfolio. At a time when the whole sector is on sale, the key is to buy the best, and GoldMining doesn't even make the top-100 sector-wide in my view. Therefore, I believe there are dozens of better ways to play the sector.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of GLD, SKREF, SGSVF either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.