GoldMining Inc. [GOLD: TSX-V] & Uranium Energy Corp [UEC: NYSE]
Amir Adnani is the chairman and founder of GoldMining Inc. and the founder, president, and CEO of Uranium Energy Corp.
In a recent interview with Albert Lu of Sprott US Media, Mr. Adnani spoke about his strategy for building value during bear markets and the upcoming Sprott Natural Resource Symposium in Vancouver.
Don't forget the 2017 Vancouver Natural Resource Symposium is coming up on
Albert Lu: Thanks for joining me. The last time I saw you was at the 2016 Sprott Vancouver Symposium on Natural Resources. And a lot has happened since then. Why don’t you bring us up to date on both companies?
Amir Adnani: It has been a very busy year now for both companies–Uranium Energy and GoldMining Inc. Starting with Uranium Energy, we have had both organic growth and have been busy with the very recent acquisition of a project called Reno Creek, an ISR project in the Powder River Basin in Wyoming which is fully permitted for production.
Coming back to late 2016, so much has really changed over the last year. Politically, we had the election in the US which brings a new administration in with very different views in terms of the energy mix and nuclear power. Just today, the headline on CNBC was quoting the new Energy Secretary Rick Perry as he talked about prioritizing nuclear power, and the fact that nuclear power is on the front burner for this administration.
It’s one thing that none of us knew Trump was going to win but it’s another thing for me as the CEO of Uranium Energy, a Texas-based company for 12 years, to predict that Governor Perry, whom we got to know very well, was going to become the new Energy Secretary. It’s a very exciting development for the Department of Energy. If we look at the diverse, competitive and reliable energy mix in the State of Texas, a base load of nuclear, coal, and natural gas, complemented by a substantial deployment of wind and solar renewables, we should not be surprised that he is committed to an “all of the above” energy policy for the United States. Very positive for nuclear, and good for our energy security.
And we had a very successful public offering in January where there was very strong demand for the $26 million public offering. And as I mentioned, growing our asset base with this new acquisition at Reno Creek.
Albert Lu: OK. So if I like the story, I want to get involve in uranium. Let’s talk about UEC, the company specifically. I personally like the fact that you’re hundred percent unhedged. I like the fact that you’re keeping it in the ground waiting for better times. This is obviously by design. This is intentional. Talk about that decision and how you see that playing out.
Amir Adnani: Yes. So the decision to stay a hundred percent unhedged is also facilitated by the fact that we are focused on this low cost in situ recovery method to develop our projects.
In essence, if you are focused on developing underground or open pit mines where you have hundreds if not thousands of employees, in other words large capital expenditure programs, it’s much harder to just wind an operation down and wind it back up. Plus, most likely, in order to finance the upfront CapEx, you’ve taken on long-term contracts as a way of satisfying bank covenants.
With in situ recovery, because you are at the low end of cost curve, capital intensity is a fraction of a conventional mining would be. You have the financial flexibility to not have to take on significant amount of debt like you do for conventional mining. Most of ISR projects are automated or rely on “as-needed” contractors, like drilling companies. You don’t have the same kind of head count that you do in conventional mining.
As a result, you can scale up or down with greater ease. And this is an important part of what facilitates our strategy to stay a hundred percent unhedged. To stay unhedged is more beneficial to shareholders in the longer term in our view. What is convenient for the uranium buyers is to lock in a contract with a fixed price because if your job is buying uranium, you want to have the certainty that uranium is going to show up at the doorsteps of your desired location on a given date, at a given price.
What’s best for a utility doesn’t mean is best for an investor. And I think it’s very clear to us what we wanted and what our investors wanted is that full pure exposure to the uranium price and to be able to preserve that upside because of all the great fundamental things that are taking place in the sector.
So when you look at our portfolio today, although we put our production at Palangana on hold, it remains a production-ready project because all the permits are in hand, the project is built, and our processing plant is ready to accept feed. It’s permitted and ready to go. Additionally, while we put those projects on temporary hold, we didn’t just sit back and wait for the price to recover. We’ve been one of the most busy companies in the junior uranium sector and really raising capital and making acquisitions.
A case in point, upon closing our acquisition on Reno Creek which is expected before the end of July, we will have 54 million pounds of uranium in the measured and indicated category and 43 million pounds of uranium in inferred.
Just to give you an idea, before the Fukushima incident, our company had less than 40 million pounds of uranium in all categories. So as you can see, we’ve more than doubled our in-ground resources with this specific focus on ISR. Focusing on mining-friendly regions such as South Texas and the Powder River Basin in Wyoming, even expanded our business outside of the US with acquisitions in Paraguay.
Today more than ever, we have greater fully permitted capacity between what’s going to be in Wyoming and Texas. And, we remain active in unlocking accretive value from existing holdings. As we speak, we have two rigs drilling at our Burke Hollow project as part of a 100-hole drill program to delineate and expand our 43-101 resources at Burke Hollow.
So you see organic growth. You see acquisitions. You see the ability to raise capital at the bottom cycle where it gets harder and harder but we’re fortunate to have attracted that level of interest with our strategy, people and execution. We have a base of shareholders, both institutional and retail, that see the value in UEC and this could be one of the key sort of drivers of our success is that alignment with investors that want the ISR exposure and want the unhedged production profile.
Albert Lu: What’s clear to me is that you’ve taken full advantage of the downturn to continue to increase value. One way of looking at it is this regulatory or legislative capital. This is another asset that you’ve built. You talked about how this process can be three to seven years depending on where you are. And so, this is a clearly an asset that you’ve developed when you have had the luxury of time.
I’d like to switch gears now and go to GoldMining Inc., formerly Brazil Resources. You’ve also been busy with this company hence, the name change. So why don’t we talk about that first?
Amir Adnani: Well for the first five years of this company’s existence, we were called Brazil Resources and we were solely focused on acquisitions in Brazil. Our business strategy with Brazil Resources, now GoldMining, is basically to make acquisitions near the bottom of the gold cycle. This has worked extremely well over the last six years because the last six years in general, we’ve been in bear market territory with the TSX Venture and with gold prices.
As the market kept going lower and deeper into bear market territory, we made bigger acquisitions and more acquisitions at a lower dilution count. And that was the key to our formula, to be focused on acquisitions to us meant doing it accretively and always increasing value per share at a greater rate than dilution itself. This had a direct impact on share price performance.
In fact, if you look at our share price performance since our IPO in 2011, you can see we have completely outperformed. I think our stock was up over 170% since IPO compared to GDXJ and the TSX Venture Index being down 70 to 60% respectively.
This was especially true last year when we were one of the best performing stocks on the TSX Venture Exchange. We believe this all speaks to the fact that the strategy works and is a strategy that has been tried and tested before. In many other bear markets before this current one that we’re in, there were many other companies and names that you would be very familiar with. Companies like Pan American Silver, companies like Silver Standard, companies like Lumina Copper.
We use the bear market as a prime opportunity time to make acquisitions of resource stage projects. And this is a strategy that requires focus and execution of track record. And we’ve been focused on this strategy for seven years and we now have a track record that demonstrates that we’ve managed to pull this off in four different countries starting in Brazil then moving on to the US and Alaska, growing substantially over the last year in Colombia. And our most recent acquisition actually brings us to Canada.
Hence going back to your question at the beginning, the name change, by late last year, we realized we have projects in four different countries and the name Brazil Resources was no longer reflective of the depth and the diversification of our portfolio geographically. We were lucky to be able to secure the stock ticker GOLD on the TSX. And this also naturally lends itself to a new name starting with the word gold, and so we changed the name to GoldMining. We continue to look at the sort of sluggish action in the gold price here today in 2017 as yet another great gift to our company to be able to use this window to make more acquisitions. We’ve been busy this year.
Since the Sprott conference in 2016, we have announced the three separate acquisitions and we are working on more. This is a part of our strategy. It’s an excellent way to take on projects that already have a 43-101 resource defined without taking on any exploration risk. We are able to acquire the drilling and engineering and any other work done for cents on the dollar. You have to think about what the replacement value of all this extensive work would be.
Albert Lu: Amir, you mentioned that the track record of GoldMining since IPO has clearly outpaced your benchmark. But you also beat the S&P 500, which is surprising. I wasn’t expecting that.
Amir Adnani: We just threw that in there for fun because it shouldn’t really be a benchmark for us being a resource company and a junior. However, I thought it was relevant to take a look at that because we keep talking about the all-time record highs of the S&P and Dow Jones indexes being set every day now. It’s interesting to see that even in our beaten down resource sector, the right strategy with the right execution could actually create the kind of outperformance that could beat even the broader the market despite the record levels being set.
Albert Lu: Yes, extremely surprising. So let’s talk about your strategy. These things always sound simple but if they were, everyone would do them. Acquisitions near the bottom of the cycle seems to be the theme here. Making these acquisitions with stock, preserving cash, and using warrants which actually infuses cash into your company to extend the runway time for the inevitable market recovery.
It seems to me the key to this kind of strategy is the courage to do it and being able to inspire people and instill confidence in your partners and in your investors.
What do you think the key to this strategy is?
Amir Adnani: All the items you pointed out, it really is about having the perfect storm and a number of key points aligned. Like you mentioned, it is about the ability to have relative strength when everything is really bad and dire. You need to be relatively stronger financially than the peer group where you can basically make accretive acquisitions.
To make accretive acquisitions, I think the strategy needs to be clearly communicated and it needs to attract the cornerstone investors. We’ve been fortunate since day one to have the backing of organizations like Sprott and other long-term institutional holders that have been with the company and supporting the company since inception. It’s quite remarkable to be able to say that because it’s now seven years since inception.
So I think it’s about having cornerstone investors. It’s about having a management team and insiders that also are willing to really write big checks themselves and have significant skin in the game because when the market, the capital market, is closed or not really available, you need to basically be able to tap into your own pockets to provide funding. Many of our financing rounds since inception, especially in the very tough years of 2014 and 2015, had very strong insider participation with myself leading the way for the insider group and our cornerstone investors.
The snowball got bigger as we made our second acquisition, our third acquisition, and that became our track record. That’s what provided and instilled the confidence to a new group of investors that recognized that we’re not just talking here as though we’re in business school and simply proposing to buy low and sell high. But there’s a real strategy around where and which jurisdiction we want to push those assets in and that we’re actually executing and that we are committing our own capital and aligning ourselves with cornerstone investors. That became the perfect storm of opportunity.
It was also about having quite a bit of discipline in prioritized jurisdictions. We focused five years just in Brazil, just in one state in Brazil Para state, examining everything that was possibly available in that place. But that allowed us to gain technical experience in that area by key members of our team who understood that particular area in Brazil, the solid geology, the solid mineralization.
All of our projects in that area benefit from being the same style of shallow resource that can be mined in the future with open pit techniques. They would mainly be permitted at the state level in Para. And so, it was about really recognizing that in addition to the financial prowess that we possessed, we needed to have a technical nucleus that understood very specific region very well and we would basically just rip it apart in terms of looking at everything that was available there for acquisition and do the deals.
As we expanded into opportunities outside of Brazil, we had a theme. For example, gold/copper porphyries. We recognized over the last few years that the projects that carry the biggest potential in terms of size also had the biggest discount today given where we are in the current CapEx cycle in mining. We are actually in an all-time low when it comes to the CapEx cycle over the last decade in mining.
So naturally these are projects that require a large amount of CapEx, like gold/copper porphyries, and tend to be company makers, but are completely undervalued and underpriced in a market that has been so challenging. And so, we felt that projects that were high grade and small were already priced to perfection. But projects that were bigger and had long-term potential were the right assets to buy. And so, we have focused on gold/copper porphyries. We assembled technical experts, a team of PhD geologists that are among some of the biggest names in gold/copper porphyry exploration in the Americas.
And we looked at areas like Alaska. We looked at areas like the Central Cauca Belt in Colombia. And in every jurisdiction we’re in, I think it’s proven that our entry to those areas was timely. We entered Alaska in the summer of 2015, a year and a half before Trump’s victory, a year and a half before a new wave of enthusiasm has come back into the US particularly with places like Alaska that are mining-friendly. Elephant country, some of the biggest gold deposits in the world that are pre-production stage are in Alaska. You’ve seen major metal companies, like South32, invest in projects in Alaska in the last six months.
But our timing to get in was a year and a half in advance of these positive developments, hence, we were able to secure a good price.
Our timing getting into Colombia could not have been better. We entered before the government peace treaty with the FARC and before this year’s renewed interest in Colombia where you’ve seen major mining companies like Newmont and others like AngloGold Ashanti really become focused in Colombia, particularly the Central Cauca Belt south of Medellin.
I don’t want to say we’re always ahead of the curve. But we’re good finding these assets with a team that looks at how we can anticipate being in regions where we’re coming in before the wave of activity, and we can secure our position at an attractive price. We’ve managed to do that and we have a 7-year track record that shows we’ve done this in three different jurisdictions now.
Our latest entry is in Canada’s North where we have made an acquisition in the Northwest Territories. Canada’s North particularly the Yukon, Nunavut, and Northwest Territories are receiving significant interest right now from the likes of Agnico Eagle, Goldcorp, and Barrick Gold. You’ve seen the kind of capital that they are committing to this part of the world that’s geopolitically stable, under explored, and receiving very strong interest.
We like to be in jurisdictions where we’re not the lead company or the only company. We like to be in regions where there’s a collective presence of our industry—juniors , mid-tiers, and majors—that helps reduce our cost and risk by doing business at someone else’s expense. But at the same time, you’re part of that regional buzz and you’re part of that regional momentum that gets built when you get a congregation of companies in one belt. And we’re now in four significant regions of the Americas between Canada’s North, Alaska, the Central Cauca Belt in Colombia and Northern Brazil Para State.
Albert Lu: You have the tendency to arrive at the party just as it’s getting going it seems. With respect to Alaska and Colombia, if it seems like you got lucky, is it because you went in there and you were actually willing to wait? Meaning, you focused on value, picked the bottom of the cycle, and you went it. You obviously didn’t know Trump was going to be elected. When you went in, did you tell yourself that you would be willing to wait?
Amir Adnani: Absolutely, because we, like many, did not think Trump would win—Trump wasn’t even the nominee for the Republican Party in the summer of 2015. I remember in the summer of 2015 when we acquired the project in Alaska, not only were we willing to absolutely wait but we were also staring at a gold market that in July of 2015 where people were convinced gold was going to $900 an ounce.
So it wasn’t even about the positive turnaround in Alaska. We were basically willing to tighten our belts and basically put on the helmets for a bumpy ride that could have potentially taken the gold price even lower. It was only in hindsight that we can look back and say, “Oh geez. Look. That point was truly at the bottom of the cycle.”
So no, it really was about the long-term view of looking at these acquisitions in the following way. You strive to pick up quality resources in geopolitically stable jurisdictions for cents on the dollar and capitalize on how much (of someone else’s) time and money it took to identify growth targets, mobilize rigs and execute successfully. That work, for example, was done at our Whistler project in Alaska. The replacement value of that activity would be north of $80 million. And we bought the project for less $5 million in stock.
To me, that kind of opportunity in geopolitically stable jurisdictions that have the potential to be world-class districts with existing world-class deposits, those are the deals you would do every day if you could. The problem is they just don’t exist every day and it really does take a long time to identify and cut those types of deals.
Albert Lu: That’s right. Actually in our talk just now, you mentioned prioritizing acquisitions over development as a better use of capital. Let’s just highlight that.
Amir Adnani: Well, I just think that is really one of the most important parts of our strategy. In order to capitalize on it, we must have confidence of where we are in the commodity cycle and act accordingly. So that’s timing, and that you can’t buy. I think drilling and development, you can do anytime especially in a bull market with a lower cost of capital. Inherently, any junior company’s cost of capital would be lower in a better market. But the type of deals that we’ve done in the last seven years, you couldn’t do in a bull market. You could only do in a prolonged bear market.
It only seems logical to me. We believe in that. And that’s why we would, on any given day during a bear market, prioritize acquisitions over drilling and development. The key is also cost of capital. If a company is to issue equity to do drilling and development, which most juniors do and we would do in the future as well, as the largest individual shareholder of GoldMining, I simply don’t want to see my equity position diluted at the current levels. I look to the total gold resources that we’ve assembled, 10 million ounces of measured and indicated resources and 10 million ounces of inferred resources and feel confident that we have created shareholder value.
We have a resource base status among some of the biggest portfolios in the Americas. The multiple that we’re trading at today for our resource in the ground will not be the same multiple if gold was $1,300 or more as evidenced by last year where share price was almost more than double what it is right now.
So, dilution is really key. I hate dilution. What if dilution can be done at the right point in the cycle or in exchange for quality assets that are accretive as opposed to truly dilutive, I can stomach that. That’s what has supported the share price performance since IPO that you see after seven years. You can see that if you stick to your knitting and execute this one formula year in and year out, it’s possible and it does generate positive results and outperformance.
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