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TOPICS IN THIS INTERVIEW:

-Leading to $1,700 gold price

-JP Morgan makes the case for gold

-Fed over $6 trillion balance sheet

-Suppression of real rates, capital siphoning into gold

-Momentum picking up, resource sector M&A increasing coming out of long bear market

-Covid 19 mine disruptions

-Aggressive buy and hold acquisition strategy

-Uranium, ultimate contrarian situation

Video Transcript

Kenneth Ameduri:

Hello, everyone, and welcome to CrushTheStreet.com. I am Kenneth Ameduri, with a very special guest, Amir Adnani, chairman and founder of GoldMining Inc. We’re going to be discussing the economy today and investments on two fronts: gold and uranium. Now, Warren Buffett has famously described savvy investors as those who purchase straw hats in the dead of winter, and I really want to use that framework when we discuss uranium today because uranium is being underappreciated, underloved, and overlooked, quite frankly, in this environment. I think this is going to be a very interesting commodity going forward here, especially when we begin to get into the deeper dynamics and the fundamentals behind it. GoldMining IPO’d in 2011 and it’s been focusing on basically one thing: purchasing projects throughout the Americas (15 different projecs), gold ounces in the ground, as well as uranium exposure during the depths of this resource bear market. GoldMining is a company that trades under the ticker symbol GOLD on the TSX and GLDLF on the U.S. side. So, without any further ado, Amir Adnani, thanks for coming on Crush The Street with me today.

Amir Adnani:

It’s good to connect with you, and it’s been many years since we made our first acquisition in 2012. We connected with you even back then to talk about our very first acquisition, and here we are 8 years later, recently having more news, more acquisitions, and really having built this very diversified portfolio. And, as you mentioned, it’s an exceptional time here with the gold market and the price of gold.

Kenneth Ameduri:

Well, let’s start right there, Amir. The price of gold: $1,700 gold. On a macro level, what’s led to the $1,700 gold price, in your opinion?

Amir Adnani:

Well, in a way you could say that everything we knew that’s happening in terms of the amount of debt in the world is just getting out of control because of COVID-19 and the policy response to that. Look, I mean, there’s obviously a human element to all of this that’s painful and something we need to endure through, but at the same time, this notion of unlimited quantitative easing, the idea of trillions of dollars of liquidity injection and the continued suppression of real rates into negative territory as we try to deal with the economic impact of COVID-19, has led to stronger gold prices and it’s going to continue to drive the gold price. You know, as you and I speak today, every day you’re seeing more and more major banks come out and make the case for gold. Today was JPMorgan, with JPMorgan coming out and making the case and saying in their report that gold is a beneficiary of real rates staying depressed due to economic weakness. That’s it. You’re talking about a historic, historic amount of damage that has been done when you’re looking at unemployment numbers, a historical amount of liquidity that has to be injected. JPMorgan points out that the price of gold is correlated to the size of central bank balance sheets. As the size of central bank balance sheets balloons, they basically inject more liquidity and take on more on the balance sheet and the gold price will go up. If you look at how the balance sheets have ballooned since this COVID-19 crisis began, the Federal Reserve, the size of just their balance sheet is over $6 trillion. It’s pretty amazing in terms of both concerning it can be and how unprecedented it can be. Who would have thought, even a year ago, that if you said you thought the gold price was going to $3,000 an ounce… if you said a year ago that you think it’s going to $3,000 an ounce, people may have said “oh, you’re just a gold bug. You’re one of those crazy gold bugs.” Well, now it’s the Bank of America calling for $3,000/ounce gold – that’s their 12-month target. By the way, they’re raising their target from $2,000 to $3,000. We have an environment that I’ve got to tell you as an entrepreneur and someone who personally believes in gold as an imperative asset class in my own personal portfolio and as the largest individual shareholder in GoldMining, I never thought that we could end up with this type of backdrop with these types of economic conditions because I think this will lead to the strongest gold market we have probably seen in history. We’re in the very early innings of this, so let’s see how it all plays out.

Kenneth Ameduri:

It’s amazing how you point out that the mainstream headlines are, what, only the gold bugs were talking about it, or the conspiracy theorists, and here we are with massive points being dropped on the stock market, negative oil prices… I mean so many things that are in the breakdown in the economic system. Trillions of dollars are being thrown at the system, the unemployment rate is skyrocketing. Before we go a little bit deeper into the company, what are your overall thoughts on the stock market? Do you believe that we’re going to see some more systemic problems in overall equities, and how does that play into gold?

Amir Adnani:

Well, again, I think it’s this issue of how much liquidity has been injected into the system with the suppression of real rates. It is becoming almost impossible to either sit on cash or just sit on Treasury notes that are going to basically return negative yield. This idea of negative interest rates is economic insanity, and we’ve ended up with negative rates even in the U.S. now. You saw the Wall Street Journal piece come out, and the administration argued that “no, no, we’re going to get in the way. We won’t allow that in the U.S.” Well, the rest of the world’s gone negative. I think part of the whole issue here is that governments and central banks seem determined to do everything in their power to suppress real rates so that you, as a saver, are not going to save cash. Somehow, in the race for return, you’re going to go for something else: the stock market, housing, whatever the case might be. And look, that’s driven this rebound in the market. The amount of liquidity that’s been injected into the system somehow seems to magically be the cumulative gain in the market since we had that drop in late March, early April. As to where we go from here, I don’t have a crystal ball, but it’s going to come down to how the reopening of the economy goes, how people get back to a new normal, what that translates to in terms of jobs and economic activity, and ultimately how quickly we get a vaccine and all those things we all know about. But in an environment where it’s difficult to have an answer to all those questions and you think about all the moving parts of those questions, gold becomes the ultimate savings account because it’s no one else’s liability and you can’t just print gold, you’ve got to mine it. We’re in an environment where we’re seeing probably the most historic intervention by central banks in fiat currency, the fiat currency experiment. I don’t want to say that it’s coming to an end because I guess they can just keep going due to this whole notion of QE to infinity and beyond, right? They can just keep going by printing. Gold becomes the ultimate answer and the ultimate protection, almost, against this grand experiment with the fiat currency, and we’re seeing it on absolute steroids right now.

Kenneth Ameduri:

There’s certainly been a momentum change with the gold sector, and pointing out what has happened over the years, firms have cut out exploration expenditures during the years, resulting in gold resources found by miners hitting decade lows, as you pointed out. How do you see this evolving in this new environment with rising gold prices, and what does the sector start to look like as we go into a bull market environment and not a bear market?

Amir Adnani:

Well, it really started about a year ago. For every industry and every sector, when you have a prolonged period of underinvestment in a long bear market, as you’re coming out of that long bear market cycle, you start to see M&A activity as the sector just focuses on companies getting bigger, getting more efficient, and it started about a year ago with the biggest companies in the sector. I’m talking Derrick and Randgold and the merger that happened there. I’m talking about Newmont and Goldcorp. When you get an instance in any industry, and it happened in gold, where the big boys get up and put their big boy pants on and start to do M&A, that then starts the ball rolling. And Kenneth, when I woke up this morning, I think I read about three or four M&A deals in the gold sector. Here we are almost a year later. But with the financings and etc., the sector has gotten to the point where after the big boys start to get together and do M&A, you’re now seeing more and more mergers and acquisitions take place, where companies are trying to beef up, get bigger, have more resources in the ground, and have more development that becomes the pipeline for future production. There’s definitely momentum coming back into the gold sector, and it’s happening at a complicated time because with COVID-19, you also have a lot of mine disruptions.

Kenneth Ameduri:

Amir, let me jump in right there. I’d like to ask you about that. The supply disruption with COVID-19 has been an interesting topic, I have it right here in my notes. What has that been like for the miners and how is that impacting the sector at the moment?

Amir Adnani:

Well, it’s impacted the entire supply side for gold. As I was just saying, you’ve had disruptions at the mine level, with operations having to shut down for health and safety reasons, all the way up to getting gold bars at the right size for either the London market for settlement or New York market for settlement, and refineries that have shut down because of that. But Kenny, I want to step back for a second because with COVID-19 we have had disruptions, and that’s impacted the market, but we’re in a phase now where the market is trying to reopen from COVID. I think there’s a bigger impact that’s going to be with us for longer, and it’s the impact of underinvesting in exploration by the whole industry over a long bear market. In their report earlier this year, Bank of America said that since 2012, there’s been a 40% decline in reserves and resources for gold producers. That will have a much longer impact in terms of shortages of gold in the ground for the miners than the impact of COVID. And the issue is that as we had a low gold market environment and low gold prices for a very long time, from 2012 onwards, companies just had to cut back on spending. They had to cut back on buying assets. This is why our business strategy with GoldMining was so focused on buying assets at exactly the time where no one else was interested in it and the majors were not interested in buying. Today, we have a situation where the gold industry, the gold producers, their pipeline of reserves is at a decade low. That’s not going to be resolved in a month or two, and that’s really what I think is the underpinning for the next bull market in gold, where you’re going to have the producers making more money because of elevated gold prices and investment appetite for companies that can explore and develop and provide and create the pipeline that the producers can benefit from and harvest to produce more gold as we move forward.

Kenneth Ameduri:

Amir, you and GoldMining have been one of the most aggressive acquirers of gold projects during the gold market, as you were pointing out there. Talk to us about the strategy; maybe remind people about what this time period was like when acquiring during the bear market, and kind of how this is changing and how it’s changing for GoldMining, specifically.

Amir Adnani:

Part of the strategy really had to do with sticking to a business plan that we had seen done before in previous cycles, looking at companies that had implemented a plan to buy resources in the ground and accumulate resources. You look at companies like Pan American Silver, you look at companies in the copper space, like Lumina Copper. We viewed this as a strategy that could be done successfully. To implement this kind of strategy, you needed a prolonged bear market, so we ended up with that. We didn’t know how long the bear market was going to last, but we knew we wanted to buy resource-stage gold projects for less than the discovery cost and, for lack of better terms, buy and hold and build a portfolio. You had to attract like-minded people: investors and backers that would understand this strategy and could commit to it long-term. You look at some of the early investors that we attracted from 2011 to now that have still been with the company, groups like Sprott and lead investor there, Rick Rule, individual investors like Doug Casey, Marin Katusa with his KCR Fund, you look at Brasilinvest, one of the oldest investment firms in Brazil. These groups have backed the company from the get-go saying “let’s go and buy gold resources. Let’s buy it in the ground, let’s keep it in the ground, and let’s create that snowball effect where every acquisition gives more and more ounces of gold resource in the ground.” Kenneth, we’ve done this since 2012, and today we have projects in five different countries. We’re in the U.S., Canada, Brazil, Columbia, and Peru. I’m not aware of another small-cap/pre-production company like us that has this many projects and as much in terms of gold resources as we do in the world. I think we’re truly in a leading position for a small-cap company to control 10.5 million ounces of gold resources in the measured & indicated category and 13.7 million ounces of gold in the inferred category. The total acquisition cost for us has been just over $80 million, but if you look at what we’ve acquired, which were all previously public companies, and you look at their market caps back in 2010-2011, the combined market cap for what we paid $80 million for was over $800 million. Again, it gives you a context that we felt it was an important time to go out there and buy creatively. We’ve been buying for $0.10 on the dollar, truly deep buying at a historic low gold market in retrospect. Now, we’re sitting in a position where you couldn’t replicate what we’ve done since 2012 today. There’s a seeing a reevaluation in the gold price, there’s a reevaluation in equities, and everything is moving higher. I think our timing was, in hindsight, really the best timing you could have had to buy, accumulate, and build a very, very large and diversified gold portfolio.

Kenneth Ameduri:

Amir, I really want to get into uranium. You’re a special person to speak to about this. Uranium is up 40% this year, pretty substantial, and it’s a sector that’s been largely misunderstood, hated, overlooked, and not a lot of people even follow it, to be honest, at the moment because of what we’re seeing, but I really want to put a spotlight on this. I think it’s important to be looking at it, so if you can give us an idea of what’s going on in the uranium sector at the moment and how it pertains to gold mining, what are we seeing at the moment?

Amir Adnani:

Well, listen, you had to be a contrarian to invest in gold over the last 7 or 8 years, and you probably had to be a contrarian on steroids to have invested in uranium over the last 9 years. It was the ultimate kind of contrarian situation, truly hated and truly out of favor since what happened in Fukushima and in 2011. The commodity business is a cyclical business, so with uranium, we’ve gone through a 9-year period of the market rebalancing from a supply/demand point of view and we’re finally ending up in a situation where supply for uranium had become tighter due to mine closures and now, this year, with supply disruptions, again because of COVID-19, the uranium price was even further impacted and almost half of global production was impacted or was shut down due to COVID-19 on a monthly basis. Every month, this is being reevaluated by the miners who have those projects. It’s ultimately led to the uranium increasing by 35%, reaching $33 per pound, which is a 4-year high for the price. There definitely seems to be a structural deficit in the uranium market and a strong possibility for a supply deficit this year. All of that means that for GoldMining, GoldMining really benefits from the fact that in 2013 when we acquired a gold company with gold assets, it had a non-core uranium project in Canada’s Athabasca Basin. For us, this has become a free call option on uranium inside of GoldMining. We don’t spend any money on it and it’s not our core focus, but it happens to be a significant land package in partnership with France’s Orono, where they own 25%, we own 75% of the uranium project at the time where uranium prices have really recovered nicely. This is a project that we’ve always viewed as being non-core and possibly something we can monetize, sell, or joint venture. Again, it’s exciting to be in a position where you have so many projects and the optionality to be able to develop or monetize. In the case of the uranium project, our plan is to sell that or spin it out, so we’ll see what the best solution is for that. But it’s an exciting time for uranium for sure, and if you look at GoldMining, that’s an added benefit that is available to our shareholders.

Kenneth Ameduri:

So, Amir, how important is uranium to global energy? I mean, it’s a national security issue, something you’ve pointed out in other interviews and we’ve talked about it before. Talk to us a little bit more about the need for uranium in our world today.

Amir Adnani:

Well, it is the largest way to generate baseload power, baseload power being the form of electricity generation that’s continuous, without interruption. It’s carbon emission-free. We’re talking about a world where, from a population standpoint, we’ve got over 7 billion people and population growth is taking us higher and everyone needs more electricity. We’re looking for ways to meet our electricity needs that are increasing, but at the same time reduce our carbon footprint. In that context, there is a growing ship by climate scientists, policymakers, and day-to-day people to say “I need a diversified energy mix.” In that mix, renewables on their own won’t do it because they work 25-30% of the time. That’s for wind and solar. Nuclear power works 95% of the time. It’s an incredibly powerful way to generate electricity from a very small amount of fuel, so you don’t need to move a lot of the actual fuel source around the world to generate the power. Today, we’re seeing a situation where demand for uranium led from more and more reactors being built in the world is back at a 9-year high. There are over 50 reactors under construction in the world. 47 reactors have been attached to the grid just in the past 7 years. And in the United States, most of your listeners may not recognize but 20% of your electricity generation is from nuclear power. The Department of Energy, because of a directive issued last summer by President Trump, came out with an investigation and a report that is aimed at rebuilding America’s nuclear energy and uranium mining industry, highlighting that the industry is critical to national security and energy security. When you read it, it’s different to have a mining company executive talk about the virtues of something than when you see that you’ve had a very comprehensive report developed out of the process that was interagency, interdepartmental, and had cabinet-level secretaries that worked together to study this and its conclusions are that nuclear power and nuclear energy is intrinsically tied to national security and energy security. These are powerful concepts. I think there truly is this growing recognition from policymakers on the political side, climate scientists, and utility companies that all look at nuclear power. And let’s not forget names like Bill Gates. Bill Gates has been investing a significant amount of his personal capital into next-generational technology for nuclear reactors. In the 15 years that I’ve been in the business for uranium mining and nuclear power, an incredible convergence of support from different groups has happened that all recognize the fact that nuclear power can be the largest, lowest-cost way to generate emission-free electricity.

Kenneth Ameduri:

Alright, Amir, I’ve got three more questions for you before we let you go. We saw the WTI price for the May contract go negative, something that was a complete breakdown in the market. With oil being an energy source, do the economics of what’s happening in oil ultimately help, hurt, or act neutral to the uranium sector?

Amir Adnani:

Again, I think it’s a question of what source of energy is used. Oil is primarily used for transportation. It’s for transporting commodities around the world, all flights around the world are being grounded, and people are not driving around as much. That’s the main drive for oil. Uranium is used in nuclear power plants for electricity generation. We’re not yet at a point where electric cars dominate what’s on the roads. What we’ve seen so far is a decline in overall energy consumption, but it hasn’t hit nuclear power and that baseload electricity generation that nuclear provides. If you and I want to sit at home and use our iPads, use our iPhones, continue to be active, even if we’re sitting at home, we need electricity for that. The best way to get that, whether the sun is shining or the wind is blowing or not, is nuclear power. There isn’t that relationship, per se, between oil and what’s been happening with the oil prices and demand for uranium. In fact, at the exact same time that oil prices were going negative, uranium prices were surging to the 4-year high that we were talking about, just recently. I’ve actually witnessed exactly that dynamic live in the last few months.

Kenneth Ameduri:

Yeah, it’s powerful, and when it comes down to it, there’s a very small number of uranium companies to actually invest in, so what does it suggest about the market when the uranium price really does start to move?

Amir Adnani:

I think the entire market in terms of the combined market capitalization of the uranium mining sector is less than $10 billion. It’s just a very tiny sector, and it’s tiny because it has endured, at the outset, a brutal long bear market for almost a decade. I think that at its peak in 2007, the combined market cap of all uranium companies globally was well over $100 billion. Look, I think it’s a sector that’s not well understood. It’s under-owned. Big banks don’t write research about the individual uranium companies and if they do, they might be selective of one or two of the bigger names. Ultimately, as we witnessed in previous bear markets for uranium, and 2005 is an interesting time… 2005-2006 was very similar to today, where we were coming out of a very long bear market environment. I think there were 20 uranium companies in the world in 2005. By 2007 there were over 600 uranium companies in the world when uranium prices went from $20 per pound to $140 per pound. Today, the uranium price after being stuck for a long time in the $20 range per pound has moved to $34 per pound, and it takes time to see the market develop and the prices develop further. As it does, I think that we could see a repeat of the bull market cycles for uranium like in 2006-2007 and the 2009-2010 time frame. These were exciting times, and it definitely seems like we have some exciting times coming up for us in the uranium sector.

Kenneth Ameduri:

Well, I appreciate that. Amir, as we discussed throughout the interview here, there are many reasons to be bullish on GoldMining, to be frank, but I’d like to ask you in closing: what component of the story has you most confident about the future upside potential?

Amir Adnani:

I think it is ultimately what you know you have in terms of your mineral resource. Exploration, from the moment you have an idea about prospectivity of a region to when you drill holes to when you can establish a resource, can take multiple years and tens of millions of dollars. When I look at what we’ve managed to assemble here, we’ve taken all of those early years out of the equation by going straight after projects that had already been drilled, had in some cases already had economic studies, geophysics, and in some cases had feasibility studies. If I look at the combined exploration dollars, the hard dollars that were spent on our projects to drill and look for gold, it’s almost $300 million. What we have in terms of total gold resources, and I’m just talking about gold, I’m not talking about the uranium venture, I’m not talking about copper and coal product that we have with the gold in a number of our projects in Alaska and Columbia… But again, when you look at the sheer size of the gold resource portfolio, the 10.5 million ounces of measured & indicated resource, the over 13 million ounces of inferred resource, I get really excited about the sheer size of that. The sheer size of that puts us in a very unique category where no other pre-production gold junior company in the world has as many gold resources in the ground in a diversified portfolio as we do. There’s also the fact that we bought these assets, the majority of our resources, at the most attractive time. You used the analogy of buying your straw hat in the winter, or I use the analogy of buying your Christmas decorations in January. We did exactly that. You could not replicate what we’ve done today, and the idea of buying for $0.10 on the dollar is only possible when JPMorgan and Bank of America are not calling for higher gold prices. In fact, I remember our Whistler project in Alaska. When we bought it in the summer of 2015, Goldman was calling for gold to go under $1,000 an ounce. I think this is truly a case of our team, our board, our management, and our shareholders being very contrarian, not just for one or two years, but for 8 years. I’m excited about what we’ve managed to put together and how we can really harvest it as we go forward. As we go forward, Kenneth, we’re still looking at acquisitions, just like we’ve announced two acquisitions just in the last two months. As our snowball effect gets bigger, we have access to opportunities that we’re demonstrating we can acquire and add to the portfolio creatively. And look, at some point, we get big enough, we potentially become a good opportunity for participating in this mergers & acquisitions cycle that’s taking place in the gold sector right now, which will continue as the sector is in focus. It’s exciting to be well-positioned with our company to take advantage of this multi-year cycle in gold that we have coming, a bull market cycle that could potentially be the biggest one we’ve seen for gold. It’s exciting to be part of that.

Kenneth Ameduri:

Well, you showed true resilience, and you’re a real visionary, being able to take advantage and see through that, see the future and invest with inevitability. I want to encourage everyone to visit the company at GoldMining.com. It trades under ticker symbol GOLD on the TSX and GLDLF on the U.S. side. Amir Adnani, thank you so much for coming on Crush The Street with me today and giving us this important update.

Amir Adnani:

Thank you, Kenneth. It was great to connect, and we covered some good ground. Thank you.

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