introduction

It’s been a while since I’ve written about a gold mining company, which seems bad for someone using a Chinese gold coin as an avatar. In light of this, today I take a look at GoldMining (NYSE:GLDG). The latter has more than 16 million gold equivalent ounces in measured and indicated resources and owns 20 million shares in royalty company Gold Royalty Corp (NYSE: GROY), which is valued at $87.4 million. at the time of writing. Yet GoldMining’s market capitalization stands at just $255.4 million at the time of writing, meaning each of those ounces of gold is valued at just over $10. The likely reasons for this are that these ounces are spread over many projects and there is little exploration spending in any of them.

However, I think GoldMining could unlock value in some of its projects as soon as it invests in exploration and evaluates spin-outs and disposal opportunities. I view this company as a speculative buy.

Overview of operations

GoldMining has a portfolio of 15 projects across the Americas, 11 of which have a resource estimate. However, most of the projects are small as only two of them have measured and indicated resources of more than 1 million ounces of gold equivalent – Titiribi in Colombia and Whistler in Alaska. Also, the ratings for most projects are low.

Another problem is that GoldMining barely invests in exploration at the moment. The company spent just C$1.42 million ($1.11 million) on exploration across all of its projects in the nine months to August 2021.

You could say that spending little on exploration saves money and keeps stock dilution low over the years. However, this is unlikely to provide much reassurance to investors as projects progress little year after year and the company’s market valuation remains stagnant. In 2020 I used to have a weekly series of articles on SA focusing on the best drill intercepts in the metal mining business and what I learned was that both Key factors in the stock market valuation of an exploration-stage mining company are focus and momentum. What attracts investors is not a large resource base, but being active in the drill and having one or two flagship projects to build excitement around.

Fortunately, it looks like GoldMining is now on the right track. In October, the company announced a $20 million loan facility with Bank of Montreal, and in December it announced the launch of a $50 million market share (ATM) program. The new funds will be used for exploration and project advancement, including preliminary economic assessments.

As for concentrating on one or two projects, GoldMining says it is currently evaluating spin-out and disposition opportunities.

I think spin-outs are a good way to unlock project portfolio value and the company has already seen how well this could work after listing its royalty assets in March 2021 via a $90 million IPO of a company named Gold Royalty Corp. As I mentioned, his stake in the latter is currently worth $87.4 million.

In the future, the next spin-out could include the La Mina project in Colombia. In January, GoldMining released the results of a preliminary economic assessment (PEA) on the project, and the main financial results seem mixed to me. The all-in sustaining costs are low, the life of mine is decent, and the after-tax net present value (NPV) is over $230 million. However, the internal rate of return (IRR) is only 15%, as the total cost of capital is expected to be around $370.9 million.

It’s a somewhat expensive project, but I think if owned by a publicly traded company, it would be valued at around 0.3-0.5x (NPV), unlocking significant value for GoldMining. Future projects on the chopping block could include Yellowknife in Canada and Sao Jorge in Brazil, as the company is also conducting PEA studies on them.

Overall, I think GoldMining’s portfolio of projects could be worth over $500 million and the question now is how well the company can replicate the spin-out of its royalty portfolio and if the funds which are about to be devoted to exploration will produce good drilling. interceptions. I consider this one a speculative buy and risk averse investors are better off staying away for now and waiting to see more details on the spin-out plans.

Risks to consider

Looking at the risks for the bull case, I can think of several major risks. First, I view gold price movements as unpredictable and declines could have a significant impact on the NPV of GoldMining projects. Second, Gold Royalty Corp’s market valuation has been falling for a few months and is almost 40% below its peak. It is possible that this trend will continue in the future. Third, it is unclear whether GoldMining will be able to raise close to $50 million through its ATM equity program or whether these funds will yield good exploration results.

Takeaway for investors

GoldMining was able to unlock nearly $90 million of value through the Gold Royalty Corp spin-off and I believe it can replicate this move with some of its other projects such as La Mina.

I think GoldMining’s properties could be worth over $500 million at the current gold price, but that’s not reflected in the company’s market valuation due to a lack of exploration as well as a lack of focus on one or two projects. It looks like the situation could change in a year or two and I’m optimistic.