Publisher's Note: After fighting in the trenches of the gold bear market for the past few years, finding success where success was scant, I have the good fortune of a deep network in the gold space. That means I can reach out to people most others can't to get an inside look at what's going on in the world of gold, just like I did with billionaire John Paulson and his recent Big Long on gold.
This week saw a correction in the price of gold but make no mistake: we are still firmly in a gold bull market. As long as the Fed can't think about thinking about raising rates... gold won't think about thinking about going back into a bear market.
My gold connections led me this week to David Garofalo. David is the former CEO of Goldcorp, which merged with Newmont Mining last year to create the world's largest gold mining company. What do you do after co-creating the world's largest gold mining company? You go back to work creating a gold royalty company, apparently. That's exactly what David's doing with Gold Royalty Corp., a newly-created subsidiary of GoldMining, Inc. (TSX: GOLD)(OTC: GLDLF) - a company I've long covered and recommended.
See why David thinks the gold bull market is here to stay and what his plans are for Gold Royalty Corp. in our interview below. It's not often you get a one-on-one with one of the most high-powered gold mining executives in the world.
Enjoy,
-Nick
Nick Hodge: I'm Nick Hodge. I'm the founder of Outsider Club. I've been following and investing in GoldMining, Inc. (TSX: GOLD)(OTC: GLDLF) for a number of years now, since it was called Brazil Resources in fact. And so when I saw the press release last week that David Garofalo was coming on to head up the Gold Royalty Corp. - recently announced as a wholly-owned subsidiary of GoldMining - I jumped at the chance to connect face to face. David, of course, is the former CEO of Goldcorp, which merged with Newmont last year to create the world's largest gold mining company.
So, David, it's a pleasure to have you on and speak to you face to face.
David Garofalo: Well, thanks, Nick. It's a pleasure to be here.
Nick Hodge: I did just a tiny brief bio there that doesn't do it any justice at all. Before I ask you about your current endeavor, could you just bring everyone up to speed on your past endeavors please?
David Garofalo: Sure. I've been in the mining business for 30 years now. Started my career with a base metal company called Inment Mining, which was taken over by First Quantum about six, seven years ago. Spent 12 years as the CFO of Agnico Eagle Mines Limited, AEM on the New York Stock Exchange. And we grew that company from a $100 million market cap to $10 billion market cap by the time I left. Went to join Hudbay as CEO, spent six years there, built three mines while I was there. And then joined Goldcorp as CEO, where I was in that seat for a little over three years before we consummated the merger with Newmont.
Nick Hodge: You've put several more projects than that into production, in fact, and I've got to think from your seat in the gold space, you have a pretty good macro overview and a pretty good take on what's going on. We're sitting here above $2,000 an ounce. You said when you joined Gold Royalty Company that it was a good environment to do so. What makes you think that it's a good environment? Besides $2,000 gold of course. What do you see in the future?
David Garofalo: Well, I've seen positive gold cycles before, but nothing like this. This is unprecedented. Because what we haven't seen before is this global coordinated quantitative easing that's occurring across the industrialized world. So every central bank is competing to debase their currencies. For a couple of reasons. One is to preserve their export markets. But the other is given the lack of economic activity because of COVID and the anemic growth that we experienced globally before that, they're having to print their way out of debt. So they're piling on substantial amounts of debt to stimulate the economies. And in order to do that sustainably, they're going to have to devalue that debt by just printing more paper currency.
Well, gold is the one currency that can't be printed. There's a finite quantity of it. 200,000 tonnes of gold has been produced since the beginning of time. And to give you a visual, that would be about four Olympic sized swimming pools. It's a very, very small quantum of gold. So this herd of elephants that we're seeing stampeding into gold is trying to go through a keyhole.
And so you can imagine the kind of torque that delivers in the gold price. And we're starting to see that. We're just starting in my view. And I don't think anybody foresees a curtailment of this quantitative easing for the foreseeable future. Nobody knows how the COVID crisis is going to unfold. But these debt levels cannot be sustained without, again, devaluing this debt and delivering substantial inflation. And gold is an accurate barometer of that.
Nick Hodge: The debts and the money printing of course have been sort of ongoing since 2008, let's call it. But really what's been interesting is how this pandemic has sort of exposed really what was going on and made them do it so much more now than everyone else realizes. It's not just two guys talking about gold over an app. Many more people realize, including banks now, where you see Bank of America go to a $3,000 target or Goldman now saying that gold's going to be at $2,300. So I'm firmly in alignment with you there.
And I have to ask you about GoldMining and the team, because as I said, I've been involved with that story for a little while now, and I can pick any number of Amir quotes, whether that's buying your Christmas lights in July or whatever it is. But basically it's a contrarian way of thinking about gold to buy assets on the cheap during the bear market that took place over the past call it whatever you want, seven or eight years. And I heard you speak to that sort of contrarian nature. And so is that one of the things that brought you to GoldMining and Gold Royalty?
David Garofalo: Absolutely. Philosophically, I've spent my entire career building mines, even though I'm a financial person by background. I learned at a very early age the fundamentals of the business, got involved in the early-stage construction of many mines, over a dozen in my career. And that's where all the value is created is buying something that's under appreciated in the market off cycle and then de-risking it systematically and delivering value to shareholders that way.
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And what Amir is trying to do with GoldMining, Inc. makes a lot of sense. Accumulate those ounces early, build a substantial war chest of ounces, 25 million ounces, in a market that's starved for growth. Reserves in this industry have gone down by 50%. Gold reserves in the ground for producers have gone down 50% over the last seven years. So they haven't as an industry done a tremendously good job of recycling that capital back into the ground to replace what they're depleting every day. They're dying a bit every day.
And that's because the focus, rightfully I think, was returning capital to shareholders, particularly after the debacle the industry went through 10 years ago when cost structures inflated dramatically and they saw their margins erode. Investors demanded returns of capital, discipline, running these things like real businesses. But what they sacrificed in doing that was exploration. And so now if you're not finding it, you have to buy it or you have to buy into it. And what we have in GoldMining, and what Amir has built up, is a portfolio of 14 different projects that make up those 25 million ounces. And there are various shapes and sizes and so they can be fit for purpose for different scales of companies. It's not all concentrated in one asset that might have a significant multibillion-dollar ticket to bring into production. There are various shapes and sizes of assets that fit senior companies, mid-tier companies, and emerging producers. And that opens up a very diverse portfolio that can be value maximized through the de-risking and stage gating process over a number of years.
Nick Hodge: Well, he's got a lot of ounces to work with, something like 25 million ounces indicated and inferred across this global asset base, which we know is in multiple projects in multiple jurisdictions. And you hit on something there, well, a couple of things that are important. One, it's been an exploration bear market. All these explorers I follow, these prospect generators, they couldn't get any capital to explore. They couldn't bring in any JV partners. Because nobody was, the majors I'm talking about were keeping their purse strings very tight. And then you talk about going out and buying all these Christmas presents in July, these 25 million ounces, and then as an investor, we're thinking, okay, how do we monetize these? It takes three to five years to put an asset into production. So that's sort of like a long way to monetize them, thinking as a shareholder of GoldMining.
But a very unique way, and a thoughtful way, is create and perhaps spin out a royalty company. We of course have seen these royalty companies in the market fetching exorbitant valuations. Whether you look at ELY or EMX or at the deal in Caldas that was just able to be done and the millions of financing that they were able to get down in Brazil. And so a very smart idea to start a gold royalty company. Tell me about what attracted you to that and why you're so excited about it. I know you haven't given any guidance on Gold Royalty Corp, so we can't speak to that. But talk to me about your plans a little bit.
David Garofalo: Yeah, my objective is to grow a standalone team to maximize the value of that Gold Royalty portfolio in whatever form. Eventually through an IPO or a spinout, we're going to maximize value for GoldMining shareholders. GoldMining right now has a 25 million-ounce resource base that's trading at about $12 an ounce. So incredibly cheap. This will afford us an opportunity to crystallize some significant value for those shareholders while creating a standalone vehicle.
And if you look at the successful royalty companies that exist today, the Francos, the Wheaton Precious Metals, they were all created out of existing mining companies, Franco out of Newmont, Wheaton Precious Metal out of Goldcorp, my old employer. And in both of those cases, they've eclipsed or come close to eclipsing the market cap of their parent companies. So that early sponsorship, that early foundational element is very, very important to investors. And that's what we have. We have a 25 million-ounce resource base underlying that royalty portfolio. And a very diverse portfolio. So that gives us a tremendous competitive advantage. And what we're trying to do is augment that advantage by attracting a very deep management board. And you'll see over the coming weeks and months as we prepare ourselves to be a standalone public vehicle, we'll start to add some very, very high-profile mining people on our board and within our management team to augment what I'm bringing to the table in running this organization.
Nick Hodge: Well, David, I'm always excited to see what Amir comes up with next, whether that's new acquisitions in the bear market that we just came out of, or now what he's going to do now that we have a bull market and $2,000-plus gold prices, especially with Gold Royalty Corp now established, and especially with you now at the helm of that subsidiary. So I look forward to watching you all execute in a gold bull market, and I hope we can catch up again soon once you've had a bit of time to get acclimated to your new role and once you've had a bit of time to have Gold Royalty under your management.
David Garofalo: Well thanks very much for your time, Nick.
Nick Hodge: Appreciate it, David. Thank you.
There is still a herd of elephants yet to come running through the golden keyhole. Click here to see other ways I'm leveraging this gold bull market.
Call it like you see it,
Nick Hodge
Nick is the founder and president of the Outsider Club, and the investment director of the thousands-strong stock advisories, Early Advantage and Wall Street's Underground Profits. He also heads Nick's Notebook, a private placement and alert service that has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world. For more on Nick, take a look at his editor's page.