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GoldMining Inc. (TSX-V: GOLD) Chairman Amir Adnani on Yellowknife Acquisition and Navigating Market Cyclicality to Build a Gold Resource Portfolio

August 3, 2017

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is Chairman of GoldMining Inc. (TSX-V: GOLD)(OTC: GLDLF), Mr. Amir Adnani. Amir, how are you?

Amir Adnani: Excellent, Gerardo. Nice to reconnect with you again.

Gerardo Del Real: I think it was a bit overdue. It's definitely nice to reconnect, and I want to thank you in advance for your time. You recently had some really good news with the Yellowknife Project. Before we get into that, you have been one of the few people that not only understands, I think, the cyclicality of the resource business, but you've used it very well to shareholder advantage.

Now, just some context for people that may not be familiar with the company. The company started with the focus in resource stage assets in Brazil. You now have four projects in Brazil, I believe.

Amir Adnani: That's right.

Gerardo Del Real: You've expanded to Alaska with Whistler. You have two projects in Colombia, and most recently, as I just mentioned, you completed the acquisition of the Yellowknife project in the Northwest Territories, of course in Canada. Now across all categories, Amir, you've managed to amass a portfolio with over 24 million gold ounces. I want to talk about Yellowknife in just a second, but can you share with everybody how you've been able to use the cyclicality of the resource business to the advantage of your shareholders?

Amir Adnani: For sure, and what we're doing is something that has been done in previous bear markets to create really significant shareholder value. I saw this firsthand when you look back at companies that were developed. You look at the likes of Pan American Silver, you look at even Silver Standard and the gold business companies, like Randgold, were really built in terms of the assets that were aggregated at the bottom of the cycle. And overall when you look at resource investing I think you really have to appreciate, respect, and take advantage of the very predictable cyclicality of the business. What ends up always happening in any bear market and in any downtrend in the resource business, a number of similar patterns tend to shape up and that's asset divestitures by majors in terms of them wanting to shore up the balance, protect the cash, and reduce typically, the debt that they've piled up during the bull market.

And you see exploration dollars just get completely cut out, exploration dollars are almost the first thing to go out the door, which again is counterintuitive because a mining company is as good as the resource pipeline it can develop because that's the business, right? Going into the future you're mining the resources and eventually the reserves that you've managed to develop, but during these bear markets you end up with exploration dollars being cut out, a focus on just trying to protect the balance sheet. So this naturally leads to a situation where the junior companies become quite capital constrained, it becomes very difficult to operate if you're a junior company, and it's typically the environment where you can find acquisition opportunities for cents on the dollar.

It's difficult to really execute in a bear market this kind of strategy in terms of being able to roll up. It's harder to really do that then talking about it, I think, because it sounds like we're saying, "Buy low, sell high." But in reality it takes many years, like you mentioned we started life in Brazil, the company was called Brazil Resources before we switched the name to GoldMining to reflect our bigger portfolio and the fact that we're in 4 different countries now. But, Gerardo, it's taken us 7 years to put together the portfolio that we have today. It doesn't happen overnight, it takes a lot of patience, it takes a lot of focus. You don't do deals every month, you don't do deals every quarter. I mean, if you look at our history I think we've averaged one or two deals or acquisitions per year. This year so far has been quite productive because we've managed to already have two acquisitions wrapped up with the Bellhaven acquisition you and I have talked about in central Colombia. And now this very recent acquisition in Canada's Northwest Territories.

To bring it back to your question, today more than ever when you look at GoldMining's track record over 7 years, it becomes a great exercise in case study to observe how over time you can create shareholder value if you execute the strategy of buying assets at the bottom of the cycle, if you execute the strategy correctly and with consistency.

I'm staring right now at this sort of thing I have sitting on my desk here in the office that talks about our IPO. It's one of these plaques or tombstones the investment bankers give you when you complete an IPO. We did the IPO for GoldMining in May of 2011 at $0.65 a share. The stock is at $1.07, whatever it is this morning, we're up about 160% since our 2011 IPO. During the exact same timeframe the TSX Venture, which is home to more junior resource companies than any other exchange in the world, that exchange is down 70 percent since 2011, the same year we IPO’d.

Again, I think clearly the strategy works and, Gerardo, not too many companies pursue this strategy because again, it's that relative strength, it's the ability to get the key financial backers behind you, build critical mass, and then kind of get that momentum and it takes multiple years to build that momentum. Luckily I think for GoldMining we've built the brand, the franchise, and the momentum that now the market recognizes as, "Hey, this is a consolidation play, these guys have done it." And this is now really a bonafide platform for further consolidation of gold resources in the Americas.

Gerardo Del Real: Well, I think you deserve a lot of credit for that, Amir. You have long-term committed shareholders, deep-pocketed, influential shareholders that I think are happy with the strategy and how you've executed. But again, I think you deserve a lot of credit. The latest acquisition, the Yellowknife Project, I think really speaks to that. The purchase price, I think equates to just over $3 per ounce and that's in Canadian. So, if you can buy an ounce of gold for, I think it was $3.04 I saw in a research report, given that the total resources from the 2012 feasibility study were estimated to contain approximately 2.2 million ounces, and that's pretty accretive.

You've got to think, especially in light of the fact that Agnico Eagle just announced its intention to invest over $1.2 billion in the area, and I have to think that's going to benefit all companies that have nearby projects. What did you like about the deal? What made you decide to go after the Yellowknife Project?

Amir Adnani: A number of factors, and any time we do a deal it's a combination of factors that we look at, that we like, to make a deal, a great deal, and an accretive deal. And again, it goes to show you how long these things really take to put together. I mean this transaction, we're talking about it now but, Gerardo, I have to tell you, the first time we looked at this it must have been over a year ago. So again, it takes a lot of patience to be able to bring these things to fruition.

Let's say just at a pure geologic technical level and jurisdiction. We liked that it checked a box right away in Canada. Obviously Canada is a big country but in this instance Canada's North. So Northwest Territories, these are areas of Yukon, Nunavit, that are receiving a lot of positive attention. Canada's North is under-explored, Canada's North is massive in terms of size, and the geologic setting in terms of some of the greenstone belts are of great interest for both junior companies that are doing exploration and, as you pointed out, companies like Agnico Eagle and Gold Corp who have committed billions of dollars over the last few years to Canada's North. So we liked it for those reasons, checked those boxes in terms of jurisdiction, number one.

Number two, we liked the fact, and again this is the hallmark of the types of deals we like, we liked the fact that there was well over 200,000 meters of diamond drilling already completed on the projects. So, while there's great exploration upside on the property, because we're talking about the Yellowknife Project property and the Big Sky property. They cover approximately 35 kilometers of the Yellowknife Greenstone Belt, and that's exciting in terms of thinking about the exploration upside.

However, there already was historically over 200,000 meters of diamond drilling done and this project had reached historically a feasibility stage. So you look at the replacement value of the work done, the amount done on exploration, engineering, et cetera, there's over $60 million dollars, six-zero. You know, we issued 4 million shares, which basically was priced at the time at around $6 million and in terms of dilution, 3% dilution, and you can just very quickly figure out, again it's accretive in terms of what we pay for an ounce in the ground versus where we were trading at ourselves, so its accretive on resources in the ground. You pick up a significant amount of historic, exploration, and engineering work done, and you still have that exploration upside of being able to continue to grow the project with work down the road.

We like the grade on the project, the historic resource, and again this is not 43101 yet but there's a 43101 Report work in progress. The project graded around 2 grams per tonne, basically. Even on our property there are some historic mines and we actually control extensions of historic mines in this area, which were amongst some of the highest grades in the Northwest Territories. And again, the profile of what has happened here historically and the exploration upside of moving forward just balanced very well in terms of checking all the boxes for us.

We also have on our board Herb Dhaliwal, who was Canada's Minister of Natural Resources, and as a Federal Minister responsible for mining and energy he was very familiar with Northwest Territories during his tenure as the Minister. There was significant investment made in this area for developing diamond mines, and as you know, Northwest Territories are home to some of the biggest diamond mines in Canada. So we liked the fact that we had a board member who's familiar with the territory from a political or government relations point of view. We liked the technical and geologic aspects and the potential for growth, but at the same time that we're picking up $60 million of prior exploration work done for, again, cents on the dollar, and the deal can be lucrative.

We end up with also a good shareholder in the transaction because the shares that we issued were issued to Rand Merchant Bank, or RMB, a South African based group with a lot of investments in mining. It's a mining focused institution and so the 4 million shares that were issued go to also a good investor that's familiar with mining. It is a vote of confidence and the fact that they've taken our equity and decided to partner up with us by putting this project into our company. So, again you can see, A, it has to check many boxes for it to become a GoldMining acquisition. So the factors that I've talked about and more importantly this is what we can't put in a press release and you don't get to see is the fact that, again, these things take a long time. This deal, like I said, it took well over a year before it got to a point where it's a press release delivered to the market and another acquisition in our portfolio.

I'll just clarify what you mentioned earlier, which is correct but I'll break it down. And these numbers do not include the upcoming 43101 report for this latest acquisition in Canada. Numbers excluding this latest acquisition are 11.4 million ounces of gold equivalent resources in the measured and indicated category, that's our global M&I. And 13 million ounces of gold equivalent resources in the inferred category, that's our global inferred. And as you pointed out correctly, we are talking about a very diversified portfolio now between Brazil, Colombia, Alaska, and then once we come up with the 43101 resource on the project in the Northwest Territory that would be added and now we have our resources in Canada as well.

Gerardo Del Real: Excellent. Now you mentioned bringing that resource into compliance and working on that right now, are there plans to follow up on the extensive drilling that's been done? I think the figure you mentioned was over $60 million that's been spent on exploration thus far, so it's definitely an advanced stage project. Are there plans to follow up on that drilling?

Amir Adnani: Yeah, we're reviewing much of the work right now. One of our members of our technical team, Dr. Ross Sherlock, who was just recently with Kinross, he's someone who, along with the CEO of the company, Garnet Dawson, have prior background and quite a good technical understanding of the potential of these greenstone belts in Canada's North. So we're currently reviewing much of the drilling and the geology to come up with a proposed work program for the future. We would get a lot more aggressive, Gerardo, in terms of drilling and development once we see more of a sustained uptrend in the price of gold. As you can appreciate, with the gold prices still being a bit sluggish and action in the equities being somewhat sideways, this is still the kind of market for us to make more accretive acquisitions and in fact we're planning to still continue on building our portfolio.

As long as we can see those accretive opportunities that, again, check the various boxes that this latest acquisition checked and prior deals have checked as well. Which you and I have almost walked through every acquisition the same way, and you've seen how the methodology that we apply to these acquisitions. We continue to see good opportunities out there and so currently I think we're prioritizing going after more accretive acquisitions while at the same time having our technical team review and come up with proposed follow-up work program down in Colombia, now with this latest acquisition in Canada and Northwest Territories. So we would be ready to hit the ground running if tomorrow you see that big move in the gold price and now we just want to focus on cultivating and creating and extracting more value from our existing portfolio.

We've got an exceptional technical team in place who's familiar with the very specific geologic settings that we're involved with in the various areas that we're in. And we would prioritize these projects as a pipeline to be able to advance them.

Gerardo Del Real: Excellent. Now, you mentioned the methodology, and obviously one of those attributes is that you always worked to keep dilution to a minimum. What does the share structure look like and what does the cash position look like right now, Amir?

Amir Adnani: When you look at the share structure, we have just over 130 million shares outstanding. That's a very conservative cap structure when you consider the company's been around for over 7 years now and public for 6 years, and has done as many deals as we've done. So just looking at our capital structure, after this latest acquisition, as I mentioned, we're about 130 million shares outstanding. As of end of February, when the filings are finished, the filings we had made, the cash on hand would have been about $19 million in cash. No debt. Cash position is also something that we watch very carefully because our whole strategy is to make sure we maintain a strong treasury, avoid needing to go to market and raise money. Again, we feel we haven't yet seen the true value of gold reflected in the gold price. Obviously year to date gold prices have been flat and sideways and we're cognizant of that, keeping costs very low. We've been good at this, we've been quite good at keeping dilution down.

Part of that, Gerardo, is that insiders own about 25% of the company. I'm personally the largest individual shareholder of the company. We have a lot of our own capital invested in the company. In 2013 and ‘14 and ’15, just tough years where it was really difficult to raise money, we were the first people to put money into the company. We wrote checks and put money in to make sure that the company had that relative financial strength to be able to do deals and make acquisitions.

So, with 25% insider ownership, we can appreciate, not only are we fully aligned with investors, but we very much think of it the same way as investors do in the sense that we want to completely avoid dilution. We want to create the best and largest leverage possible to a higher gold price environment. Which we really do now, when you consider the fact that we have one of the largest gold resource portfolios in the Americas, for any pre-production company. I think the only other companies that would have a resource bigger than ours are projects that are single asset and perhaps far more advanced than we are in terms of maybe at an engineering or feasibility stage. So ultimately I think it's a very unique size that we've managed to pull together, and the equity ownership that the insiders have just creates a perfect alignment with our shareholders.

Gerardo Del Real: Excellent. Amir, you mentioned the size of the portfolio, and in contrast to that majors’ gold resource inventories I think are at a decade low, and we haven't really seen the type of M&A activity or the urgency from the majors to replace those reserves that you would expect to see. What are your thoughts on the overall state of the gold space? Do you think there's a small window still to get more accretive deals done? You're obviously targeting that, you obviously have your finger on the pulse, but what's your take on majors having resource inventories being depleted?

Amir Adnani: It's an opportunity for the exploration cycle coming back, and companies with resources and quality projects being able to really thrive with that kind of set up. So as you point out, resources and reserves for the gold mining industry are at a decade low. This goes back to the very first point we talked about at the very beginning where, again during the bear market you would expect this to happen, even though again it's counterintuitive, but this is what happens. The exploration and developing of the pipeline is starved of oxygen, being capital, and you end up with this situation that the gold mining industry is in right now.

I think we saw a glimpse of it last year when we had those 6 good months for gold, right? From Brexit until Trump's victory, we had a really nice, robust gold market. Price got over $1,300. And Gerardo, as you saw, that was enough of an environment to see a number of M&A activities. We saw some of the majors get really quickly active in making strategic investments, making some acquisitions, and that was only gold over $1,300. That was just 6 months, but we saw the evidence firsthand of what it does when the shelves are empty, and that's what I mean when I say the pipeline and resources are quite limited right now. It's analogous I guess to running a grocery store or running Walmart and your shelves are empty. It doesn't work, you've got to replace them, you've got to replenish it, and you've got to have new inventories.

I believe moving forward we're going to see more of the same. Some of the majors have definitely got to the point where they have reduced their exploration departments so much in terms of human capital that really the path of least resistance for them to grow is to simply acquire other small companies, the juniors, because otherwise to pursue organic growth can take years. As you know very well, to go from grassroots exploration to defining resources would take years, 5 to 6 to 7 years. So again, the idea that you could be in a position where those gold resources have already been identified, defined, in place, in very mining friendly and active jurisdictions for development and mining. These are unique situations and I think we're going to see majors and mid-tiers come back the second we see that sustained recovery and price move in gold. Just like last year you're going to see a very busy gold sector in terms of potential M&A.

Gerardo Del Real: Excellent. Well, I appreciate the analysis. Amir, I encourage everybody to go to GoldMining's website, which is GoldMining.com. Amir Adnani, GoldMining Inc. Thank you very much for your time, Amir.

Amir Adnani: Thanks, Gerardo. Great to be with you.

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