Summary
Globex is a mining royalty company and a mine and mining claim wheeler/dealer with high growth, and deep value, and that is in the right place at the right time.
- Globex often gets a 3% GMR, or Gross Metal Royalty, not the more normal 1% NSR. Since they sell the properties for a profit, those massive royalties are for free.
- A 3% GMR is extremely valuable, if a mine they sell produces $2 billion in sales at a 10% profit ($200 million) Globex will get $60 million or 30% of the profits yet has no risk nor investment. If a client miner sells $2 billion of minerals and loses $50 million, Globex will still make the $60 million in profits.
- They have over 200 mining properties and dozens of royalties yet are at a dirt-cheap valuation of Allen EV/EBITDA of 1.55, ROCE of 1,926%, Current Ratio of 131 and with Sales Growth of 335%.
- Due to having so many deals in place Globex will be a legitimate drilling results news machine on steroids. They pay nothing for the drilling yet benefit greatly when results are good. If 15 clients drill in a year Globex gets the news flow from all of them.
- There is only one other deep-value company I know of that gets mining royalties for free. That is GoldSpot. I have a large position in both and think both are outstanding investments.
- Globex has high insider ownership and a long record of avoiding dilution and wasteful spending.
Source: Dreamstime.com, public domain
Let's start with Globex's valuation metrics and chart.
This is from UncleStock. The chart on Globex Mining Enterprises Inc. (GMX.to on TSX, GLBXF on OTC) looks perfect for my style of investing, which is buying low both on the chart and in terms of valuation metrics, then selling high on both. The RSI is lowest it has been on the chart and the MACD just did a buy signal. The last time the RSI dropped this low the stock went up about 70% in 6 months. BTW a stock can also be making new highs yet be undervalued, with many oil stocks today as examples.
In the left column is a space smaller than your hand and has all the key value metrics on the stock. It is the most concentrated source of company valuation info am aware of. Those familiar with stock value metrics, will see these results are amazing to mind boggling good. Just click on any image in this article for a high-def image. Globex has an Allen EV/EBITDA of 1.55, a PE of 3, a ROCE (Return on Capital Employed) of 1,926%, a Current Ratio of 131 and a Sales Growth of 335%. The market cap is $68 million, and they have cash of over $20 million and no significant debt. Since they do big deals that are hard to predict, results will be lumpy.
Before we get into the details on Globex, let's look at the also amazing value metrics of GoldSpot Discoveries Corp. (SPOT.v on TSX and SPOFF on OTC), the only other company with a similar business model to Globex. GoldSpot gets free royalties for using AI to locate mineral deposits on clients' land and makes money off of doing that work in consulting fees. I love both companies' business models.
Founder and CEO Jack Stoch has been at it for decades. Now, like for other royalty companies, the delayed payback is here. For typical royalty and streaming companies like Wheaton, who fund miners, there is a long delay from investment to royalty and streaming payback. Globex's business model is superior to Wheaton's because Globex does not have to pay for the royalties, and Globex cash flows before the royalties start to pay back.
Jack is the best person to describe how Globex operates, and he gave an excellent interview with fellow CEO author CanadianKyle. I urge anyone thinking of investing in Globex to watch this video.
As you can tell from that video Jack is driven and highly knowledgeable about his business and many other industries. I have a geology degree and never learned nearly as much about talc in geology school, as learned in this interview. Jack is obviously very valuable to Globex. He is working on finding people with his skill-set for eventual succession. I accept it as a risk that Globex is more dependent on Jack than most companies are on their CEO. Over decades of investing in hundreds of stocks only once has the sudden departure of a CEO caused a serious drop in the share price for me. That company was far more dependent on its CEO than Globex is on Jack.
What I see from the video is that Jack is an independent thinker, a non-conformist. That attribute is the #1 thing that billionaire venture capitalist Peter Thiel looks for in a CEO as he points out in his book From Zero to One. Both CEOs and investors are less likely to "drink the KoolAid" and follow the crowd over the cliff to their ruin, if they are non-conformists. The investing world incorrectly labels this being "contrarian", which really means being mindlessly contrary and going the opposite direction. But a non-conformist only goes against the crowd when they think the crowd is wrong. The crowd can be right, like the crowd being bullish on Apple in 2003.
I share Thiel's non-conformism. Before he co-founded PayPal with Elon Musk he paid to go to a speech by me about the U.S. news media’s lack of trustworthiness. He was an unknown at that time, but he came up to me and said he could not agree more with my speech and gave me a book he had just written. He dropped by my Silicon Valley software company offices several times and we discussed how to improve the news media. He was obviously an independent thinker and very smart. The next heard of him was when CNBC gave him "The CEO of the Year Award" as PayPal's CEO. Recently while packing to move found his book and his inscription. My name is redacted in the image.
I get a chuckle out of reading this 26 years later.
With Globex we get remarkable valuation ratios today. For the first time the company has a lot of cash. They started out with one property and now have over 200. It's a natural wealth compounding machine. An investor in 2022 does not need to wait, the serious cashflow has started and they have the cash to do bigger deals.
Note that on royalties these are primarily in place royalties while the clients are drilling, doing PEA reports, etc. , with a much smaller number currently in production and paying fees.
Recent Deals Globex Has Done
Globex Completes Sale of Francoeur/Arntfield/Lac to Yamana Gold Inc. for $15 Million
This was in 2022. Globex generally makes huge profit margins on their deals.
Manganese X Energy, Positive PEA for its Battery Hill, NPV10% of $486M US, and IRR of 25%
This is in May 2022.
o Average annual gross revenue of $177 million per year over the 47 years Project life
On this property, Globex did not buy it, they staked it, so a tiny investment in it. The original PR on it says Globex shall retain a 3% Gross Metal Royalty (GMR) on all recovered metals and minerals produced from the Property.
The most recent PR indicates Manganese X is trying to reduce that, but that is apparently still in place. Let's do some math on the PEA (Preliminary Economic Assessment). $177 million a year average means Globex gets $5.3 million a year for 47 years = $250 million and that is inflation protected. If prices are 50 times higher in 47 years (not unreasonable) then Globex would get $265 million just for that last year! And for something Globex did not even have to buy. This is a fantastic business model.
The newest PR is this: High Grade Copper Intersected in “Deep Zone” at Globex’s NewMetal by Starr Peak, May 26, 2022
On May 19, 2022 Starr Peak announced assays from hole STE‐22‐092‐W2 which intersected 5.03% zinc equivalent over 12.5 meters. Today Starr Peak announced the assays from wedge hole STE‐21‐92‐W3 as follows: 5.90 meters at 9.49% ZN Eq. These are great intercepts. If these good holes continue, it sounds like it will turn into a mine. And Globex retains a 2.5% GMR on the Normetmar, plus retains over one million Starr Peak shares.
Investor Myths That Hold People Back From Big Gains
At this point some may think Globex's tiny market cap and big upside mean it is "too good to be true". Such a belief is a myth. Outside of stock investing things that sound too good to be true indeed can end up being scams. In stock investing sometimes books are cooked, for example Chinese stocks have had many scams. But in Globex's case there are no signs of danger. It has been an honest company for decades that has looked out for shareholders, over 10% of the stock held by insiders.
In regard to the too good to be true myth I wrote an article on it here: The Riddle Of Universal Insurance: $200 Million More Cash Than Market Cap, The 'Too Good To Be True Bias' That stock went up 20 times afterwards and I sold. It eventually 40 bagged.
Another myth is that low market cap stocks are inherently risky and likely to fail, it is safer to buy money losing megacaps like ARKK, UBER and Zillow. How is that working out now? What is risky is paying huge valuations for businesses that have never made a profit no matter how big their market caps are.
But when a small company like Globex has incredibly good ROCE, a huge portion of its market cap covered with cash, and has no debt, that makes it an extra-safe stock. Especially compared to Zillow, which I am short. There are a lot more investor myths than these, but for Globex these two myths are the most likely to dissuade people from investing.
What Investing Results Are Possible Avoiding These Myths?
I will use my own investing results as an example. I have been investing in stocks like Globex for 20 years and have concentrated in them for the last 5 years. About 80% of my funds are in value nano or microcaps. I'm very "bottom up" like Seth Klarman; I find the most undervalued stocks I can, ignoring the market cap. I also have many Canadian and Australian and some Argentina stocks even though am an American, because I see better valuations there.
The bottom line is my 20.25 year CAGR is 23.86%. That is the third best 20+ year CAGR for a stock investor I know of in the last 100 years. I define a stock investor as someone that holds stocks for more than 30 days on average and has at least 10 stocks in their portfolios. My 3 year CAGR is 97% across all accounts. In my Roth IRA with no margin available the 3 year CAGR is 145% as my statements below show. That means the account has 16 bagged in 3 years. In 2020 I found that the best 3 year CAGR out of all the 20,000ish hedge funds was 46%. Most hedge funds underperform the SP500 most years.
My methods are quite similar to Warren Buffet in his early years when he made his first billion. People forget he was a value nano-microcap investor when he got his best results. This century my end gain is 10 times better than Buffet's. He has so much money now he cannot invest in smaller stocks and hence his results are way down. The below image covers those investing results. I am Darp Research on Seeking Alpha.
Myth #3 You Cannot Get Big Gains Without a Big Risk Of Ruin
I have compared my max drawdowns to those of Warren Buffet and they are similar in this century. Another way to compare this is that the hedge fund industry has tracked the 100 biggest positions of the most profitable hedge fund managers. As the below chart shows those stocks are down an amazing 45% in the last 7 months! That shocked me. During the same period all four of my accounts at IB combined were not down at all. Instead, they were up 26% while the NASDAQ went into a bear market. An image with the results for the Whales and my account statement is below. So instead of more risk, I've found value investing in high potential stocks is less risky. Another investing myth bites the dust.
Commodity Super Cycle
Many experts in resource stocks with good records, like Rick Rule, are saying we are already in a Commodity Super Cycle. I agree. What does that portend for Globex? Every asset they have will become inherently more valuable. Just take gold properties. At $2500 USD gold, which is only a 35% move for gold from here, miners will be tearing Globex's doors off the hinges trying to buy deposits. Money will flood the sector. Their existing clients will find it 10 times easier to finance building mines. The reason? A deposit with decent economics will suddenly become super profitable. This has happened before, and it will happen again. Globex has so many different metals and minerals in their quiver that whatever commodity gets hot, they likely have some deposits to sell. Then the icing on the cake: the mines get built and Globex gets its big royalties on them. Once built even if commodities drop, the mines will tend to stay open because the capex is out of the way. It is way easier to keep a mine open than to pay for building it.
Globex is a leveraged play of a Commodity Super Cycle and profitable before it started. At the same time, it is inherently an excellent inflation hedge.
Conclusion
When I found Globex, I was surprised at just how good a value it is. It is in my opinion one of the most undervalued companies I've ever found. It appears to be very well positioned for our current economic situation. I have taken a large position in it, over .4% of the company. Due to its low valuation today if metal prices go up as experts think, it is feasible for Globex to 10+ bag in the next 2-3 years.
I encourage readers to comment on this article and Globex. No doubt some of you will know things about Globex I do not. What do you think?
Disclosure: I have a beneficial long position in the shares of one or more of the companies discussed in this article, either through stock ownership, options, or other derivatives. I wrote this article without external assistance, and it expresses my personal opinions. I was not compensated for this article, and I have no business relationship with any company whose stock is mentioned in this article.
7-1-2022 Update: The sector has been killed, but Globex looks as good as ever. The Crater Lake neighbor Imprerial just got a $billion+ usd PEA that is super conservative, discounting the Scandium and REE prices way below current ones. Here are my thoughts on mining sector put out today:
This morn, pre bell, a strange thought. Is this like 2020? The last bad Q have had in mkt was 2020 Q1. Think 30-35% down. After that just wanted to survive the year and would be thrilled to break even.
That did not happen, had best year ever +289%. The last time saw charts that look like today's ones, was in April 2020. Right now, no one is calling for a V bottom. In April 2020 with covid and hyper high values in stocks things looked bad and we did go into a recession. Gold miners and oils killed. When I look at 25 year charts the last time we had a drop like this, was 2020, prior to that 2008.
Could we have another V bottom here on Gold Miners, Oils, miners of all kinds? Remember how bleak it was in April 2020? It was terrible and BTW you might die on top of the bad economy. Everyone was under near home arrest.
And then stocks took off like crazy!
OK my take is the Pelotons and NetFlixs and BYNDs and Bitcoins will not V bottom, nor will the QQQ. But maybe the miners and oils and sound biotechs will. On Miners even the multibillion Lundin Mining is down 50% in 2 months!! It fell more this time than in 2020 and is < 3 EV/EBITDA. Is it really worth $5 billion less than 2 months ago? I do not think so.
The rest of the day looks like at least a temp bottom for those 3 sectors. More thoughts. This may be the best time to buy U stocks in about 1 year. CCJ is biggest U stock. It is not a great value; it is 63 Allen EV/EBITDA and 20 X CFO. BUT it is the elephant in the room for U stocks. They can increase production. The best 2-day signal have ever seen is a red hammer followed by a green engulfing candle. Friday CCJ did that and URA ETF also did it. It often occurs at market bottoms, a super reversal signal.
When is last did that was 8-20-2021 and it was the very best day to buy CCJ in the last year, the first day up from the very bottom. AND the best indicator-based reversal pattern has seen is MFI going under 20 then over. Friday CCJ did that too. It was only under 20 for one day. The prior 2 times it did that? 8-20 1 year Low and 5-12-22 6 month Low, both fantastic entry points. And throw in when I woke up Friday the crazy idea that miners may have bottomed without looking at charts, just struck me, how the negativity that day was so similar to the 2020 bottom negativity.
Quite the combo as an entry point. I have CCJ options and URA ones, as much as possible with my sparse free cash will try and add on Monday. U itself, SRUUF, also up Friday, and MFI is 18 so will go over 20 almost for sure Monday. It is on triple 1 year bottom on Friday.
There is more, GDXJ up huge on Friday. It never got to 20 MFI but is lowest it has been since 2020 crash. And it did a complete big green candle engulfing of a big red candle on Friday on higher volume, check out a 5-year chart.
And XOP is at 26 MFI is a typical reversal point for it, in its huge current bull market. It did put up a candle reversal signal, but not as pretty as CCJ did.
Copper? Copper Mountain did my fav 2 day candle reversal even prettier than CCJ did, and a 20 MFI reversal too. And a double bottom, all on Friday 7-1-2022.
As crazy and counter sentiment as it sounds, looks like a great place for miners to have put in their bottoms on Friday.
Cheers
2023-04-10 Update: Crux Video has revelation that Globex has all their mining properties at zero value on its books. Also revealed is that 4 million shares were sold by a mining company that needed cash to build their own mine, that is what has driven GMX down for about 6 months. That company has now sold all their GMX stock. 2023-04-10 was a breakout day for GMX on the chart, now it is in an uptrend.
I have added more GMX stock in last few weeks.
2024-10-7 Update: Globex has been shot out of a cannon the last few days on low volume. High .50s to the low .70s usd. No specific news, but two catalysts. One of their properties is looking good, and the tenant, Raddison, is spending a lot more money on it, it is called O'Brien. https://ceo.ca/@globenewswire/radisson-announces-additional-upsize-of-previously https://ceo.ca/@globenewswire/radisson-appoints-david-ross-as-vice-president-of-exploration
The other factor is that it looks like they will mine one of their properties with new technology This is tech https://novamerainc.com/smd-technology/ https://www.youtube.com/watch?v=wTwC6s3PxTg
And Novamera has used the technology several times already, as mentioned in this PR for doing a new project: https://novamerainc.com/great-atlantic-resources-advances-to-bulk-sample-using-novameras-surgical-mining-technologies-at-jaclyn-main-zone/
Jack explains how they plan to use this on Ironwood, a 17 gram/ton gold deposit. https://youtu.be/olXys3SdNNA?t=1704
Basically, it is mining without miners or going underground, mining by using 1 meter wide drills from the surface. Have done the math on this. It is 4 million grams or X $85 a gram = $340 million usd of gold. Jack says in the video it will be high margin. A couple of weeks ago Globex was $30 million usd mkt cap with loads of cash and no debt. If they can do this, maybe they can produce $100 million of net profit fairly fast.
My guess these are two major things driving Globex. BTW this Novamera technology can help a lot of Globex's 200+ properties. As where they are geographically has many available toll mills, so is very low capex. Just drill and truck, no miners. If it works there, bet Globex will repeat this on other properties. Jack is very careful on spending money, so I doubt he would do this without a high probability it will work.
More info on this chart:
Shows that operating costs per ton are higher than variety of other underground mining methods, sometimes not by much. BUT the capex is tiny, 1/4th to 1/10th the cost to start mining. And the operating cost is very consistent, about $140 a ton. On the Ironwood mine at 17 grams per ton that Globez is planning to use this, the ore is worth $1445 a ton. So 90% operating margins and tiny CapEx.
