Greatland Gold (GGP) is a company that I’ll happily admit to having been wrong about, as were many others, and a lot has changed since I last looked at it around the time that Newmont Mining had decided to terminate its involvement. At the time, I expected that Greatland would go the way of so many other small mining companies that promised a lot and then failed to deliver, given that Newmont had decided not to exercise an option to partake in a joint venture on its Ernest Giles gold project in Australia. At the time it was extremely early days with Havieron licence area, which is now the main focus of attention and which has turned the company around...
It had only recently purchased this licence from Pacific Trends Resources for A$25,000 and the issue of 65.49 million shares in Greatland – the vendors must be kicking themselves seeing what has happened since then, and this appears to be one of the rare cases where a junior miner picked up a licence very cheaply, which subsequently turned out to be far more valuable! Often with resource stocks timing is everything, and it does appear that Greatland had a stroke of luck with a bit of a renewed gold rush in Australia kicking off, plus being in fairly close proximity to Newcrest Mining’s Telfer gold-copper deposit, which is expected to produce up to 400,000oz during 2020, along with 15,000t of copper. When it comes to natural resources proximity often isn’t a very good indicator of success, but in this case drilling results at Havieron had been impressive in terms of grades, plus the type of mineralisation was consistent, and so much so that Newcrest ended up agreeing to a farm in.
Newcrest will receive up to 70% of Havieron in return for spending $65 million over a six year period, which includes paying for the exploration and appraisal drilling which has been ongoing and managed by Newcrest, as well as completing pre-feasibility and feasibility studies. Mineral resource estimates for Havieron are yet to be announced but are expected by the end of this year, and it will be interesting to see how those compare to Telfer. As at the end of February this year, Telfer had booked reserves of 1.4 million ounces of gold remaining, with a further 5.4 million ounces of resources – although the ability to convert that into reserves is largely commodity price dependent, with the all-in sustaining cost of production at Telfer coming in at $1,380/oz for H1 2020. One thing that is definitely worth noting is that AISC, should it reach a similar level at Havieron, implies that a lot of the value from gold mining in this region is likely to be highly dependent on gold spot prices in the coming years – the profit margins look amazing currently, but I personally see it as unlikely that gold will remain anywhere near the $2,000/oz level longer term. But what we also need to consider is that Telfer is much later stage, and I would expect the AISC at Havieron to initially be a fair bit lower – just how much lower is the question, which a feasibility study would answer when one is eventually completed.
What is interesting though, looking at the likely mine life of Telfer - unless gold prices stay very high and significant amounts of resources are converted to reserves - is that it would be looking for something to potentially replace that, and at around a time that fits in with the expected schedule for Havieron development, should everything go to plan with the feasibility studies and permitting etc, somewhere around 2024. So although the results so far do look interesting and I don’t doubt that there are potentially large amounts of gold at Havieron, I also think there is a fair bit of risk associated with commodity prices and the commercial development of the licence area – even assuming that the AISC comes in much lower than Telfer. So, whilst I wouldn’t question the geology and the potential, what I most certainly would question is the current valuation being placed on this company, given that the market cap hit the £1 billion mark last week! It has since dropped back to around £850 million at a share price of circa 22.5p, but even that means that over £400 million has been added to the market cap in just a couple of months, and I really can’t see any justification for that, especially when you consider what Greatland retains of Havieron and that the free carry from Newcrest will only take it as far as the feasibility stage. Granted, having a company like Newcrest onboard is a big bonus in terms of actually going ahead and getting to the production stage, but I see more risk here than is being priced in.
Havieron isn’t the only licence where Greatland has produced some good drilling results, but it is by far the most advanced and I’d argue that is where most of the market cap is being attributed. Maybe I’ll be proven wrong again with this one, but I personally think that the current valuation is completely bonkers, and even more so when you compare it to other gold miners, and large producers in particular.
Filed under: Greatland Gold, James Benamor, Amigo, [email protected] Capital, PZ Cussons, Hyve Group
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