Greatland Gold (LSE: GGP) shares are trading at an all-time high. The stock was just 2p at the beginning of the year and has rallied to its current price of 32p. That’s an increase of 1,500% in less than 12 months! With such gains, no wonder Hargreaves Lansdown investors are snapping up the shares.
The question I now ask myself is what’s behind this rally and is it likely to continue? The share price growth of Greatland Gold is tempting and as a long-term investor I’m starting to think buying it is a great idea.
Behind the Greatland Gold share price rally
The AIM-listed company has had a phenomenal 2020. In September 2016, Greatland Gold purchased the Havieron deposit as an early-stage exploration project. This has been a complete game-changer for the firm.
Greatland Gold shares have rallied on the back of positive drilling results from the project. And it also has other key prospects projects that look promising.
The gold rush
The price of gold has had an excellent run in 2020. The uncertainty of the coronavirus crisis led to investors buying the safe-haven asset as a store of value and hedge against inflation. With the miner having had a series of drilling successes, investors have been snapping up the shares on the back of the mini gold rush.
Even Warren Buffett, the gold bear, converted to the asset as his company, Berkshire Hathaway, purchased shares in Barrick Gold. This move was completely unexpected by investors and sent strong signals about the precious metal to the market.
Joint ventures
The trouble with Greatland Gold though, is that it’s a small mining company, which needs cash to continue its mining exploration. The success of the Havieron project has been due to its partnership with Newcrest.
In March 2019, Greatland Gold signed a Farm-in Agreement with Newcrest to explore the Havieron gold-copper project. The first part of the joint venture was to expand and speed up the exploration of this deposit.
Following the success of the first stage, Newcrest and Greatland Gold have entered into a series of additional agreements to accelerate the exploration of the Black Hills and Paterson Range East licenses. Newcrest has also provided GGP with a $50m loan to cover operational costs up to the completion of a feasibility study.
The outlook
These new agreements are positive news for the business as it allows it to speed up its development and continue to expand projects. It should boost the share price as it removes uncertainty hanging over the business.
But one thing to note is that mining exploration costs a lot of money. Although Greatland Gold is supported by Newcrest, it’s still loss-making. I normally invest in proven, profitable companies with a simple business model. But on this occasion I’m willing to consider this stock.
Miners listed on the UK’s junior market are typically riskier than FTSE 100 shares. For investors who don’t mind taking on some risk, like me, I think Greatland Gold makes a good speculative purchase.
