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Greatland Gold shares have fallen 27% in 1 month. Should I buy?

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Gold bullion on a chart
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Greatland Gold (LSE: GGP) shares were in high demand in 2020. But over the past month, the stock has fallen 27%. Does this mean it’s a buying opportunity for me?

Perhaps. But first let’s be clear about a few things. The share price may be down, but it remains a popular buy. Hargreaves Lansdown investors are still buying Greatland Gold shares. The stock is still within the top 20 of the most purchased shares on the platform.

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Yet I should mention that Greatland Gold shares are a risky investment as it’s still a small loss-making miner. Let’s be frank, mining for gold is a costly business and it’s not the kind of share I’d have considered when I had less investing experience.

An overview of Greatland Gold

The AIM-listed company mines for gold and copper in Australia. It currently has six projects, four are in Western Australia and two in Tasmania.

The Paterson project, which is one of the six, includes two joint ventures including Havieron and Juri. Greatland Gold signed a farm-in agreement with larger peer Newcrest to explore the Havieron deposit in March 2019, and has delivered consistent positive results.

Juri is another joint venture with Newcrest to explore the Black Hills and Paterson Range East sites. Within the Paterson project, Greatland Gold owns two 100% licenses, Scallywag and Rudall.

Why did Greatland Gold shares rally in 2020?

I think there are a few reasons why the shares soared in 2020. The global pandemic created a lot of uncertainty last year. This led to many investors buying gold as a safe-haven asset to store value and hedge against inflation. This gold rush also led to many snapping up small gold-mining company shares.

Alongside the 2020 ‘gold rush’, the company released a series of successful drilling results at its Havieron deposit. While it’s still early days, this site demonstrates the potential for a large, underground mining operation.

The company has partnered with Newcrest to share the risks and rewards. And the success of Havieron led Greatland to sign additional agreements with Newcrest in November 2020. The latter offered Greatland a $50m loan in addition to the existing funding commitments. The debt facility will be used for drilling costs up to the completion of a feasibility study.

These events, along with the momentum for the precious metal, resulted in Greatland Gold shares soaring to new heights in 2020.

Why did the stock fall recently?

But Greatland shares have fallen more recently on the back of drilling news. On January 20, the company announced the results of its initial drill results at Scallywag. These weren’t positive and hence the significant fall in the share price.

I think it should be highlighted that not every drilling hole dug will be successful. This is why Greatland explores many sites and learns from the unsuccessful ones. I reckon after the success of Havieron, investors expected the positive results to continue. The share price fall is a reality check that Greatland Gold shares are not for the faint-hearted!

Would I buy Greatland Gold shares?

Greatland Gold shares are still a risky prospect as it’s currently loss-making, but I think there’s so much potential. It has the Havieron deposit even if Scallywag initially showed no signs of the precious metal. I’d still buy Greatland Gold shares in my diversified portfolio as a long-term investor.

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Nadia Yaqub has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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