Is this why the Greatland Gold share price keeps falling?

Rupert Hargreaves explains what he thinks is the reason the Greatland Gold share price has been falling over the past 12 months and what this means to investors.

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Last year, the Greatland Gold (LSE: GGP) share price returned a staggering 1,600% as the company pushed forward with the development of its flagship gold mining prospect Havieron.

Based on existing exploration activities, the company and its joint venture partner, Newcrest Mining, believe this is a world-class gold-copper asset. 

Unfortunately, the euphoria that surrounded the stock last year has failed to carry over into 2021. Year-to-date, shares in the exploration company have fallen more than 50%. Over the past 12 months, the stock’s off around 23%. 

The Greatland Gold share price has continued to decline even though the company’s released a string of positive updates from its flagship project throughout the year.

At first, this doesn’t seem to make much sense. Equity prices should track a company’s underlying fundamental performance in the long run. Therefore, as Greatland’s fundamentals improve, the stock should be moving higher, not lower.

So what’s causing the Greatland Gold share price to act in this way? 

Holding pattern 

I think the shares’ performance is nothing to do with the company’s underlying fundamental performance. Instead, it looks to me as if the market got ahead of itself last year.

At one point at the end of 2020, Greatland had a market capitalisation of around £1.2bn, even though it wasn’t producing any gold or generating revenue. This valuation was based on nothing but hope. 

As the company’s pushed forward with its joint venture partner developing the Haverion prospect, I think its investment case has improved. But it’s clear that many investors, who bought in last year seeking a quick profit, haven’t had the patience to stay around. 

There’s a chance they could have made the right decision. Early-stage mining companies are notoriously bad investments. There will always be a risk the corporation will run out of money before its project starts producing revenue.

Developing mines is also incredibly expensive, and it can take years to gain the necessary permissions from authorities. 

Still, while this is a risk, it looks as if Greatland has made a tremendous amount of headway over the past year. 

Greatland Gold share price outlook

Greatland and Newcrest are already in the early stages of developing Havieron’s mining infrastructure. At the same time, the final exploration and development studies are well underway. 

Considering the partners’ progress, I think the market will begin to see further positive news flow from the group over the next 12 months. 

That being said, I’m not going to rush to buy the stock. It could be some time before Havieron is earning its keep. In the meantime, the Greatland Gold share price may continue to decline. 

As such, I’d wait for production to begin. That way, it’ll be easier for me to place a value on the stock

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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