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As the Greatland Gold (GGP) share price explodes, should I buy more?

View of a gold mine from above
Image source: Getty Images.

The Greatland Gold (LSE: GGP) share price has had an extremely difficult 2021, falling 46% year-to-date. Over the past year, it’s down 12%. Nonetheless, with the gold miner consistently posting exciting updates around its world-class Havieron deposit, this share price drop has not been due to poor performance. Instead, I believe it has been caused by many shareholders becoming impatient and wishing to bank profits. This is especially true after the stock rose over 1,800% in 2020. But the current lack of optimism changed yesterday, with the stock rising 25% in just one day. As such, after I initially bought some shares a couple of months ago, should I now be adding more to my portfolio.

What caused the strong performance yesterday?

There were a couple of factors that caused the 25% rise yesterday. Firstly, Greatland Gold’s partner, Newcrest Mining, announced that it intends to release its pre-feasibility study results from Havieron on 12 October. After a series of positive updates from this deposit, the results are expected to be positive, and hopefully, there may be a decision to mine at some point soon. This could see the GGP share price soar.

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Secondly, the bank Berenberg also reiterated its buy rating for GGP, giving it a target price of 26p. This implies that shares have potential upside of 32% from the current price. As such, I feel this could have reignited the optimism that abounded in 2020, causing the GGP share price to rise as a result. Hopefully, this optimism will continue into the future.

Other factors

Despite both these factors being positive, a rise of 25% is still extremely large, and there’s the potential that some of these gains may be lost over the next few weeks. Indeed, GGP is still in its exploration stages, meaning that it’s pre-revenue. Accordingly, it’s incredibly hard to value the stock, and its current share price is solely based on speculation. Extreme volatility is, therefore, the likely result. This means that, despite the potential that the company has, there are still plenty of risks.

Further, if the results at Havieron disappoint, this is likely to see the stock drop significantly. This is because its share price rise last year was heavily reliant on its success at Havieron. The 25% rise yesterday also demonstrated that expectations are very high and there seems very little room for bad news.

Where next for the GGP share price?

Due to difficulties around finding a suitable valuation, it’s hard to say where the GGP share price will go next. Nonetheless, I’ve been willing to add the shares to my portfolio. This is due to their incredible potential and the indications that the company is sitting on a ton of gold. There have also been encouraging results from other deposits, such as the Juri joint venture. Hopefully, this may see the company start generating revenues at some point soon, something I feel would have a very positive impact on the GGP share price. As such, although I want to keep GGP as just a small part of my portfolio, I’m still tempted to add a few more shares.

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Stuart Blair owns shares in Greatland Gold. 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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