Since the end of last week, the Greatland Gold (LSE:GGP) share price has erupted. In fact, over the past three trading days, the mining stock is up more than 30%. But then this morning, it plummeted again by over 10%. This recent volatility has helped undo some of the poor performance seen in 2021. However, its 12-month return is still around -15%. So what happened? And is now the time to add this firm to my portfolio?
The volatile Greatland Gold (GGP) share price
As a quick reminder, Greatland Gold is a late-stage exploration company. Its flagship Havieron project is a massive gold and copper deposit located in Western Australia. The firm is actively pursuing the site in a partnership with Newcrest Mining. According to an early mineral resource estimate, Havieron could contain up to 4.2 mega ounces of gold or equivalents. Based on today’s price of gold, that’s worth roughly £5.4bn. That’s quite a growth opportunity. And it’s what was behind the explosive momentum of the GGP share price last year.
This morning, the company released the pre-feasibility study of the project. And despite its shares being in the red, the results are very promising. At least, I think so. The report only addressed the South-East Crescent of the mine, which represents 28% of the initial resource estimate. This area is where initial mining will begin and therefore is the most relevant at this time.
Looking at the numbers, it contains approximately 1.6 mega-ounces of gold and 73 kilo-tonnes of copper at a concentration of 4.58 g/t of gold or equivalents. Generally, anything above 5 g/t is considered excellent. So Havieron comes pretty close. Due to the favourable location and structure of the ore deposit, Greatland Gold has just become the second-lowest-cost gold mining business in the world. As such, this project’s estimated rate of return is 27%, which means the payback period is only three years after mining starts.
Needless to say, this is fantastic news. And with another 72% of the mine awaiting further exploration, there remains plenty of growth potential on the horizon. So why did the GGP share price crash this morning?
Taking a step back
As exciting as this news is, there’s still a long road ahead. Resource extraction won’t actually start until early 2024. The company still needs to explore the rest of the deposit and use the data to compile a complete feasibility study for the entire site. This new study is expected to be released by December 2022. And it may lead to some unfavourable discoveries.
Currently, the GGP share price is elevated by the prospect of the entire mine being a success. But suppose only the South-East Crescent is economically viable? In that case, the firm’s market capitalisation will likely see a sharp downward correction. So I’m not surprised to see less patient investors use the elevated price as an opportunity to close their positions.
The bottom line
Since I began following this company last year, the lack of confirmed results for Havieron was my primary concern. Today those concerns have been partially alleviated. The GGP share price still appears to be inflated by shareholder expectations. However, now that there are some confirmed results, these expectations appear to be more justified in my mind. Therefore, I am considering opening a very small speculative position in Greatland Gold for my portfolio.
Zaven Boyrazian 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.