The Motley Fool

The GGP share price: is this penny stock now a beaten-down bargain?

British Pennies on a Pound Note
Image source: Getty Images

My bullish call on penny stock Greatland Gold (LSE: GGP) back in August 2019 remains one of my most satisfying. A little over a year later, the GGP share price had jumped to 38.5p. That represents a gain of around 2,200%, by my calculations.

Since then however, the value of the stock has more than halved in value. Will the publication of the pre-feasibility study (PFS) for the firm’s Havieron project arrest the gold miner’s decline?

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Great potential

If you’re new to mining stocks or investing in general, it’s worth clarifying the purpose of this analysis. A pre-feasibility study is conducted early on in the lifecycle of a mine. It gives a company, its backers and would-be backers an idea about whether it makes economic sense to carry on digging. 

As my Foolish colleague Zaven Boyrazian reported on Tuesday, there was a lot to like about Greatland’s PFS on the South-East Crescent of the deposit. An estimated rate of return of 27% means GGP (and partner Newcrest) should only take three years to recoup costs once production begins. 

The fact that this study was only focused on 28% of the initial resource estimate also gives some indication of just how big (and lucrative) Havieron could become. 

Unfortunately, the GGP share price fell heavily on this news and now sits at just above 17p. This is the case despite GGP investors now having some concrete numbers to work with. It’s also despite gold being seen as a good hedge against inflation, which might not be as transitory as some economists previously believed. 

Wait – why did the GGP share price FALL?

I suspect it’s down to investors’ expectations becoming a little more realistic. This makes would-be buyers less likely to get carried away and bid up the share price to questionable levels. When this is accompanied by a wave of ‘sell on the news’ traders, GGP’s share price fall does make some sense.

There are other considerations. Even if everything goes to plan from here (and that’s extremely rare for mining projects), Greatland doesn’t expect to begin extracting the precious metal until 2024. That’s a long time for holders to wait while the share prices of other penny stocks zip ahead.

As always, investing requires reflecting on what I’m potentially giving up elsewhere by staying loyal to a particular stock (otherwise known as ‘opportunity cost’).

Other risks to consider are that miners are never in control of the price of whatever they dig up. After years in the wilderness, the precious metal’s valuation soared last year in the aftermath of the Covid crash. In 2021, it’s been a very different story.

Without a mine in operation, that’s arguably less important for GPP than an established player. However, it won’t always be the case. 

Buy the eventual dip?

Is GGP a beaten-down bargain? Possibly. Tuesday’s report certainly highlighted the massive potential of the project. I also think there’s a lot to be said for Havieron being located in a mining-friendly, politically stable part of the world.

At £700m however, I reckon it will take a lot more than before to move the company’s valuation significantly higher for a while. Perhaps this is now one for me to snap up in the next (inevitable) market crash?

Free Report: 3 Shares To Try And Hedge Against Inflation

The Bank Of England has acknowledged that inflation is likely to peak above 4%, and stay there until the second quarter of 2022.

Some people are running scared, but if there’s one thing we believe you should avoid doing at all costs when inflation hits… it’s doing nothing.

That’s why we’ve put together a brand-new special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation.

Because no matter what the economy is doing, a savvy investor will want their money working for them, inflation or not!

Best of all, we’re giving this report away completely FREE today!

Simply click here, enter your email address, and we’ll send it to you right away.

Paul Summers 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.