If you want to see a boom and bust, just look at Greatland Gold (LSE: GGP) over the past couple of years. The GGP share price took off in 2020, reaching 38p near the end of the year. Over the course of 2020, GGP shares climbed by 1,900%.
Then in 2021, everything went into reverse, though not all the gains were lost. As I write today, the shares stand at just 13.1p, having fallen 41% over the past 12 months — and 65% since that late 2020 peak. So what went wrong? What could drive the price up again in 2022? And should I add this penny share to my portfolio?
The excitement was all about Greatland’s Havieron exploration project in Western Australia, a joint venture with Newcrest Mining. The partnership has identified what miners dream of, a huge gold and copper deposit. At the time, estimates suggested it could hold around 4 mega-ounces of gold or gold equivalents. At around $1,900 per ounce today, that could be worth $7.6bn, or £5.7bn.
GGP share price fall
To put that into some kind of perspective, Greatland’s market cap currently stands at approximately £530m. But what’s the story behind the subsequent price fall? Well, promising though the potential riches might appear, the project is still very much in its early stages. And the company has only just commenced a feasibility study covering the whole site.
We should have the results of that by December this year. And I wouldn’t be surprised to see the GGP share price meandering until we get close to that revelation. Even then, extraction of the shiny stuff is not expected to start until 2024. And the company doesn’t expect payback until around three years after that.
Greatland reported a loss of £5.5m for the year to 30 June 2021, with no operating income yet. Still, the potential at Havieron meant the company has had no trouble raising new funds. November’s fundraise generated a total of $16m (£11.9m), with new equity issued at 14.5p per share.
Uncertainties
How much of the final wealth will end up with existing shareholders is a uncertain though. How much new cash will be needed before any operating profits are seen? And what will shareholder dilution look like by the time that point is reached? These questions will surely weigh on the GGP share price.
There are also uncertainties over what the full survey of the site will reveal. But on that score, I’m reasonably optimistic based on the progress so far. The South-East Crescent of the project looks very good, appearing to hold 1.6 mega-ounces of gold and 73 kilo-tonnes of copper. If that ends up being representative of the whole site, then I could imagine a very profitable future for GGP shareholders.
Will I buy? Well, I was burned by Sirius Minerals — a different mining commodity, but a similar early-phase project. Any entry now would be too speculative for me. So I’ll sit it out, even though I suspect the GGP share price could be stronger by the end of 2022.
