The latest news from Greatland Gold (LSE: GGP) saw shares in the miner jump 10% in only a week.
This recent announcement calls 2023 a “pivotal” time for the firm. If the next step goes to plan, I’m not sure its 8p share price will stay that cheap for much longer.
Production in 2023
The big news from Greatland Gold is that the wheels are in motion for its first mine, Havieron in Western Australia, to start production in Q3 this year.
Havieron holds proven resources of around 5.5m ounces of gold and 222,000 tons of copper. At today’s price of $1,900 per ounce, the gold alone could be worth $7.6bn, or £5.7bn.
That potential for future cash flows makes Greatland’s market cap of £430m look tiny – although it does own rights to only 30% of Havieron.
The other 70% is owned by partner miner Newcrest. Further good news is that the expertise of Newcrest, with its AU$25bn market cap, means cost estimates are among the cheapest of mines in Australia.
One problem here is the mine will be the firm’s first source of revenue. Without proven cash flows, it does make this stock a riskier investment. At the same time, it might offer me a chance to buy in for big gains if the mine is a success.
Low-jurisdiction Australia
While junior miners are always a risk, I’m bullish on the firm’s chances of making Havieron a success for three reasons.
Firstly, the mine’s operations are fully funded. So I won’t need to worry about stock dilution or other threats to my equity.
Secondly, even though Greatland is AIM-listed and UK-based, it operates only in Australia. That’s a country with low jurisdiction which means little chance to run into problems with the government.
Lastly, it feels like a safer investment with some big investors on board. Barclays Bank holds 4.7% of the firm’s shares and Australian mining giant Wyloo Metals holds an 8.5% stake too.
China and Russia
Taking a wider lens, it seems gold and copper are profitable metals to start extracting right now. Gold always performs well in economic downturns, and is near a record high right now.
Copper’s crucial role in electric components means demand is set to double by 2035.
And mining and resource companies had a stellar 2022 after Russia invaded Ukraine. If geopolitical risks mean resources from foreign powers are harder to get, Greatland could see further upside.
Better still, this first Havieron mine might just be the start here. Greatland has rights to eight other mines across Australia, with early reports from mines called Juri and Scallywag both already showing promise in deposits of gold, silver, and copper.
Am I buying?
The danger here is that proven resources is not equal to proven profits. Any investment would be a risk that the firm might not be able to extract its resources effectively and profitably.
On the other hand, if the company starts extracting in 2023 then I’m not sure I’ll see shares at 8p ever again. I’ll keep Greatland Gold on my watchlist for now but I may open a position in the near future.
