Should I be watching the Greatland Gold (LSE: GGP) share price?

Recent rallies in valuable metal prices has boosted the Greatland Gold share price, but is there still an opportunity for long-term investors?

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Many investors looking for returns in an unpredictable market have looked to companies in the mining sector. The Greatland Gold (LSE:GGP) share price has been pretty volatile over the last few months, but is up over 20% in the last year. So is there an opportunity here?

The company

Unlike traditional mining companies, Greatland Gold focuses on early-stage exploration. It’s primary project, the Havieron deposit located in Western Australia, is a joint venture with mining giant Newcrest Mining.

Havieron is a high-grade copper-gold deposit, with early indications suggesting significant potential. However, exploration is an inherently risky endeavor. The success of the project hinges on further exploration confirming the deposit’s commercial viability.

This translates to uncertainty for investors, as the company might not find enough resources to justify large-scale mining.

Recent volatility

Recent movement in the share price reflects this volatile nature of exploration ventures. Unlike established mining companies with steady production, the share price fluctuates significantly based on exploration updates and investor sentiment.

A major discovery could send the price soaring, while disappointing results could lead to a significant drop. In the last year, there have been multiple single day moves of over 10%, which is likely to continue as exploration progresses.

The business sits well within the most volatile companies in the market, with an average of 9.1% volatility each week in the last year.

Hidden potential

Despite the risks, many investors are drawn to the potential upside. The Havieron deposit is located in a region with a history of successful copper and gold production. If exploration confirms substantial commercially viable resources, the firm could become a significant player in the industry overnight.

However, it’s crucial to consider the financial realities. Greatland is currently unprofitable and is expected to remain so in the near future. This means investors will need significant patience and a strong appetite for risk, as they may not see returns for several years. In terms of numbers, the price-to-book ratio, suggests that the company is overvalued, with the ratio of 8.3 times well above the sector average of 1.6 times.

The mining industry is also fiercely competitive. Established players with larger resources, and stronger balance sheets, might pose a threat to the firm’s future. With annual earnings estimated to decline significantly over the coming years, there could be some major challenges ahead if no discoveries of note are made.

Overall

Ultimately, the decision to invest in such a volatile sector hinges on having a high risk tolerance. For me, the Greatland Gold share price appears to be moving in the right direction, but with no certainty for the future. News of a significant discovery could indeed send shockwaves through the market, but I’ll be sticking with more predictable investments for now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Gordon Best 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.

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