Earlier this year, gold prices hit record highs. As we stand, the precious metal has rallied 29% this year. This has provided a boost for gold stocks, but not all of them. For example, the Greatland Gold (LSE:GGP) share price is actually down 17% over the same period. Here’s why the two haven’t matched up.
New purchases
A large factor’s been the acquisition spree Greatland’s been on in 2024. This has included buying a majority stake in the Havieron gold-copper project and full ownership of the Telfer gold-copper mine. It has also purchased other associated assets in Western Australia’s Paterson region.
In order to complete this, large scale funding was needed. The business used a range of measures, but one was issuing more shares. Back in September, it raised over £249m in a placement of 5.18bn new shares issued at 4.8p.
Naturally, the share price fell as a result of the issuance. It was trading just below 7p at the time, so putting new shares out at a discount to this caused the stock to fall. Granted, it raised needed cash to fund the project, but it did mean that existing shareholders were diluted.
Looking ahead
When I look at the Havieron gold-copper project, it’s not like it will be generating revenue from day one. In fact, an investor presentation noted that Greatland has received “a letter of support for proposed A$750m (£377m) Havieron project finance debt funding from Tier 1 banking syndicate”.
This debt facility isn’t going to come cheap. Although it’s positive that the company can make use of it to help fund the upcoming expenses, the extensive use of debt isn’t a great sign. The interest payments can eat away at cash flow and become a real headache for a company.
I think that the share price has fallen to reflect some concern about the debt and size of funding needed before this development project can become commercially successful.
Not correlated to gold prices
The rally in the gold price will have done some good to the share price this year. After all, Telfer has the third highest gold processing capacity in Australia. So a high gold price bodes well for any production in the next year for Greatland.
Yet the rally in gold prices will benefit stocks that have existing mines that are producing gold and precious metals right now. Unfortunately, Greatland isn’t in this category.
In the coming year, Greatland shares could rally if it makes good progress on the new projects. If costs come in lower than expected, this would be another positive sign. Further, the new purchases create a much larger scope for revenue further down the line.
But based on my view that gold prices will keep rallying next year, I want to look elsewhere for stocks that I feel could benefit from this.
