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Is the Greatland Gold share price risky or a must-buy stock?

Greatland Gold (LSE:GGP) explores and develops natural resources with a focus on gold. To carry out its explorations, Greatland uses a combination of geological mapping, geochemistry, and geophysics. It ranks its mining targets on their potential to host gold mineralisation and will only consider mining if all the conditions are acceptable.

Gold projects 

Earlier this week the AIM-traded firm announced that initial drill results from its Firetower project in Tasmania have confirmed “broad widths of gold mineralisation“. There is a good continuity of mineralisation between each of the sections drilled to date, which means the area tested so far is likely to be successfully mined for gold in the future.  

The company is pleased with these results, as it gives the project a promising start and means it is increasingly likely that Greatland will be able to extend its depths of exploration.

Greatland also confirmed the presence of gold mineralisation at the Saddle Reefs prospect, Black Hills, Western Australia. Further updates are expected in the coming weeks. Greatland Gold has four projects on the go in Western Australia and two in Tasmania.

In March, Greatland agreed on a deal with a Newcrest Mining subsidiary, a big Australian player in gold mining, to explore and develop Greatland’s Havieron gold-copper project in the Paterson region of Western Australia. This farm-in agreement gives Newcrest the opportunity to acquire up to a 70% interest in a 12-block area (including Havieron) by spending up to US$65m in return for its extensive exploration expertise.

Greatland intends to search for further potential mining targets in Australia and Asia. Its Bromus project in Western Australia recently identified suitable targets for nickel and gold that it hopes to begin drilling early next year.

Gold as an investment

The price of gold spiked earlier this year and I think the rally is likely to continue for a significant time. This is because the world is in a state of political turmoil, which is keeping interest rates low and oil prices volatile. In times of unrest, many investors turn to gold as a safe-haven investment.

For those equity investors who enjoy risk-taking, gold mining companies offer an opportunity. Investing in a non-cash-generating company is a dicey move, but for some, the potential gains make it a worthwhile risk.

Other gold mining stocks vary in both cost and risk. The Trans-Siberian Gold share price has risen 193% in the past year, while Centamin has gained 18%, and Highland Gold Mining has gained 54%. Greatland has some confident backers and its farm-in agreement with Newcrest gives it greater credibility. Also, operating in Australia is definitely a plus in comparison to those miners working in riskier parts of the world. 

Greatland was established in 2005 and listed on AIM the following year. It has a market cap of £65m and the share price has climbed 57% in the past year. It is not yet generating revenue, so buying shares in Greatland is very much a speculative play based on the potential for future growth. For these reasons it doesn’t offer a dividend and earnings per share are negative. In my opinion, this is not something a beginner investor should consider.

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Kirsteen 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.