Investors who were brave enough to buy the Greatland (LSE: GGP) share price three years ago have been well rewarded. The stock has returned 160% per annum since the beginning of 2017. Moreover, £10,000 invested in the business at the beginning of 2016 would be worth nearly £300,000 today.
This performance is quite impressive, especially because Greatland is a small-cap mining company. Most of these tend to be terrible investments over the long term as mining projects never really live up to their hype.
So it seems that Greatland has bucked the trend. But is the stock still a good investment, or should investors bail following its recent market-smashing performance?
Recent trading updates from the organisation show this is no ordinary small-cap miner. It claims to be the only AIM-listed company with exposure to the new “gold/copper rush” in the Paterson region of Western Australia.
Work is progressing well on all of its six 100%-owned gold mining projects in this region. And other parties are taking notice.
Last year, it signed a $65m farm-in agreement with a subsidiary of the global mining giant Newcrest Mining. Not only does this agreement provide valuable resources, but it also allows Greatland to access Newcrest’s experience and equipment.
The company has already agreed to share processing facilities with one of Greatland’s prospects, which will deliver “material benefits for both parties including lower upfront capital costs, reduced time to production and first cash flows.“
Road to riches
Updates on Greatlands drilling programmes show the company owns some highly attractive resources. This seems to go some way to justify the recent stock price rally.
However, as is the case with all mining projects, getting the gold out of the ground is going to be the hard bit. This is where Greatland’s partnership with Newcrest could be invaluable. That said, the partnership doesn’t guarantee the company will graduate from being a gold explorer to a gold miner without incident.
As such, while it does look as if this business has some attractive qualities at first glance, it remains a speculative prospect. Therefore, the stock only seems to be suitable for the most risk-tolerant investors.
Cash could also become a problem. While Newcrest is covering $65m of initial spending for mine development, Greatland only had £6.4m of cash in the bank as of August 2019.
That being said, if everything does go to plan, the stock could be worth multiples of the current share price. To get some idea of just how big Greatland’s potential really is, we can look at Newcrest’s Telfer gold mine. Telfer is 45km away from Greatland’s Havieron prospect.
Newcrest is working with Greatland on the Havieron prospect as it believes it could extend the life of the Telfer mine. This is one of Newcrest’s most profitable and productive assets and could be worth over $1bn. That’s compared to Greatland’s current market capitalisation of £180m. A buyout or offer is possible. Newcrest has already agreed to share Telfer’s processing facilities with Havieron.
These numbers suggest Greatland could be worth substantially more than its current value. Still, there’s no guarantee an offer will be made at this stage.
Rupert Hargreaves owns no share 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.