Investors who were savvy enough to buy Greatland Gold (LSE: GGP) shares at the beginning of 2020 have seen a fantastic return on their money over the past seven months. Shares in the mining company have gained 670% since the beginning of the year.
That makes the stock one of the best performing investments on the London Stock Exchange in 2020. Following this performance, some investors may be interested in buying Greatland Gold shares ahead of further positive performance.
Before they make this move, there are a couple of things investors should be aware of that could influence the company’s future.
Time to buy Greatland Gold shares?
The most significant risk facing investors buying Greatland Gold shares today is that the company is still in its early stages. While it has signed an agreement with a larger partner to help it develop its most promising asset, there’s no guarantee this partnership will produce a return for shareholders.
The failure rate of early-stage gold miners is exceptionally high. Many run out of money before they can start producing any profits. Until the company is producing a steady income stream from its operations, bankruptcy is always going to be a risk.
That said, the company’s robust balance sheet currently supports Greatland Gold shares. In a recent trading update, the firm reported that it had a strong balance sheet. Net cash was £6m at the end of June. This should, according to management, provide enough money to support operations for the next 12 months.
This may be a make-or-break period for the company. Initial drilling activity at its Haveiron project in Western Australia has been extremely positive. There are indications that this could be one of the most attractive gold mines in the world. If it is successfully brought into production, Haveiron may generate massive profits for Greatland, and its principal partner, Newcrest Mining, which is funding some of the development.
Digging for gold
All of the above suggests that the outlook for Greatland Gold shares is positive. The company is well funded for the time being and could be sitting on an enormous gold asset.
However, after the recent meteoric rise, the group’s market capitalisation has hit a staggering £517m. This seems a bit rich, considering the fact that the business is still in its exploration stage and has yet to produce any revenue.
As such, the best solution may be to own Greatland Gold shares as part of a well-diversified portfolio. Using this approach would allow investors to profit from any upside potential while minimising downside risk if the company fails to monetise its gold assets. What’s more, investors can always add to their position in Greatland, if or when the miner moves from the exploration to the production stage.
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Rupert Hargreaves 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.