I believe the Greatland Gold (LSE: GGP) share price has the potential to generate enormous returns for investors in the medium term. Today, I’m going to explain why I think this is the case.
GGP share price
This year, shares in the small-cap mining company have been on a tear. The stock has risen tenfold since the beginning of the year.
The GGP share price has benefited from several tailwinds in 2020. These include the rising gold price and progress at the company’s key assets. The firm’s larger market capitalisation has also put it on the radar of larger investors. These investors are often prevented from investing in smaller companies.
The bigger universe of investors has helped increase awareness of the GGP share price and its prospects.
Greatland’s prospects are exciting. The company’s primary asset is its Havieron prospect in Australia. This has been described as a “unique” tier-1 gold asset by analysts.
Drilling and exploration activity at the prospect suggest it could have the potential to produce as much as 4.2m oz of gold and 120,000 tonnes of copper, according to analysts.
Unfortunately, the company doesn’t own all of this prospect. It struck an agreement with gold mining giant Newcrest, whereby the latter would provide experience and funding in return for a stake in the project.
While this does mean Greatland’s upside is capped, is has helped the business develop. In my opinion, it was a sensible trade-off. Without Newcrest on board, the group may have struggled to move forward with Havieron, and the GGP share price may have suffered.
Still, despite its reduced stake, analysts believe Greatland’s share of the project could ultimately be worth $709m. On top of this, the gold mining group’s Scallywag prospect, where drilling has just started, could be worth $100m.
These projections are just forecasts at present. But they give us some idea of how much the GGP share price could ultimately be worth. Together, the numbers suggest the two assets are worth $809m or £622m.
At the time of writing, the firm’s market capitalisation stands at £651m. This implies the company is fairly valued at current levels. However, these figures don’t give any credit to potential upward revisions in resource estimates.
It’s clear Havieron is a high-quality asset, and it could ultimately produce much more gold than initial projections are suggesting. What’s more, exploratory work at the Scallywag project has only just started.
As such, I reckon there’s a high chance any better-than-expected drilling results could lead to a big jump in the GGP share price. The stock appears to be fairly valued at current levels, and any other positive news could see it jump substantially as analysts rejig their forecasts.
There’s also the prospect of a complete takeover. Any buyer would have to pay a significant premium over the current share price based on the numbers above, in my opinion.
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.