If you bought Greatland Gold (LSE: GGP) shares at the start of the year, you would have seen the value of these shares rise by more than 1,000%. In fact, the incredible rise of the gold miner these past few months has seen its market capitalisation reach £1bn. This is despite the fact that the company is still in its exploration stages and is therefore unprofitable. As a result, is this high share price justified, or is it now the time to bank profits?
Results at Havieron
A fundamental reason for the rise in the Greatland Gold share price has been its very positive results from its Havieron deposit in Western Australia. In fact, CEO Gervaise Heddle has highlighted the “potential for a bulk tonnage mining operation at Havieron”. He has also pointed to “excellent results” in the early stages. The Australian mining engineer David Lenigas also reckons that Havieron is a “once in a generation find”.
This optimism bodes well for Greatland Gold shares. If Havieron does end up coming to fruition, it should be very profitable for the gold miner. The share price rise is therefore understandable and there is certainly a significant amount of promise for the AIM-listed firm.
What are the risks?
While this all sounds very promising, there are also risks associated with the company. For example, at the moment, the firm is still pre-revenue. Although this is expected while it is in its exploration stages, Greatland Gold shares are still a speculative buy. This means that, like many other gold miners in their exploration stages, there is a possibility that it will run out of money. While I don’t think that this will happen with Greatland Gold (due to a number of promising opportunities), it is still something to be aware of.
There is also the issue of the falling gold price. While gold has thrived throughout the crisis, the last few weeks have seen it fall back from its highs of over $2,000 per ounce to around $1,900. If this decline is to continue, it may also place pressure on the Greatland Gold share price.
Would I buy Greatland Gold shares?
Evidently, there is significant optimism around this gold miner. As such, it is a very tempting buy with the short-term direction of the stock looking positive. Even so, I am slightly more worried about its long-term future. For a company not making any revenues, a market capitalisation of around £1bn seems very high. Consequently, I believe that any disappointing news surrounding the stock will be met with a sharp decline in the share price. Any good news already looks priced-in to the stock and expectations are already very high. As a result, I am not buying into this optimism and believe that now could be a decent time to bank some profits.
Stuart Blair 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.