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Greatland Gold shares: should I buy for my 2021 portfolio?

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Greatland Gold (LSE: GGP) is an AIM-listed natural resource exploration and development company. Its shares rose 310% in the past year. It has outperformed the FTSE 100 index by a wide margin. Over the past five years, Greatland Gold shares have risen by an unbelievable 32,600%.

Greatland Gold’s projects

Greatland Gold has four projects in Western Australia, namely, Paterson, Panorama, Ernes Giles, and Bromus. The Paterson project comprises of two joint ventures, the Havieron and Juri, and two 100% owned licences (Scallywag and Rudall), collectively covering more than 450 square kilometres. As per the management, the Paterson region is underexplored with significant potential. The region has witnessed significant recent discoveries, including Rio Tinto’s Winu discovery and Greatland/Newcrest’s discovery in Havieron. 

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Exploration activities at Havieron are currently operated by Newcrest Mining Limited (ASX: NCM) under a joint venture agreement with Greatland. Greatland had very good results from two drilling programmes in 2018. In March 2019, Newcrest Mining Limited and Greatland signed a $65m four-stage farm-in agreement to develop Greatland’s Havieron gold-copper deposit. In November 2020, Newcrest met the stage 3 expenditure of $45m. They expect to progress to mining operation in the next two to three years.

I believe the partnership with Newcrest Mining is a big positive for Greatland as it has the operation and financial support from a company that has a market capitalisation of about £12bn. Another advantage for the company is that the ore will be processed at Newcrest’s Telfer Gold Mine, which is 45 kilometres to the west of Havieron. The management believes that it’s a win-win situation for both the companies as it lowers upfront capital costs, reduces time to production, and potentially delivers a significantly higher net present value for the project.

Greatland also signed a Juri joint venture with Newcrest in November 2020. It is a farm-in and joint venture agreement with respect to Greatland’s Black Hills and Paterson Range East projects. Drilling of high-priority targets, including Parlay and Goliath, is expected to commence in early 2021.

Greatland Gold’s results

The company has no revenues at the moment. It reported a net loss of £5.1m compared to a net loss of £3.3m for the fiscal year 2019. Net loss per share was (£0.14) for the fiscal year 2020 compared to a net loss per share of (£0.10) for the previous year. It had cash of £6.0m as of 30 June 2020. Cash used in operating activities was £4.6m for the fiscal year 2020. 

Like in any other stock, there are some risks. Greatland Gold has yet to start mining operations and has no revenues. The company’s losses have increased in the fiscal year 2020. There is no assurance that the mineral resources can be extracted economically. The stock has performed well in the past few years and there could be profit booked in the near term, but nothing is certain. Another risk to consider is that commodity prices are highly cyclical and the future profits will depend on the commodity prices. 

The stock is currently in a downward trend since the beginning of this year. I will wait before deciding whether to buy Greatland Gold shares. I believe the stock’s valuation is expensive for a company that is still in the exploration and development stage.

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Royston Roche 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.

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