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Here’s why I just bought Greatland Gold shares

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Greatland Gold (LSE: GGP) had an incredible 2020, with its share price rising nearly 2,000%. Nonetheless, 2021 has been significantly less favourable for the stock, which has already fallen 45% this year. This has mainly been caused by some of last year’s optimism starting to falter, alongside the falling price of gold. But this dip has led me to buy Greatland Gold shares. Here’s why.

 

Big opportunities

Greatland Gold’s largest success story is its Havieron deposit in Western Australia. In this area, the company has partnered with the established gold miner Newcrest and so far, has delivered excellent results. Indeed, in 2018, Greatland discovered that there was significant gold mineralisation, and since then, drilling has commenced. As such, the Havieron project has been met with significant optimism, being a fundamental reason for the company’s strong share price performance last year. But I also believe that strong results at Havieron have now been factored in to the Greatland Gold share price. It’s therefore important to look at other opportunities for the company.

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One of the other projects is the Juri Joint Venture, where Greatland Gold has continued its partnership with Newcrest. The latter will immediately have a right to earn 25% interest in these licences, and this can be raised to 75% depending on how much it spends on the project. Although this does limit the amount Greatland Gold can earn from the project, Newcrest is still a very useful source of funding. Furthermore, similar traits to the Havieron deposit have been identified in these licences, and this may be very promising.

Alongside multiple different mining operations in Australia, Greatland Gold also operates in Tasmania. As such, it’s evident that the company isn’t overly reliant on its Havieron deposit and has opportunities elsewhere. I think this could bode well for the Greatland Gold share price.

Price of gold

One reason why the shares have fallen in 2021 is because of the declining price of gold. Nevertheless, after rising significantly in 2020, I feel that a correction was necessary. In fact, I believe that gold is now in a strong position to claw back some losses. This is because inflation looks likely to rise this year. Gold is recognised as a very effective inflation hedge, and this bodes well for its value. As the Greatland Gold share price is heavily dependent on the price of gold, this provides me with optimism for the stock.

Risks with Greatland Gold shares

Although I have recently bought Greatland Gold shares, I do recognise that this is a risky investment, and accordingly, it makes up only a small part of my portfolio. For example, although it doesn’t currently generate any revenue, it’s still valued at nearly £1bn. For many, this may signal that it’s overpriced and that the current fundamental value of the business doesn’t justify this market valuation. But as a speculative stock, this isn’t necessarily a bad thing, and the rewards could be handsome. I’m simply not going to invest any more than I can afford to lose.  

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Stuart Blair owns shares in Greatland Gold. 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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