The Greatland Gold (LSE: GGP) share price has fallen 41% year-to-date. However, following this performance, the stock is still up 135% over the past year.
However, over the same period, the price of gold has fallen by only 2%. This seems to suggest that the stock is cheap after its recent slump.
As a value investor, this has attracted my attention.
Greatland Gold share price outlook
Greatland Gold is not a gold producer yet. It is still an explorer. This means the company is still in its early stages, and there is a lot that could go wrong between now and the production stage.
That said, the business is racing towards production. With its joint venture partner Newcrest Mining Ltd, Greatland recently started constructing the underground decline access. This will provide access to the top of the orebody, or to put it another way, provide access to the resources.
Along with this development, the next stage in the company’s development of its sizeable Havieron gold and precious metal mining asset will be the completion of a Pre-Feasibility Study. This is on track to be delivered in the second half of 2021.
As the company is still in its early stages of development, it is quite difficult for me to value the Greatland Gold share price. I could use the firm’s already published resource estimates and other geological information, but these are just estimates at this stage.
There’s no guarantee the company will be able to recover the resources in the ground. Knowing where the gold is, and getting it out of the ground, are two very different things. History is littered with mining and oil enterprises that thought they were sitting on a fantastic resource, only to be scuppered by a lack of funding, mismanagement, or unforeseen rock formations.
I’m not saying Greatland will fail. I’m just highlighting the risks the company faces.
Nevertheless, despite these risks and challenges, I’m encouraged that Newcrest, with its deep pockets and experience, is involved. I think this gold mining giant’s involvement is enough alone for me to say that the Greatland Gold share price is undervalued.
Newcrest only uses its valuable resources to support low-cost, long-life mines. It is looking for assets that will yield an attractive return on investment for decades.
Over the next few months, Greatland should publish more information on Haverion and its potential. This will allow me to understand the business better and how much the Greatland Gold share price could be worth.
However, in the meantime, I would use the recent decline in the share price to acquire a handful of shares. From there, I would follow the business closely as it continues to push ahead with the development of its world-class asset. When more information emerges, I will reconsider my position.
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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.