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The Greatland Gold (LSE:GGP) share price has performed well lately. Over the past month, it has risen by 15%.
This is welcome relief for shareholders who have seen the stock fall by 28% since May last year.
All that glitters
The catalyst for the apparent change in fortunes has been good news from two of its mining interests.
Drilling at Havieron — its flagship project — remains on schedule and had reached 2,025 metres by 19 April. High grade gold and copper continues to be found within the mine itself, but also in an adjacent site.
There’s also encouraging news in respect of its Rudall project. Good quality copper and silver deposits have been discovered and further work is ongoing to evaluate the results.
Greatland owns 70% of Havieron. The remaining 30% is held by Newcrest Mining, which is currently subject to a takeover bid from Newmont Corporation. If agreed, the new group would become the world’s largest gold producer.
A deal is generally seen as being positive for Greatland. Some believe it will enable the company to acquire all of Havieron. Others think it will become a takeover target itself.
The most recent estimate of reserves at Havieron — 6.5m ounces (Moz) — was released in March 2022. This was 50% more than the forecast of December 2020, when the share price was 75% higher than today.
A lesson learned
Despite this, I don’t get a warm feeling about Greatland Gold, which is hard for me to write as I’m a long-standing shareholder.
The huge potential of its mining operations has been known for some time, and yet its share price has failed to respond accordingly.
There are some reports that Havieron could yield over 20Moz of precious metals. Indeed, in December 2019, Primorous Investments — which at the time owned 1% of Greatland — made such a claim in a trading update. Eleven months later it sold its entire stake.
I got caught up in all this hype and regret not doing my research properly.
An expensive business
To commercially exploit its mines, it’s now clear to me that the company is going to have to raise some more money. This means dilution for existing shareholders.
At the end of last year, it had £60m of cash and £44m of debt. In the second half of 2022, it spent close to £10m on its operating and investing activities.
Greatland has announced plans to reorganise itself under a new parent company listed on the Australian stock exchange. The restructuring is intended to provide access to more capital to support the company’s long-term growth prospects. And to encourage greater investor interest in the stock.
But its shares will continue to be traded on the Alternative Investment Market.
According to the World Gold Council, it can take between 10 and 20 years after a deposit is discovered before a gold mine is ready to start producing. It’s therefore probable that I’ll be an old man before Havieron is generating revenue.
So, I don’t intend adding to my shareholding in Greatland Gold but won’t sell for now. I wouldn’t buy today as a completely new shareholder either. I’m going to target companies that are generating revenue, are profitable and paying a generous dividend with any spare cash that I might have.