Stock market

Are there 8.4 million reasons why Greatland Gold (GGP) shares are down 62%?

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From the beginning of May 2024, the share price Greatland Gold (LSE:GGP), the mining exploration company, is the fourth best performer. AIM 100.

The approval of two new licenses and a positive update to its flagship gold and copper project, Haveron, in Western Australia, are catalysts for growth.

However, the company has yet to sell any ore. In fact, it remains silent on when it might start generating revenue. And at 31 December 2023, it made a loss of £62.3m.

Look ahead

But it’s all about Greatland Gold’s future, which probably explains why its current market cap is nearly eight times its book value.

The company says it has a letter of support from a syndicate of banks that will provide A$220m in debt funding to help it commercialize its operations.

And it claims that Havieron contains 8.4Moz AuEq (million ounces of gold equivalent). At current market prices (£1,834 per ounce), this equates to potential earnings of £15.4bn.

But extracting precious metals from the ground is expensive.

Try mining. says it has “Industry leadingAll sustaining cost of production is $967 (£760) per ounce.

If this is subtracted from estimated earnings, Havieron’s mineral resources are currently worth around £9bn.

Not what it seems.

But this data needs to be treated with caution.

This is because Greatland Gold holds only 30% of the mine. Although he has the right to match the third party offer to his partner, Newmont Corporationdecide to sell his interest.

Second, the 8.4Moz figure includes gold that is estimated with low confidence. If we exclude this—which Newmont estimates is 24.7%—we are left with about 6.3Moz AuEq.

It contains 1.89Moz of Greatland gold. This means the potential lifetime cash flow from the mine is £2.03bn.

Assuming it is realized equally over a 20-year period—and discounting the annual figure by 8% to reflect the fact that money is worth more today than it will be in the future — The net present value of future cash flows is £997m. .

This means Greatland Gold shares are currently undervalued by 62%.

Of course, the figures I used in my ‘back of the envelope’ calculations may vary significantly. A resource estimate can move in either direction. And commodity prices are unusually volatile – gold has fluctuated between $1,400 and $2,400 an ounce since June 2014.

The Company may also need to raise additional funds (debt or equity) before Havieron is fully operational.

However, on the positive side, the company has other early-stage mining interests. And its largest shareholder, Vilo Metals, remains supportive.

My decision

I already own shares in the company. But I have to admit that I didn’t do that kind of analysis before I decided to buy.

I got caught up in the hype surrounding the company and lost about 75% of my initial investment.

If I were looking at the company for the first time, I don’t think I would invest.

In my opinion, Greatland Gold faces many hurdles before it becomes commercially viable. And this casts significant doubt on the accuracy of my calculations above.

Instead, I would put my money into mining companies that are already generating revenue and profits.

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