The Greatland Gold (LSE:GGP) share price has had a rough start to 2021, falling more than 45% year-to-date. But despite this substantial decline, the stock is still up more than 120% over the last 12 months. Is the recent decline a buying opportunity for my portfolio?
The business
I’ve previously explored Greatland Gold’s business model. But as a quick reminder, it’s an early-stage exploration company. Like most mining operations, it intends to establish a mining site, extract materials from the ground, and then sell them for a profit.
Greatland Gold’s flagship asset, the Havieron project, is estimated to contain up to 4.2 mega-ounces of gold & equivalents. Based on today’s gold prices, that’s around £5.58bn worth of metals. By comparison, the firm’s market capitalisation currently sits at about £785m. So, there’s a large amount of room for the GGP share price to grow.
The value of Havieron has actually gone up by almost 25% since I last looked at this business, thanks to rising gold prices. Gold is often used as a hedging tool against inflation. And with governments worldwide issuing enormous stimulus packages to reboot their economies, the fear of inflation is pushing up the price.
GGP’s share price outlook
Despite the performance of the GGP share price so far this year, the business continues to make good progress. In fact, the management team recently announced that the underground decline at the site had commenced. In other words, the company has started drilling down. And once completed, it will have access to the top of the gold-copper ore body to quickly begin extracting the precious metals.
The next major milestone of the operation is completing the pre-feasibility study that’s expected to occur in the second half of 2021. This investigation will use the data gathered so far to determine the economic viability of the Havieron project. Assuming everything is in order, Greatland Gold may be able to begin production as early as 2022. Needless to say, this could lead to some explosive growth in the GGP share price.
The risks that lie ahead
So far, Greatland Gold has managed to deliver on expectations from both its investors and partner, Newcrest Mining. It’s worth noting that the latter owns a 70% stake in Havieron, which would reduce GGP’s share of the profits. But while it may be close to moving into its production phase, the short-term fate of the project is ultimately going to be determined by the upcoming pre-feasibility study.
As it stands, the GGP share price looks like it’s being elevated by the prospect of production starting soon. But suppose the study doesn’t end in a favourable result. In that case, it could cause significant volatility in the GGP share price. And with no other producing assets in its portfolio, such an outcome could seriously harm the firm’s ability to raise additional capital in the future.
Therefore, as promising as this growth opportunity seems, I’m still keeping it on my watch list for now.