Over the past 12 months, the price of gold has fallen modestly. But an ounce of the stuff has still appreciated nicely over the past five years, to the benefit of many gold stocks. Why, then, has the Greatland Gold (LSE: GGP) share price slumped by more than 50% over the past 12 months?
As I write, Greatland Gold shares are trading at just 8.2p. It’s still a decently sized company, though, with a market cap of close to £400m. It looks to me like an intriguing penny share that deserves a closer inspection.
Firstly, the 2022 fall needs to be seen in perspective. The Greatland Gold share price rocketed in 2020, gaining close to 2,000% in the course of the year.
Penny share caution
It’s worth pausing for a moment to remember that this is the kind of short-term explosion that penny shares can go through — the shares were priced at under 2p at the start of 2020. But the crash that followed is also common among penny share growth stocks too.
Shares priced at very low levels can often be influenced by pump-and-dump schemes. This is when shares are heavily promoted in order to send them flying, when those doing the pumping can then sell out. I’ve no idea if anything like this happened here. But it’s something I always keep in mind whenever I see a penny share price soaring.
Anyway, the point is that the share price is actually up 330% over the past five years, which is a cracking performance.
No profit yet
But here’s the problem — Greatland Gold is not profitable. The company is very much in its exploration phase. It’s doing feasibility studies on potential assets, and that kind of thing.
The company’s full year ended in June, but results are not yet out. They’re due 2 November, which is not exactly speedy.
Interim status
So we have to go back to first-half results for 31 December. And though there seems to be some significant exploration progress, I want to see the finances.
They show a pre-tax loss of £3.6m. That’s a significant sum itself, but then I look at cash flow. The half brought a net cash outflow of £9.9m. Of that, £5.9m is down to investment in assets and mine developments, but that’s a key part of early stage costs.
Greatland achieved £18m in net cash inflow from financing during the period, though. The bulk of that came from the issue of 82m new shares, topped up with fresh borrowing.
Cash burn
At 31 December, Greatland Gold had cash and equivalents of £14.3m. That looks enough to cover operations and mining investments for about another year and a half, based on first-half cash burn levels.
When might profits arrive? Analysts tentatively suggest there might be some by 2024. If the company can keep operating until then without needing to raise any more cash, it might be a decent buy now. But if not, my fear would be how much more dilution current shareholders might face.
Because of that uncertainty, I won’t buy now. But I’ll be watching those full-year results.