Having delivered a return for shareholders of over 1,170% this year, it’s fair to say AIM-quoted gold miner Greatland Gold (GGP:AIM) has generated a considerable amount of excitement among investors this year.

The £875 million market cap company is a gold explorer, a type of mining company that looks for big deposits of gold and then works with a bigger miner which has the resources to take the project through to production.

Greatland has had a storming run so far in 2020 with its share price rising from 1.8p at the start of the year to over 22p. It has great assets, however we think there may be better entry opportunities for the shares in the future, particularly with some of the recent strength in the gold price waning of late. Mindful of that, we think this is one to add to your watchlists and buy when some of the heat has come out of the stock.

OUTSHINING GOLD

Greatland’s stunning performance is in part thanks to the rising gold price, as miners of all types tend to be leveraged plays to the commodities they find in the ground, but also down to a lot of exciting news flow from the company over the course of the year.

Most of the excitement has come from its Havieron project, a major gold deposit in the Paterson region of Western Australia which has been shown to have extensive mineralisation. In other words, there’s a lot of the gold in the ground there which can be dug out.

Greatland has partnered with gold mining giant Newcrest, which owns the nearby Telfer mine, to help develop the project. Newcrest works under a farm-in agreement, whereby the more money it puts in to explore Havieron, the more of the project it owns.

When the time comes to build the mine Newcrest, which is on the ground managing the project, will own 70% of it with the option to acquire another 5% at fair market value.

To give an idea of how much positive news flow has come from the asset, Greatland Gold has issued four stock exchange announcements so far in 2020 with the exact headline ‘Further Outstanding Drill Results at Havieron’.

DEFINING GREATLAND’S SUCCESS

In the mining world, any grade over eight grams of gold per tonne (g/t) of ore in an underground deposit is generally considered to be very good.

Greatland’s drilling results have shown big stretches of rock with 9.3g/t, and smaller pockets with 13g/t, 19g/t and even 78g/t.

In a detailed initiation note last month, analysts at broker Berenberg slapped a ‘hold’ rating on Greatland Gold with a target price of 22p, indicating they don’t see much share price growth in the near-term.

But the analysts also highlighted the junior miner’s other prospects and said the discovery of a second Haverion-style target would be ‘transformational’ for the company.

Speaking to Shares, Greatland Gold’s chief executive Gervaise Heddle unsurprisingly insists there is still a lot of shareholder value to be created, with ‘a lot of potential upside’ to come from Havieron, and that’s before touching on the other promising targets which are                 showing potential.

He says: ‘We’ve got a lot more work to do with Havieron. We still haven’t found the limits to what resource is available. It’s one of those remarkable geological projects that just keeps on surprising – there’s still a lot of geological opportunity there.’

A lot of Havieron’s potential became visible in the second half of 2019 with Greatland reporting high grade mineralisation from Newcrest’s drilling campaign, but this positivity seemingly wasn’t shared by investors with Greatland Gold’s share price remaining pretty flat until the start of this year.

On this point Heddle says, ‘This sometimes happens with AIM stocks. There’s a steady release of positive news flow but the share price won’t budge. Sometimes it takes a while for the market to catch up and reflect the new realities on the ground.’

Aside from Havieron, Greatland has also found other areas which come under the scope of its exploration licence that could potentially contain big amounts of gold.

OTHER PROMISING PROSPECTS

The most promising of these could be its Scallywag and Paterson Range East prospects, which have shown significant geophysical anomalies, with drill testing having already commenced.

Berenberg highlights this as another key to the investment case for Greatland Gold and says: ‘Deposits such as Havieron and Telfer do not occur in isolation so we believe that it is likely that other economic deposits could be found in the region as the company works through the list of geophysical targets for follow-up. The discovery of a second Havieron-style deposit or similar would be transformational for the shares.’

More immediately, the analysts see a maiden resource estimate for Havieron as being a catalyst, something which is due before the end of 2020.

They forecast an estimate 3.75 million ounces of gold based on the broad dimensions and grades that have been released to date, with a further 1.75 million ounces ultimately being drawn from the eventual inclusion of another zone within the project which potentially has a lot of gold in it.

The analysts foresee average annual production from the mine to be around 239,000 ounces of gold a year, at an all-in sustaining cost (AISC) of $862 per ounce. For reference, an AISC under $1,000 per ounce of gold is considered good for gold miners.

WHAT IS THE END GAME?

Another question to consider is what is the end game for Greatland Gold? Will it end up selling Havieron to Newcrest and keep exploring in perpetuity? Will Newcrest decide to buy Greatland? Often the mining majors like Newcrest choose to buy juniors like Greatland when they discover promising projects near their own assets.

Certainly this is something Berenberg can see happening, with Newcrest choosing to acquire Greatland so it can wholly own Havieron.

Berenberg says: ‘In our view, it is highly likely that Newcrest will ultimately elect to purchase Greatland in its entirety once the feasibility study has been completed as the exploration potential of the broader Paterson area, in conjunction with Havieron itself, could underpin the long-term future of Telfer.

‘From an early stage of the farm-in agreement, Newcrest has shown a high level of commitment to the project. Its exploration spending has increased at a faster rate than envisaged in the farm- in agreement.’

The analysts point out that there have been many previous examples in the mining world where the major has ultimately elected not to acquire the junior partner, so Greatland being taken over is not a              guaranteed outcome.

Heddle doesn’t rule out the possibility of being acquired, but insists his company’s focus is on progressing Havieron through the next steps and ultimately into production in order to ‘produce positive free cash flow for our investors’, while also making further progress on its other targets.

Should Newcrest decide to acquire that additional 5% of Havieron when the time comes, Heddle adds this would provide a ‘significant cash injection’ which the company would use to fund exploration at              other targets.

He says: ‘We’re always looking at ways to add shareholder value. There’s a lot of potential across the Paterson to discover more tier one projects. We don’t want to stop just because we have Havieron.’

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