Greatland Gold LON:GGP, a London-based mining development and exploration company with operations in Australia, announced today (19th August) that Newcrest Mining had chosen not to exercise the option to buy-into Greatland’s flagship project, Havieron by another 5% for USD60m (GBP50.5m).
Shaun Day, managing director of Greatland said: “We are simply delighted that Greatland will retain its 30% interest in Havieron. This was the best possible outcome for the company and its shareholders which delivers substantial medium to long term value.”
Greatland had previously made a non-binding offer to Newcrest to acquire for USD85m a 5% stake in Havieron which, in the company’s opinion, still presented a financially compelling outcome to Greatland shareholders.
Havieron is a gold-copper deposit in the Paterson region of Western Australia, discovered by Greatland in 2018 after the exploration licence was acquired by Greatland in 2016 from Pacific Trends Resources Pty Ltd. The project has an Initial Inferred Mineral Resource Estimate of 5.5 million ounces (moz) of gold and 218,000 tonnes of copper, according to an exploration update from January, and is being developed in partnership with Newcrest, Australia’s largest gold producer.
Havieron is located just 45km from Newcrest’s Telfer mine. This allows the project to leverage Telfer’s existing infrastructure and processing plant to significantly reduce the project’s capital expenditure and carbon impact.
Option to buy
Newcrest had originally bought a 70% stake in Havieron in 2019 for USD65m. A definitive feasibility study was initiated soon after. Newcrest was given the option by Greatland to buy-in a further 5% in July, but had a difference in valuation with Greatland, and went into adjudication with the price being independently set at USD60m for a further 5%.
However, this morning, Newcrest declined to exercise its option. Sandeep Biswas, Newcrest’s chief executive said in an earnings call: “…we will not be exercising our option to acquire an additional 5% JV interest in the Havieron project. The 5% option price was determined by an independent, valued to be USD60m based on the process set out in the Havieron joint venture agreement. Newcrest earned its current 70% interest through expenditure of USD65m and the delivery of a pre-feasibility study. An additional 5% for USD60m does not meet our return hurdle requirements and we are very comfortable with our 70% interest.”
Biswas elaborated: “The first 70% cost us USD65m, which was an excellent investment…[but] we’ve got a very rigorous capital allocation program. We’ve got a lot of projects to allocate capital to. And obviously, we’ve also got our shareholders to think about as well. And in that context, it didn’t make the returns compared to putting that USD60m somewhere else. We didn’t need to do it, and we didn’t think it would deliver the sort of returns and the sort of thinking our shareholders expect from an owner’s mindset in this company.”
Test drilling
Havieron is at least three or four years away from returning any capital – Greatland is still test drilling the prospect – whereas presumably Newcrest needs to deliver profits now, so the rationale seems to be sound from Newcrest’s point of view. Havieron will take patience and time.
However, despite the positive spin, Greatland said last month that it would use the funds raised from the Newcrest option to repay in full its existing USD50m debt facility and become debt-free. The statement read: “This facility was a valuable source of funds used to finance early work construction of the exploration decline and growth drilling programme from December 2020 to June 2022 and this repayment allows Greatland to de-leverage its balance sheet.”
Now that Newcrest have turned down the option, Greatland still have to find a way to deleverage – something in a climate of rising interest rates is quite prescient – and may have to return to the equity market to find new funds. At the beginning of the month Greatland issued an additional 138,981,150 ordinary shares on AIM, as part consideration that was due under the original 2016 Havieron project acquisition.
Further dilution may come sooner rather than later.
Market reaction
The market wasn’t as delighted as Shaun Day and Greatland’s shares opened trading at 10.6p, down from 10.9p at the previous day’s close. The stock fell as low as 10.26p but by mid-morning trading had recovered to 10.6p. Greatland has had a year-to-date return of -33.6% and a one-year return of -35.5%. Share price has ranged between 9p and 23p over a 52-week period and Greatland is valued at GBP458.8m.
The more conspiracy-theory inclined investors may opine that Newcrest is waiting on Greatland to run down its reserves before returning to buy-in to Havieron at a lower price than USD60m.
Greatland has a few more aces up its sleeve though. It has a total of six projects spread across Western Australia and Tasmania. These include the Juri Joint Venture with Newcrest; Paterson Range East and Black Hills, which are wholly-owned licences, and Scallywag and Rudall and Canning, which are 100% owned licence applications.
Day said that Scallywag had “highly encouraging” gold mineralisation after completing a drilling programme and ground EM survey in 2021, the second stage of a comprehensive exploration programme.
In Havieron, Greatland has a potentially world-class asset, but it is a while away before the company can go into production.
