Shares in London-listed gold miner Greatland Gold (LSE:GGP) attracted a lot of activity in the last two weeks after the test drilling at the Havieron site in Australia showed some good initial results.
Greatland Gold shares perked up from 3.13 to 5.20 and there is more leg room for a move higher before the end of the month when Australia’s largest gold miner Newcrest Mining updates on its test drilling at the site. Newcrest, which also owns the nearby Telfer gold-copper mine, has recently spent $20m on feasibility studies and currently owns 40% of the Havieron site, with Greatland Gold holding the remaining 60%.
The relatively young UK miner is testing the waters at locations in the Great Sandy Desert in Pilbara where major miner Rio Tinto also recently became more active, looking at polymetallic deposits containing both gold and copper.
Though the news flow on Greatland Gold has been positive, The Armchair Trader still needs more convincing that this is actually a good stock to invest in more than just the short term.
Greatland Gold: the gold price is not the problem
The gold price is not a problem. Recently it has been at its highest in five years and bar a short aberration in mid-March has reliably traded in the upper part of $1,600. With the corona virus likely to take months rather than weeks to really come off the global news agenda, the appeal of gold as a safe haven asset will remain in place for the medium term.
But Greatland Gold is not setting itself up to become a gold producer. If the deposit gets developed it is already considering selling its stake to Newcrest; failing that it will likely process gold using a tolling agreement at Newcrest’s nearby Telfer mine.
Telfer itself produces some gold dore on the site, a partially refined gold bar that is sold to the Perth Mint, and the rest of the production is roughly processed into a far cheaper substance, a gold-copper concentrate, which is trucked to Port Headland 500 km away and then and shipped into East Asia.
The positives first…
The main positive for Greatland Gold is that Newcrest and its established Telfer operation are interested in the Havieron site. Newcrest recently conducted two drills on the site and was sufficiently enthusiastic about the results to install a total of eight drill rigs which are operating on the site continuously.
The early drill campaign showed that there was 2.93 grams of gold per tonne of raw material. To put this in context, to build a deep mine the ore needs to exceed 2.5g of gold per tonne of raw material, and in several places Havieron comfortably exceeds those levels.
And here are the reservations. Though as part of its exploratory drilling Greatland Gold found an even richer deposit containing 4.77 g/t of gold, it is a question of whether the deposit is large enough to sustain longer term production.
It is telling that Newcrest itself explored the site in late 1990s and early 2000s but didn’t proceed with any projects. The mine is still relatively far away from any export infrastructure and the end product will be the relatively cheap gold-copper concentrate. There are still too many ifs and maybes in Greatland Gold’s proposition to comfortably declare this a buy.