My bullish call on penny stock Greatland Gold (LSE: GGP) back in August 2019 remains one of my most satisfying. A little over a year later, the GGP share price had jumped to 38.5p. That represents a gain of around 2,200%, by my calculations.

Since then however, the value of the stock has more than halved in value. Will the publication of the pre-feasibility study (PFS) for the firm’s Havieron project arrest the gold miner’s decline?

Great potential

If you’re new to mining stocks or investing in general, it’s worth clarifying the purpose of this analysis. A pre-feasibility study is conducted early on in the lifecycle of a mine. It gives a company, its backers and would-be backers an idea about whether it makes economic sense to carry on digging. 

As my Foolish colleague Zaven Boyrazian reported on Tuesday, there was a lot to like about Greatland’s PFS on the South-East Crescent of the deposit. An estimated rate of return of 27% means GGP (and partner Newcrest) should only take three years to recoup costs once production begins. 

The fact that this study was only focused on 28% of the initial resource estimate also gives some indication of just how big (and lucrative) Havieron could become. 

Unfortunately, the GGP share price fell heavily on this news and now sits at just above 17p. This is the case despite GGP investors now having some concrete numbers to work with. It’s also despite gold being seen as a good hedge against inflation, which might not be as transitory as some economists previously believed. 

Wait – why did the GGP share price FALL?

I suspect it’s down to investors’ expectations becoming a little more realistic. This makes would-be buyers less likely to get carried away and bid up the share price to questionable levels. When this is accompanied by a wave of ‘sell on the news’ traders, GGP’s share price fall does make some sense.

There are other considerations. Even if everything goes to plan from here (and that’s extremely rare for mining projects), Greatland doesn’t expect to begin extracting the precious metal until 2024. That’s a long time for holders to wait while the share prices of other penny stocks zip ahead.

As always, investing requires reflecting on what I’m potentially giving up elsewhere by staying loyal to a particular stock (otherwise known as ‘opportunity cost’).

Other risks to consider are that miners are never in control of the price of whatever they dig up. After years in the wilderness, the precious metal’s valuation soared last year in the aftermath of the Covid crash. In 2021, it’s been a very different story.

Without a mine in operation, that’s arguably less important for GPP than an established player. However, it won’t always be the case. 

Buy the eventual dip?

Is GGP a beaten-down bargain? Possibly. Tuesday’s report certainly highlighted the massive potential of the project. I also think there’s a lot to be said for Havieron being located in a mining-friendly, politically stable part of the world.

At £700m however, I reckon it will take a lot more than before to move the company’s valuation significantly higher for a while. Perhaps this is now one for me to snap up in the next (inevitable) market crash?

The post The GGP share price: is this penny stock now a beaten-down bargain? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Results at Havieron

A fundamental reason for the rise in the Greatland Gold share price has been its very positive results from its Havieron deposit in Western Australia. In fact, CEO Gervaise Heddle has highlighted the “potential for a bulk tonnage mining operation at Havieron”. He has also pointed to “excellent results” in the early stages. The Australian mining engineer David Lenigas also reckons that Havieron is a “once in a generation find”.

This optimism bodes well for Greatland Gold shares. If Havieron does end up coming to fruition, it should be very profitable for the gold miner. The share price rise is therefore understandable and there is certainly a significant amount of promise for the AIM-listed firm.

What are the risks?

While this all sounds very promising, there are also risks associated with the company. For example, at the moment, the firm is still pre-revenue. Although this is expected while it is in its exploration stages, Greatland Gold shares are still a speculative buy. This means that, like many other gold miners in their exploration stages, there is a possibility that it will run out of money. While I don’t think that this will happen with Greatland Gold (due to a number of promising opportunities), it is still something to be aware of.

There is also the issue of the falling gold price. While gold has thrived throughout the crisis, the last few weeks have seen it fall back from its highs of over $2,000 per ounce to around $1,900. If this decline is to continue, it may also place pressure on the Greatland Gold share price.

Would I buy Greatland Gold shares?

Evidently, there is significant optimism around this gold miner. As such, it is a very tempting buy with the short-term direction of the stock looking positive. Even so, I am slightly more worried about its long-term future. For a company not making any revenues, a market capitalisation of around £1bn seems very high. Consequently, I believe that any disappointing news surrounding the stock will be met with a sharp decline in the share price. Any good news already looks priced-in to the stock and expectations are already very high. As a result, I am not buying into this optimism and believe that now could be a decent time to bank some profits.

The post What would I do now with Greatland Gold shares? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.