A Great Golden summer for Greatland Gold?
“…with the Feasibility Study on the horizon and the prospect of further positive drilling programme updates this summer and autumn with perhaps a discovery at Jura or Scallywag, there may be quite a lot to see before long…”
With a highly prospective set of assets in Western Australia and Tasmania, a multi-million exploration deal with Newcrest Mining, and a consistently upbeat news flow, miner Greatland Gold (AIM:GGP) is well established as one of AIM’s most popular stocks.
Last year the company’s market capitalisation broke through £1bn as its share price soared from 12p in late summer to nearly 40p by the end of the year, earning those who invested in 2018 for less than a penny a share a return of more than 4,000pc. Greatland’s share price has been relevantly becalmed this year, settling around the 20p mark for the past few months, but with the promise of a Pre-Feasibility Study for its flagship Havieron prospect expected later this year, this summer could be the calm before the storm.
The Havieron and Jura Joint Ventures
Led by Non-executive Chairman Alex Borrelli, also Chairman of Xpediator, an AIM-listed freight management company, and CEO Shaun Day, former CFO at Indonesian miner Sakari, and Australian gold producer Northern Star Resources, Greatland is currently focused on a cluster of assets in Western Australia’s Paterson region: the Havieron and Juri Joint Ventures and two 100pc owned prospects awaiting exploration.
Although Paterson has long been prospective for gold and copper, hosting Newcrest’s Telfer mine and Rio Tinto’s Winu discovery, it has been relatively little explored. Greatland achieved a major breakthrough last year when secured an agreement with Newcrest according to the Australian gold major will shoulder $50m of the cost of exploring Havieron in return for the right to earn up to a 70pc interest. Subject to a successful exploration programme, a positive Feasibility Study, and a decision to mine, Havieron’s ore will be toll processed at the Telfer mine, just 45 kilometres away. Aside from the prospect of taking a majority stake in a prospect with real potential Newcrest is motivated by the stark fact that Telfer is estimated to have a life of only a few more years as its current gold supply runs out.
Test drilling prior to the venture agreement indicated the presence of significant gold and copper mineralisation 400 metres below surface. But the Greatland juggernaut really began to motor when a hugely promising Initial Inferred Mineral Resource estimate was published last year based on 126,643 metres of drilling at 125 holes indicating a multi-billion resource including 52 Mt @ 2.0 g/t Au, 0.31pc Cu or 2.5 g/t AuEq for 3.4 Moz Au, 160 Kt Cu or 4.2 Moz AuEq. Newcrest’s drilling programme is currently focused on extending and defining zones adjacent to the current Inferred Resource to allow finalisation and publication of the Pre-Feasibility Study ‘by late calendar 2021’.
Greatland’s other major Paterson project, the Juri Joint Venture, is structured much like the Havieron deal. In this case Newcrest will commit $15m to farm-in to a 75pc interest. Drill testing has commenced at several high-priority targets that Greatland has identified as sharing geophysical characteristics with Havieron. Drilling is also underway on targets at the Scallywag licence, approximately six kilometres west of Havieron, and aeromagnetics, ground gravity and surface geochemistry are planned for the Rudall licence, 20 kilometres away.
Greatland has three other prospects in Western Australia. The Panorama project is a set of exploration licences covering 155 square kilometres in the Pilbara region, where the company believes that sampling data and a 2019 geophysics survey indicate the presence of ‘the largest coherent cobalt in streams anomaly in Western Australia’.
The Ernest Giles project covers 850 square kilometres of previously unexplored greenstone belts and intrusives in Yilgarn Craton, a highly mineralised region littered with gold deposits including the 25 million ounce discovery at Laverton. Surface sampling has returned results of up to 338 ppb Au in soil in target areas yet to be drilled.
The Bromus project, also in the Yilgarn region, a 52 square kilometre exploration licence comprising under-explored greenstone and intrusive granites, is located at the southern end of the Kalgoorlie-Norsman Belt, host to over 120 Moz of gold and numerous nickel deposits. Historical data also shows consistently high nickel levels of to 2,690 ppm.
Greatland also has two prospects in Tasmania. A 2019 drilling programme at the 62 square kilometre Firetower project confirmed the presence of broad widths of gold mineralisation, the best initial results including 54.5 metres at 1.36 g/t Au from surface. Drilling at the 37 square kilometre Warrentinna project shows gold mineralisation from surface layers, providing potential for an open pittable gold resource, with host rocks ‘equivalent to those found in the goldfields in Victoria, south-eastern Australia which have to date produced over 50 million ounces of gold’.
Greatland has sustained the momentum gained from the Newcrest agreement and the Inferred Resource estimate through a series of highly positive updates from the Haiveron drilling programme. The campaign has recorded a series of impressive intercepts including 120.7 metres @ 9.3g/t Au and 0.18pc Cu from 1349.3 metres. Greatland says work to date confirms ‘the potential to achieve commercial production at Havieron within three years’.
The company’s latest programme update, published on 22 July, offered more good news, reporting that Newcrest has so far completed a total of 184,081 metres of drilling from 212 holes, all of which have intersected ‘significant mineralisation’. The latest promising intercept, at Havieron’s Northern Breccia site, recorded 84.5 metres @ 2.0 g/t Au and 0.05pc Cu from 683 metres, including 12.7 metres @ 6.0 g/t Au & 0.01pc Cu from 685.3 metres. The results from a further 15 growth drill holes will be reported in the next update. In CEO Shaun May’s upbeat assessment the ‘ongoing success from each set of drill results builds confidence in the world class nature of the Havieron gold-copper project and its potential to expand.’ The site’s infrastructure is also well advanced. Work began in May on Havieron’s ‘underground decline’, a ramp giving trucks and other equipment access to the top of the orebody. And development of onsite facilities for up to 230 workers is ‘nearing completion’.
There is also progress on the Juri Joint Venture front, where drilling of high-priority targets began in April, and ground electromagnetic surveys are being undertaken ‘to better define priority drill targets’. April also saw results from the drilling campaign at the Scallywag licence. Seven drill holes covering 3,761 metres returned initial sample results reporting ‘very high-grade intercepts of silver, copper and tungsten’, including 872 ppm Ag, 1137 ppm Cu and more than 2000 ppm W in the 349.0 – 350.0 metres interval. A follow-on exploration programme will drill test targets based on modern geological, gravity, magnetic and recently collected airborne EM datasets.
Greatland’s most recent interim report, published in March, reported the company is well capitalised for its current exploration programmes, with cash equivalents of £5.9m as at 31 December 2020. An unaudited operating loss was recorded for the six months ended 31 December 2020 of £2,674,445 (six months to December 2019: loss of £2,623,975). The Newcrest deal of course is crucial, freeing the company from the burden of continually returning to the markets to fund each new exploration round.
Greatland’s progress comes against the background of a strong long-term outlook for the gold, copper, nickel and cobalt metals it hopes to mine. Although the price of gold has retreated from the heights reached this time last year, when markets looked for safe havens from pandemic induced volatility, it has held its ground, recovering through spring and summer and stabilising around $1,825 at the time of writing. Indeed the world’s central banks expect to increase their gold reserves over the next 12 months amidst uncertainty about inflation and Covid’s persistence. US and European investors may have reduced their exposure to gold somewhat, but gold ETFs are performing strongly worldwide. At the end of June Asia-domiciled gold ETFs had posted net inflows of $1.6bn, reflecting concern in emerging markets at the relentless spread of the Delta variant.
As we discussed in depth in June the long-term outlook for industrial metals is strong. The price of copper, fundamental for green transition technologies – an electric vehicle for example contains five times more copper than a car fitted with an internal combustion engine – has almost doubled in the past year, hitting a record high of $10,460 a tonne in May.
The International Energy Agency estimates that copper’s market share will have to grow almost sevenfold between 2020 and 2030 if net zero emissions are going to be achieved by 2050. China, for example, which consumes half of the world’s copper, has imported nearly 10pc more of the metal than the previous year. Prices are being forced up further by supply pressures. Just as demand is surging the copper market is close to peak supply, with big miners curtailing investment in new projects. The industry has dramatically scaled back spending since the last commodity boom, when too many indulged in overpriced deals and over ambitious projects that brought them close to financial ruin.
The price of nickel has also surged this year, a few weeks ago hitting $18,300 a tonne, up 70pc since last March. Although investor interest in nickel is somewhat inspired by misleading narratives, supply of the metal is currently in surplus, and just 8pc of nickel demand is driven by the batteries market. Electric vehicle manufacturers continue to act on concerns about the stability of its supply. Tesla has just signed a nickel-supply deal with BHP, the third nickel contract it has entered into in the past eight months. The metal is a key material for Tesla’s longer-range cars that require more powerful batteries. Concerned by the industry’s dependence on China and Indonesia for nickel supply Elon Musk said last July that he would offer a ‘giant contract for a long period of time’ to companies that could mine nickel ‘efficiently and in an environmentally sensitive way’.
There is also robust demand for cobalt, the International Energy Agency estimating that the metal’s supply would have to increase more than twentyfold by 2040 to fulfil Paris climate agreement targets: carmakers also need metals such as lithium and cobalt for batteries. The price of lithium carbonate has risen 65pc this year and cobalt sulphate prices are up 24pc. Goldman Sachs made waves last month by stepping up its trading in battery metal cobalt dipping into physical purchases of the metal for the first time.
Too good to be true?
Even as habitually sceptical a publication as Investors’ Chronicle has been impressed with Greatland’s performance, observing last September that ‘Massive ramps by pre-revenue mining prospects are not uncommon. See SolGold (SOLG) in 2016 or Bushveld Minerals (BMN) in 2018. Greatland Gold has blown these stories out of the water.’ It should be noted that SolGold owns 85pc of its prospective Alpala deposit in Ecuador, while Greatland will own only a quarter of Havieron and Jura if the Newcrest drilling programmes are successful. On the other hand Greatland does not have to build a processing plant, giving it a far cheaper and faster route to production.
Investors should also bear in mind that Greatland is still an early-stage exploration business which hasn’t yet produced anything. By the company’s own assessment commercial production is at least three years away, and Haiveron’s much anticipated Pre-Feasibility Study has not yet been published. Underground decline access for the ore bodies is still being excavated.
The dip in the company’s share price since last year’s highs indicates that many investors have taken a bit of profit and seem content to hold and wait and see for now. But with the Feasibility Study on the horizon, the prospect of further positive drilling programme updates this summer and autumn, and perhaps a discovery at Jura or Scallywag, there may be quite a lot to see before long. As with all unproven small cap miners investors should tread carefully, but now, while Greatland’s share price is treading water, may be a good time to get in.