The Greatland Gold (LSE:GGP) share price took a 6% hit last week despite the firm publishing encouraging drilling results from its flagship Havieron project. The gold and copper mining business has been a stellar performer since the start of 2020, with its share price rising by roughly 450%. But given this recent positive news, why has the GGP share price taken a downturn? Let’s take a closer look at what’s going on.
Latest drilling results from Havieron
I’ve previously explored the Havieron project. But as a quick reminder, it’s a joint venture between Greatland Gold and Newcrest Mining to develop a large area of land in Western Australia. The drilling site is expected to contain up to 4.2 mega ounces of gold and equivalents. Based on today’s price, that much gold is worth roughly £5.4bn.
The mineral estimation figures were published last year and appear to be the primary catalyst behind the rapidly rising GGP share price. Since then, a pre-feasibility study was initiated to investigate the economic viability of the project. Last week, management released another set of drilling results from different sites within the Havieron area. And they were pretty exciting, in my opinion.
The firm announced that it has continued to find high-grade gold ore across the region. Some drilling assays reported a concentration of up to 9.7g/t (grams per tonne) starting as shallow as 12.8 metres! Generally, anything above 5g/t is considered excellent. And the lack of depth offers an encouraging sign that the pre-feasibility study will come back with a favourable conclusion.
Needless to say, this is excellent news. So why did the GGP share price drop?
The falling share price
As exciting as these latest results are, similar discoveries were already made last year. Consequently, the positive effects of this discovery appear to have already been baked into the GGP share price by earlier expectations.
What’s more, there continues to be uncertainty surrounding the project’s pre-feasibility study. Based on the information published so far, the odds look good that a favourable conclusion will be drawn. However, mining exploration is an exceptionally complex process. Even the most promising drilling results can still lead to an unviable project. This is why most young exploration businesses end up failing.
The study is set to be completed before the end of the year. And until then, I expect the GGP share price will remain relatively volatile. Should the study conclude favourably, I wouldn’t be surprised to see the GGP share price explode. Of course, if the outcome is negative, then the market capitalisation of Greatland Gold could plummet.
The bottom line
Investing in early-stage mining businesses always carries a high level of risk. But on the rare chance that they succeed, investors are immensely rewarded. While Greatland Gold has other projects in its portfolio, Havieron remains the primary driver of its share price.
The seemingly binary outcome of this project adds a level of risk that I’m personally not interested in adding to my portfolio. Therefore, despite the potential for a surging share price in the near future, I’m keeping this business on my watchlist for now.
Zaven Boyrazian 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.
Need Your Help Today. Your $1 can change life.