Greatland Gold (LSE:GGP) powered forward to a record high of 3.78p at the end of last week after posting an “outstanding” set of drilling results for the Havieron asset it is advancing with Newcrest Mining (ASX:NCM). With a market cap of £104.1 million, the Australia-focused gold explorer and developer sat nearly 110% higher than it did at the beginning of 2020 after riding a massive wave of increased trading volume in its shares. The market is now eager to see the extent to which Greatland can build on this success and how big Havieron could ultimately prove to be, with an extra $25 million expected to be spent on the property this year.
Aside from Havieron’s ongoing potential, there were several key reasons why investors were particularly excited about the latest drilling campaign here. The long-term implications factors could prove to be truly transformational. Here, we take a detailed look at what is causing all this excitement.
Firstly, and perhaps most obviously, investors were highly encouraged by the quality of the news itself.
To recap, Havieron is a gold deposit centred on a magnetic anomaly in the Paterson region of Western Australia. Newcrest operates it under a farm-in agreement with Greatland. Exploration drilling by Greatland in 2018 led to the discovery of significant gold and copper mineralisation under 400 metres of cover.
After following this with its own set of strong drilling results in mid-2019, Newcrest completed nearly 19,000 metres of additional drilling in the final quarter of last year to enhance its understanding of Havieron’s true scale. With its latest work extending continuity of mineralisation at the asset over 450 metres of strike, including widths of up to 150 metres and depths over 600 metres, Newcrest has undoubtedly met its primary objective. What’s more, these extents could extend further yet, with mineralisation remaining open both to the north-west and at depth.
Meanwhile, highlight intersections included 136 metres at 2.9 grams per tonne (“g/t”) gold and 0.6% copper from 504 metres and 73 metres at 3.2 g/t gold and 0.67% copper from 513 metres.
In its update, Greatland put the importance of the results into context, stating:
“The latest drill results and the initial observed dimensions of the deposit suggest that Havieron represents a significant gold-copper discovery.”
Newcrest exceeds expectations
A second, highly encouraging sign for investors was Newcrest’s enthusiastic reaction to its latest results at Havieron.
The Havieron deposit is based just 45 kilometres east of Telfer, one of Newcrest’s flagship project that produces up to 460,000 ounces of gold and 13,000 kilotonnes of copper a year. Newcrest’s ultimate goal, alongside Greatland, is to truck high-grade ore from Havieron to Telfer for processing - extending its mine’s life and reducing production costs per ounce. To do this, the major miner entered a deal with Greatland last year that granted it the right to earn up to a 70% interest in Havieron target by spending up to $65 million on its development across four stages, as seen below.
Newcrest is currently in the second stage of the farm-in. However, the firm’s outpouring of support for Havieron in the wake of its latest results suggests that Greatland will continue to benefit from the major’s massive firepower moving forward.
For example, in its exploration report, Newcrest described the grades it has seen at the deposit as “unique” for the region, adding that it now plans to “progress and accelerate our evaluation of this opportunity”. Likewise, in a tweet, the company said Havieron “signals a new era in our asset portfolio”, adding: “Grades like this are rare & we’re excited with our progress”.
Newcrest also appears to be putting its money where its mouth is when it comes to this enthusiasm. As Greatland highlighted in its update:
-Drilling has recently recommenced drilling at Havieron following a short Christmas break;
-An additional 20,000-30,000 metres of drilling are planned in the next two quarters to support the potential delivery of a maiden resource by the end of the calendar year 2020;
-A number of environmental, geotechnical, and metallurgical studies have commenced to support the potential delivery of a resource and future permitting requirements.
Meanwhile, Newcrest itself said it expects its exploration expenditure to be $25 million higher than anticipated at Havieron in light of the positive results.
Things could not have got off to a better start at Havieron for Newcrest, and this paints a very bright picture for Greatland’s future at the asset.
Mapping out Havieron
With Havieron’s dimensions now established, the third (and perhaps most important) point that is likely to be on the minds of excited Greatland investors is that it is now possible to make an estimate of the project’s contained gold. Although by no means definitive at this stage, the early signs are very encouraging.
Let’s take a look.
With a 450-metre strike length, a 150-metre width, and a depth of 600 metres, it is reasonable at this stage to assume that mineralisation at Havieron covers roughly 40,500,000 cubic metres (450 X 150 X 600). Next, if we apply a specific gravity of three (which is broadly expected in the regional geology), we get to approximately 120,000,000 tonnes of ore (40,500,000 X 3 = 121,500,000).
Now it becomes a question of what grade we apply to the ore. To provide a range of potential outcomes, let’s apply three scenarios (note that we divide by 31.1 because this is the number of grams in one troy ounce):
-LOW: 1 g/t ore, which results in roughly 3,900,000 ounces of gold ( (120,000,000 X 1) / 31.1 );
-MID: 1.5 g/t ore, which results in roughly 5,800,000 ounces of gold ( (120,000,000 X 1.5) / 31.1 ); and
-HIGH: 2 g/t ore, which results in roughly 7,700,000 ounces of gold ( (120,000,000 X 2 ) / 31.1 )
Now, we have to assign a valuation to each ounce contained within the Havieron. The table below, taken from our recent report on Greatland, demonstrates the value of a few of Australia’s largest gold miners, in US dollar per resource terms.
If we take a relatively conservative view and assume that each Havieron ounce is valued at $200, then the total value of Greatland’s 30% project interest (on the assumption that Newcrest takes a 70% stake) is as follows:
-LOW: $234 million (£178.7 million) ( (3,900,000 X 200) X 0.3 )
-MID: $348 million (£265.8 million) ( (5,800,000 X 200) X 0.3 )
-HIGH: $462 million (£352.8 million) ( (7,700,000 X 200) X 0.3 )
No matter what scenario you apply, this initial estimate compares very attractively to Greatland’s current all-time high market cap of £104.1 million. This is especially encouraging when we take into account that gold prices are on one of their strongest runs in years and Havieron’s resource remains open – the project’s ultimate dimensions could be significantly larger than the numbers we have used here.
A bright future at Havieron
Three clear takeaways emerge from our analysis:
-Joint venture work has got off to as good a start as possible at Havieron, with the deposit showing more and more signs of boasting the prospectivity that Greatland has long suspected;
- With Newcrest indicating an additional $25 million spend here, this is a most encouraging indicator of its commitment to Havieron over the long term; and
-Rough early resource estimates suggest Havieron, even when using conservative assumptions, could be a vast economic force for Greatland- especially in combination with the remainder of its portfolio.
All of these points have the potential to have a very positive impact of Greatland’s share price and market cap, potentially pushing it to further hights. Heddle was keen to express his enthusiasm for the Havieron’s game-changing potential when we spoke to him, saying:
“It is a really exciting time for Greatland and Newcrest. We are just starting to see the true potential scale of the Havieron project, and we will see a lot more over the next six months. Our eyes are now on delivering a maiden resource by the end of the year, and this will be a really huge milestone for us.”
If Newcrest and Greatland can remain on track at Havieron as they have so far been able to, the future could indeed be very bright for shareholders.
Author: Daniel Flynn
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