Master Investor article - a rebuttal
Posted: Thu Jul 13, 2023 10:15 pm
Hi guys - you will recall earlier this week that there was a Master Investor article running down the Greatland story. I have had a go at writing a rebuttal and to present some assertions from a GGP perspective. I have not presented these to the author and don't plan to. I do not want to get into a "he said, she said" type of argument. The guy obviously has an agenda and in that sense the article is not very balanced. His comments are in inverted commas and my response is in bold, capitals and underlined.
Please feel free to add your own comments, particularly on the latter few paragraphs where I was running out of steam.
Thanks l-a
Master Investor article
"I said last time that I’d revisit Greatland Gold as the planned start to its (30% owned) Australian Havieron Gold project – which promises to be one of the more profitable and significant recent gold discoveries – draws closer. But much has changed; the planned start this year has been pushed back; and might be impacted by the recent take-over of Havieron’s 70% owner Newcrest by giant Newmont, who might have its own ideas about Havieron’s future."
Comment – Speculation by the author on 2 counts as underlined. If he had not been so lazy a better way of forming an opinion would have been to ask for an interview with Greatland, Newcrest or Newmont to at least see whether these judgements were credible. It currently reads as if the author has pre-judged the conclusion for reasons to suit his own narrative. Sure there has been a necessary delay in issuing the Feasibility Study because of the potential Newmont takeover. But in one sense it has given Newcrest the time and opportunity to formulate their “value enhancing” options for the FS as stated by the company in December, shortly before the second Newmont offer.
"On top, is the large mining cost increases being seen world-wide which will have affected Havieron’s economics – where the latest, 2021, PFS and valuation has been rendered well out of date not only by higher costs not matched by a higher gold price, but also by changes in the original mine design. So all are waiting for a revised feasibility study to be published, hopefully, before the end of this year. Only then, it seems, will a ‘decision to mine’ be made, although might also be a ‘decision to keep or divest’ by the new owner."
Again not true with regard to gold price. It was $1,784/oz in October 2021 and gold futures as I write are $1,942/oz. But the author also misses another significant point. The financial parameters that Newcrest used for the PFS in October 2021 were by most commentators’ reckoning very cautious – this is borne out by the gold price and copper prices they factored into the calculation of the viability of the Havieron project (ie Net Present Value) – POG $1,500/oz and copper $3.30/lb. So the gold price assumption has actually increased by 28% and copper by 15% since October 2021.
Investors are of course waiting to see to what extent the mine design has changed since October 2021 but the indications are that these will be value-enhancing for Havieron as Newcrest have stated. This is consistent with the additional drilling which has taken place since the PFS where Newcrest have continued to see increased mineralisation, not only in the SouthEast Crescent which will be mined first and form the basis of the Feasibility Study, but also in the directly adjacent areas known as the Eastern Breccia, Northern Breccia and NW pod.
https://www.newcrest.com/sites/default/ ... port_1.pdf
While it may be true that a formal decision to mine is awaited as the author states, in reality the decision was effectively taken when the decline was started in February 2021. The main decline continues to progress, having surpassed 1,700m. Decline support excavations for ventilation, services and materials handling takes the total development to over 2,400m. It would be illogical to conclude otherwise – why would Newcrest have continued to spend significant sums if they were just going to walk away.
"That means GGP’s shares would in any case have been in the doldrums, with the cautious preferring to hold off while the hopefuls point to continuing drill results which are expected to produce a substantial increase in Havieron’s last published mining reserves, and enable plans to more than double the originally planned gold output."
It is a natural reaction to ongoing world events, cost of living issues and utility cost increases that less money is around for people to invest in shares. That does not just apply to Greatland, but to shares generally. Many companies, both large and small, have seen the price of their shares fall substantially since the brief covid-induced spike.
Look at the following as a small cross section:
1 year low 1 year high Current (p)
Fresnillo FRES 597 968 636
Centamin CEY 74 126 94
Pan African Res PAF 12 21.2 13.7
Ariana Resources AAU 2.2 3.6 2.2
Hummingbird HUM 5.1 19.8 13.6
Serabi Gold SRB 22.5 43 23
Goldplat GDP 7.2 12.5 7.2
Rio RIO 4486 6377 5206
AngloAmerican AAL 2168 3673 2357
Jubilee Metals JLP 7.1 14.8 7.7
Kefi Gold KEFI 0.52 1.05 0.54
Greatland Gold GGP 6.5 13.3 6.8
In terms of drilling, the results have continued to impress and Shaun Day has indicated informally in presentations that an increase in resource from the current 6.5m oz gold equivalent, based on drilling up to December 2021, is expected. He has mentioned an increase in the order of 43% compound annual growth rate since that time. The resource update is expected with Newcrest’s annual results on 11 August. If this is not forthcoming Shaun Day has indicated that Greatland may issue its own update.
Reserves currently stand at 2.9m oz gold equivalent so an increase by the above-mentioned CAGR is not unreasonable.
"All that however will increase the capital cost, which the hopefuls had expected would be met by production expansion down the line, but, with so many inputs changed, it is impossible to predict what the new feasibility study will show. A question is whether GGP will need to increase the provision it has made (to be met by promised bank loans) to pay for its 30% share of costs, and alongside that, whether – if or when GGP completes its planned listing on the ASX this Autumn – it is accompanied by a cash raise and resulting share dilution."
"The hopefuls however dismiss worries, pointing to what they see as the outstanding value GGP surely has in 30% of a mine that they hope could grow eventually to encompass over 20Moz of gold resource and over 10Moz of reserves."
Whilst commentators cannot predict with any certainty what the Feasibility Study will show we know that Newcrest are looking at “enhanced value” options for the mining plan as noted in their December 2022 announcement.
Because the SE Crescent has grown steadily since the first drill results in that area, leading to the PFS in October 2021 concentrating on that area becoming the first area to be mined, it is very likely the FS will also concentrate their attention there. Drilling results published every 6/7 weeks give a very good indication of the shape of the SE Crescent with particular emphasis on high grade mineralisation in the upper levels. Many informed commentators suggest that a mining plan for the Reserves based on 3mtpa and 4g/t gold over a 12 year period will be forthcoming, consistent with the EPA submission (based on the same period) to the Western Australian mining authorities in June 2023.
Copper needs to be added to that which could bring the gold equivalent figure to 4.5-5g/t.
If that is proven correct, the average per annum gold production figure works out at 387,000 oz for each of the 12 years, 30% of which would be attributable to Greatland. Some 15-20% would need to be added to this figure for the copper.
In terms of attributable capital costs, one has to revisit the October 2021 PFS economic and financial assumptions given that was based on a 9 year life of mine for 14mt giving 1.43m oz gold. Newcrest estimated the total capital costs of the project at $397m.
Informed commentators are now expecting the enhanced value mining plan to be based on over 4m oz Reserves over a 12 year period. It is inevitable that the costs of this mining plan will have increased since 2021, both in terms of associated costs for mine size and the financial assumptions given worldwide increases in utility costs etc. We await those revised assumptions.
However the funds raised by Greatland in September 2022 contained a “significant buffer” according to Shaun Day and that those should be “sufficient” to see Greatland through to first gold in 2024.
Detractors of course see things differently. They see the proposed ASX cross listing in Q3 2023 being accompanied by a significant capital raise despite the company issuing a Regulatory News release to the contrary:
“Greatland confirms that its ASX Listing preparations remain on track and it has been evaluating whether to conduct a potential equity capital raising as part of that process.
Whilst preliminary discussions have been held with investment banks, Greatland advises that the Company has not made any decision as to whether to conduct a capital raising nor has it formally mandated any investment banks in connection with the ASX Listing.
Greatland will keep shareholders informed on all material developments”.
"But meanwhile, and despite hopes that recent drilling will increase Havieron’s stated up-to-date reserves to perhaps 6Moz soon, GGP still looks expensive, with its current £314m market cap valuing its share of a hoped for 6Moz mineable gold reserve at Havieron at $174 per ounce – higher than most gold miners on ASX."
No respected commentator has suggested we will see Reserves of 6m oz for Havieron soon. Reserves currently stand at 2.9m oz gold equivalent so a jump to around the 4.5m oz in the Newcrest August update looks more likely.
Greatland’s share of that would be around 1.3m oz. Assuming a 12 year mining plan based on ore of 3mtpa, Greatland’s share would be some 110,000 oz pa. Applying a very conservative gold price of $1,850/oz and an AISC of say $850/oz this would generate profits for Greatland of around $110m per annum – earnings per share of some 1.4p. A very conservative PE of 12 gives an indicative share price target of 17p.
But, because of its underlying size, Havieron does not stop there – it is expected that plans will evolve for a further 5m oz SLOS operation perhaps involving a hoist and subsequently a bulk mining operation generating a further 6m oz caveable material. Cash generated from the 12 year mining plan operation will be used for funding these add-ons.
"That is just one illustration that on the measures they use, it is institutional investors rather than the private investors who dominate GGP’s share register, who have decided that GGP is still too expensive (the relentless and steady slide in the shares is saying so)."
According to market screener Institutions only account for some 960m Greatland shares – some 19% of shares in issue. This suggests that in these relatively difficult financial times it is actually PIs who have been selling, perhaps as they raise cash for liquidity purposes.
"Private investors seldom do the sums. I have compared Havieron with the price Newmont is paying for Newcrest whose details (from its latest published report and accounts) are much too voluminous to state here, and have to be adjusted for its new or recently acquired projects (like Red Chris, Bruce Jack, and Wafi-Golpu) whose large extra contribution (some 20%) doesn’t feature yet in Newcrest’s accounts, even though will have been taken into account in the price Newmont is paying."
“Private investors seldom do the sums”. Really? That statement is disingenuous and can be dismissed without comment.
"Neglecting ‘future growth’ (which has its own caveats as I will describe later) those comparisons – on all the measures that professional investors use – between GGP and for instance the price Newmont is paying for Newcrest – show GGP to be still substantially overvalued. So, unless the company comes up with much more than is currently in the public domain to make for a persuasive forecast of its medium term future, it is difficult to see an ASX listing improving GGP’s share price."
No figures are given, just bland opinionated statements.
"As for that Newcrest comparison, Newmont’s US$19m final price is 39% higher than was Newcrest’s market value before the bid – as is always the case when an acquirer values another company for what it adds to its life and its employee’s jobs, more than market investors value it. So the real comparison is between Newcrest’s $13.7bn pre-bid market value and GGP’s current $390m – which shows a 35 times disparity. Yet on the most important measure for a miner, Newcrest’s 90Moz gold equivalent reserves (including copper) compared with GGP’s 30% share of an ‘asssumed’ 6Moz gold at Havieron, the disparity is 50 times – ie GGP, on that measure, is 43% too expensive or, alternatively the market is already factoring in reserve growth well beyond that. But all other comparisons still show GGP to be overvalued."
"One, more important than mineral reserves, is that investors wouldn’t be buying just GGP’s share of Havieron, but also the company’s balance sheet, its borrowings and exploration costs, and other company costs, let alone probable extra costs to develop Havieron."
"Without taking up too much space, some of those other comparisons are:
NCM’s net asset value is $11.6bn vs GGP’s $80m, and NCM has borrowings of only $1.8bn – ie a mere 15.5% of its net assets. But when GGP draws its loans to fund its share of the original Havieron stage one costs its net borrowings will be about $160m – ie 2x its net assets. On the assets basis alone therefore, GGP’s value based on NCM would be only $135m, or £100m GBP (2p per share). On the more usual ‘Enterprise Value’ (EV which includes borrowings) compared with assets and mineral reserves, GGP’s equity shares would look even more overvalued. Market value comparisons with some other large Australian gold producers and, eg, their NPV’s (no room to give here) show similar."
"The hopefuls ignore all that, pointing to the substantial cash inflows from GGP’s share of Havieron once it starts production. Before the revised Feasibility Study we can’t know what that will be, but on the original plan, about half what was expected would have been swallowed up for 7 years by the $42m annual repayments of the bank loans to fund GGP’s share of the initial build costs. That is probably why GGP’s CEO has recently downplayed the hopeful’s expectations of a juicy GGP dividend."
One measure of value, besides those which I note above, can be obtained from the 5% of Havieron which Newcrest turned down. The independent adjudicator deemed the 5% share was valued at $60m even though Greatland offered Newcrest $85m and even then considered that figure considerably undervalued Greatland’s share. 30% comes to some $510m. That was on known Reserves of 870,000 oz attributable to Greatland within an MRE of 1.95m oz gold equivalent attributable to Greatland as published in March 2022.
As noted above Reserves are expected to have grown to some 4.5m oz – with Greatland’s share being some 1.3m oz.
An MRE update is expected to be published by Newcrest alongside their annual accounts on 11 August. It is widely anticipated that the overall MRE will have grown to some 9-10m oz gold equivalent, with Greatland’s share being 2.7 to 3m oz.
The ore body is still open at depth and in several directions. The overall size of Havieron is still to be determined though estimates have been put at 20m oz based on the size of the ore body. Given the conversion of mineral resources to Reserves is some 86% there is significant scope for the Reserves and profits to grow at each annual update.
"So that is why the shares have steadily declined. A share price chart like the one attached is telling us something. The market obviously isn’t looking forward to any ‘future growth’ – but should it ? The hopefuls can’t give any reasoned figures – while professionals don’t pay a premium for ‘hopes’. They only pay for solid projections (and not for what the company’s brokers pretend are ‘solid’ NPV based ‘targets’)."
Motherhood and apple pie statements.
"As for that hoped for ‘growth’. It revolves around GGP’s exploration finding more deposits like Havieron, or corporate developments and deals facilitated by the heavy hitting mining financiers GGP has recruited to its board, reinforced by the claimed record of CEO Shaun Day in driving Aussie miner Northern Star Resources (ASX:NST) from a A$1 share price in early 2014 to a peak $15 in 2020 (It is now $13)."
"Shaun Day was Chief Financial Officer of NST only for four years from October 2014, so it is difficult to judge how influential he was in that growth, and in any case 2013 and 2014 were exceptionally depressed times in mining. Northern Star had been able to snap up cheaply some large projects in Western Australia being sold off by then owners (who included Newmont and Barrick) whose own shares and balance sheets, at a time of depressed gold prices, were in trouble. NST was subsequently able to find new resources and increase gold production six-fold in two years to 2016 ,and then to benefit from a 35% increase in the gold price over the next two. So hopes that GGP’s new backers will help replicate that performance depend on those 2014-2018 extreme conditions returning."
"So there is a great amount of uncertainty about that GGP future potential. While it might well expand, no one can predict at what cost to shareholders. Expansion (and even ‘buying back’ the 70% of Havieron from Newmont) will involve corporate deals, borrowings, share issues, or whatever, which is why the ‘big hitters’ have been attracted for the corporate commissions. But whether they will treat the share price as a priority is unknown."
"I don’t think investors will have the solid information to even roughly value the shares before the end of this year at least. Meanwhile drift looks likely to continue."
The author has a clear agenda – one of negativity. Surprising given the obvious size of Havieron and the expected annual profits which are expected to start rolling in from Q3 2024.
Please feel free to add your own comments, particularly on the latter few paragraphs where I was running out of steam.
Thanks l-a
Master Investor article
"I said last time that I’d revisit Greatland Gold as the planned start to its (30% owned) Australian Havieron Gold project – which promises to be one of the more profitable and significant recent gold discoveries – draws closer. But much has changed; the planned start this year has been pushed back; and might be impacted by the recent take-over of Havieron’s 70% owner Newcrest by giant Newmont, who might have its own ideas about Havieron’s future."
Comment – Speculation by the author on 2 counts as underlined. If he had not been so lazy a better way of forming an opinion would have been to ask for an interview with Greatland, Newcrest or Newmont to at least see whether these judgements were credible. It currently reads as if the author has pre-judged the conclusion for reasons to suit his own narrative. Sure there has been a necessary delay in issuing the Feasibility Study because of the potential Newmont takeover. But in one sense it has given Newcrest the time and opportunity to formulate their “value enhancing” options for the FS as stated by the company in December, shortly before the second Newmont offer.
"On top, is the large mining cost increases being seen world-wide which will have affected Havieron’s economics – where the latest, 2021, PFS and valuation has been rendered well out of date not only by higher costs not matched by a higher gold price, but also by changes in the original mine design. So all are waiting for a revised feasibility study to be published, hopefully, before the end of this year. Only then, it seems, will a ‘decision to mine’ be made, although might also be a ‘decision to keep or divest’ by the new owner."
Again not true with regard to gold price. It was $1,784/oz in October 2021 and gold futures as I write are $1,942/oz. But the author also misses another significant point. The financial parameters that Newcrest used for the PFS in October 2021 were by most commentators’ reckoning very cautious – this is borne out by the gold price and copper prices they factored into the calculation of the viability of the Havieron project (ie Net Present Value) – POG $1,500/oz and copper $3.30/lb. So the gold price assumption has actually increased by 28% and copper by 15% since October 2021.
Investors are of course waiting to see to what extent the mine design has changed since October 2021 but the indications are that these will be value-enhancing for Havieron as Newcrest have stated. This is consistent with the additional drilling which has taken place since the PFS where Newcrest have continued to see increased mineralisation, not only in the SouthEast Crescent which will be mined first and form the basis of the Feasibility Study, but also in the directly adjacent areas known as the Eastern Breccia, Northern Breccia and NW pod.
https://www.newcrest.com/sites/default/ ... port_1.pdf
While it may be true that a formal decision to mine is awaited as the author states, in reality the decision was effectively taken when the decline was started in February 2021. The main decline continues to progress, having surpassed 1,700m. Decline support excavations for ventilation, services and materials handling takes the total development to over 2,400m. It would be illogical to conclude otherwise – why would Newcrest have continued to spend significant sums if they were just going to walk away.
"That means GGP’s shares would in any case have been in the doldrums, with the cautious preferring to hold off while the hopefuls point to continuing drill results which are expected to produce a substantial increase in Havieron’s last published mining reserves, and enable plans to more than double the originally planned gold output."
It is a natural reaction to ongoing world events, cost of living issues and utility cost increases that less money is around for people to invest in shares. That does not just apply to Greatland, but to shares generally. Many companies, both large and small, have seen the price of their shares fall substantially since the brief covid-induced spike.
Look at the following as a small cross section:
1 year low 1 year high Current (p)
Fresnillo FRES 597 968 636
Centamin CEY 74 126 94
Pan African Res PAF 12 21.2 13.7
Ariana Resources AAU 2.2 3.6 2.2
Hummingbird HUM 5.1 19.8 13.6
Serabi Gold SRB 22.5 43 23
Goldplat GDP 7.2 12.5 7.2
Rio RIO 4486 6377 5206
AngloAmerican AAL 2168 3673 2357
Jubilee Metals JLP 7.1 14.8 7.7
Kefi Gold KEFI 0.52 1.05 0.54
Greatland Gold GGP 6.5 13.3 6.8
In terms of drilling, the results have continued to impress and Shaun Day has indicated informally in presentations that an increase in resource from the current 6.5m oz gold equivalent, based on drilling up to December 2021, is expected. He has mentioned an increase in the order of 43% compound annual growth rate since that time. The resource update is expected with Newcrest’s annual results on 11 August. If this is not forthcoming Shaun Day has indicated that Greatland may issue its own update.
Reserves currently stand at 2.9m oz gold equivalent so an increase by the above-mentioned CAGR is not unreasonable.
"All that however will increase the capital cost, which the hopefuls had expected would be met by production expansion down the line, but, with so many inputs changed, it is impossible to predict what the new feasibility study will show. A question is whether GGP will need to increase the provision it has made (to be met by promised bank loans) to pay for its 30% share of costs, and alongside that, whether – if or when GGP completes its planned listing on the ASX this Autumn – it is accompanied by a cash raise and resulting share dilution."
"The hopefuls however dismiss worries, pointing to what they see as the outstanding value GGP surely has in 30% of a mine that they hope could grow eventually to encompass over 20Moz of gold resource and over 10Moz of reserves."
Whilst commentators cannot predict with any certainty what the Feasibility Study will show we know that Newcrest are looking at “enhanced value” options for the mining plan as noted in their December 2022 announcement.
Because the SE Crescent has grown steadily since the first drill results in that area, leading to the PFS in October 2021 concentrating on that area becoming the first area to be mined, it is very likely the FS will also concentrate their attention there. Drilling results published every 6/7 weeks give a very good indication of the shape of the SE Crescent with particular emphasis on high grade mineralisation in the upper levels. Many informed commentators suggest that a mining plan for the Reserves based on 3mtpa and 4g/t gold over a 12 year period will be forthcoming, consistent with the EPA submission (based on the same period) to the Western Australian mining authorities in June 2023.
Copper needs to be added to that which could bring the gold equivalent figure to 4.5-5g/t.
If that is proven correct, the average per annum gold production figure works out at 387,000 oz for each of the 12 years, 30% of which would be attributable to Greatland. Some 15-20% would need to be added to this figure for the copper.
In terms of attributable capital costs, one has to revisit the October 2021 PFS economic and financial assumptions given that was based on a 9 year life of mine for 14mt giving 1.43m oz gold. Newcrest estimated the total capital costs of the project at $397m.
Informed commentators are now expecting the enhanced value mining plan to be based on over 4m oz Reserves over a 12 year period. It is inevitable that the costs of this mining plan will have increased since 2021, both in terms of associated costs for mine size and the financial assumptions given worldwide increases in utility costs etc. We await those revised assumptions.
However the funds raised by Greatland in September 2022 contained a “significant buffer” according to Shaun Day and that those should be “sufficient” to see Greatland through to first gold in 2024.
Detractors of course see things differently. They see the proposed ASX cross listing in Q3 2023 being accompanied by a significant capital raise despite the company issuing a Regulatory News release to the contrary:
“Greatland confirms that its ASX Listing preparations remain on track and it has been evaluating whether to conduct a potential equity capital raising as part of that process.
Whilst preliminary discussions have been held with investment banks, Greatland advises that the Company has not made any decision as to whether to conduct a capital raising nor has it formally mandated any investment banks in connection with the ASX Listing.
Greatland will keep shareholders informed on all material developments”.
"But meanwhile, and despite hopes that recent drilling will increase Havieron’s stated up-to-date reserves to perhaps 6Moz soon, GGP still looks expensive, with its current £314m market cap valuing its share of a hoped for 6Moz mineable gold reserve at Havieron at $174 per ounce – higher than most gold miners on ASX."
No respected commentator has suggested we will see Reserves of 6m oz for Havieron soon. Reserves currently stand at 2.9m oz gold equivalent so a jump to around the 4.5m oz in the Newcrest August update looks more likely.
Greatland’s share of that would be around 1.3m oz. Assuming a 12 year mining plan based on ore of 3mtpa, Greatland’s share would be some 110,000 oz pa. Applying a very conservative gold price of $1,850/oz and an AISC of say $850/oz this would generate profits for Greatland of around $110m per annum – earnings per share of some 1.4p. A very conservative PE of 12 gives an indicative share price target of 17p.
But, because of its underlying size, Havieron does not stop there – it is expected that plans will evolve for a further 5m oz SLOS operation perhaps involving a hoist and subsequently a bulk mining operation generating a further 6m oz caveable material. Cash generated from the 12 year mining plan operation will be used for funding these add-ons.
"That is just one illustration that on the measures they use, it is institutional investors rather than the private investors who dominate GGP’s share register, who have decided that GGP is still too expensive (the relentless and steady slide in the shares is saying so)."
According to market screener Institutions only account for some 960m Greatland shares – some 19% of shares in issue. This suggests that in these relatively difficult financial times it is actually PIs who have been selling, perhaps as they raise cash for liquidity purposes.
"Private investors seldom do the sums. I have compared Havieron with the price Newmont is paying for Newcrest whose details (from its latest published report and accounts) are much too voluminous to state here, and have to be adjusted for its new or recently acquired projects (like Red Chris, Bruce Jack, and Wafi-Golpu) whose large extra contribution (some 20%) doesn’t feature yet in Newcrest’s accounts, even though will have been taken into account in the price Newmont is paying."
“Private investors seldom do the sums”. Really? That statement is disingenuous and can be dismissed without comment.
"Neglecting ‘future growth’ (which has its own caveats as I will describe later) those comparisons – on all the measures that professional investors use – between GGP and for instance the price Newmont is paying for Newcrest – show GGP to be still substantially overvalued. So, unless the company comes up with much more than is currently in the public domain to make for a persuasive forecast of its medium term future, it is difficult to see an ASX listing improving GGP’s share price."
No figures are given, just bland opinionated statements.
"As for that Newcrest comparison, Newmont’s US$19m final price is 39% higher than was Newcrest’s market value before the bid – as is always the case when an acquirer values another company for what it adds to its life and its employee’s jobs, more than market investors value it. So the real comparison is between Newcrest’s $13.7bn pre-bid market value and GGP’s current $390m – which shows a 35 times disparity. Yet on the most important measure for a miner, Newcrest’s 90Moz gold equivalent reserves (including copper) compared with GGP’s 30% share of an ‘asssumed’ 6Moz gold at Havieron, the disparity is 50 times – ie GGP, on that measure, is 43% too expensive or, alternatively the market is already factoring in reserve growth well beyond that. But all other comparisons still show GGP to be overvalued."
"One, more important than mineral reserves, is that investors wouldn’t be buying just GGP’s share of Havieron, but also the company’s balance sheet, its borrowings and exploration costs, and other company costs, let alone probable extra costs to develop Havieron."
"Without taking up too much space, some of those other comparisons are:
NCM’s net asset value is $11.6bn vs GGP’s $80m, and NCM has borrowings of only $1.8bn – ie a mere 15.5% of its net assets. But when GGP draws its loans to fund its share of the original Havieron stage one costs its net borrowings will be about $160m – ie 2x its net assets. On the assets basis alone therefore, GGP’s value based on NCM would be only $135m, or £100m GBP (2p per share). On the more usual ‘Enterprise Value’ (EV which includes borrowings) compared with assets and mineral reserves, GGP’s equity shares would look even more overvalued. Market value comparisons with some other large Australian gold producers and, eg, their NPV’s (no room to give here) show similar."
"The hopefuls ignore all that, pointing to the substantial cash inflows from GGP’s share of Havieron once it starts production. Before the revised Feasibility Study we can’t know what that will be, but on the original plan, about half what was expected would have been swallowed up for 7 years by the $42m annual repayments of the bank loans to fund GGP’s share of the initial build costs. That is probably why GGP’s CEO has recently downplayed the hopeful’s expectations of a juicy GGP dividend."
One measure of value, besides those which I note above, can be obtained from the 5% of Havieron which Newcrest turned down. The independent adjudicator deemed the 5% share was valued at $60m even though Greatland offered Newcrest $85m and even then considered that figure considerably undervalued Greatland’s share. 30% comes to some $510m. That was on known Reserves of 870,000 oz attributable to Greatland within an MRE of 1.95m oz gold equivalent attributable to Greatland as published in March 2022.
As noted above Reserves are expected to have grown to some 4.5m oz – with Greatland’s share being some 1.3m oz.
An MRE update is expected to be published by Newcrest alongside their annual accounts on 11 August. It is widely anticipated that the overall MRE will have grown to some 9-10m oz gold equivalent, with Greatland’s share being 2.7 to 3m oz.
The ore body is still open at depth and in several directions. The overall size of Havieron is still to be determined though estimates have been put at 20m oz based on the size of the ore body. Given the conversion of mineral resources to Reserves is some 86% there is significant scope for the Reserves and profits to grow at each annual update.
"So that is why the shares have steadily declined. A share price chart like the one attached is telling us something. The market obviously isn’t looking forward to any ‘future growth’ – but should it ? The hopefuls can’t give any reasoned figures – while professionals don’t pay a premium for ‘hopes’. They only pay for solid projections (and not for what the company’s brokers pretend are ‘solid’ NPV based ‘targets’)."
Motherhood and apple pie statements.
"As for that hoped for ‘growth’. It revolves around GGP’s exploration finding more deposits like Havieron, or corporate developments and deals facilitated by the heavy hitting mining financiers GGP has recruited to its board, reinforced by the claimed record of CEO Shaun Day in driving Aussie miner Northern Star Resources (ASX:NST) from a A$1 share price in early 2014 to a peak $15 in 2020 (It is now $13)."
"Shaun Day was Chief Financial Officer of NST only for four years from October 2014, so it is difficult to judge how influential he was in that growth, and in any case 2013 and 2014 were exceptionally depressed times in mining. Northern Star had been able to snap up cheaply some large projects in Western Australia being sold off by then owners (who included Newmont and Barrick) whose own shares and balance sheets, at a time of depressed gold prices, were in trouble. NST was subsequently able to find new resources and increase gold production six-fold in two years to 2016 ,and then to benefit from a 35% increase in the gold price over the next two. So hopes that GGP’s new backers will help replicate that performance depend on those 2014-2018 extreme conditions returning."
"So there is a great amount of uncertainty about that GGP future potential. While it might well expand, no one can predict at what cost to shareholders. Expansion (and even ‘buying back’ the 70% of Havieron from Newmont) will involve corporate deals, borrowings, share issues, or whatever, which is why the ‘big hitters’ have been attracted for the corporate commissions. But whether they will treat the share price as a priority is unknown."
"I don’t think investors will have the solid information to even roughly value the shares before the end of this year at least. Meanwhile drift looks likely to continue."
The author has a clear agenda – one of negativity. Surprising given the obvious size of Havieron and the expected annual profits which are expected to start rolling in from Q3 2024.
