GGPChat

I wrote this piece in response to shorter HavingtheLastToast - who you may remember as Toansy from LSE. Basically following this he more or less gave up debating me. It's based on an article by SP global published here:

hTTps://www.spglobal.com/marketintellig ... solidation.

Toast's point was if you valued GGP on the PFS reserve of 30% of 1.6mox at $436/oz then according to the PFS we are worth $209m. He fails to observe the new MRE or the conversion factor of 87% 'resources into reserves' touted many time by Shaun.. We've also seen the Grant Samual Havieron Telfer valuation of $500-600m - which the market has shrugged off - but that includes around $265m of rehab costs. It appears to values the project at $865m based on NCMs 70%. Most of the rehab costs are not relevant to GGP - well arguably maybe only about $30m. This appears to value GGP at $330m ( before the 8.4moz resource upgrade)

The average gold price when the SP document was written in 2021 was $1790
The change in average gold price over the past 50 years is outlined here: HTTps://www.macrotrends.net/1333/histor ... year-chart




Average Gold price 2021 $1790 -3.5%
Average gold price 2022 $1801 -0.2%
Average gold price 2023 $1940 +12%
Average gold price in 2024 ....? Obvs TBC

Lets take S&Ps $436 figure , adjust it for the gold price, and the NCM figures and come up with a valuation

First gold price... The long term AVERAGE INCREASE IN GOLD PRICE PER YEAR is around 11% (but we just had 2 flat/down years 2021 and 2022 prior to 23)

THUS - Average gold price 2024 should be at least $2260 (which is +10%) but TBF valid estimates could be speculate up to $2500 which is +21% (given the 2 flat/down years recently - in fact 5 of the past 10 years have been significant 'down (-27% in 2013) years where on average should be up 11-12%)

THUS - IMO the Average gold price in 2024 will now likely be between 21% and 38% higher than the 'average' quoted 2021 price of $1790 (as used by SP Global). This is supported by the anecdotal theory that the present gold market cycle bottomed in 2015/16 normally an 8-9 year cycle and normally (historically) last two years of bull markets are the largest movers.

Take the "average S&P data for gold sales was $436 per reserve oz" paid is actually slightly misleading - NOTE: This is the ‘average’ price paid.

So to illustrate - An obvious 'upside' example of a comparable transaction was Australian based Regis Resources: Regis paid 852$ US per Reserve oz for a 30% interest in the Australian Tropicana Gold Mine in June 2021:

https://www.afr.com/companies/mining/re ... 413-p57iwv

On an 100% basis Tropicana is a Tier 1 operating gold mine that produced over 420koz of gold in 2020. The Project currently has a seven-year reserve life with a 2,964koz Au Ore Reserve. NB - That Already sounds a lot like Havieron. Albeit, Hav will certainly have a greater mine life - simply becuase Tropicana had already produced for circa 15 years since 2006. In fact Shaun looked at it whilst at Northern Star and rejected it.

"Under the terms of the agreement, Regis will acquire the 30% stake from IGO for a total consideration of A$903M (US$688M) cash. Regis intends to fund the Transaction through a fully underwritten equity raising of A$650M, consisting of a A$450M entitlement offer for existing shareholders, and a further A$200M to be sourced from institutional investors; and a A$300M term loan facility which will be provided by Bank of America.

Completion of the Transaction is subject to AngloGold Ashanti Australia Limited (AngloGold) waiving its Right of Last Refusal (ROLR). The Transaction is expected to complete by June 2021 if the ROLR is not exercised during the 60 day lapse period.

Based on 30% of the Project’s Ore Reserve balance of 808koz Au (2,694koz on a 100% basis) and the consideration of ~US$688M, Regis is paying US$852/oz in Ore Reserve. This is a premium to Minesonline.com’s 1, 3 and 5 year normalised average Operation Reserve multiples of US$206/oz AuEq, US$268/oz AuEq and US$277/oz AuEq respectively."

So why are people are prepared to pay such BIG money for long life ounces in Australia....????

https://www.igo.com.au/site/pdf/785a0e2 ... sition.pdf

Following final deductions, Regis paid $889m AUS after closing the deal - slightly lower than the originally billed AUS $903m

Lets take an estimate purchase figure for Havieron/ GGP - a much lower numbers again, than Regis paid per oz, but somewhat higher than SP's seriously un-representative (presumably it included cheaper African assets for $100-200/oz in Hell holes like Mali or Sierra Leone - I can only assume) for the S&P quoted $436 ave figure.

$436 +30% increase (applying an historic average gold price increase from 2021) takes it to circa $570/reserve oz based on fundamentals. This is the minumum IMO based on the figs above and the Regis example who paid $850/ reserve oz in Oz in 2021 ) . Now let's NOT add a reasonable Regis/Tropicana Australian jurisdiction premium - for a very large production profile T1 asset in a safe place - nope - , let’s just go BASE CASE off the basic gold price increase since at 30% (ie 30% global inflation since 2021) of

GGP/NCM has already proven to date it can convert 86% of resource (TODAY) into reserves as per the NCM mine plan. Thus = 2.5 moz resources (latest MRE of 8.4moz x 0.3) = 2.16 moz reserve, Net to GGP, TODAY. That’s Not five years away , that’s today.

Thus my ggp Nav estimate is 2.16 moz x $570/oz = US$1.231bn (minus GGPS share - ie $150m Capex spend - a further 8% discount and then plus whatever else GGP finds at say EG or SWAG or Juri currently zero) = Nav of circa $1bn net to GGP

GGP is thus worth a minimum of $1bn to $1.2bn …

Adding on a suitable Regis type 'premium' could fetch upwards of US $1.4bn to $1.836bn

This is not 'pie in the sky' - this is what Regis did actually pay in 2021 - $850 per resource oz - for just 30% of Tropicana back in 2021 circa 3moz). And also consideration should be given to the fact Regis will have an extra $250m spent in milling plant equipment.

NOW - Imagine if gold goes to $2600 or $2800/oz next year or so.. - a highly possible outcome , given the current macro environment of increasing inflation, stagflation and negative real interest rates and potential challenging growth environment ?

It’s then blue sky, but the GGP Premium could be as shaun days said - totally eye-popping - at $2.5 to $3k gold. This is becuase there just are not enough new large gold assets being discovered. Ggp also has the benefit of 20-25% copper - highly desirable.

I quote from the same SP document (where we lifted the $436/oz average paid in 2021):

hTTps://www.spglobal.com/marketintellig ... solidation.

"The number of such new, high-quality discoveries will not be enough to support the long-term pipeline, however, with global gold production expected to stagnate in the near term and decline before the end of the decade. A thinning project pipeline and diminishing reserves will likely sustain the high valuation of operating companies and the high price paid per ounce of gold transacted.

Pretty clear that even S&P think the $436/oz will increase significantly also. Nice. I Look forward to their update 2023 document.

And this is without adding any ‘exploration upside’ to the project based on scale , bulk mining opportunities of the Eastern Breccia. And bulk caving of the Northern pod or northern Breccia which are both discrete and high grade large zones.

Consider an interview published last week with a professional gold investor and gold fund manager. https://www.youtube.com/watch?v=da7yIHzSuwA
His is an Interesting take on the sector this year where: "Gold was up becuase central banks are buying, but they don't buy silver or miners". He is Fascinating from 6 mins where he talks about take-overs: Majors have no choice but to replace reserves by hoovering up the juniors with big deposits becuase nothing large has bee discovered. The money needs to flow out of the money market funds and into miners, where the disconnect between the gold price fundamentals and the Miner will be closed.

Given these facts and the relatively low price of GGP presently...I personally expect a bid could easily land anytime. Maybe Newmont would be prudent to check what they’ve got and get it into production first? This outlook assumes no further 'market games' or 'technical delays' which are risks as we cannot know nor can we know the mind of Newmont.

2023 has been an interesting year for GGP shareholders - I think 2024 could be even more so. When presumably the ASX listing arrives.

Have a great new year all.

Hydro I commend you on an excellent piece of investigatory work.
Should Newmont indeed decide to make a bid sooner rather than later
based on the currently depressed SP, what in your opinion would the offer be
be?
I having held GGP for some time now need to weigh up my exit strategy options
Happy new year to you and other fine contributors.

Great insight Hydro. I agree with 'quite frankly' also in that I think this year could be the exit for me personally and have been exploring when. While i respect the framework of the Lassonde curve, I don't by we're awaiting round 2 of the 'huge institutional buying' to increase SP in the 'feasibility/production' phases. The full FS and ASX listing aids SP, and for sure it increases, but will it come in time; or can SD keep the wipe-out away enough that shareholders benefit, tough. I just don't get in any rationale business sense why NEM would just leave us with 30% as the resource is getting bigger. No corporation let's that happen with a minnow like us, without incredible c suite board misses. Won't happen with NEM. I worry the wipe-out will be a lowly SP which unfortunately we can't control. Tale as old as time, major's capitalising on market conditions for a company with no cash flows at present. I think your evaluation may stack up Hydro, if, and it's a big if, GGP keep our 30% and grow as a producer. We can only await further market news in that sense, but the overarching cloud is there is a major who has more firepower to do one thing.

HNY all despite my pessimism/rationalism. I would love to be proved wrong.

chaseholm wrote: ↑Sun Dec 31, 2023 1:02 pm I agree with 'quite frankly' also in that I think this year could be the exit for me personally and have been exploring when.

chaseholm - it's a tricky one and we all have different reasons for exiting at a particular time/SP. I set out below some of the possible scenarios that management may face during 2024. From many of those there will of course be offshoot sub-scenarios which will complicate matters even further. So from your point of view picking the right time to sell will be a tricky one. Of course Greatland is still an explorer and developer and not yet a miner so the risk factors are more noticeable than with a mature, profitable business.

POSSIBLE SCENARIOS/TRIGGER POINTS

SCENARIO 1. There is no offer from Newmont in first year of Newcrest ownership - status quo maintained; we are fully funded and we proceed to first ore back end of 2024/early 2025 as currently planned. Expectation as follows:

3mtpa x 4 g/t (first year) x 30%/31.1 = 115,756 oz

Profit per oz say $1,000

Gives $115m profit or at least £90-95m (less a little bit of tax due to accumulated losses)

current market cap = £480m

Gives PE of just over 5

Now that looks well within reach with earnings starting just a year away (if all goes to plan). SP would be expected to rise in anticipation.

SCENARIO 2. Newmont's annual resources and reserves update around 23 February 2024 agrees with Greatland's Resource update of 8.4m oz equivalent - SP effect generally positive.

SCENARIO 3 - Newmont issue Reserves update for Havieron alongside their resources update. Expectation of a positive SP effect if in the 3.6 - 4m oz gold equivalent range. Negative SP effect if below 3.2m oz equivalent.

SCENARIO 4. Newmont release Havieron Feasibility study at end February alongside annual results with revised options for increasing value as previously signposted. Strongly positive SP effect.

SCENARIO 5. Decision to mine follows in short order after FS - positive effect on SP.

SCENARIO 6. Sunset clause date of April 2024 - Newmont want to sell their 70% of Havieron and offload Telfer as part of stated $2bn savings objective. Greatland can raise the money with Wyloo assistance at reasonable interest rate. Positive SP effect.

SCENARIO 7. As in SCENARIO 6 but Greatland cannot raise the funds. Wyloo unwilling to step in or interest rate prohibitive. Other banks unwilling to step in. Negative SP effect.

SCENARIO 8. No change in the 70%/30% Havieron JV split - broadly neutral SP effect.

SCENARIO 9. Greatland are fully funded through to production, less than market were expecting. Positive SP effect.

SCENARIO 10. Newmont further delay the FS beyond April as they want to take another look at the costs involved in developing the at-depth Breccia mines over the whole period of their economic life. Dispute over Sunset Clause timetable. Negative SP effect initially because of delay. But Positive longer term effect when all the costs are evaluated?

SCENARIO 11. Newmont conclude the mine development and costs does not deliver value for shareholders. Negative SP effect.

SCENARIO 12. Newmont want to buy Greatland's 30% share in Havieron at a substantial premium to current value. Positive SP effect if supported by management.

SCENARIO 13. Newmont make an offer of say 14p per share for Havieron/Greatland with detailed NPV costings. SP rises to 14p awaiting shareholder vote. Greatland management do not support the offer.

SCENARIO 14. A material hit at one of our other tenements - Scallywag, Ernest Giles, Panorama, Bromus, Juri JV, Rio JV etc - Positive SP effect.

SCENARIO 15. Value-enhancing M&A activity. Positive SP effect.

SCENARIO 16. Completion of ASX listing - Neutral to Positive SP effect.

Hi lebugue-addick.

A very valid set of scenario's and I alongside others who may read this, thank you for your engagement. The positives are very clear and I think you have highlighted some very good points. I think some of the neutral scenario's could be deemed more negative/neutral than positive but that's neither here nor there at present, because we can't guess. Nonetheless I am inclined to agree mostly.

Focusing on the set as a whole, removing the neutral, negative neutrals and positive neutrals (I've never been much of a fence sitter but understand your rationale for doing so). I see you score 10 positive 2 negative for those remaining 12 scenario's. Now not to focus on the negatives. But the negative scenario's being scenario 7 and scenario 11. Both of these scenario's will ultimately decimate the share price, and leave Greatland in a very challenging position. These are also very real negatives given the certainty on these aspects are not final. While we all know we have risk, investing/junior minor risk, these are priority 1 to address for Greatland to achieve 'shareholder value'. I think it's critical for those to be addressed.

But ending on a positive, scenario 14. Given the portfolio, Shaun's continual drum banging of other sites I would say shareholders really need a second hit. It would be the ultimate insurance policy to Hav and leave us on the front foot in any negotiation, either company/JV or takeover/producer. I think if anything can come to light by mid year or earlier maybe I will revisit my thinking.

Thank you for your response and highlighting some great points.
Chaseholm

Chaseholm

I would add that I set out 16 potential scenarios and clarified that these are just some of the situations that Greatland investors might come across. I very deliberately added that there were of course many offshoot scenarios from most of those situations. Some will have negative outcomes and some will be positive.

I think it would be unwise to narrowly analyse just those 16 without considering the whole field. The post as much as anything was provided as a thought provoking piece rather than being all-embracing.

Best of luck with whatever you decide.

IMO chances of either 7 or 11 playing out are literally next to zero.

Ncm wouldn’t have 70-80% built this mine if there was any chance whatsoever the ore body wasn’t good enough to deliver huge value for at least 12-15 years

The decision to mine has obviously already been made in principle, if not officially.

30% of Havieron mine will propel this company forward into the big league of miners and produce value for generations.

I still think out biggest risk is not the mine being uneconomical but for Newmont to find another way to try “steal or take the keys”.

Hopefully that game is well and truly over.

Hydro, Not been in contact for a considerable time, but rest assured, I have been following you!
Suffice to say, you're moderately near with at least one point in this post.
Regards
Maxwell D'Tarney.

Keep a keen eye on Rio my friend!

Hi Maxwell - I believe we have a friend there. Big organisation. But it's a small world.

Why we like Greatland according to Sprott:

1. Existing 8.4Moz @ 2.0g/t AuEq Telfer Type/IRGS system
2. 2.9Moz @ 3.0g/t AuEq high-grade reserve could lift to 9Moz SCPe on infill and roots
3. Reserve increases could support elevated 6-9Mtpa for long-life Tier 1 asset
4. Potential SCPe 6Moz caveable material adds optionality above this
5. Newmont existing mill / staff offers production without (plant) build risk
6. Ex Northern Star / Fortescue team could use this as springboard for future growth

None of the above can be scoffed at. 15moz recoverable is just massive.