Hannam & Partners has set a price target for Greatland Gold PLC of 12.9p, implying 47% upside from the current share price.
The share price valuation derives in part from a calculation of the net present value of Greatland’s Havieron gold project in the Paterson region of Western Australia.
Hannam sets the value of Havieron at a preliminary US$1.67bn, and estimates that Greatland’s share of the development costs is likely to amount to US$33.9mln.
“The significance of Havieron became apparent in November 2018, when an intercept of 275 metres at 4.8 grams per tonne gold and 0.6% copper was released to the market,” writes Hannam’s analyst Andrei Kroupnik.
“Havieron is located 45 kilometres from Newcrest Mining’s Telfer gold-copper mine which produced 452,000 ounces of gold and 15,000 tonnes of copper in the full year of 2019. Through treating its high-grade ore at Telfer’s 20 million tonnes per annum mill, Havieron has potential to transform the declining Telfer operation by increasing production, extending its life and substantially lowering its production costs per ounce.”
Newcrest has undertaken 71 kilometres of drilling at the project and is currently undertaking a number of studies with the aim of rapidly accelerating to production in two to three years.
“In our view,” continues the Hannam research, “this kind of timeline is realistic, primarily due to Telfer’s pre-existing infrastructure and the fact that there is no need to add any processing capacity at Havieron itself.”
But just how big could it be?
“Whilst at this stage there is no JORC resource at Havieron” says Hannam, “using the previously released drill results, we have estimated a mineral inventory in the high-grade sulphide zone of 4.4mln ounces grading 6.7 grams per tonne and 130,000 tonnes at 0.6% copper. We model a 12-year, two million tonnes per year operation, with mining commencing in H2 2022 and ore being treated the Telfer mill. Our annual steady state production estimate is 330,000 ounces per year of gold and 9,300 tonnes per year of copper at an all-in sustaining cost of US$444 per ounce.”
Of the US$1.67bn valuation, Hannam attributes US$540.8mln to Greatland.
“We estimate a total capital cost for Havieron of US$158mln with US$34ln to be borne by Greatland, less than 10% of Greatland’s market cap. We believe this makes the Company a unique investment proposition versus peers due to its low capital cost requirements for such significant and high-margin production with low funding risk. In addition, having a high-quality partner like Newcrest constructing and operating Havieron significantly reduces execution risk, in our view, versus a scenario in which a junior has control of the project.”