This is what I’d do about the GGP share price

The GGP share price has fallen more than 40% since the beginning of the year, this could be an opportunity to buy for long-term investors like me.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

After rising in value by nearly 10 times between the beginning of last year and January of this year, the GGP (LSE: GGP) share price has fallen back. Since the beginning of 2021, shares in the early-stage gold miner have fallen by 44%. 

From an entirely objective perspective, this decline seems to make sense. At the beginning of the year, Greatland’s market capitalisation had reached £1bn. This seemed to be excessive for a company with no revenues.

That’s not to say that the company is not worthy of a £1bn value. It may be one day, just not yet. But with the business progressing with the development of its flagship Havieron Gold project, which it now holds in a joint venture with Newcrest Mining, I think the outlook for the business is improving every day. 

GGP share price pullback 

Alongside the fact that the company’s valuation appeared high at the beginning of the year, 2021 is also turning into a bad year for investors in the gold mining sector in general.

The price of yellow metal has declined by around 11% since the beginning of the year. This has dragged down the share prices of mining companies, including Greatland’s joint venture partner Newcrest. The Australia-based mining group has seen the value of its stock fall 8% in 2021. 

This is one of the most significant risks facing investors of gold mining corporations. The price of gold can be incredibly volatile, but costs are generally relatively inflexible. This means miners have limited control over profit margins. If the price of gold falls, but costs remain high, a company’s profit margin will come under pressure, potentially reducing profits and leading to a lower share price. 

As Greatland is not yet producing any gold, the falling price of the metal won’t impact profit margins. However, it will affect the value of the Havieron project. A lower gold price will mean a lower lifetime value of the project. This explains, to some extent, why the GGP share price slumped over the past few months.

Short-sighted mentality

I think this is a very short-sighted mentality. Yes, figures may show Havieron’s output may be worth less today than it was at the beginning of 2021, but this project could have a 25-year lifespan.

What’s more, over the past 20 years, the price of gold has returned around 7% per annum. Of course, this does not guarantee the price of gold will continue to increase at this rate for the foreseeable future.

Still, I think it illustrates the long-term potential of gold as an asset.

As such, I would use the recent decline in the GGP share price to buy a handful of shares in the company to hold as part of a diversified portfolio. I think the recent pullback fails to acknowledge the long-term potential of its world-class gold mine.

I should point out that investing in early-stage gold miners is incredibly risky. Therefore, this opportunity may not be suitable for all investors. The most considerable risk it faces is running out of money before production begins. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves 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.

More on Investing Articles

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »