Great Western Mining shares: FTSE AIM growth share to breakout in 2023?

GWMO shares could be undervalued given the company’s significant gold, silver, and copper claims across the Walker Lane Structural Belt in Nevada.

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Great Western Mining Corporation (LON: GWMO) shares are down 89% over the past five years, 23% over the past month, and 5% over the past day alone.

But this underperformance could represent a classic FTSE AIM opportunity. As a long-term investor, I aim to spot downtrodden companies sporting undervalued share prices, with the potential for a huge catalyst over the medium term.

For context, recent successful picks include Premier African Minerals, Harland & Wolff, and Baron Oil. PREM is starting lithium production in Q1, HARL has been preliminarily awarded a large share of a £1.6 billion defence contract, and BOIL has more than doubled in value year-to-date.

Having highlighted fellow FTSE AIM gold miner Greatland Gold, all four companies remain, in my view, undervalued. And while there are no guarantees with investing, GWMO shares, at their current price point, bear the same attractive hallmarks.

At this point, it’s worth noting that FTSE AIM companies are usually volatile, and the outsized potential returns are usually accompanied by correspondingly higher risk.

Great Western Mining shares: brief overview

GWMO is a mineral exploration and development company, dual listed on London’s FTSE AIM and Dublin’s Euronext Growth Market. It owns the rights to a huge tract of acreage in Mineral County, Nevada, US, sited within the Walker Lane Structural Belt, the largest metallogenic belt in the county.

It has eight claim groups offering the potential for short-term gold and silver exploits, and in the longer-term potentially world-class copper deposits. Key claims are the Mineral Jackpot and its flagship Olympic Gold Project.

Gold as a commodity is set to outperform in 2023, as the most trusted real-asset inflationary hedge.

For context, Q3 2022 saw central banks purchase 399 tons of gold, the most ever in a single quarter, and 160 tons more than the previous record of Q3 2018.

Of course, spot gold has fallen over the last seven months, as a result of the strong US Dollar. But during the 2008 financial crisis, the S&P 500 fell by 37% while gold rose by 24%. 2023 is unlikely to be different, especially after Federal Reserve Chair Jerome Powell sent dovish tones to the markets today over the size of further rate rises.

I’ve covered the longer-term bull case for copper in depth elsewhere, but as GWMO copper production is likely to be years away, I’m focusing on the gold and silver prospects for the near-term investing case.

Financials

The most recent financials available for GWMO are in its half-year results, which covers the period to 30 June 2022. Updated results should be released in January. As it remains an ‘explorer’ at present, it made ‘no revenues from its operations.’ Accordingly, it reported a loss of €448,652, broadly in line with losses of previous periods.

However, it boasts net assets of €9,191,466, with ‘no debt apart from trade creditors in the normal course of business.’ This makes a share placement, especially at currently low prices, fairly unlikely. And given the current trajectory of work, it appears funded to production.

Largest shareholder comment

For the sceptical, I contacted GWMO’s largest shareholder, Andrew Webley, who clearly believes in the longer-term potential of the FTSE AIM stock. I asked him the following question:

‘Why should investors consider adding GWMO shares to their portfolio over other FTSE AIM small caps?’

His response, from 29th November 2022, appears in full below:

‘There are two main areas investors need to research when looking at Great Western Mining.

Firstly, Great Western has been working towards small scale, low cost, production of gold and silver from old mining material and over the last two years they have gone from this being an idea to now having a JORC in place combined with a JV signed with an experienced local mining contractor. 2023 should see production start and according to a recent interview quickly grow from there.

The second area is the exploration potential. Great Western has been drilling for precious metals in Nevada and on their website, you can see the different claim groups with the work done on each. Several of these groups look promising as of today and in my view it won’t take much more work to move at least one towards a JORC resource.

There is also an indicated and inferred JORC for copper in place so you could say that you are investing in a precious metal production and exploration business with some base metal exposure at no additional cost.

Away from the exploration and production I like having a large holding in Great Western as it’s a simple company to understand with no complicated financing and no debt. The corporate costs are low, the management truthful and the directors also have large holdings.’

Racing to production

For balance, it’s worth noting that the road to production has taken far longer than many investors perhaps would have hoped for. But getting GWMO from simply considering mining precious metals, to this close to production in less than three years is very fast by international standards.

Executive Chairman Brian Hall, who took over the role in 2019, explains ‘I have been involved with the company for some time, but the company got a little bit bogged down, so I stepped up to try to help us regain our momentum and explore a new strategic direction.’

In half-year results, the company advised that ‘in the final quarter of 2022 and early 2023 Great Western will focus on planning, constructing and operating the proposed process mill with the objective of transitioning from pure exploration alone to a combination of exploration and commercial production.’

The general idea is to get gold production up and running before considering copper, generating revenue as soon as possible instead of engaging in further costly exploration.

Hall notes that initially ‘we had copper deposits on our sites…to get a fully-blown copper project up and running will take a lot of time and a lot of money. We decided that whilst continuing our copper exploration – we would also start looking for gold and silver – which is what the company originally set-up to do.’

For those looking beyond the horizon, starting a copper mine from scratch is expensive, and typically takes a decade to open from exploration to first production. In the long term, GWMO is likely going to need a larger strategic partner to exploit its copper deposits.

As per, it’s not all been plane sailing. The company was forced to spend $100,000 upgrading a 14km mule track to accommodate vehicles for test drilling and to bring back spoil material at one key site. Further upgrades to infrastructure may become necessary as mining develops.

Sites overview and recent developments

Great Western has signed a Memorandum of Understanding with a local Nevadan contractor, Muletown Enterprizes, to create a Joint Venture (JV) named Western Milling LLC, to develop a gold and silver milling a processing plant at its claims.

The plant will be on the contractor’s land and pay both parties on an equal split basis from the sales of bullion produced from existing waste resources on GWMO’s concessions. Great Western has committed $100,000 to the plant, with a further $500,000 to be made available if necessary. Eventually, it plans to offer additional processing at the plant to other local miners.

And right now, it’s waiting for permission for the plant to go ahead from the Nevada Department of Environmental Protection. An update could potentially be forthcoming this month.

But despite the wait, Great Western’s recent November update caught my attention.

According to an independent initial Mineral Resource Estimate, the Olympic mine has an inferred resource estimate of 31,000 tonnes, grading at 1.6 g/t Au and 3.0 g/t Ag in tailings. It also boasts an additional exploration target of between 3,400 – 6,400 tonnes grading between 0.5 and 1.2 g/t Au and 1.2 and 2.1 g/t Ag in the substrate beneath the tailings volume.

And further, there is an additional exploration target of circa 9,000 – 12,000 tonnes grading between 0.9 and 2.4 g/t Au and 2.0 and 5.1 g/t Ag in a coarse stockpile at the same site.

At Mineral Jackpot, the same survey saw an exploration target of 4,200 – 7,700 tonnes grading between 40 and 140 g/t Ag and 0.3 and 0.3 g/t Au in its spoil heaps.

And GWMO has a market cap of just £3.9 million, with six other sites left to explore in detail.

Hall argues that this ‘strongly reinforces our confidence in being able to generate revenues from gold and silver through the Western Milling LLC joint venture recently announced.’

And with plant approval, production, and sales catalysts around the corner, this leaves Great Western Mining shares as a potentially exceptional FTSE AIM pick, despite being attached to the usual risks of penny exploratory miners.

Author: 

This article has been prepared for information purposes only by Charles Archer. It does not constitute advice, and no party accepts any liability for either accuracy or for investing decisions made using the information provided.

Further, it is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

Key References:

220930-half-yearly-report.pdf (greatwesternmining.com)

221109-Mineral-Resourse-Estimate.pdf (greatwesternmining.com)

Great Western Mining Corp to start producing bullion (thearmchairtrader.com)

Morning Bid: Powell clears the decks | Reuters

Andrew Webley- contact ShareTalk for verification if required


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