Greatland Gold & Kodal Minerals: Go For Gold & Steel Your Nerves

GGP shares and KOD shares are both at a crossroads. Long-term investors with a healthy risk appetite are maintaining their composure.

By Charles Archer

I have covered both Kodal Minerals (LON: KOD) and Greatland Gold (LON: GGP) for ShareTalk and elsewhere many times in the past. I am bullish on both companies for very different reasons but, both are now at a crossroads.

I’m not going to cover the basic investment cases for either stock as these have been done in detail many times before. Please read my previous work on Kodal for ShareTalk here, and for Greatland here.

Instead, I’m going to look at where they are now and what needs to happen next.

Let’s start with Greatland.

Greatland Gold shares: where next?

My subjective opinion — and this is not investing advice — is that Greatland is now fundamentally undervalued. Shares may have risen since the end of May, but the reality is that the stock has fallen from a record 37p in December 2020 to circa 8p today. And yet, GGP is in a much stronger position today than it was at its record high.

There are three key factors to consider right now:

  1. Juri Joint Venture

Greatland is transferring management of the Juri JV (GGP 49%- NCM 51%) to Newcrest from 1 July 2023, which was originally formed in late 2020 to explore the Paterson Range East and Black Hills exploration licences.

Greatland MD Shaun Day has welcomed ‘Newcrest elevating its engagement and interest in the Juri Joint Venture property,’ and strongly believes in the prospectivity of the venture. This is also good news for GGP as it can now focus more energy on its 100%-owned portfolio as well as new responsibilities at the Rio Tinto JV.

Given the RNS noted that Greatland ‘appreciates Newcrest assuming management of the Juri Joint Venture which will enable the Company to focus its exploration efforts on its broader portfolio’, there may be further good news in the pipeline.

  1. Rio Tinto Paterson South farm-in

On 30 May, GGP noted that it had entered into an exploration farm-in and JV with Rio Tinto, to accelerate exploration across 1,884km² of highly prospective tenure within the Paterson Province close to Havieron.

Described as an ‘outstanding package’ GGP notes it hosts ‘several underexplored anomalies which the Company considers to be the closest to a Havieron lookalike…there has been historical delineation of gold in rock chips and copper intersected with strong correlation to a Telfer style deposit.’

Drilling is set to commence this year, with an initial minimum commitment of AU$1.1 million of expenditure and 2,000 metres of drilling before 31 December 2024.

There is a two-stage farm-in agreement: in stage 1, GGP has a 51% JV interest in the Paterson South Project by incurring at least AU$7.1 million of exploration expenditure and completing 7,500 metres of drilling within four years.

In stage 2, it can earn an additional 24% for a total of 75% of the JV by spending at least an additional AU$14 million of exploration expenditure and completing a further 17,000 metres of drilling within three years of completing the Stage 1 Farm-In.

  1. Newmont-Newcrest merger implications

I took a look at this potential merger in early February, noting a few possible scenarios, but at the time ruled out the idea of GGP conducting a huge equity raise combined with Wyloo funding to acquire 100% of Havieron and access to the Telfer processing plant.

But the calculation has changed. I’m not going to say it’s likely, but it is definitely now possible that this is exactly what GGP are thinking about doing.

Newmont has agreed to acquire Newcrest by way of an Australian Scheme of Arrangement — the exact details are faintly irrelevant to GGP shareholders, but the two companies expect pre-tax synergies of $500 million within two years, and they also expect at least $2 billion of enhanced cashflow through targeting ‘portfolio optimisation.’

This might include offloading the new company’s share of Havieron. And GGP might want to buy it. There’s a couple of new clues, including the letter of support in respect of the previously agreed AU$220 million debt commitment letter derived from a consortium of leading AUS banks.

Essentially, the new letter confirms that the banking syndicate remains

  • ‘fully supportive while the Havieron Feasibility Study progresses with several value-enhancing options underway to maximise value and de-risk the project’
  • ‘saves the Company from incurring the commitment and other fees associated with the proposed AU$220 million debt facilities until the Havieron Feasibility Study is finalised.’

Greatland has now stated that it doesn’t plan to use the proposed AU$220 million in debt until the feasibility study has finished, with Day highlighting that this shows the ‘strength of our relationships with ANZ, HSBC and ING and further enhances Greatland’s financial flexibility for funding of the Havieron copper-gold project.’

As someone who writes careful language for a living, that looks like NOMAD censored words.

Then there’s GGP’s response to the AFR article concerning its likely ASX listing, which reported that the company is planning to raise between AU$50 million and $100 million. While the company is indeed targeting a September quarter IPO, it ‘has been evaluating whether to conduct a potential equity capital raising as part of that process… the Company has not made any decision as to whether to conduct a capital raising nor has it formally mandated any investment banks.’

Raise some capital, add in a very positive banking syndicate, throw in some Wyloo financing, and you’re starting to get somewhere — especially if the new Newmont-Newcrest entity wants to offload its share of Havieron.

When you consider that it looks like GGP asked Newcrest to take over Juri, and the implications of the new JV with Rio Tinto, it’s all starting to look too coincidental.

Of course, this is only speculation.

Kodal Minerals shares: where next?

Kodal Minerals is at its own crossroads. Considering Ganfeng’s involvement with Goulamina next door — now not just the JV but also direct investment into Leo Lithium — to its own flagship Bougouni site, you’d think that investors might be a bit more relaxed about the delay to the proposed funding package.

Of course, AIM investors are a fickle bunch. And to be fair, the initial funding announcement came on 17 January 2023, the $7 million deposit was received on 1 February and Chinese government approval announced on 13 April. The company had expected the deal to be finalised by 30 April, missed this deadline and extended to 31 May, missed a second deadline, and has now extended to 30 June 2023.

Given that the latest update came on the last possible day and was entitled ‘Bougouni Assay Results & Funding Package Update, it’s safe to say that the CEO Bernard Aylward has a flair for the dramatic. It’s also possible that the company is simply that close to a concrete deal that he wanted to avoid another missed deadline.

But it pays to remember that a similar deal next door took several months to push through. Setting an unrealistic deadline, and then setting another, and continuing to miss them is starting to become a theme in African mining.

However, the CEO notes that ‘while it is disappointing that we have not yet finalised this process and require a further extension of the long stop date, the parties remain committed to the transaction and are working together on the preliminary engineering and development processes.’

Recent drilling results at Boumou, Bougouni South and Ngoualana prospects look even more promising than before — with Aylward observing that ‘completion of the next phase of drilling at the Boumou prospect the JORC Mineral Resource estimate will be updated to be included in the long-term planning and the timing of the possible further development of a flotation plant at Bougouni in addition to the initial proposed DMS plant.’

Boumou saw 24m at 1.13% Li2O from 55m, including 8m at 1.37% Li2O from 55m in drill hole KLRC193. It’s currently a ‘high priority target’ for the new resource estimate.

Now investors are simply waiting for a signed deal.

The key thing to understand is that China, like Africa, is not an amorphous blob of investment. Individual Chinese companies are fighting each other for lithium supply just as they are fighting western ones. And Hainan is a subsidiary of Fosun International — which has had a fairly poor time on the markets recently.

For context, Fosun is a Shanghai-based investment firm led by multi-billionaire Guo Guangchang. S&P Global had placed a negative outlook on the company for some time, but after selling assets and taking out bank loans, the company was able to pay off $3.4 billion of debt, lowering its total debt to 93 billion yuan ($13.1 billion).

Accordingly, S&P has just upgraded its outlook to stable, arguing that the firm will continue to pay off bond maturities and reduce debt to 75 billion-85 billion yuan. This reflects the analyst’s ‘expectation of moderating refinancing risk and further deleveraging via asset recycling over the next 12-18 months… we expect the company to focus on core assets.’

Fosun shares collapsed by nearly 70% between May 2021 and September 2022 — and have only recovered after it sold off disposals in beer, steel and mining. Profit collapsed as a result of pandemic lockdown cycles from 10.8 billion yuan in 2021 to just 539 million yuan ($77 million) in 2022. Shares remain volatile — and had hit a peak in January when the original agreement with KOD was made. But they’ve been falling ever since.

However, Kodal Minerals shares are changing hands for 0.64p after reaching a high of 0.88p in mid-April. As Fosun has finally sorted its finances, the proposed funding package may drop very soon. A race to 1p would then be on the cards.

By Charles Archer

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.

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