Is it time to sell this surging gold producer?

Greatland Resources Ltd (ASX: GGP) announced this week that its cash pile had surged to $948 million and that its gold production was likely to come in near the top of guidance. But have its shares run too hard on the back of the company’s performance?

The team at Jarden certainly thinks so, saying in a research note published this week that the stock is seriously overvalued.

They noted that the shares are up about 100% over the past three months compared with the broader S&P/ASX 200 Index (ASX: XJO), which has been flat over the same period.

Valuation just too high

Jarden said the company’s market capitalisation has increased by almost $5 billion over the past three months, “and we estimate that the current Greatland share price implies a long-term gold price of about US$4,600 per ounce into perpetuity”.

The Jarden analysts added:

Whilst management have executed well on the key mining controllables, we simply do not believe that spot gold prices (or a market capitalisation of $9.7 billion compared to a purchase price of US$475m) is sustainable for the high-cost Telfer operation, and high-quality (but technically challenging) Havieron development project.

Jarden increased their 12-month price target for Greatland shares to $5.50 – well below the current price of $13.89, based on a long-term gold price of just US$2400 per ounce.

They did note that this target price would increase to $13 using a gold price of US$5000 per ounce, which is much closer to the actual spot gold price of US$5481.89.

Jarden said it changed its rating on Greatland shares to underweight and reiterated its preference for Capricorn Metals Ltd (ASX: CMM) and Bellevue Gold Ltd (ASX: BGL) in the mid-tier gold sector.

Production numbers looking strong

Greatland earlier this week said it had produced 86,273 ounces of gold during the December quarter, up 6.7% on the previous quarter, at an all-in sustaining cost of $2196 per ounce.

The company also produced 3528 tonnes of copper during the quarter.

Cash flow from operations came in at $406 million, and the company had a closing cash balance of $948 million at December 30, up from $750 million at the end of the September quarter.

Greatland Managing Director Shaun Day said it was a solid result.

We are pleased to have delivered another strong operational performance in the December quarter, with gold production of 86,273 ounces at an AISC of $2,196 per ounce. Key drivers included continued growth in open pit ore mined (a 32% increase in volume of mill feed mined) and maintained high gold recovery of 88.4%, continuing the strong trend from last quarter. “Based on the first half performance, we currently expect full-year production to trend towards the upper end of the guidance range of 260,000 – 310,000 ounces, and full-year AISC towards the lower end of the guidance range of $2,400 – $2,800 per ounce.

Mr Day said the company had “full upside” to the gold price rise during the quarter, and the company “achieved an average realised price of over $6,300 per ounce”.

The post Is it time to sell this surging gold producer? appeared first on The Motley Fool Australia.

More reading

• Which gold producer has built a cash pile of almost $1 billion?
• Greatland Resources delivers strong Q4 cash flow and mine expansion progress
• Here are the top 10 ASX 200 shares today
• ASX gold shares go crazy as gold price rips toward US$5,000 on Friday
• Greatland Resources posts record drilling and grades at Telfer

Motley Fool contributor Cameron England has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.