If you have a high tolerance for risk and are on the lookout for some big returns, then it could be worth taking a look at Chalice Mining Ltd (ASX: CHN).
That's because analysts at Bell Potter believe that the ASX mining stock could be seriously undervalued by the market and have the potential to generate huge returns for investors.
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What is the broker saying about this ASX mining stock?
Bell Potter notes that the company recently released a small-scale, high grade sulphide resource for its 100%-owned Gonneville PGE-Ni-Cu-Co project in Western Australia.
It highlights that the "updated Resource will support the evaluation of a selective open-pit and underground mining operation, the subject of a high-grade Scoping Study Starter Case."
This is currently underway and is expected to be completed in the coming months.
The broker points out that the resource grade is "~2.5x the global Resource average 3E and Cu grades and therefore amenable to higher metallurgical recoveries."
Bell Potter sees positives from the news. It said:
This represents a starting point for a reset of the development strategy for the Gonneville deposit. CHN will now evaluate a smaller scale, selective mining scenario for the commencement of Gonneville, which we expect will have the following advantages: Reduced construction capital and funding requirement; Shorter construction timeframe; Smaller scale and operational footprint; Higher margin operation with improved financial performance metrics; Lower financial risk and greater resilience to low commodity price cycles; and Lower technical risk.
Huge upside for investors
In response to the news, the broker has reaffirmed its speculative buy rating on the ASX mining stock with a trimmed price target of $5.00 (from $5.40).
Based on the current Chalice Mining share price of $1.14, this implies a potential upside of approximately 340% for investors over the next 12 months.
To put that into context, a $5,000 investment would be worth $17,000 if Bell Potter is on the money with its recommendation. Though, it is worth remembering that the speculative rating means it is a high-risk option.
Overall, the broker is bullish because it believes that Gonneville is a high-quality asset with significant potential in the current environment. It concludes:
This latest update demonstrates the optionality of development scenarios for the Gonneville project which, while complex, has multiple valuation levers. Most fundamentally however, we retain the view that Gonneville is a project that can make money at current spot prices, at which approximately 35-40% of current global production is loss making and creating structural risks to palladium supply.
