If you're looking for big returns and have a high tolerance for risk, then it could be worth checking out De Grey Mining Limited (ASX: DEG) shares.
That's because analysts at Bell Potter believe the speculative ASX stock could be seriously undervalued at current levels.
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What is this speculative ASX stock?
De Grey Mining is a Western Australia-based gold explorer and project development company.
It is currently focused on the 100% owned Hemi Gold Project in the Pilbara region. This is a large scale, high value, near surface gold discovery at an area called Hemi.
Management believes that the Hemi discovery is rapidly moving towards De Grey's goal of defining a Tier 1 project with true district-scale potential. Mineralisation in the Hemi area has been identified over a large area and a 10.5 million ounce mineral resource was released last year. However, the discovery remains open in multiple directions. This could mean an even larger resource is unearthed in time.
What is the broker saying?
Bell Potter is feeling very positive about this speculative ASX stock. Particularly given how it has just secured a $1 billion senior debt facility. It believes this substantially reduces financing risks for Hemi Gold Project. It commented:
This proposed facility effectively satisfies the debt funding requirement for the construction of the HGP [Hemi Gold Project] and follows on last month's equity raising of $600m (completed at an issue price of $1.10/sh) which has lifted DEG's current cash position to >$850m. Together these funding sources put DEG in a strong financial position to construct the HGP, maintain an active Resource growth drilling program and provide a significant working capital buffer through project commissioning and ramp up. Project execution workstreams continue to indicate that there have been no material changes to the capital cost estimate outlined in the Definitive Feasibility Study (DFS) of September 2023.
Big returns
In response to the news, the broker has reaffirmed its speculative buy rating on the ASX gold stock with an improved price target of $1.82.
Based on its current share price of $1.14, this implies potential upside of 60% for investors over the next 12 months.
Commenting on its buy recommendation, Bell Potter concludes:
This is another key milestone and de-risking step for DEG. While formal documentation remains to be completed (expected in 2HCY24) and key permits for the HGP are yet to be obtained we do not foresee any reason for these not to be issued. Timing remains a risk, in our view, as we have recently observed permitting timelines becoming extended in WA.
Overall, however, we view this progress as consistent with the HGP advancing towards a final investment decision in 2HCY24, targeting production in 2HCY26. We also see a tactical aspect in DEG being in a stronger financial position to defend any takeover approaches, which we consider to be reasonably likely. With this update we lower our risk-adjustment discount to reflect the reduced financing risk and our valuation lifts 4%, to $1.82/sh. We retain our Speculative Buy recommendation.
