If you have a high tolerance for risk and space in your portfolio, then read on.
That's because analysts at Bell Potter believe one ASX lithium stock with golden opportunities could be severely undervalued by the market.
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Which ASX lithium stock?
The undervalued company in question is Delta Lithium Ltd (ASX: DLI). It is an exploration and development company focused on bringing high-quality, lithium-bearing pegmatite deposits in Western Australia into production.
However, it is not necessarily the lithium that is getting analysts at Bell Potter excited. It is the gold that lies beneath one of its projects.
Last week, the company released an update on the Baldock gold deposit at the Mt Ida Project near Kalgoorlie. Bell Potter was pleased with the update, highlighting the following:
We estimate the potential value a Baldock Gold Operation, considering two different scenarios (a 4Mt Reserve, and an 8Mt Reserve). Using a 4Mt Reserve, we estimate a Net-Present-Value (NPV, post-tax, real, 8% discount rate) of $250m. The 4Mt Reserve scenario is representative of the existing Resource plus likely incremental discovery.
Using an 8Mt Reserve, contemplating the Resource doubling, we estimate a NPV of $750m. Very significant in the context of the current $77.4m enterprise value (with 4QFY24 closing cash of $86m). Both scenarios assume: (1) $200m initial capex, (2) $200/t underground mining costs, (3) $45/t processing and site admin, a A$3,500 gold price, (4) 700kt of ore processing per annum, producing (5) 81kozpa of gold.
In light of this, the broker has reaffirmed its speculation buy rating and 75 cents price target.
Based on the current Delta Lithium share price of 23 cents, this implies potential upside of approximately 225% for investors over the next 12 months.
To put that into context, a $1,000 investment would turn into approximately $3,250 if Bell Potter is on the money with its recommendation.
What else?
It is also worth noting that Bell Potter is also positive on the company's lithium operations and suspects that future improvements in lithium prices will boost its shares. It concludes:
Our valuation and recommendation are unchanged. We see upside in DLIs' valuation from: (1) the ongoing exploration and development of the Yinnetharra and Mt Ida Lithium Projects, (2) future improvements in lithium prices and sector sentiment, and, (3) increasing levels of newsflow from gold exploration and monetisation activities. DLI have stated that it plans to maximise the value of the Mt Ida gold assets. The value maximising pathway is contingent on exploration results over the next twelve months. Continued success could result in DLI's first operation being a gold mine.
