Guess which buy-rated ASX gold stock is 'a likely takeover target'

The De Grey Mining Limited (ASX: DEG) share price is rising on Friday.

At the time of writing, the ASX gold stock is up 4% to $1.40.

Why is this ASX gold stock charging higher?

Investors have been buying the gold developer's shares for a couple of reasons.

One is the release of an updated mineral resource for the Hemi Gold Project, which has increased by 900koz to 310Mt @ 1.4g/t Au for 13.6Moz contained.

Another reason is a broker note out of Bell Potter this morning. In response to the update, the broker said:

The update includes a maiden Measured Resource within the Brolga Stage 1 starter pit, corresponding with the first year of ore production. This increases Resource confidence, allowing detailed mining, stockpiling and plant feed scheduling for the commissioning and ramp-up phase. The update also identifies opportunities to increase mine life and annual gold production relative to the Hemi Definitive Feasibility Study (DFS).

In response, the broker has retained its buy rating on the ASX gold stock with an improved price target of $2.15 (from $1.82).

Based on its current share price, this implies potential upside of 53% for investors over the next 12 months.

What else did the broker say?

Speaking further about the update, Bell Potter said:

This is a positive update from DEG. The updated Resource demonstrates growth at both the Hemi and regional deposits. Potential for increased annual production rates over and above the DFS is also positive. Most importantly, in our view, is the de-risking element of infill drilling allowing the calculation of a maiden Measured Resource within the Brolga Stage 1 starter pit.

Outside this, the broker continues to see De Grey Mining as a likely takeover target due to the quality of its assets. It concludes:

DEG remains a likely takeover target in our view, with Gold Road (GOR, Buy, TP$2.40/sh) not in a position to become active on DEG. We expect its 17% shareholding is becoming non-core and the first port-of-call for a potential acquiror of DEG. We update our exploration valuation and apply our latest (higher) gold price forecasts to our risk-adjusted NPV-based valuation of the HGP. Our valuation lifts 18%, to $2.15/sh. We retain our Speculative Buy recommendation.

All in all, this could make De Grey Mining a top option for anyone looking for exposure to the gold sector.