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.
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.
