Why this ASX 200 gold stock could rise 50%+

Bell Potter sees potential for big returns from this stock over the next 12 months.

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There certainly have been some big gains recorded in the gold sector over the last 12 months.

But if you thought it was too late to invest in this side of the market, think again.

That's because analysts at Bell Potter are tipping one ASX 200 gold stock to rise over 50% from current levels.

Which ASX 200 gold stock?

The ASX 200 gold stock in question is De Grey Mining Limited (ASX: DEG).

De Grey Mining is a Western Australian gold explorer and project developer. It is responsible for one of Australia's most exciting new gold discoveries – the Hemi project in the Pilbara.

The 100% owned Hemi discovery is an intrusion-hosted form of gold mineralisation that has not been previously encountered in the Pilbara.

Management notes that the high value of the discovery is driven by its size, grade continuity, closeness to surface growth potential. The deposits have the potential to be mined by large scale, low strip ratio, low cost open pit mining methods.

What is the broker saying about De Grey Mining?

Bell Potter notes that the ASX 200 gold stock is currently finalising a fully underwritten equity raising totalling approximately $600 million at an issue price of $1.10 per new share. The broker believes this will see the Hemi project through to development and has described it as a "significant milestone" for the company. It said:

This latest equity raise is a significant milestone for DEG, with the company stating that it completes the equity funding component of the project finance package for the HGP, which has an estimated CAPEX of $1,345m.

In response, the broker has reiterated its speculative buy rating with a trimmed price target of $1.76. Based on its current share price, this implies a potential upside of 56% for this ASX 200 gold stock over the next 12 months.

What else did the broker say?

Commenting on the equity raising, Bell Potter adds:

DEG has sought its equity funding earlier than we expected, with debt still to be finalised and key permits for the HGP yet to be obtained. While we do not foresee any reason for these not to be issued, delays are a risk, in our view, as we have recently observed permitting timelines becoming longer in WA. Overall, however, we view it as a positive de-risking event and a major box ticked for project development as the HGP advances towards a final investment decision in mid-CY24, targeting production in 2HCY26.

Another positive is that the broker feels that the equity raising will help the company avoid being taken over. It concludes:

We also see a tactical aspect in DEG being in a stronger position to defend any takeover approaches, which we consider to be reasonably likely. We update our valuation for dilution of the equity issue, partially offset by application of our latest (higher) gold price forecast to our risk-adjusted project valuation. Our valuation drops by 7%, to $1.76/sh. We retain our Speculative Buy recommendation.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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