Want gold exposure? Goldman Sachs says this ASX 200 gold stock is a buy

Here's a gold miner that could deliver big returns for investors.

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A woman in a business suit sits at her desk with gold bars in each hand while she kisses one bar with her eyes closed. Her desk has another three gold bars stacked in front of her. symbolising the rising Northern Star share price

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With many analysts expecting the gold price to remain elevated in the coming years, having some exposure to the gold sector could be a good idea for a portfolio.

But which ASX 200 gold stock should investors consider buying right now? Let's take a look and see what analysts at Goldman Sachs are recommending.

Which ASX 200 gold stock is a buy?

Goldman Sachs has recently made site visits to the Northparkes and Cowal gold operations of Evolution Mining Ltd (ASX: EVN) and was pleased with what it saw.

According to the note, the broker believes the site visits have given it improved clarity in respect to the ASX 200 gold stock's medium-term outlook. It explains:

We see the improved clarity on the medium-term outlook across both assets and the broader portfolio lessening the risk of significant capex increases/production softness relative to expectations vs. peers, and reducing uncertainty. The timing of major capex later this decade across Northparkes, Cowal, and Ernest Henry is not seen as a risk, where assets largely fund their own capital requirements (GSe net cash by FY27).

What sort of returns are possible?

The note reveals that Goldman Sachs sees a lot of value in Evolution Mining's shares.

In response to the site visits, its analysts have reaffirmed their buy rating with a reduced price target of $4.00.

Based on the current Evolution Mining share price of $3.48, this implies potential upside of 15% for this ASX 200 gold stock over the next 12 months. It commented:

Our Northparkes valuation increases on deferred capital, offset by a reduction in our Cowal valuation on increased medium-term capex vs. our prior expectations. However, on aggregate with the recent quarter to date production update (and carry over impacts into FY25) our FY24/25/26E EPS is +1%/-20%/-36%, in part on increased non-cash inventory charges (particularly at Cowal).

The broker then highlights that the company's shares are trading at an attractive level based on its long term gold price forecasts. Goldman also notes its strong free cash flow yields in comparison to peers. It adds:

On our LT gold price of US$1,800/oz, EVN is trading on ~1.1x NAV (on our medium-term Red Lake production remaining below original FY24 guidance), or pricing ~US$1,825/oz gold, broadly in line with peers (average ~1.1x NAV and ~US$1,800/oz), though near-term FCF yields of c. 10% in FY25/26E remain attractive vs. peers at c. 0-10% on average.

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 positions in and has recommended Goldman Sachs Group. 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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