There are a lot of options for investors in the mining sector. But one of the best right now could be Bellevue Gold Ltd (ASX: BGL).
That's the view of analysts at Goldman Sachs, which have just initiated coverage on the gold miner's shares.
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What is the broker saying about this ASX 200 mining stock?
According to the note, Goldman believes that Bellevue Gold's shares are undervalued at current levels based on its long term gold price assumptions.
The broker also highlights its compelling expansion potential and significant mine optionality. It said:
Compelling expansion potential, where BGL has proven capability to grow processing capacity 20% to 1.2Mtpa (no further capital expected), where we factor in a ramp-up to a ~1.2Mtpa run rate by the end of FY25. A study is in progress for expansion to 1.5Mtpa (expected 1HFY25), where existing oversized equipment (crusher/proposed paste plant) helps mitigate capex requirements, supporting increased gold production of ~250koz (ramp up through FY27E), with a highly compelling IRR under various gold price scenarios.
In respect to its mine optionality, Goldman adds:
Significant mine optionality from investment to-date de-risks ore access/exploration, where recent drilling highlighted assays with significantly higher grades than current resources (from already above peer gold grades), and potential for additional high-grade shoots. On our estimates, a prolonged mine life from resource extension could add ~A$430mn/~20% to our NAV from a 5-year mine extension (excluding the 1.5Mtpa mill expansion), with further upside if LT prices are closer to spot.
Goldman tips big returns
The note reveals that the broker has initiated coverage on the ASX 200 mining stock with a buy rating and $2.20 price target.
Based on its current share price of $1.77, this implies potential upside of 24% for investors over the next 12 months.
And while no dividends are expected in the near term, Goldman sees potential for capital returns in the future. This is based on its strong free cash flow (FCF) yields. It concludes:
Relative to peers, BGL remains undervalued in our view, trading at ~1x NAV or pricing in our LT gold price of US$1,800/oz (peer average ~1.1x NAV and ~US$1,900/oz), and near-term FCF yields of c. 10% in FY25/26 remain attractive vs. peers and support upside to the outlook for possible future capital returns (despite ~25% of medium-term gold sales being hedged at ~A$2,700-2,900/oz).
All in all, this could make Bellevue Gold one to consider if you're looking for mining sector exposure.
