Fortescue Ltd (ASX: FMG) is one of Australia's largest and highest quality mining shares.
However, due to valuation reasons, a good number of major brokers currently rate it as a sell.
For example, the team at Bell Potter has a sell rating and $17.05 price target on its shares, which implies potential downside of 12% over the next 12 months.
In light of this, investors might want to look elsewhere for exposure to the mining sector. But where?
An alternative to Fortescue shares
Instead of Fortescue, Bell Potter thinks investors should be buying Develop Global Ltd (ASX: DVP) shares.
This ASX share operates under a hybrid model as an underground mining contractor and operator of two mining assets. These are the Woodlawn Zinc-Copper Mine and the Sulphur Springs Zinc-Copper Project.
Bell Potter notes that the company has released an update on Sulphur Springs this week which revealed a project value ahead of its estimates. It said:
DVP released an updated DFS for its Sulphur Springs Zinc-Copper mining project. The Study was headlined by a higher quality pre-tax NPV8% of $921m (vs pre-tax NPV5% of $523m published in the 2023 Updated Study and BPe old pre-tax NPV9.5% of $487m).
Another positive was that the ASX share's capital expenditure was better than expected and $41 million lower than Bell Potter's estimates. It said:
Upfront capex did not increase as much as we had expected ($329m vs our $370m estimate and the $296m 2023 DFS forecast). The mine plan is based on the current Reserve and Mineral Resource Estimate (MRE). We see upside to Mine Life following a successful forthcoming exploration program and inclusion of the near-by Kangaroo Caves deposit MRE.
Time to buy
According to the note, Bell Potter has responded to the update by retaining its buy rating on the miner's shares with an improved price target of $5.40 (from $5.10).
Based on its current share price of $4.57, this implies potential upside of 18% for investors over the next 12 months.
Commenting on why it could be a better option than Fortescue shares for Aussie investors, Bell Potter said:
DVP provides investors with direct leverage to critical and strategic minerals including copper and zinc, with prices exhibiting strong growth in recent months. This price momentum coincides with ramping production at Woodlawn, supporting the company's near-term earnings and FCF outlook; spot prices are 7% and 16% higher than our FY26 forecast for copper and zinc, respectively. Enhanced Sulphur Springs economics underpins our valuation upgrade, with de-risking over the next 12 months expected.
