If you are looking for some gold exposure outside the status quo, then it could be worth looking at the ASX gold stock in this article.
That's because the team at Bell Potter believes this gold developer's shares could be cheap following a "landmark" moment.
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Which ASX gold stock?
The stock that Bell Potter is bullish on is Minerals 260 Ltd (ASX: MI6).
It is a Perth-based exploration and development company led by non-executive chair Tim Goyder and managing director Luke McFadyen.
Last year, it agreed binding terms for the transformational acquisition of 100% of the Bullabulling Gold Project (BGP) from Norton Gold Fields. It has a mineral resource estimate of 4.5Moz at 1.0g/t Au.
But it may not stop there. Bell Potter highlights that the project sits within a 293km2 total tenement package of granted mining and exploration leases.
What was the landmark moment?
This week, the ASX gold stock announced that it has signed a $220 million strategic funding package with Canadian gold royalties and streaming giant Franco-Nevada Corp (NYSE: FNV) to accelerate and de-risk the development of the Bullabulling gold project.
This news went down well with Bell Potter. It commented:
In our view, the pricing of both tranches of the deal is at a material premium to market and represents a strong endorsement by one of the world's most capable and successful gold investment companies. The equity component, priced at $0.45/sh, was at a 7% premium to MI6's prior closing share price before the deal.
In assessing the royalty component, we have conservatively applied the 2.45% initial rate and 1.63% tail rate to the current 4.5Moz Resource. This equates to the effective purchase by FNV:CN of ~106koz for A$170m, or A$1,600/oz. This is a substantial (~8x) premium to the ~A$200/oz (Enterprise Value per Resource ounce) we estimate for ASX-listed gold exploration companies. The deal is, in fact, better than this for MI6 as a 1.0% royalty is already held by FNV:CN over some of the Bullabulling tenements, implying a higher EV/oz metric is actually being paid for the new royalty.
Big potential returns
According to the note, the broker has retained its speculative buy rating on the ASX gold stock with an improved price target of 90 cents (from 75 cents). Based on its last close price of 59.5 cents, this implies potential upside of just over 50% for investors.
Commenting on its recommendation, Bell Potter said:
Following this deal MI6 will have ~$250m cash. This should comfortably fund MI6 through the Definitive Feasibility Study (DFS) and to Final Investment Decision (FID) in early CY27, plus a meaningful portion of project CAPEX. We view this deal as a capital efficient funding mechanism and do not believe these terms would be available to many gold development companies.
