If you are hunting for outsized returns for your portfolio, it could be worth checking out the small-cap ASX share in this article.
It has just been recommended for investors with a high risk tolerance by analysts at Bell Potter, who are tipping massive upside over the next 12 months.
Image source: Getty Images
Which small-cap ASX share?
Bell Potter is bullish on Aurum Resources Ltd (ASX: AUE), which is a gold exploration and development company with an asset portfolio located in the West African country of Côte d'Ivoire.
The broker highlights that the small-cap ASX share's flagship project is the 3.2Moz Boundiali Gold Project (BGP), where substantial, ongoing diamond drilling programs have defined large-scale mineralised systems with strong resource growth potential.
It also owns the 1.2Moz Napie Gold Project, which is the subject of ongoing resource extension drilling.
Bell Potter was pleased with the release of the Pre-Feasibility Study for the Boundiali Gold Project, which included a post-tax NPV of ~US$1.5 billion. It explains:
AUE has met a major project development and de-risking milestone with the completion and release of the Pre-Feasibility Study (PFS) for its Boundiali Gold Project (BGP) in northern Côte d'Ivoire. It outlines a maiden Ore Reserve Estimate of 42.1 Mt at 0.9 g/t Au for 1.21Moz, which supports a conventional open-pit mining operation producing 185kozpa (yrs 1-5) and ~140kozpa over 11-year LOM at average All-In-Sustaining-Costs of US$1,951/oz via a conventional 6.0Mtpa processing plant for pre-production CAPEX of US$342m. Key financial metrics calculated by AUE using consensus forecast mean gold price of US$4,076/oz include a post-tax NPV(5%) of ~ US$1.5 billion, an IRR of 119% and <1 year payback.
The broker believes this marks a major derisking milestone. It adds:
The PFS makes a compelling case for project development and marks a major derisking milestone. Compared with our in-house estimates, slightly lower grades and recoveries are more than offset by a higher mill throughput, gold production rates and lower capital costs. As it stands, Boundiali presents as an attractive development project, with recent Resource growth and confidence upgrades leaving substantial scope for further improvements to the project metrics ahead of completion of the Definitive Feasibility Study (DFS).
Huge potential returns
According to the note, Bell Potter has retained its speculative buy rating on the small-cap ASX share with an improved price target of $1.50 (from $1.30). Based on its current share price of 56 cents, this implies potential upside of 168% over the next 12 months.
Speaking about its investment thesis, the broker said:
AUE is one of the most successful gold exploration companies active in West Africa. Its management team has a demonstrated track record of discovery, Resource growth, project construction, development, operation and divestment. AUE is well funded, has outlined a compelling development project with exploration upside. It is strategically attractive, with Perseus Mining having joined the register. We retain our Speculative Buy rating and lift our valuation to $1.50/sh.
