Although Pilbara Minerals Ltd (ASX: PLS) is a high quality miner, with analysts forecasting lithium prices to remain low for some time to come, it may not be the best time to invest.

So, if you are looking for exposure to the mining sector, it may be best to look beyond lithium and at other sides of the market. But where?

Well, Goldman Sachs thinks that mineral sands and rare earths company Iluka Resources Limited (ASX: ILU) could be a great option.

Especially after the ASX 200 mining stock crashed deep into the red on Friday, which it believes means there's now some potentially very big returns on offer over the next 12 months.

Time to buy this ASX 200 mining stock

Iluka's shares were sold off last week following a funding update on its rare earths ambitions. However, Goldman thinks this news should have been greeted very differently and described it as a "significant positive milestone." It said:

Iluka has announced that the Australian Government has approved an additional A$400mn of funding for the A$1.7-1.8bn 3-4ktpa (NdPr) Eneabba Rare Earth (RE) refinery in Western Australia. ILU will contribute an additional A$215mn.

The refinery is now fully funded, construction will commence in 1Q25, and first RE production is expected in 1H27 (GSe 3Q27) with wet commissioning to commence in 2H26. The additional government funding and construction start is a significant positive milestone for ILU in our view for what will be a strategic and highly valuable Western World critical mineral asset and only the 5th RE refinery outside of China.

In light of this, the broker has held firm with its buy rating and $7.70 price target on the ASX 200 mining stock.

Based on the current Iluka share price of $4.93, this implies potential upside of 56% for investors over the next 12 months. In addition, a 6.8% dividend yield is expected in FY 2025, boosting the total potential return beyond 60%.

Why is it bullish?

Goldman named a couple of reasons why it is bullish on the ASX 200 mining stock. It said:

Attractive valuation: trading at ~0.5x NAV (~A$9.34/sh) and pricing in almost no value to the rare earth refinery and Wimmera rare earth project.

Compelling Mineral Sands FCF and Rare Earth growth potential: ILU is trading on a FCF yield of ~13% in 25/26 without the RE refinery capex. At the current share price, we think it makes sense for ILU to announce a share buyback with FCF from mineral sands. We are positive on ILU's project pipeline and forecast >20% production growth in mineral sands volumes, ~18ktpa of Rare Earths (~4ktpa of high value NdPr) over the next 5yrs. We think ILU's Eneabba RE refinery is a strategic asset considering it will be only the fifth Western World RE refinery.