Some ASX mining shares have suffered significant pain over the last few weeks. L1 Capital, a fund manager, has pointed out to investors why some commodity stocks could be excellent buys today.
It's common for commodity businesses to experience volatility, as they can experience significant resource price changes. Operational challenges/changes can also lead to the occasional sell-off.
If investors can choose the right businesses at the right price, they could be excellent opportunities. L1 outlined why the below two stocks look oversold.
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Mineral Resources Ltd (ASX: MIN)
The fund manager pointed out that the Mineral Resources share price fell 25% during June because of "softness in its key commodity end markets, most notably with lithium spodumene and iron ore prices down 16% and 7%".
The negative resource price movements more than offset some of the positive operational announcements from the ASX mining share, such as the delivery of the first ore from its Onslow iron project ahead of schedule.
L1 noted the company also announced the sale of a 49% interest in the Onslow haul road for A$1.3 billion. Once this transaction is completed, the investment team believe Mineral Resources will be "well placed to drive future growth and shareholder returns."
The ASX mining share can't do much about the weaker lithium price, but L1 pointed out it remains on track to more than double its production over the coming years to more than 1,000kt of spodumene concentrate.
The fund manager finished its positive view of the company with the following:
We continue to believe that all key areas of Mineral Resources' core business (iron ore, lithium, mining services and gas) have favourable medium-term tailwinds and the shares remain significantly undervalued.
Nexgen Energy (Canada) CDI (ASX: NXG)
The other ASX mining share that L1 provided positive commentary on was this uranium mining business.
The Nexgen share price fell 10% in June because the uranium share price dropped 8% over the month.
L1 believes the uranium market has "positive fundamental supply/demand tailwinds over the medium to long term".
What is this company actually planning? It's developing Arrow, the world's largest undeveloped uranium deposit, in the Saskatchewan region of Canada.
The development of this deposit is significant because it would be a "major, new, strategic Western source to address the anticipated uranium market deficit."
L1 expects Nextgen will have completed all regulatory requirements over the course of 2024, "providing a clear pathway to full scale construction of the project."
The fund manager outlined why Nextgen's future (and valuation) looks so positive:
Arrow has the potential to generate more than C$2b of cash flow annually, once developed (2028) – a highly attractive proposition given NexGen's current market cap of ~C$5.2b.
