Are you wanting to diversify your portfolio with some exposure to the mining sector?
If you are, then it could be worth considering the three ASX 200 mining stocks listed below that have just been named as buys by analysts at Goldman Sachs.
Let's see what the broker is saying about these miners:
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Iluka Resources Limited (ASX: ILU)
Although this mineral sands company fell short of expectations in the second quarter of FY 2024, Goldman Sachs continues to believe that its shares are undervalued at current levels.
Commenting on the quarter and its valuation, the broker said:
ILU reported a slightly lower than expected June Q with mineral sands sales of 137kt and revenue of A$338mn ~10% below GSe (152kt/A$377mn) due to slightly lower than expected synthetic rutile (SR) sales which will be weighted in 2H.
Valuation: trading at ~0.6x NAV (A$10.1/sh) and pricing in long run zircon of ~US$1,000/t CIF (real) compared to spot (Aus & South Africa) premium zircon at ~US$2,000/t (CIF) or essentially getting Eneabba & Wimmera Rare Earth projects for a ~75% discount to NPV. We also think ILU is undervalued based on NTM multiples (on ~4.5x NTM EBITDA) vs. key rare earth peers (~30x) and mineral sands/pigment (~7x) industry peers.
Goldman has a buy rating and $9.00 price target on its shares. This implies potential upside of 45% for investors from current levels.
Lynas Rare Earths Ltd (ASX: LYC)
Another ASX 200 mining stock that could be undervalued is rare earths producer Lynas.
Once again, its performance was short of expectations during the last quarter. Though, this was because the company didn't want to sell into the spot market. The broker commented:
LYC reported June Q REO sales/revenue of 3.2kt/A$137mn, ~20% below GSe (4kt/A$166mn) as LYC remains disciplined on only fulfilling contracted customer requirements and not selling into the spot RE market, although it did draw down the 500t NdPr stockpile by a few hundred tonnes in the quarter.
And much like Iluka, the broker believes the market is undervaluing its shares. It adds:
Undervalued: the stock is trading at ~0.8x NAV (A$7.73/sh) and pricing in ~US$65/kg NdPr vs. spot at ~US$53/kg and our long run US$83/kg (real $, from 2028) NdPr price forecast.
Goldman has a conviction buy rating and $7.00 price target on its shares. This suggests that upside of 16% is possible from current levels.
South32 Ltd (ASX: S32)
Finally, Goldman Sachs is tipping diversified miner South32 as an ASX 200 mining stock to buy now.
Unlike the others, it delivered a result largely in line with expectations. The broker commented:
S32's June Q production result was broadly in-line with our expectations for production and unit costs, with FY24 guidance being achieved across all 11 operating assets except for Worsley alumina (bauxite conveyor outage in June Q) and Aus manganese (jetty damage in March Q). Importantly, based on CF movements disclosed, we estimate that S32 generated FCF of ~US$170mn in the quarter, finishing FY24 with net debt of ~US$760mn.
And while its guidance for FY 2025 disappointed, the broker remains positive and responded to the update by retaining its buy rating with a $3.70 price target. This implies potential upside of 24% for investors.
Commenting on its valuation, the broker said:
Attractive valuation: although trading at ~0.85xNAV (A$3.62/sh), on near-term multiples S32 is trading on an attractive NTM EV/EBITDA multiple of ~3.5x vs. the global sector average of ~5x.
