ASX mining shares are notoriously volatile, impacted positively or negatively by commodity price changes. This means changes in share prices can open up opportunities for brave investors.
One of the most famous pieces of investment advice was from legendary businessman Warren Buffett. He had this to say:
Be fearful when others are greedy and greedy when others are fearful.
If the mining company's share price can recover in the future when the outlook for that commodity improves, then it could be an exciting turnaround opportunity right now for patient investors.
With that in mind, below are two ASX mining shares that the investment team at L1 Capital are optimistic about.
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Mineral Resources Ltd (ASX: MIN)
The Mineral Resources share price dropped 26% in August, and it's down 57% since the start of 2024, as shown in the chart below.
L1 noted that last month's heavy decline was due to weakness in commodity prices, particularly the lithium spodumene price, which dropped by another 20% over the month.
The fund manager noted the company gave out its FY25 outlook in its FY24 result, which included lower lithium production volume due to the difficult lithium market conditions. It also referred to ongoing, elevated growth capital spending within its iron ore division and mining services segments.
L1 suggested the company was reaching a "favourable inflection point" with its Onslow iron ore project starting a ramp-up towards contributing from mid-FY25, while mining service volumes are expected to materially increase over the next year and a half.
The fund manager said the mining service volume should support EBITDA generation of around $1 billion, underpinned by long-term contracts that can help provide "strong earnings support for the business".
The investment team acknowledged that Mineral Resources had "significant volume optionality" to produce 1,000kt of lithium spodumene concentrate when market conditions improved.
L1 finished its thoughts on the ASX mining share with these comments:
We continue to believe that each of the company's core segments should see material improvement from current levels over the medium term.
Nexgen Energy (Canada) CDI (ASX: NXG)
NexGen is one of the ASX's largest uranium shares. This company is preparing to develop Arrow, the world's largest undeveloped uranium deposit, located in Saskatchewan, Canada.
The NexGen share price declined 12% over August and it's down 40% from April 2024, as shown on the chart below.
L1 noted that the uranium price dropped approximately 6% over the month. The fund manager thinks the uranium market has positive fundamental supply and demand tailwinds over the medium-to-long term.
The fund manager points out that NexGen's project would be a new, major source of supply from a Western source, which can help address the "anticipated uranium market deficit".
The investment team explained why it's optimistic about the ASX mining share:
We anticipate that NexGen will have completed all regulatory requirements over the course of the next six months, providing a clear pathway to full scale construction of the project.
Arrow has the potential to generate more than C$2 billion of cash flow annually, once developed (2028) – a highly attractive proposition given NexGen's current market cap of ~C$4.2 billion.
