Despite recent market jitters, prominent fund manager L1 Capital sees potential buying opportunities in two ASX-listed mining companies: Mineral Resources Ltd (ASX: MIN) and Nexgen Energy Ltd (Canada) CDI (ASX: NXG). Both companies have experienced share price declines in recent months, but L1 Capital believes these declines present attractive entry points for investors with a long-term outlook.
Mineral Resources (MIN): A Diversified Powerhouse
- Share Price Slump: L1 acknowledges the 25% decline in MIN’s share price during June 2024. They attribute this primarily to “softness” in key commodity markets, particularly lithium spodumene (down 16%) and iron ore (down 7%). However, L1 emphasizes that these are cyclical downturns common in the mining industry.
- Operational Strength & Strategic Moves: L1 highlights positive operational milestones achieved by MIN, showcasing the company’s resilience. These include the ahead-of-schedule delivery of first ore from the Onslow iron project, a significant achievement demonstrating operational efficiency. Additionally, the announced sale of a 49% stake in the Onslow haul road for A$1.3 billion is seen as a strategic move that strengthens MIN’s financial position. L1 believes this transaction will position MIN for “well placed to drive future growth and shareholder returns,” freeing up capital for further investments.
- Production Expansion & Diversification: While the current lithium price weakness may pose a challenge, L1 emphasizes MIN’s ongoing production expansion plans across its diverse portfolio. The company aims to more than double its spodumene concentrate production over the coming years, exceeding 1,000kt. This significant expansion will help mitigate reliance on any single commodity and position MIN to capitalize on future market shifts. L1 remains bullish on MIN’s long-term prospects, citing favorable medium-term tailwinds in all its core business segments (iron ore, lithium, mining services, and gas). They view the current share price as undervalued, presenting a potential buying opportunity for investors seeking exposure to a diversified mining leader.
Nexgen Energy (NXG): A Uranium Gamechanger
- Share Price Correction & Market Outlook: L1 points out the 10% drop in NXG’s share price in June 2024, mirroring a decline in the global uranium price (down 8% during the same period). However, L1 expresses confidence in the uranium market’s long-term fundamentals, with positive supply/demand tailwinds anticipated in the medium to long term. Growing concerns over nuclear energy security and a potential shift away from fossil fuels are expected to drive demand for uranium in the coming years.
- Arrow Project: A World-Class Opportunity: L1 highlights the significance of NXG’s flagship project, Arrow, located in Saskatchewan, Canada. Arrow is considered the world’s largest undeveloped uranium deposit and has the potential to become a major new source of uranium to address the projected market deficit. Development of this project is expected to be a significant game-changer for the uranium market, providing a reliable and large-scale supply source.
- Regulatory Progress & Future Potential: L1 anticipates the completion of all regulatory requirements for the Arrow project by the end of 2024, paving the way for full-scale construction. They further emphasize the project’s potential to generate over C$2 billion of annual cash flow once operational in 2028. Given NXG’s current market capitalization of approximately C$5.2 billion, L1 views this as a highly attractive proposition. A successful Arrow project could propel NXG to become a dominant player in the global uranium market, offering significant upside potential for investors.
Investor Takeaway:
L1 Capital’s analysis suggests that both Mineral Resources (MIN) and NXG present compelling investment opportunities for investors with a long-term outlook. While the mining sector is inherently volatile, L1 believes that the recent share price declines for these companies offer attractive entry points. Investors are advised to conduct thorough research and consider their own risk tolerance before making any investment decisions.
Industry Experts Weigh In:
Financial analysts are divided on the future prospects of the mining sector. Some share L1 Capital’s optimism, citing the long-term demand for essential minerals like lithium and iron ore, while others remain cautious due to potential economic slowdowns and geopolitical uncertainties. Investors should consider various viewpoints before making investment decisions.
