The sell-off in ASX 200 mining shares has been brutal. But it's prompting some to wonder if the sector has become too cheap to ignore.
After all, our biggest miners have shed around 20% or more over the last month alone on fears of a global recession.
This includes the BHP Group Ltd (ASX: BHP) share price, Rio Tinto Limited (ASX: RIO) share price and the Fortescue Metals Group Limited (ASX: FMG) share price.
ASX 200 mining shares on a downgrade cycle
The price of iron ore is diving along with base metals as investors bet that slowing growth will dent demand for commodities.
As a result, analysts have been lowering their commodity price forecasts and trimming their earnings estimates for ASX 200 mining shares.
But even after the severe falls in the sector, UBS is warning that these shares are not yet cheap enough, although it sees value in select cases.
The broker said:
While stocks are cheaper, we are not convinced they present enough value yet to encourage sector-wide buying.
For instance, all prices sit above/in line with UBS mid-cycle/long-term, as well as marginal cost, and not below or within cost curves.
The upcoming quarterly production reports could harbour more bad news too. Rising costs, lower commodity prices and production issues may see ASX 200 mining shares downgrade their guidance for FY22 and FY23.
This is why UBS has a "neutral" recommendation on the three major iron ore producers, although it sees buying opportunities among ASX gold shares.
UBS puts these ASX 200 mining shares on the buy list
This is because the share prices of many of our gold producers have fallen harder than the Australian dollar gold price.
The names that UBS is urging investors to buy now include Northern Star Resources Ltd (ASX: NST) and Evolution Mining Ltd (ASX: EVN).
Another group of ASX 200 miners that the broker likes are lithium producers. While they haven't been immune from the recent sell-off, UBS noted that record-high lithium spot prices will drive exceptional cash flows.
This in turn will fund their transformational growth despite UBS's forecast that lithium will fall by up to two-thirds by end of calendar 2023.
UBS has buys on the IGO Ltd (ASX: IGO) share price, Allkem Ltd (ASX: AKE) share price and Mineral Resources Limited (ASX: MIN) share price.
Where else to dig for value
But UBS's general caution towards our big miners isn't necessarily shared by Macquarie.
The broker is also wary of falling commodity prices, and hence its below consensus forecasts for the sector.
But Macquarie thinks many of our big ASX 200 miners are well placed to weather the storm. It explained: "The large-cap miners are generating solid free cash flow on our base case forecasts for FY22. The yields for FY23 are also resilient despite the recent fall in iron ore prices."
Its top picks for the sector are BHP and the South32 Ltd (ASX: S32) share price. It also has a buy on Rio Tinto but rates Fortescue as "neutral".