Investors that are wanting to diversify their portfolio with some exposure to the mining sector might want to check out the two ASX shares listed below.
Both have been tipped as top options for investors in the sector with significant upside potential. Here's what you need to know about these mining shares:
Iluka Resources Limited (ASX: ILU)
The first ASX mining share for investors to consider is Iluka.
It is a mineral sands and rare earths company with a number of quality operations across South Australia and Western Australia. This includes the exciting Eneabba project, where the company is developing a fully integrated rare earths refinery.
Analysts at Goldman Sachs are very bullish on Iluka. So much so, the broker has the company on its coveted conviction list. Its analysts explained:
We are Buy rated on mineral sands/rare earth producer ILU (on CL) on attractive valuation and compelling Zircon and TiO2 price upside and Rare Earth growth potential.
We think ILU is undervalued (on c. 6x EBITDA NTM) vs. key rare earth (c. 15x) and mineral sands/pigment (c. 6x) industry peers. Positive on project pipeline and forecast >40% production growth in mineral sands volumes, c.18ktpa of Rare Earths, and a >50% increase in EBITDA over the next 5 yrs to 2026 The Zircon and TiO2 feedstock markets entered a 3-yr supply side driven deficit in 2021, and we see ongoing upside risk to prices in 2022
Goldman Sachs currently has a conviction buy rating and $13.80 price target on Iluka's shares.
South32 Ltd (ASX: S32)
Another ASX mining share that has been tipped as a buy is South32.
This mining giant was spun out of BHP Group Ltd (ASX: BHP) in 2015 and has gone onto become a force of its own. Particularly given the recent transformation of its portfolio to give it exposure to metals that will be important to the decarbonisation megatrend.
One broker that has taken note of this transformation is Morgans. It has been pleased with the work management has undertaken and believes it is well-placed for the long term. The broker explained:
S32 has transformed its portfolio divesting South African thermal coal and acquiring an interest in Chile copper, substantially boosting group earnings quality, as well as S32's risk and ESG profile. Unlike its peers amongst ASX-listed large-cap miners, S32 is not exposed to iron ore. Instead offering a highly diversified portfolio of base metals and metallurgical coal (with most of these metals enjoying solid price strength). We see attractive long-term value potential in S32 from de-risking of its growth portfolio, the potential for further portfolio changes, and an earnings-linked dividend policy.
Morgans has an add rating and $6.10 price target on South32's shares.
