A three to five-year "structural bull market" for ASX mining shares and commodities is yet to play out.
That's according to energy, mining, and commodities expert Ben Cleary, who manages listed investment company (LIC) Tribeca Global Natural Resources Ltd (ASX: TGF).
Cleary says of all the commodities, battery metals are likely to lead the way in coming years.
What's the opportunity for ASX investors today?
In an interview with Livewire, Cleary said: "Whether it's base metals or battery metals, the big supply-demand deficits kick in in 2025-2026".
Cleary says commodity prices have already dipped to the same lows seen during the global financial crisis and in 2015. That's despite globally low inventories. And there's been a flow-on effect to ASX mining shares.
Cleary said:
Think aluminium, which hit a 30-year low on the LME yesterday. Copper, nickel, iron ore, oil, all these commodities are in very short supply generally.
So the markets are bearish to the point where stocks are trading at these very deeply depressed trough valuation levels, but inventory is low and demand is still strong.
We've stress test demand, and even with a recession in Europe and a slowdown in the US, we're still getting deficits.
Cleary pointed out that the resources sector is generating record cash flows. This is despite COVID-19 and labour availability challenges, as well as higher oil prices and a tighter supply of mining inputs.
He also said the valuations of various ASX mining shares were "looking more and more attractive".
Cleary said:
Despite all those headwinds, the sector's never made more cash flow. And on top of that, I think the delta of those challenges is improving.
While the outlook is somewhat uncertain with Europe and its energy woes and potential recessions, I think generally it's been a big pullback across all asset classes and there is some very heavy valuation support in the resources industry that is looking more and more attractive.
What's next for ASX mining shares?
Cleary attended the annual Diggers and Dealers Mining Forum in Kalgoorlie, Western Australia this week.
He said the leaders of various companies he is invested in told him labour shortages were decreasing.
Cleary also believes oil prices won't remain around US$100 per barrel. He thinks they are likely to decline toward the end of 2022.
However, he said iron ore could face more pressure in the coming months:
The softer property market in China has impacted all things related to building materials, particularly on steel subsidiaries. But iron ore prices have held up pretty well.
That is because, like a lot of these commodities, there's been a number of supply issues. But if the Chinese property market remains soft, iron ore is going to face some headwinds. But that could very quickly turn into a tailwind depending on the outcome of Chinese monetary policy into the year-end.
Which ASX mining shares might be buys?
When asked to pick the five best presentations at Diggers and Dealers, Cleary nominated Develop Global Ltd (ASX: DVP), Genesis Minerals Ltd (ASX: GMD), Capricorn Metals Ltd (ASX: CMM), Syrah Resources Ltd (ASX: SYR), and Bellevue Gold Ltd (ASX: BGL).
Cleary said all five companies are well funded with impressive production growth, yet not beholden to commodity prices.
He said:
They [are] going to make good margins regardless of whether commodity prices remain high.
Another common thread through those five stories was that they are all at the bottom of their respective cost curves. And they all have been very focused on keeping their best people as labour is tight.
