Could bargain stocks Lonmin plc and Bowleven plc double despite trouble?

Today I'm looking at two troubled commodity stocks. Remarkably, both of these companies trade at a big discount to book value and have net cash on their balance sheets.

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The question for investors is whether these stocks are value buys with the potential to deliver multi-bagging gains, or slow-motion disasters.

Down but not out?

The market's reaction to today's trading update from South African platinum miner Lonmin (LSE: LMI) was decisive. The shares are down by 13% to 154p at the time of writing and are now trading 39% below last year's 52-week high of 252p.

In my view, today's news makes it clear why 14 City brokers currently rate this stock as a sell.

Production fell by 7.8% at the Marikana mine during the three months to 31 December. Lonmin says that planned changes to improve productivity are taking longer than expected. A particular problem area is the mine's biggest shaft, K3, where output fell by 13.8%, to 590,000 tonnes.

Today, the company admitted that "the relationship between operational management and unions at this shaft is not working as effectively as we expected". Additional crews have now been assigned to work at K3, which is expected to increase the cost per tonne.

Still losing cash

Lonmin shares currently trade at a 63% discount to their net asset value of 422p per share. But today's update warned that, as things stand, the company is still operating at a cash loss. The group's remaining net cash balance of $49m could soon disappear.

Last year's restructuring plan has not yet managed to bring the group back into profit. There may still be an opportunity here for bold investors. But for me, there are too many risks and uncertainties. I'm going to stay away.

A rapid profit opportunity?

Cameroon-focused oil and gas explorer Bowleven (LSE: BLVN) has a couple of decent assets and net cash of $95m. Life should be good for shareholders.

The problem is that while the group's well-paid board continues to evaluate "new venture opportunities", shareholders have become unhappy at the firm's refusal to return some of its cash to them. Many long-term investors are also frustrated that Bowleven has not made more rapid progress with its Bomono and Etinde assets.

This situation has now come to a head. Hedge fund Crown Ocean Capital P1 Ltd -- which controls around 13% of Bowleven stock -- has called an EGM to try and sack Bowleven's board of directors. A number of other significant investors are said to have indicated they will vote with Crown Ocean, including a shareholder action group made up of private investors.

Shares could rally

Bowleven's directors seem unlikely to back down gracefully. But if Crown Ocean does manage to remove them from the board, I'd expect the firm's shares to rally sharply.

The hedge fund's nominated directors would be likely to use some of the group's cash to fund a special dividend for long-suffering shareholders. I'd also expect them to sell or farm out a stake of the Etinde field, in order to speed up the appraisal of this asset.

Both of these measures could deliver significant gains for investors from current levels, which is why I rate Bowleven as a speculative buy.

Is this today's top small-cap pick?

Lonmin and Bowleven could deliver big gains. But they're both quite speculative picks and do carry significant risks.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.