Although the resources sector is notoriously volatile and a difficult place to invest, I believe a little bit of exposure to it through a well-balanced portfolio can be a good thing.
With that in mind, are the three resources shares listed below in the buy zone?
Galaxy Resources Limited (ASX: GXY)
There are few resources shares as volatile as the lithium miners. So an investment in Galaxy would be largely unsuitable for most investors. However, there is no denying that demand for lithium to be used in the batteries of smart phones and electric vehicles is growing strongly. I believe this level of demand and limited new supply will keep prices high and allow Galaxy to profit greatly over the next few years. As a result, I think the recent drop in its share price is a buying opportunity. It appears as though a number of directors which have loaded up on shares in the last few days feel the same.
South32 Ltd (ASX: S32)
I think this diversified metals and mining company is one of the best options in the resources sector for investors. Although there is a slight risk to earnings derived from its South African business due to the new South African mining charter, I don't expect this to have a notable impact on its overall results. Instead I would suggest investors focus on the benefits of its experienced management team and its other valuable assets.
Syrah Resources Ltd (ASX: SYR)
This graphite miner's shares have fallen a massive 60% in the last 12 months, much to the delight of short sellers. Short sellers have targeted Syrah as they believe the company is overestimating the likely profits to come from the company's Balama project once it is operational. This is because they expect Balama to upset the supply-demand balance, leading to graphite prices being greatly below those forecast. Whilst its shares could prove to be an absolute bargain buy, I think the prudent thing to do is to hold off an investment and wait to see the prices Syrah commands when the mine is up and running.
