While many investors will avoid the resources sector due to its volatile nature, I believe a little exposure to the sector can help fully diversify a portfolio.
With that in mind, are these three resources shares in the buy zone?
Avz Minerals Ltd (ASX: AVZ)
Despite Avz Minerals still being at the exploration stage, the company's Manono lithium project in the Democratic Republic of Congo has investors very excited. Early drilling results at the site have been incredibly positive and revealed the presence of high-grade lithium mineralisation. Considering demand for lithium is expected to grow strongly over the next decade, the company could be sitting on a world-class asset. While I believe the company could be destined to have a very bright future, at this point it is still a high risk investment and therefore unsuitable for the majority of investors.
Santos Ltd (ASX: STO)
Although the future direction of the oil price is largely uncertain due to OPEC's inability to follow through on production cuts and increasing shale production in the United States, if the oil price stabilises in or around the US$50 a barrel mark then I think Santos would be a great investment option. Especially with the oil and gas giant working hard to cut its costs. At present Santos is free cash flow breakeven at US$33 a barrel.
Western Areas Ltd (ASX: WSA)
Much like Santos, this leading nickel producer has worked hard to lower its costs in recent years. This means that if nickel prices do continue to improve from their recent lows then Western Areas will be in a great position to profit. The good news for shareholders is that nickel prices have been strengthening and have averaged US$4.75 per pound so far in FY 2018. So with the company boasting unit cash cost of production A$2.38 per pound presently, FY 2018 looks like it could be another solid year for the miner.
