The resources sector isn't for everyone. Commodity prices rise and fall every day and take miners' share prices with them.
But it can also be extremely rewarding. Recent examples include Fortescue Metal Groups' (ASX: FMG) 12,321% return in the past 10 years or Papillon Resources' (ASX: PIR) 145% average annual return over the last 5 years. However for investors new to the resources sector, it's unlikely you'll be willing to invest meaningful amounts in such speculative companies.
Instead, focusing on established producers with proven reserves and solid balance sheets is a much safer way to enter the market. Here's 3 established miners which I believe are likely to grow strongly in coming years and provide good exposure to the resources sector.
1. Northern Star Resources (ASX: NST) is a low-cost, high grade gold producer with projects in Western Australia. Recently the company took advantage of its superior balance sheets and bought two mines from Barrick Gold Corp (NYSE: ABX) for a good price. These will increase production, reserve life and earnings in coming years. Northern Star is one of only a few miners to pay a consistent dividend and, in my opinion, has plenty of earnings potential left in the tank.
2. Senex Energy (ASX: SXY) is another mid-cap resources company with superior balance sheets and growth potential. It is an oil and gas producer with operations in the Cooper/Eromanga basins of South Australia. With heaps of cash on hand, no debt, increasing production and a huge reserve replacement ratio for the past two years, Senex is a standout buy at current prices.
3. Independence Group (ASX: IGO) is a gold, zinc, nickel and copper miner with projects in Western Australia. Being a miner focused on more than one commodity mitigates so much of the risk associated with single commodity producers. BHP Billiton's (ASX: BHP) diversified asset base is the perfect example of how a wide range of commodities can prop up a share price when compared to less diversified producers like Rio Tinto (ASX: RIO). Independence Group's Tropicana gold mine has an 11-year life
