3 speculative companies set to hit the big-time

Here's why I already own Senex Energy Ltd (ASX:SXY), Australian Bauxite Ltd (ASX:ABX) and ABM Resources NL (ASX:ABU).

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Recently I've discovered three undervalued resource stocks that simply had to be added to my portfolio.

Despite a combination of factors giving each a fantastic potential for upside, they're largely unloved by the market at the moment and can be bought cheaply.

There's a reason I recently bought all three of the below companies, and if you're looking for something to add a little risk to your portfolio, these shares could be exactly what you're looking for.

Senex Energy Ltd (ASX: SXY) – last traded at $0.55, down 26% for the year

Senex has long been on my radar as a potential success story, although prices of above $0.80 last year were a stiff deterrent to any potential investment.

The company has since dropped 26% as investors apparently chose to focus on a full-year decline in earnings per share, ignoring increases in production, revenue and oil reserves, and a decline in the total cost per barrel produced.

Investors should also note that Senex's reserve replacement ratio (oil found vs oil drilled) was an astonishing 327%, and the company carries $76 million in cash and no debt forward into 2015.

Even more importantly, extensive work programs see Senex aiming to produce between 3-5 million barrels of oil equivalent by FY18 (up from 1.4mmboe in FY14), which could potentially triple the company's size and earnings.

Fellow contributor Owen Raskiewicz and I both agree this one's a potential winner, and we've bought tickets on the Senex Express.

Australian Bauxite Ltd (ASX: ABX) – last traded at $0.24, up 45% for the year

I wrote just the other day about the potential for bauxite as a speculative investment and this article joins numerous ones by other Fool contributors throughout the year.

Thanks to some changes in wider market dynamics, world demand for aluminium is increasing as supply of raw material bauxite has shrunk.

With Indonesia banning raw material exports in order to force onshore processing and India increasing its taxes on bauxite exports, supplies in China have shrivelled up and sent the price of bauxite to record highs.

With a 115 million tonne, high quality indicated and inferred bauxite resource portfolio that is located very close to major ports and domestic alumina smelters, Australian Bauxite is potentially the next big thing in bauxite production and exporting.

A major hurdle for the company is that its $2 million cash at bank stacks up poorly against the $12 million required to commence operations. However, approved mining leases and extensive resources virtually guarantee capitalisation and I personally am hoping for a discounted share issue so I can pick up more shares on the cheap.

ABM Resources NL (ASX: ABU) – last traded at $0.36, down 31% for the year

Given its thorough exploration success and strong funding position, I think ABM Resources has the potential to be one of Australia's better junior gold miners in future years.

The company has actually dropped more than 10% since I initially covered it five weeks ago, making its price irresistible and convincing me to jump on board.

The major attraction is that ABM's 'Old Pirate' prospect is very close to production, with environmental approval received and negotiations completed for lease of a neighbour's gold mining facilities.

The major resource at Old Pirate contains 611,000 ounces of gold at an average grade of 10 grams per tonne (g/t), although the company also controls several million ounces at other prospects with grades of around 2g/t.

However ABM also has several other exceptional prospective finds that have not been defined as 'resources' yet, with gold veins up to 174g/t witnessed and further exploration success expected.

The company believes that the Western Desert in the Northern Territory (where its prospects are located) is one of the last great undiscovered frontiers in gold mining and initial finds in the area suggest they could be right.

With $18 million in cash and only final mine plan development and approvals required to commence production, I'm betting on ABM to deliver the goods to shareholders soon.

Investors who read my disclosure line at the bottom of the page should not be shocked to find that I own shares in all three companies, having purchased two of them very recently.

It might come as a surprise though to learn that these three companies are far from being Australia's only quality resource explorers.

Despite all the doom and gloom about the decline in mining investment, the fact remains that Australia is home to many of the world's richest resource deposits, and the sheer quality of them allows Australia to compete even in tight resource markets.

The Motley Fool and its contributors are generally not big fans of resource companies for growing wealth over the long term.

We're not silly however, so we know that buying the right company at the right time can be an excellent way of delivering financial reward to investors.

That's why The Motley Fool's team of top analysts recently got together to pen a special report on Australia's 3 best speculative resource companies.

The companies found in this report are completely different and at least one Foolish find has already exploded, rising 40% in the past three months.

If more high-risk / high-reward ideas is what you're after, then this free report is exactly what you're looking for.

If you're interested, simply click on the link below and enter your email address – it takes less than 30 seconds – and you'll be directed to your free report. And yes, it's completely FREE!

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