Are these the 5 best Australian resources stocks?

If they’re not on your watchlist, they should be.

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Australia is home to some of the biggest deposits of natural resources in the world. Uranium, iron ore, natural gas, coal and gold (just to name a few). Therefore it should come as no surprise that so many of the companies listed on the Australian stock exchange are either explorers for, or producers of commodities. Here are some of the best.

Northern Star Resources Ltd (ASX: NST)

Northern Star is a top gold producer with operations in Western Australia. Its share price recently shot upwards as its management took the opportunity to utilise its superior balance sheets to make meaningful acquisitions when the price of gold went into free fall. Today, the company advised of more high-grade drilling results from the Pegasus deposit, part of the Kundana gold mine which it recently acquired from Barrick Gold Corp (NYSE: ABX). With good balance sheets, low costs and expanding production, it’s definitely one to watch.

Senex Energy Ltd (ASX: SXY)

Senex is an oil and gas producer with loads of potential, although the market doesn’t seem to appreciate it. Despite growing reserves by over 300% of annual production (known as a reserve replacement ratio) last year, it looks set to do so again in FY14. However as a result of lower-than-expected pressure at the company’s Growler oil field, Senex’s share price recently retracted, which affords long-term investors the opportunity to buy the stock while it’s still cheap.

Santos Limited (ASX: STO)

As one of Australia’s biggest resources companies, Santos needs no introduction. Although some analysts have criticised it for being fully valued, the increasing production and revenues from the addition of both its PNG LNG and GLNG projects will give rise to further share price increases.

BHP Billiton Limited (ASX: BHP)

BHP is the number-one Australian resources company for a reason. Its four pillars strategy which includes the key commodities coal, petroleum, iron ore and copper provides an excellent avenue for investors to get involved in the resources sector, without a dependence on a single-commodity producer. Thanks to its run-up in price over the past 12 months, investors should look at BHP for long-term gains and dividends.

Newcrest Mining Limited (ASX: NCM)

Newcrest is one of the world’s largest gold miners. In 2013, after historic falls in the spot price of gold, huge write-downs and a management disclosure scandal, Newcrest shares fell hard. However, it’s now back on track and up around 50% from its December 2013 low of $6.99 per share.

Foolish takeaway

Resources stocks can be tough to understand and placing a value on them is difficult. When you buy into companies which produce only one or two commodities, it is vital you try and understand which direction the commodity is headed. Buying when the commodity is at a low maximises your chances of making capital gains in the long-run. You should focus on companies with low production costs and those with strong balance sheets willing to make acquisitions.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. 

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