When it comes to resources shares, investors that are brave enough to gain exposure to the sector will often resort to names such as BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO).
And rightly so. These two mining giants have at times provided market-beating returns for their investors over the last decade.
But due to the fluctuations in the prices of the commodities they mine, these returns have been somewhat inconsistent.
As a result, I think a successful investment in these two shares comes down largely to timing. If you can buy in at the bottom of the cycle then you'll no doubt do very well.
But if you get in at the top, then they could easily turn into wealth destroyers.
It is because of this that my favourite pick in the resources sector right now is Galaxy Resources Limited (ASX: GXY).
While it certainly is a more volatile and higher risk investment than BHP and Rio Tinto, I believe the expected increase in demand for the lithium carbonate that it mines puts it in a great position to consistently outperform the market over the next few years.
The miner has three key assets that I believe are world class. The first is its Mt Cattlin site in Western Australia which is in operation at the moment and generating significant free cash flow.
The second is its Sal de Vida lithium and potash brine project in Argentina. Management estimates this deposit can generate total annual revenues in the region of US$215 million and operating cash flow before interest and tax of US$118 million per annum at full production rates for a 40 year period.
Third and final is its James Bay lithium hard rock development in Canada. Recent drilling results from the site revealed an extensive high grade mineralisation underground. Whilst it is still early days for this one, it does appear as though Galaxy has another significant asset on its hands here.
Which is especially pleasing given the high prices that lithium carbonate is commanding at present and looks set to command for some time to come.
This is due largely to the expected increase in demand for lithium to be used in electric vehicles and renewable energy and the fact that the supply side is struggling to keep up.
All in all, I believe its quality assets and favourable pricing puts Galaxy in a strong position to profit over the long-term, making it a great long-term investment idea for investors with a high tolerance for risk.
