With the global economy tipped to grow 4% in 2018 thanks partly to U.S. tax reform, Europe's continued recovery, and solid Chinese growth, I think the local resources sector is poised for another year of outperformance.
With that in mind, are these three resources shares a buy?
Galaxy Resources Limited (ASX: GXY)
This leading lithium miner is my first pick in the industry due to its three world-class assets. Although only its Mt Cattlin site is operational at the moment, I believe there is a chance that it will bring one of its other assets on line in the not so distant future. This is likely to lead to bumper profits and strong free cash flow generation if demand from battery makers remains strong and keeps lithium prices at high levels. However, I would say that Galaxy is about fair value now based on current lithium prices and would class it as a hold unless demand strengthens further.
Newcrest Mining Limited (ASX: NCM)
One of the only areas of the resources sector that I'm not bullish on is gold. I feel rising interest rates and widening bond yields, together with the growing popularity of Bitcoin, will reduce the allure of gold with investors. And considering the premium that Newcrest's shares trade at compared to its peers, I think it is likely to underperform the market in 2018.
Western Areas Ltd (ASX: WSA)
As well as lithium, demand for nickel is rising thanks to its use in the batteries of electric vehicles. Overnight the three-month nickel price was amongst the strongest performers on the LME exchange, rising to US$11,680 a tonne. This gain has been driven by news that nickel supply is lagging demand by almost 66,000 tonnes following a 6.4% year-on-year increase in demand. If this continues into 2018 then I suspect Western Areas could outperform the market.
