Although it is one of the more volatile and high-risk areas of the share market, I believe that a little exposure to the resources sector can be a good thing for a portfolio due to the diversification it provides.
With that in mind, are these three resources shares in the buy zone?
Evolution Mining Ltd (ASX: EVN)
Evolution Mining is arguably one of the best gold miners on the Australian share market. Two weeks ago it delivered an underlying half-year net profit after tax of $124.7 million, up 8% on the prior corresponding period. Unsurprisingly, its shares are close to a 52-week high now. But where they go from here will be largely dependent on U.S. interest rates in my opinion. As U.S. rates rise I expect risk-free bond yields to widen, reducing the allure of yield-less gold. This could weigh heavily on the prices of the precious metal and those that mine it. Because of this, I'm staying clear of the gold miners.
Kidman Resources Ltd (ASX: KDR)
Kidman Resources is an up and coming lithium miner with enormous potential thanks to its Mt Holland lithium project. Last year it signed a strategic joint venture with Chilean-based lithium giant Sociedad Quimica y Minera de Chile (SJM) which management believes will help take the company to the next level. An updated mineral resource estimate is due in March and I would suggest investors hold off until that is released. Until then, there are producers already pulling the metal out of the ground that may be better investment options.
Western Areas Ltd (ASX: WSA)
Lithium is hot right now due to its use in the batteries of electric vehicles. But it isn't the only metal that is used in these batteries. Nickel prices have improved greatly over the last six months thanks to increasing demand from battery makers. I think that this puts Western Areas in a position to profit greatly in the future and could make it worth considering as an investment today. Though, like the lithium miners, it is one of the more high risk investments in the sector.
