GDXJ: Who Belongs, Who Should Be Replaced

by: Hyperinflation

The new junior mining ETF is rather impressive and gives great exposure to the potentially more lucrative Junior Miners. This is not to say investors can't create their own bundle of personal "ETFs" composed of a better mix of Junior and/or mid-tier miners. Due to the difficulty deciphering between Junior and Mid-Tier miners, I believe the addition of those on the border between the two and the removal of some unnecessary components included in the GDXJ would make for a better overall portfolio of miners. The following is a brief rundown of those I think deserve their spot in the recently launched ETF and those who could be replaced.

Van Eck did a good job with the heaviest components such as:

  • Silver Standard Resources (NASDAQ:SSRI) - On track to becoming a major silver producer with a resource base which is nearing two billion ounces from world class silver mines in geo-politically safe countries, i.e Canada
  • Coeur d'Alene Mines (NYSE:CDE) - Though still rather hated by the investment community due to the years of shareholder dilution while nearing bankruptcy, CDE has quickly transformed itself not only into a top primary silver producer, but a free cash flow machine ready to reward shareholders with what will turn into a handsome dividend. I talk about CDE this way while excluding one of their flagship operations in Bolivia, well, because it's in Bolivia. So any production derived from that operation is an added bonus. I'm referring to their current ramp up at Palmarejo in Mexico and the Kennsington operation commencing in 2010. The Latter will diversify their revenue stream by including between 200-250k oz of gold by 2011/2012, giving them approx 25m oz of silver production and 250-280k of gold production within the next 2-3 years. - Click Here for a detailed Analysis
  • New Gold (NYSEMKT:NGD) - Great emerging junior company with increasing production, upside potential and declining cash costs. Having production come from four operations is a definite benefit as mining interruptions have less of an impact relative to those who have one or two operations.
  • Alamos (AGIGF.PK) - I would remove Alamos and eliminate Gammon (GRS)
  • Jaguar Mining (NYSE:JAG) - One of my top five favorite junior gold producers -Click here for an in depth analysis
  • Kirkland Lake Gold (OTCPK:KGILF) - Kirkland has enormous potential beyond the 500%+ output growth from 2009-2012 (48k- 250). The upside exploration potential could mean peak production upwards of 600-700k assuming the best case scenario, but 400-500 is more than likely especially given the news that continues to flow out. - Click here for an in-depth analysis
  • Lake Shore Gold (LSGGF.PK) - Lake Shore is another great story both in terms of near and intermediate term production growth, diversified set (4) of operating mines and future upside exploration potential. From around 30k oz produced from one mine in 2009E, Lake Shore will ramp up production as three mines come online and ramp up production to 100k in 2010E , 220k in 2011E, 350K in 2012E and 380-400k in 2012E
  • Removing Golden-Star Resources (NYSEMKT:GSS) due to geo-political issues and removing San Gold (OTC:SGRCF) due to more ideal suitors for this spot. The same goes for Northgate (NXG)
  • Silvercorp (SVM) - Starting to show its true potential
  • Andean Resources (OTC:ANDPF) - They are moving up the list as they continue to find high grade ore making them appear as a buyout candidate. They would add 250k+ from no production by 2011-2012, solely based on current findings (which are likely to increase guidance)
  • Aurizon (AZK) - A valuation play, with a nice set of operations in Canada, notably CasA Berardi. Though growth is stagnant going forward, exploration and acquisition catalysts seem like the likely outcome. In the meantime it is a good free cash flow producer in a mining friendly country
  • Allied Nevada (NYSEMKT:ANV) - A great junior producer, with a high likelihood of being bought by the likes of Barrick (NYSE:ABX), Newmont (NYSE:NEM) or Kinross (NYSE:KGC).
  • Semafo (OTCPK:SEMFF) - Along with Red Back (OTC:RBIFF), Semafo is the only other miner I would buy whose sole focus is in Africa.
  • Rubicon (RBY) - My second favorite exploration company, behind Andean. As the drill results come out, the more potential Rubicon shows.
  • Silver Wheaton - Click for analysis
  • Franco-Nevada (FNNVF.PK) - Click for detailed analysis
  • Red Back - Click for analysis
  • First Majestic (OTC:FRMSF) - click for analysis

If I were to replace and re-weight various components of GDXJ it would look as follows (6 new additions included) - 36.6% Silver Miners, 63.4% Gold Miners

8.04% Coeur d'Alene Mines
8.01% Jaguar Mining
7.93% Silver Wheaton
7.71% Silver Standard
6.32% New Gold
6.29% Kirkland Lake
6.15% Red Back Mining
6.67% Lake Shore Gold
5.42% Andean
4.62% First Majestic
4.40% Fortuna Silver
4.40% Rubicon
3.99% Franco-Nevada
3.96% SilverCorp
2.79% Allied Nevada
2.74% Aurizon Mines
2.71% Semafo
2.66% B2B Gold
2.65% Great Basin
2.54% Detour Gold