Investments in junior mining companies often benefit from the actual or speculative projections of the merger and acquisition [M & A] action in this sector. Many large mining companies form a union with the small cap mining companies as they look at it as a way of further topographical expansion and added sources of supply. The junior companies tend to benefit in times of rising prices as the large caps aim to reinforce their supply.Current times are offering glimpses that may occur to some as green offshoots of a commodity rally for most industrial minerals. A metal commodity in a rally puts a lot of pressure on its exploration sector to develop new resources to meet up the demands and maintain all check and balances. It is this exclusive service of exploring new ores and deposit mines of the metal that empowers selective Junior Miner stocks to benefit more than the bench mark during a rally.
The mining industry depends upon them and their exploration skills to deliver additional supply of coal, copper, gold, silver, titanium, iron, nickel and other commodities. These companies are embroiled in tasks holding greater significance and are constantly exploring and developing new mines, as the large mining companies over use the current and existing resources.
A scenario when the risk appetite for commodities increases, the junior equities trade on higher volumes and experience sudden cash in-flows from both the senior miners and institutional investors. The former investment party here has in fact no option but to fund the new exploration projects to keep the demand numbers under control and the latter does it for obvious reasons, although this speculative activity understandably indicates moderate to high volatility for this asset class, but a discovery of new resource and similar news from the company management often leads to multi-bagger gains for the well informed.
A year on year positive results on Gold has not really translated well for these companies and the prices are still off up to 70% from their 2007 and 2008 highs.
The metal directed investors comfortable with the risks may further gain with respect to the volatility of small cap mining companies than their large cap counterparts keeping in line with the high-risk high-reward laws of the market. Apart from a better return scenario, junior mining equities are all the more attractive now, due to their low valuations in the market. A year on year positive results on Gold has not really translated well for these companies and the prices are still off up to 70% from their 2007 and 2008 highs.
There is a safer approach to this sector in the form of Solactive Global Junior Miners IndexETFs and funds. The index is a well spread out benchmark of small cap mining firms across the globe containing 100 most liquid securities from the sector, thus maximizing investment diversification and minimizing company specific risk. Country-wise Canada takes the top spot at 34% assets followed by Australia at 26% assets. The potential of regular yield also becomes higher with this pattern as market regulators in both the countries, especially Australia insist on regular dividend pay-outs.
Vis-a-Vis direct equity investments; Index ETFs is a more logical tactic for investors who are still wary of the markets in general. Operating an expense of a close 0.70% of basis points, these funds offer indirect exposure to Coeur d'Alene Mines Corp and Hecla Mining Co. from the Silver Industry, Kenmare Resources and Alpha Natural Inc. from the coal sector and even China Molybdenum Company, which is into Rare Earth Elements [REE] has assets close to 2% allocated to it. Alumina Ltd along with Aurico Gold Inc and d'Alene mines are the top three stocks in this global index.
Global X Junior Miners ETF [JUNR] treats the name sake Solactive benchmark as parent index. Junior Mining Sector which was first launched under the name of Global X Venture 30 Canada ETF has now a different strategy and a name with effect from 6th September 2012. It delivers a true picture of the index and operates at a fee of 0.69%.