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  • Current Outlook On Small Cap Mining Equity 0 comments
    Apr 18, 2013 6:00 AM

    The current gold curve has had an understandable impact on the small cap mining equity which is, amid a rally, a street's popular trade due to their high risk high reward nature. Although Investing in Junior Mining companies have been simplified through the ETF route, but even these standardised and mathematically correct investment solutions have lost in tunes of 29 - 4 1 percent in terms of their market value during the last twelve months alone.

    An in place regulatory environ and these ETFs being attuned to bona fide benchmarks has done nothing to help overcome the gloom which is the direct result of the down side in gold and silver spot prices. Most Small cap mining funds will have a natural weight age of more than 50% of its assets among the explorers and the small miners of these two popular precious metals and naturally theirs asset stocks are battered the most when supply exceeds in the market.

    The relation of the metal spot prices and its small cap mining companies is most unique. Historically, in any standing rally junior equity tends to outperform the senior miners and their respective benchmarks at large. The reason being that in a deficit supply scenario or a long market rally, large cap miners and venture capitalists have no choice but to invest in junior mining companies and through these well funded projects, new sources of the elements are discovered and then harnessed for the bounty.

    A Fact that most listed junior stocks are yet to even project any earnings reflects clearly on their stock prices but a new mine find or a similar discovery may add considerable value to the security in the short run. This to date has been the biggest lure for the short and midterm betters.

    The attributed risk is undeniable and thus a simplified route in form of an equity traded fund is advisable for those who are long on base metal prices. The current slow down does nothing to contradict the long term Gold and Silver rally, which is still intact.

    Minerals such as Coal, Copper along with gold and silver are equally important for any economy and the anticipated demand from the emerging blocs and frontier economies still shows a positive data on most counts. The predicted demand figures from the developed world show no decline either.

    Large companies are totally dependant on small miners when they exhaust their own resources, the reasons of the exhaustion could be depletion of resources in a particular operational mine due to overharvesting or it could be simply that the cost of producing finished product becomes unreasonably high due to some reason, so the production is halted either till the solution is found or the market dynamics allow the production to run at higher costs.

    For a multitude of reasons, invest in junior mining companies deserves a raised outlook. Firstly it is the current prices that may have bottomed out but strictly on a case to case basis and secondly due to the organic nature of their work, that enables them in exploring, and developing new resources for all needed minerals and metals.

    A market traded fund from this asset class will mostly offer a broad based diversification in terms of metals and the listed securities, most of which is traded on the foreign exchanges and to an extent the investments are also vested in the respective ADRs [American Derivatives] of the small cap mining companies if available.

    During rallies, the Merger and Acquisition activity is known to be aggressive in this segment and that puts another plus on this investment case.

    Global X Junior Miners ETF [JUNR] delivers as per the price and yield of the Solactive Global Junior Miners Index. The fund's YTD returns run in the negative of more than thirty percent after the annual expenses of 0.69%. This Junior Miners ETF was introduced in March 2011 and hold an asset kitty of 97 stocks that cover small cap mining companies stocks from Gold [39.4%], Copper [8.3%], Coal [8.5%], Titanium [3%], Iron [6%], Nickel [5.2%], Aluminum [3.5%], and about 16% of the investments of JUNR are among the other metals including the Rare earth Elements [REE] such a Niobium.

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