Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Exchange-traded mining sector funds (ETFs) are a great way to get involved in this potentially highly profitable business. Let me tell you why, where and how to do so.
So says Ron Rowland (www.moneyandmarkets.com) in his article* which Lorimer Wilson, editor ofwww.munKNEE.com, has reformatted into edited […] excerpts below for the sake of clarity and brevity to ensure a fast and easy read. (Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.) Rowland goes on to say:
Before we go any further, we need to make an important distinction. Mining sector ETFs are not the same as ETFsthat are based on physical metals. Mining stocks are still stocks. Their performance is [primarily] related to the [performance of the] underlying commodities but not always [because the] stocks can go down even if the underlying commodity goes up and vice versa.
You might not be a prospector yourself, but you can still share in the profits by bankrolling today’s forty-niners. Here are three ETFs that focus on gold mining stocks:
Market Vectors Gold Miners (GDX) is the most-active of the ETFs in this category and also the most liquid. It concentrates on the liquid, large-cap stocks of companies in the gold mining business.
Global X Gold Explorers (GLDX) is a new fund that tries to get even more specialized. It owns early-stage companies that are still looking for gold — and haven’t necessarily found it yet. As you might imagine, this makes GLDX a high-risk play with potentially great rewards.
Gold miners/explorers aren’t the only ones with their own ETFs, of course. Let’s widen our view to look at some others …
a) Silver and platinum are also very rare, and throughout history they have been used in much the same way as gold. Silver is often thought of as the “poor man’s gold” and platinum is even more valuable than gold in some ways – and then there is copper …
b) While copper is used primarily for industrial purposes it is often found alongside silver and, as such, is sometimes thought of as a semi-precious metal. Pennies used to be pure copper; today they are mostly zinc with a thin copper plating.
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c) Rare earth metals are super-rare minerals needed for high-tech manufacturing and some of them are extremely valuable — and extremely scarce.
You can take your pick of mining stocks focused on all these metals. If you want to choose some ETFs — which I highly suggest — here are some to consider:
Uranium is found in low levels within rocks and soil and its primary use is in nuclear reactors where one kilogram of uranium can provide as much energy as tons of coal. [As a result] I expect uranium demand will continue to increase — and the companies involved in producing it will continue to profit.
Right now the uranium industry is dominated by a handful of companies and, as such, a good way to cover all the bases is with a new ETF, Global X Uranium (URA), which just came out last week but trading has been heavy so far.
There are many other ETFs with varying levels of exposure to the mining sector. Those I’ve named here are only a small sample and the list is growing quickly as ETF sponsors try to get a piece of this fast-growing niche.
Be aware that most of the mining stocks in ETFs, other than a few in the large-cap category, tend to be small and illiquid – and the same applies to the ETFs that own these stocks so watch the trading volume and use a limit order whenever you buy or sell.
*http://www.moneyandmarkets.com/go-for-the-gold-with-mining-etfs-40761?FIELD9=2
Editor’s Note:
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.
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