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.
The Horizons ETF Copper Producers Index ETF (TSX: COPP) is set to go live for trading on the Toronto Stock Exchange on May 17, providing a new option for investors to gain passive exposure to the world’s C$2 billion-plus market cap copper producers.
Nicolas Piquard, the company’s VP, portfolio manager and options strategist, tells The Northern Miner the fund aims to take full advantage of forecast increasing copper usage that typically corresponds with periods of worldwide economic expansion.
“COPP is Canada’s first ETF to provide exposure exclusively to companies involved in copper mining,” said Piquard in an interview.
“One of the world’s oldest industrial metals, copper continues to become increasingly important to the manufacture of today’s infrastructure and technologies, including urban buildings, electronics manufacturing and particularly, as a vital input for electric auto manufacturing and renewable energy expansion,” he said.
The COPP ETF seeks to replicate, to the extent possible and net of expenses, the Solactive North American Listed Copper Producers Index.
“The index is designed to provide exposure to the performance of companies active in copper ore mining. Constituents will include small, mid, and large-capitalization companies listed on North American exchanges,” said Piquard. “COPP may also invest in companies headquartered outside of North America that have a North American listing.”
Piquard explained the ETF’s methodology uses FactSet’s Revere Business Industry Classification System (RBICS) to look for companies classified under the ‘Base Metal Mining’ industry group. The process identifies two types of firms: pure-play companies, which are firms classified under the ‘Copper Ore Mining’ RBICS sub-industry; and diversified companies, which are firms that are classified to other subindustries but have the keyword ‘copper’ in their business descriptions, according to Piquard.
The index selects its constituents from a universe of US and Canada-listed stocks of companies with market capitalizations above $2 billion and average daily trading volumes higher than two million.
The ETF comes with a management fee of 0.65%.
From this screened universe, the index selects the largest 20 companies. It weights them by float-adjusted market capitalization subject to caps of 10% and 5% on any pure-play and diversified company, respectively, Piquard explained.
The index is reconstituted and rebalanced on a semi-annual basis.
As of May 13, Canadian companies accounted for more than two-thirds (70.4%) of the total index weight, with the next-largest country exposures being the US (18.2%), Australia (6.0%), and the UK (5.4%).
Notable index positions included Turquoise Hill Resources (19.5%), First Quantum Minerals (11.5%), Southern Copper (9.2%), Lundin Mining (9.0%), Freeport-McMoRan (9.0%), Capstone Copper (6.9%), Teck Resources (6.8%), and HudBay Minerals (6.4%).
COPP joins Horizon ETFs’ other resource-focused offerings comprising the Horizons Global Lithium Producers Index ETF (TSX: HLIT) and the Horizons Global Uranium Index ETF (TSX: HURA).
