JSE gets junior mining and exploration index

JSE gets junior mining and exploration index

JOHANNESBURG -Junior miners on the JSE will receive greater exposure through a new index launched especially for them. Nedbank Capital, a specialist financier of junior mining companies, created the initiative, which is called the NedSec Junior Mining and Exploration Index.

On traditional JSE mining indices, the majors eclipse junior miners. For example, the JSE’s mining index has just 5% of its weighting in 36 juniors. The remaining 95% is wrapped up in just nine companies. Furthermore, two global giants, Anglo American and BHP Billiton, account for about half the index.

Thus the price performance of junior mining companies (which has been spectacular for some in recent months) is largely irrelevant to the performance of the JSE’s mining index.

Nedbank Capital spokesperson Paul Miller says that the index was created because current indices on the JSE don’t recognise the junior mining sector. This is because indices follow the FTSE series, which group miners according to commodity, rather than size.

The five biggest constituents in the index are: Aquarius (21%), Northam (14%), SXR Uranium (12%), African Rainbow Minerals (11%) and Mvelaphanda Resources (8%).

Miller says that, with history available from June 1995, 58 companies would have featured in the index at various times over the last 11 years.

“Over that time, the growth in free float weighted market capitalization has been spectacular – from R5.2 billion to R48.4 billion. Since 2005, it has outperformed other indices such as the ALSI and MidCap and even the large cap Resi20. It is currently platinum, uranium and gold-rich,” says Miller.

Miller says that investment interest in the index has been strong. But he says that Nedbank has not brought out a product that allows investment into the index because of regulatory challenges. The greatest of these is the fact that two of the index constituents, sxr Uranium and Aquarius Platinum are ”inwardly listed” securities (a foreign instrument locally listed). South Africa’s exchange control legislation ”“ a remnant from apartheid that has not (yet) been completely removed ”“ disallows derivatives to be created over inwardly listed securities. This prevents Nedbank from making its index investable.

Nerina Visser, quantitative strategist at Nedcor Securities, says the NedSec index excludes any mining company that is a constituent of the Top40 index, or would ordinarily be a member of the Top40 index if it were not for limited liquidity.

“It includes mining companies and mining investment holding companies across all the JSE’s boards and sectors, except for oil and gas and companies controlled by another company listed on the JSE.

She says the index will be reviewed quarterly and published daily using closing prices as a service to the industry.


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