Junior mining index offers new possibilities to investors

Investors have begun to see the South African junior mining sector as an independent sector they need to include in their investment portfolios as the market capitalisation of the Nedsec Junior Mining and Exploration Index (NSJME) has reached R63.1 billion (US$8.9 billion).

Paul Miller, mining and resources investment banker at Nedbank Capital, told Mineweb today that investor portfolios could no long be considered as diversified if they did not include junior mining stocks.

Nedbank Capital has launched a second index of SA junior listed mining companies – the NSJME-X index ”“ that enable investors to invest in the basket of junior mining and exploration companies.

Investing in the main group of junior and exploration companies in the NSJME index is not possible, as it includes five inward dual listed companies. South African exchange control regulations prohibit the trading of derivative instruments over inward dual listed shares.

”In order to allow investment in a basket of junior mining and exploration companies, we have created a second index of South African junior listed mining companies ”“ the NSJME-X index, which excludes inward dual listed shares,” said Miller.

He added that the several investors sought to invest in a basket of junior mining companies as they might not have adequate technical knowledge of the mining sector to select one or two growth prospects.

The NSJME increased its free float weighted market capitalisation by R14.3 billion (to R63.1 billion) since its launch on 28 September.

The higher market capitalisation represents growth of R12.5 billion in underlying companies’ share prices and includes two new listings ”“ Great Basin Gold with a market capitalisation of R1.6 billion and GVM Metals with a market capitalisation of R191 million.

Miller said the dramatic growth in the market capitalisation of the index meant that people had to sit up and take notice.

”The performance of the NSJME-X index showed a 95% correlation to the performance of the NSJME index over the last two years,” he added.

Investors seeking to invest in the basket of JSE-listed junior mining companies can trade the NSJME-X index via a futures contract listed on the stock exchange.

What is required is a futures account with a broker who needs to contact Nedbank for pricing, said Arthur Buchner, head of derivatives in Nedbank Capital’s Equity Capital Markets division.

The NSJME index tracks 35 independent junior mining and exploration companies listed on the JSE and excludes any mining company that is a constituent of the Top40 index.

SOURCE: www.mineweb.net