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Americas Mining Agenda: Rick Rule and Joe Mazumdar, 16/5/17

A “victim of its own success” is how the overgrown VanEck Vectors Junior Gold Miners ETF (GDXJ) has been described. The coming mid-June “GDXJ Rebalancing” follows from VanEck’s recently announced MVGDXJ index inclusion changes – bigger companies in (up to US$3 billion market cap), smaller ones out. Inflation of the fund size in the past two years means the change has significant implications for a large number of gold equities, as Sprott’s Rick Rule and Exploration Insights’ Joe Mazumdar observe in this new Mining Agenda podcast.

GDXJ's holdings include many smaller gold explorers and miners listed in Australia, Canada, the US and China.

RBC Capital Markets said in a note on the topic last week that the VanEckGDXJ ETF (assets under management) had expanded by 225% since 2016 to the point where it announced the inclusion methodology change.

"This has resulted in VanEck taking increasingly larger ownership stakes in relatively illiquid junior companies, which appears to have necessitated the change," RBC said.

Sameer Samana, a Wells Fargo Investment Institute quantitative strategist in St Louis, told Bloomberg: "They're starting to run into issues of how much they own in certain names, how many names qualify for the index and they're running into issues of how big the fund has gotten." 

"The index provider is loosening the criteria and making it more inclusive in order to deal with the liquidity and capacity issues." ETF.com said GDXJ "may have become too big for its index, the MVIS Global Junior Gold Miners Index".

"The [now] $5.4 billion exchange-traded fund owns giant positions in its underlying holdings, putting it at risk of violating certain Canadian and US regulatory thresholds," it said.

"To avoid crossing those thresholds, the ETF bought up stocks of companies that aren't in its index — creating a significant divergence between the ETF components and the index components. VanEck acknowledged the divergence by announcing it would broaden the scope of the index and include many more gold miner stocks in the portfolio at the next rebalance date."

Panellists

 
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Rick Rule,
President and CEO, Sprott

Rick Rule, president and CEO of Sprott US Holdings, leads a highly skilled team of earth science and finance professionals who enjoy a worldwide reputation for resource investment management. A frequent industry conference and media speaker on natural resource investment and industry topics, Rule and his team have long experience in many resource sectors including mining, water, agriculture, alternative energy, forestry, and oil and gas. Rule is particularly active in private placement markets, having originated and participated in hundreds of debt and equity transactions with private, pre-public and public companies.

Joe Mazumdar
Economic Geologist and Analyst, Exploration Insights

Joe Mazumdar, an economic geologist and analyst at Exploration Insights, is a former senior mining analyst at Haywood Securities, then Canaccord Genuity. He was director of strategic planning, corporate development, at Newmont Minnig, and senior market analyst/trader at Phelps Dodge. Mazumdar also worked in technical roles for IAMGOLD in Ecuador, North Minerals in Argentina/Chile and Peru, RTZ Mining and Exploration in Argentina, Chile, Peru and Ecuador and MIM in Australia. He has a bachelor of science in geology from the University of Alberta, a master of science in geology and mining from James Cook University and a master of science in mineral economics from the Colorado School of Mines.

 

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