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TORONTO (miningweekly.com) – A unique exchange-traded fund (ETF) started in 2012 is banking on the exploration upside that junior companies in the silver industry provide, and recent optimism in the market was paying off, with the fund growing about 40% year-to-date.
PureFunds pure-play ETF co-founder and CEO Andrew Chanin this week argued that the market was seeing a paradigm shift taking place with regard to silver and its multiplying industrial applications and rising investment demand.
Speaking to Mining Weekly Online during the Prospectors and Developers Association of Canada’s yearly international convention, Chanin explained that aside from the long-term growth expectations for silver, he foresees a supply crunch looming.
He pointed to the fact that in general, for every ounce of gold, eight ounces of silver were mined, but that gold traded at a price 60 times higher than that of silver.
“When it comes to precious metals, silver is different. It is underrated, and I believe that the price will catch up with the unprecedented demand at some point in the near future.
“There might be a price correction on the horizon, compounded by a potential supply crunch as several base metals mines, producing silver as a by-product, are expected to be depleted in the medium term,” he added.
The PureFunds ISE [International Securities Exchange] Junior Silver ETF, with the NYSE Arca ticker SILJ, was created to bring silver exploration and mining exposure of small cap companies to institutional and retail investors alike.
Chanin explained that the fact that these companies were looking for the next big silver deposit and could benefit from the discovery of a new deposit, create metal-rich mines, or become a takeover target could provide significant upside for fund holders.
For these reasons SILJ became the first pure-play ETF to exclusively hold silver explorers and junior silver producers.
The ETF seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the ISE Junior Silver MinersTM Index, which provides a benchmark for investors interested in tracking public, small-cap companies that are active in silver mining exploration and production industry.
For more than 4 000 years, silver had been used as a currency, and these days, owing to silver's many special elemental properties, such as having the highest electrical conductivity, the highest thermal conductivity, and the lowest contact resistance of all metals, silver had become a critical input into many products made and used today.
As a result, aboveground stockpiles of refined silver were in decline.
“The resulting strong demand in recent years for silver as an alternative currency, an investment metal, and an industrial metal has increased the need to bring more metal into production. We believe the increased demand for silver should benefit the companies that discover new economic silver deposits or produce the sought-after metal,” Chanin said.
The fund’s top five holdings include the likes of Endeavour Silver Corp (11.99%), Silvercorp Metal Inc (11.83%), Fortuna Silver Mines (11.56%), MAG Silver Corp (10.58%) and Silvercrest Mines (5.13%).
The SILJ fund on Thursday added $0.12 to close at $13.69. Despite the volatile nature of silver, having dropped about 36% in 2013 - its worst annual performance since at least 1982, and being the worst-performing precious metal in 2013, the ETF was only down 18.4% in the past 12 months.