2013 was certainly a brutal year for precious metals and precious metal miners. Lower metal prices and rising operating costs made it difficult for many miners to log in a good profit last year. So far in 2014, however, many miners have been able to gain significant ground. While this corner of the market typically performs better during times of economic uncertainty, due to the fact that precious metals prices are usually driven higher, this year the commodity has managed to stay afloat despite the overall positive outlook for the economy [for more commodity news and analysis subscribe to our free newsletter]. In this piece, we’ll take a look at two segments of the mining industry that have gained more than 35% year-to-date (Please note that all data is as of June 26, 2014).
Junior Silver Miners Up 45%
The FactorShares PureFunds ISE Junior Silver Miners ETF (SILJ) has gained more than 44% so far in 2014. Within the first two months of the year, the fund rallied over 54%, but from April to May, SILJ slid sideways. In June, however, the fund rallied once again. Fortuna Silver Mines (FSM), SILJ’s largest holding, has helped drive this ETF; the stock has gained over 85% year-to-date. MAG Silver Corp (MVG), the fund’s second largest holding, has also performed well, gaining over 80% [see also An ETF First for Gold Investors (OUNZ)].
Junior Gold Miners Up 35%
Van Eck’s Market Vectors Junior Gold Miners ETF (GDXJ) has gained over 35% so far in 2014. Like SILJ, the fund charged higher during the first quarter of the year. Between April and May, the fund pulled back, only to surge higher once again in June. The fund’s top three holdings have all performed well year-to-date. Primero Mining Corp (PPP) has gained over 76%, Semafo (SEMFF) is up 74%, and OceanaGold Corp (OGC) has rallied nearly 100%.
The Bottom Line: The Mining Industry Is Still Shaky
While these year-to-date statistics may seem appealing, investors must realize that both of these junior miner funds are well off their highs. With the economic landscape continuing to improve, precious metal prices might fall once again, putting downward pressure on gold and silver miners. Furthermore, operating costs for these companies continue to rise, and without fundamental changes in cost reduction strategies, it will be especially difficult for junior minors to absorb the impact of potential price drops.
Disclosure: No positions at time of writing.