Small Cap Power: So can you tell our viewers
about your firm as well as your role there?
Andrew Chanin: Certainly, PureFunds
was founded in 2010 and it was formed to be a company who’s goal was to bring
about first mover ideas into the market, in the form of Exchange Traded Funds
(ETF). I had started my career in
finance on the floor of the American Stock Exchange with one of the largest ETF
specialist trading firms and really got a strong understanding for the ETF
space and became a full believer that the ETF industry is one that is growing
with much more potential in the future as well, and wanted to figure out a way
to best stake our claim in the industry. Being a market maker for ETFs for
several years we started to have our own opinions on where that future for
growth in the industry might be.
A common theme that we had noticed from our years in ETFs was that second to
market products, being that if there was already a fund out there, trying to
mimic that fund, it didn’t tend to be that successful of a practice. However if
you were able to identify an area where there wasn’t yet an ETF but there would
be market interest in that space, you could really have the ability to create
something special in a fund. And the natural resource sector was one that we
had been following for awhile and had some very strong beliefs and thought that
it was one of those areas that was under served with financial product
ingenuity in the form of Exchange Traded Funds.
Small Cap Power: So why did your
company decide to launch a junior silver ETF?
Andrew Chanin: Exactly, so it came
down to a lack of options, to put it simply. When the first junior mining ETFs
just came out I was trading them since inception and really became interested
in the space. And the more you spend time looking at the junior space and
especially the precious metals space you may start to have a strong belief one
way or the other about silver. It seems so interesting that, to me
specifically, that there are so many funds for gold whether it’s physical funds
or futures-based funds or mining shares or junior mining shares. But for silver
ETFs it wasn’t that diverse, yes sure there were futures and physical funds but
at the time when we were thinking about launching our fund, there was only one
silver mining ETF out there. And there
wasn’t one that just focused on the junior mining space. So having spent so
much time researching the junior space and the precious metals space it seemed
to me that it was an area that really needed an Exchange Traded Fund.
Small Cap Power: Gotcha. So is your
company planning to introduce other mining related ETFs or ETFs in other
sectors?
Andrew Chanin: I think it’s the goal
of most, if not all, ETF companies, to launch as many, successful ETFs as
they’re able to and I do think there are areas in the resource space that would
be served well for some new Exchange Traded Funds to be launched. That being
said, at the moment we don’t have any plan for the immediate future, and we
don’t want to just constrain ourselves to strictly the natural resource space,
but that is definitely one where we think that there could be growth in the
future.
Small Cap Power: Great. So what’s
your outlook for the junior resource market for the remainder of 2014?
Andrew Chanin: So as far as the
junior space goes, and I’m sure your audience is well aware it could be a very
broad term, and it pretty much can be any type of smaller resource company
that’s looking to bring a mine to production or that’s exploring for new
materials. Our focus here, being that we only do have this one fund out here is
really on the silver space and we’re seeing a lot of really interesting trends
starting to occur in silver that could be setting up silver for significant
moves.
Recently a big kind of issue that people are taking sides on is the actual true
cost, all-in cost of mining, and right now with silver trading at the level
that it is, below $20, there’s a lot of debate as to what the true cost is for
a silver mining company to pull an ounce of silver out of the ground. There’s
been some really interesting research that has come out within the last couple
of weeks from SR Srocco and he’s actually gone out to show that of 12 of the
largest primary silver mining companies out there, that the actual average cost
of producing one ounce of silver is actually closer to $24 per ounce. So as
we’re sitting with silver in the sub $20 levels and currently sitting around
$19 we’re in a very interesting trading period right now where it seems that
it’s unprofitable for many of these companies to be mining at this current
level.
If you look at it with a very short-term perspective and you see, OK well, it’s
costing them more to actually extract the metal than the price they’re selling
it for, that doesn’t look good for the company in the current time period.
However, when looking at the resource space we have a longer time horizon view
on this and we see that this dislocation between the price of mining the
material and what it’s actually trading for, to be something that is actually
telling of a much more serious and dire condition in the future. Where will
this future silver supply come from, because companies can only mine at a loss
or function at a loss for so long. And right now, if these companies are
producing at a loss there’s only so much time before they have to take money
out of future exploration or shut down their mines, which could pull near-term and
future supply out of the market.
Yet at the same time period we’re also seeing record levels of investment
demand and demand for minted coins and bars as well. So it’s a very interesting
time period where the price is saying no one wants this, there’s no demand for
it, while the actual demand numbers that we’re seeing are actually very bullish
for silver. So it seems that there could be a very interesting opportunity
setting up specifically in the junior space, while their larger competitors and
peers are mining their reserves, their resources right now at a negative
margin. The companies that are in the exploration phase and not yet producing, or
still bringing a mine to production, these companies still have their reserves.
And for them the downward pressure is really only affecting their stock price
or if they need to raise capital at the moment, but companies that are sitting
on more comfortable cash positions know that there’s a time period before they
can bring their metal into the market. I think that these companies are showing
a very interesting opportunity because these short term blips in this price
won’t affect them. The price of silver that they will see is when they actually
have their mine in production. I think that some of these larger companies are
almost throwing away the riches that they have in the ground, while these junior
companies would be the beneficiary of a future supply issue, where they can
hopefully be that source of supply to come into the market and possibly benefit
from a higher price of silver.
Small Cap Power: Great. So which
factors should one consider before buying a junior silver stock?
Andrew Chanin: I think that the
junior space in general, it’s one where there’s not one factor, there’s not two
factors, there are so many factors that do need to be taken into place and in
the junior mining space probably as much, if not more, that any other space.
And it’s because there are so many different things occurring, different
jurisdictions, not as big for silver, but for gold, platinum, palladium, if you
look at South Africa and you see the significant labor issues and unrest going
on there. It was happening in oil-related operations in South America where we
were seeing fears of nationalization going on last year. There’s increases in
potential taxes that these companies might have to pay, like we’re seeing in
Mexico. There’s so many different things that almost make it more important, in
my opinion, when investing in the junior space, to do so with a diversified
basket of companies. So, I think management is important, I think having a
comfortable cash situation without too much debt, especially right now, where
some companies are finding it difficult to get financing at variable
levels.
Companies that have cash won’t be forced to go to the market to see what they
can raise at these current, less than opportune times, for the space. And I
think having the ability to own a company or companies with projects in various
jurisdictions can also be helpful to minimize some of the overall risks to the company
based on which countries they are operating in. So I think if you can build a
portfolio of several companies, ones that help you diversify the risks that you
do face, investing in the junior space I think might be an interesting
portfolio to have as opposed to just going out and trying to pick that one best
name and go all in on that.
Small Cap Power: Speaking of all in
on best names, are there any specific silver related stocks that you think look
attractive at this time?
Andrew Chanin: I personally think
that, as an investor I like to take a more of a top-down approach as opposed to
a bottom-up. I like looking at global macro trends and trying to think of where
this future demand will be coming from and targeting those sectors that would
benefit from it. So as we were mentioning before, I’m a huge fan of the junior
silver space and think that the ability to look at this cross-sector of junior
names and these companies that right now might not be producing (if they are
producing maybe they’re not producing as much as a mid-tier or senior producer)
and ideally trying to build a basket of these companies that could potentially
in the future become the next mid-tier producer, the next senior producer. And
being able to have a basket to have the opportunity to pick some or several,
being that it is a higher risk, higher reward type of investment proposition,
that having that diversified basket makes it that much more important.
For more information on PureFunds please visit the company’s website HERE >>
