Van Eck Plans a Mining ETF for the Bold

For those who are interested in the precious metals market, Van Eck Global recently applied with the Securities and Exchange Commission for a unique ETF targeting small- and mid-cap gold and silver mining companies (informally referred to as "junior miners").

Van Eck Global's creation is somewhat similar to Market Vectors Gold Miners ETF (GDX - commentary - Trade Now), a large-cap fund focused on gold mining. However, the fund is anticipated to exclusively cover small- and mid-cap securities. This makes this upcoming ETF a particularly appealing development, thanks to several lucrative qualities typical of junior miners.

To begin with, these primarily Canadian based and listed companies tend to demonstrate aggressive business models and growth profiles, as compared with the large-cap businesses owned by GDX. Through hard-line models, junior miners also follow a trend of strong returns, especially during bullish gold/silver trends -- such companies effectively allow investors to play to the strengths of precious metals and mining markets.

However, with high potential for return also comes high risk. Junior miners are notorious for steep debt levels, and they tend to be first noticed at stages of research and exploration, as opposed to commercial production stages (characteristic of larger, more developed corporations). Furthermore, junior miners habitually exhibit questionable sustainability, and this often necessitates extensive fundraising and capital injection. So all in all, these small- to mid-cap companies carry high risk but feature impressive leverage.

This upcoming fund will be a groundbreaking new offer for ETF enthusiasts who seek mainstream investment in the formerly elusive small-cap precious-metals markets. Investors with an inclination for mining companies and a knack for risk-taking should keep their eyes peeled for this impending launch.

At the time of publication, Dion had no positions in stocks mentioned.

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Know What You Own: Gold-mining stocks include Barrick Gold (ABX - commentary - Trade Now), Goldcorp (GG - commentary - Trade Now), Newmont Mining (NEM - commentary - Trade Now), AngloGold Ashanti (AU - commentary - Trade Now), Kinross Gold (KGC - commentary - Trade Now), Agnico-Eagle Mines (AEM - commentary - Trade Now) and Gold Fields (GFI - commentary - Trade Now).

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Don Dion is the publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.

Dion is also president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.