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Thanks to “Bullion Bulls” contributor, Paul, for supplying me with a link to an exciting, new opportunity for U.S. investors to get access to Canadian “junior”, precious metals miners – and the explosive, profit-potential which they represent.

This new, ETF is being offered by Van Eck Global. It is not their first precious metals mining-ETF, as they already have an ETF for gold miners: GDX (NYSE). However, what makes this new product unique is that it will be comprised solely of “junior” miners in the precious metals sector. While the press release simply refers to these companies as “junior miners”, the vast majority of these companies are Canadian-based and Canadian-listed companies (on the TSX and “Venture” exchanges).

The press release, itself refers to these companies as offering (potentially) “very strong returns” and a “leveraged play” on the precious metals market – but does not explain how and why this is the case.

By coincidence, I recently published a commentary which directly explains precisely these attributes of “junior”, precious metals miners (see “A Novice's Guide to Precious Metals, Part II: the miners”).

To briefly summarize these facets of “junior” miners (and commodity-producers, in general), these companies generally have much more aggressive business models and growth profiles than the larger-cap miners – thus the potential for “very strong returns”. However, in order to achieve these growth targets, “junior” miners typically operate with smaller profit-margins and/or higher debt-levels. This increases the risk of these companies, but simultaneously also increases their leverage.

For a more detailed explanation of these characteristics, please refer to my original commentary on this subject.

To clarify the title of this commentary, American investors already do have access to most Canadian “junior” miners. However, this comes primarily via “pink sheets” listings – a market which is shunned by more conservative investors, and those who lack a sophisticated understanding of these companies. Thus, this is the first mainstream vehicle for U.S. investors to invest in these companies, and also makes this market accessible for novices to this sector.

For Canadian investors, the opportunity is not quite as clear-cut. Canadians already can invest in many of these companies through their TSX listings – with the TSX being one of the world's largest exchanges, and the premier exchange in the world for mining investment.

The problem for Canadians wishing to invest in Van Eck's new ETF is that they must make their purchase in U.S. dollars. With the U.S. dollar on a clear, downward trajectory (and the Canadian dollar rising, inversely), holding U.S. dollars adds significant risk to this investment.

To some extent, the continuing decline in the U.S. dollar would be offset by a corresponding nominal increase in the unit price of the ETF. However, with most smaller investors paying a premium to convert their money into and out of U.S. dollars, and with the enormous volatility in U.S. currency, these currency costs could significantly erode the profit-potential of this vehicle – especially for shorter-term traders.

Nonetheless, for Canadian investors who lack familiarity and understanding of these smaller mining companies, the profit potential will likely significantly exceed the downside risk on the currency – especially for those with more distant investment horizons.

From a longer-term perspective, this ETF can be a great educational tool for those investors wishing to gain a better understanding of this market. Investors will have their own list of companies to research – as being particularly promising investments. While some of these companies will ultimately under-perform (as is the case with any fund), investors can look for common characteristics between these companies as indicators they should study, should they choose to embark on investing in these companies, individually.