In this November update on the short selling of Canadian public companies, we report on:
- The short seller buying Canadian junior gold mines
- Top short positions for Canadian stocks
- Largest increases in short positions during the past 3 months
- Largest decreases in short positions during the past 3 months
- Stocks most at risk for short squeezes
- Most-shorted ETFs
- Methodology and data sources
The short seller buying Canadian junior gold mines
Many short sellers confronted with today’s bull market have thrown in the towel. But one of the most recognizable short sellers of our era, Carson Block of Muddy Waters Capital, is betting he can still make money, not so much by going short but by going long on junior gold miners.
Earlier this month, he announced a position in Snowline Gold Corp. (SGD-X), which has discovered a gold deposit in the Yukon that looks substantial enough to make the company one of few juniors that could be an acquisition target for a large-cap gold miner. Another Canadian junior gold miner in which Mr. Block has a large stake is Mayfair Gold Corp. (MFG-X).
Mr. Block has made a career out of exposing fraudulent companies, so it’s unlikely that he would be engaged in something unethical like pump-and-dump schemes. Moreover, he is being guided by Darren McLean, a mining analyst with an impressive track record in the industry.
What first caught Mr. Block’s eye about Mr. McLean (who is Director of Research for Dfridge Capital Corp.), was how he was able to determine in 2016 that a certain gold miner was overstating the value of its mine. He did it by: i) delving into the Internet Archives to discover that drilling results from the previous owner of the mine showed much less gold and ii) flying satellites over the mine to verify that less gold was coming out than claimed.
But it is easier to go long than short on junior miners, so Mr. McLean prefers to use his skills in assessing drill holes, mapping topography, block modeling and so forth to invest in companies whose mines are better value than generally recognized. One example that he and Mr. Block did very well on is GT Gold Corp., which was taken over by Newmont Corp. in 2021. More can be learned about Mr. McLean in an interview recorded by the Money of Mine podcast last summer.
Top short positions for Canadian stocks
Short selling occurs when shares in a company are borrowed and then sold on expectation they can be bought back at a lower price for a profit.
The table for the most shorted stocks remains in a state of flux, with several previously absent companies beginning to show up more often. One is theatre chain Cineplex Inc. (CGX-T), whose third-quarter report showed a year-over-year drop of 9 per cent in attendance. CEO Ellis Jacob told BNN Bloomberg that there were fewer big movie hits this year compared to last year.
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Largest increases in short positions during the past 3 months
An uptrend in a short position often signals rising bearish sentiment. Bitfarms Ltd. of Canada (BITF-T), a cryptocurrency mining company that validates transactions on the Bitcoin blockchain, has had one of the largest increases in short position over the past three months. Bitcoin has been around for many years but a sizable proportion of the population remain skeptical about cryptocurrencies; adding to this sentiment in recent weeks has been a plunge of nearly a third in bitcoin’s price.
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Largest decreases in short positions during the past 3 months
A downtrend in a short position often signals diminishing bearish sentiment. Air Canada (AC-T), which for a long time was one of the most shorted companies on the TSX, now leads in this department with a huge decline in its short interest to 6.3 per cent of float short. The skies seem to be clearing up for the airliner.
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Stocks most at risk for short squeezes
Whenever some event or news causes short sellers to close their positions in a rush, the result can be a spike in the stock price as they hurry to buy and return the stock that was borrowed. Data firm S3 Partners has created an algorithm, the Short Squeeze Score, to rank companies by the likelihood of a short squeeze, with 100 being the highest probability and 0 being the lowest.
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Most-shorted ETFs
The most shorted ETFs continue to be the ones tracking the energy and banking sectors: iShares S&P/TSX Energy (XEG-T) and BMO S&P/TSX Equal Weight Banks (ZEB-T). Their readings for this month have edged up from last month.
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Methodology and data sources
S3 Partners was the main source for short-sales data. It was selected because Canada has many companies interlisted on the U.S. and other exchanges, and S3 Partners can sum short positions (currency-adjusted) across both countries. Other data sources for short sales data don’t do this.
A cutoff was applied to exclude companies whose short positions were miniscule in dollar value. The percentage of a company’s float (freely traded shares) is used instead of the percentage of outstanding shares to provide a better gauge of bearish sentiment.
Note that short positions, regardless of data source, may not be purely bearish bets because of trades made for hedging or arbitrage reasons.
Larry MacDonald is a regular contributor to the Globe and Mail. He is also the author of The Shopify Story and writes a blog on Shopify, called Shopify’s Journey