Short selling is the inverse of a normal share trade.
Instead of looking to profit from a rising share price, a short seller attempts to profit from a falling price.
Some hedge and managed funds employ short selling as a way to generate additional alpha.
This is not a common strategy. It also comes with high risk.
It’s easy to track the stocks with the highest ‘short interest’ too.
Sometimes this can be a handy source of insight into whether parts of the market believe a sector, share, or project is overhyped or overvalued.
This is not to say short sellers always get it right.
But today Mining.com.au will observe the resource stocks in the Top 20 as published on the website ShortMan.
The list includes Lotus Resources (ASX:LOT), Beach Energy (ASX:BPT), Boss Energy (ASX:BOE), Pilbara Minerals (ASX:PLS), Paladin Energy (ASX:PDN), Lynas Rare Earths (ASX:LYC), and Genesis Minerals (ASX:GMD).
The uranium sector is clearly a target. Lotus, Boss, and Paladin are all in this space.
The Australian Financial Review even ran an article this week on Lotus. The report said, in part:
“Short interest, which makes money when a share price falls, has more than doubled in Lotus over the last two months, catapulting the miner to the top of the list of most heavily targeted companies on the ASX.
“Nearly 23% of total shares in the small-cap uranium producer are held by short sellers, up from about 11.5% in April.”
The reporter, Gus McCubbing, notes that the short interest in Lotus is rising while falling away for Paladin and Boss.
In other words, there are specific issues to Lotus rather than a macro bet against uranium.
Beach Energy has nearly 15% of shares sold short.
It’s fair to say that any firm that’s bet against Beach Energy in the last 12 months is on a winner. The stock is down 37% over the last year:
There is lingering market concern around its reserves and the somewhat troubled history of its key Waitsia Project starting up.
There is also the uncertainty of the Federal Government’s proposed gas reservation scheme weighing on the stock (and others in the domestic market).
Pilbara Minerals is perhaps the most interesting one — and a perfect example of the high risk of short selling.
At one point in 2024 PLS had more than 20% of its shares sold short and was the most shorted stock on the market.
A surprising rally in lithium from mid-last year sent the share price up more than 200%, while the percentage of stock sold short declined.
The remaining shorts now must think it’s either overvalued or lithium will turn down again. Operationally, there’s nothing to suggest PLS is in difficulty.
Lynas Rare Earths also seems to be going fine operationally. Just yesterday the company announced an agreement to develop another facility in Malaysia.
The Lowell Resource Fund also says in its monthly report:
“The Group of Seven countries agreed that no single country should supply more than 60% of their imports of rare earths by 2030 in an effort to reduce their reliance on China. The target will apply to rare earths and permanent magnets.
“Beyond 2030 they will aim to further reduce their dependency with a view to limiting exposure to 50% as soon as possible.”
Overall, that would seem to support LYC’s strategic positioning. It’s up to the company to deliver operationally.
The last on the list is Genesis Minerals, a gold producer. It’s not clear why this would be a target, other than around valuation or some form of mean-reversion strategy. The latest GMD production report met guidance.
To conclude, there doesn’t seem to be a specific theme to the current short list, other than a higher weighting to uranium that has been present for some time.
Write to Callum Newman at Mining.com.au
Images: Market Index & Unsplash
