The Prospectors and Developers Association of Canada (PDAC) convention is the world’s largest annual gathering of the mining industry. This year, more than 25,000 attendees from over 130 countries converged in Toronto to network, learn, and showcase their projects.
But not everyone was there to celebrate the achievements and opportunities of the sector. Some were there to exploit the vulnerabilities of the junior mining companies, which are often the targets of short-selling.
What is short-selling and why is it a problem?
Short-selling is a trading strategy that involves borrowing a stock and selling it, hoping to buy it back later at a lower price and pocket the difference. It’s a way of betting that a stock’s price will go down.
While short-selling can be a legitimate and useful tool for market efficiency and price discovery, it can also be used to manipulate and harm companies, especially those with low liquidity and high volatility, such as junior miners.
According to some industry experts, there is an “epidemic” of short-selling in the junior mining sector, which has been hurting the share prices and valuations of many companies.
“They’re going to hold the brokerage firms accountable,” Kerry Knoll, chairman of Generation Mining, said of the proposed amendments by the Canadian Investment Regulatory Organization (CIRO).
“People can’t just call up and short and then go looking for the stock,” he said.
Knoll said his company’s stock price was cut in half over weeks by shorting activity during a time of low trading activity. He said the short-sellers would sell the stock at the end of the day to drive down the price and pressure the company to buy back the stock and cover their position.
Chuck Fipke, who discovered Canada’s first diamond mine Ekati, said he also noticed unusual trading in his current venture, Cantex Mineral Development, which has a high-grade silver-lead-zinc deposit in the Yukon.
The stock rose, Fipke said, before “short-sellers knocked it down.”
But he admitted he couldn’t prove what he described as an “epidemic of short-selling” that was plaguing juniors.
How could new regulations help?
The CIRO has proposed new rules that would require traders to confirm that there is stock available to borrow before shorting it or to pre-borrow the stock if it is hard to borrow. The proposal is open for comment until April 12.
The new rules could make it harder for short-sellers to target junior miners, as they would have to show a “reasonable expectation” that they could settle the trade by the settlement date.
The proposal is supported by Save Canadian Mining, a group started by Power Nickel CEO Terry Lynch, backed by Eric Sprott, Rob McEwen, and others. The group has been campaigning to bring back the uptick rule, which prohibited short sales at a lower price than the previous trade. The rule was removed in 2012 by Canadian regulators, giving more freedom to short-sellers.
Lynch said the new rules were a step in the right direction, but not enough to protect the junior mining sector from predatory short-selling.
“We need the uptick rule back,” he said. “It’s the only way to level the playing field and allow the juniors to raise capital and create jobs and wealth for Canadians.”
What’s next for the junior mining sector?
Despite the challenges posed by short-selling, the junior mining sector remains optimistic about the future, as the demand for metals and minerals continues to grow, driven by the green economy and the digital revolution.
Many junior miners at PDAC 2024 showcased their projects that could supply the critical minerals needed for electric vehicles, renewable energy, and smart devices. Some also highlighted their efforts to adopt sustainable and responsible practices, such as reducing their environmental footprint, engaging with local communities, and promoting diversity and inclusion.
The junior mining sector is vital for the innovation and development of the mining industry, as well as the economic and social well-being of many regions. By protecting it from unfair and harmful trading practices, Canada could ensure that it remains a global leader in the field.
Source: Mining.com
