The Short Report – 19 Dec 2019

This story features RESOLUTE MINING LIMITED, and other companies. For more info SHARE ANALYSIS: RSG

See Guide further below (for readers with full access).

Summary:

Week ending December 12, 2019

Last week the ASX200 recovered half of the losses suffered in the two-day sell-off in early December that was sparked by negative trade news. All was forgiven this week, with a “deal” being agreed upon.

As was the case the week before, there was little movement in short positions last week with just a couple of exceptions. Almost all of the red and green below represents minor bracket creep.

The two exceptions are Kirkland Lake Gold ((KLA)), which has risen to 22.6% shorted from 20.8% and Resolute Mining ((RSG)), which has risen to 9.0% from 7.8%. See below.

Otherwise, we might note that having dropped down in shorts the week before on its announced capital raising, Bank of Queensland ((BOQ)) is back on the climb again, and has been joined at the bottom of the table by peer Bendigo & Adelaide Bank ((BEN)).

Metals X ((MLX)) dropped off the 5% plus shorted table last week. Yesterday the stock plunged -28% after a downgrade to tin production guidance.

With regard the ASX top 20 short position table below, as of tomorrow Newcrest Mining ((NCM)) will replace South32 ((S32)).

This is the last Short Report for 2019. The Short Report will return in January.

Weekly short positions as a percentage of market cap:

10%+

KLA    22.6
GXY   17.3
SYR    15.8
ORE    13.8
SDA    13.8
ING     12.8
GWA  12.3
JBH     11.8
NXT    11.8
NEA    11.3
BGA   11.1
CGC    10.7
MIN    10.7
DMP   10.4
WEB   10.2
BKL    10.1
MTS    10.0

No changes

9.0-9.9

RSG

In: RSG           Out: HUB
                                               
8.0-8.9%

HUB, IVC, A2M, SUL, NUF

In: HUB                      Out: NCZ, PPT

7.0-7.9%

PPT, PLS, NCZ, CGF, HVN, BIN, CUV, MYR, OML, IFL

In: PPT, NCZ, CUV               Out: RSG, OML, IFL

6.0-6.9%

IFL, BWX, NEC, CTD, RWC, OML, SGM, BOQ, DCN

In: IFL, OML, NEC, BOQ                Out: CUV, DCN

5.0-5.9%

DCN, PNI, COE, WOR, CLH, MYX, GNC, CMW, BEN, CLQ, SLR, RFF, AMP, MND, GMA

In: DCN, BEN                        Out: BOQ, NEC, MLX, LNG, MSB

                       
Movers & Shakers

Australia’s gold mining stocks have in general been on a slide since August when the gold price breached US$1500/oz and then began falling back, as newsflow on the trade deal improved. Mining analysts had considered most miners to have become overvalued, but now if anything, they’re falling back to be undervalued.

There are only three gold miners on the ASX shorted by 5% or more. One is Kirkland Lake Gold, so we’ll dismiss the pesky triple-lister and say that realistically there’s only two.

One is Silver Lake Resources ((SLR)), which has been hanging around for a while at the 5% shorted mark. The other is Resolute Mining, which last week saw a jump in shorts to 9.0% from 7.8%.

Resolute posted a weak September quarter production report back in October, due to an unscheduled stoppage at its Syama mine. Since then the newsflow out of the company has been steady and largely positive, but not of sufficient significance for either of the two FNArena database brokers covering the stock to update their views. Otherwise, Resolute’s share price has tracked in relative correlation to the gold price, as have the share prices of most gold miners.

So why Resolute has been singled out as the miner to go short is unclear. It may be that the position is part of a long-short pairs trade, but that information is not available.

The other possibility is that given exploration success at its African assets, the company may need to source funding. Or maybe the fact Resolute has assets in Africa is itself considered an elevated sovereign risk.

Shorters don’t tell tales.

Merry Christmas.

 

ASX20 Short Positions (%)

Code	Last Week	Week Before	Code	Last Week	Week Before
AMC	1.2	0.9	RIO	4.2	4.2
ANZ	0.6	0.6	S32	1.2	1.4
BHP	3.2	3.2	SCG	0.4	0.4
BXB	0.2	0.2	SUN	0.3	0.3
CBA	0.7	0.7	TCL	0.6	0.4
CSL	0.1	0.1	TLS	0.2	0.2
GMG	0.4	0.3	WBC	0.7	0.6
IAG	0.5	0.6	WES	0.6	0.5
MQG	0.3	0.3	WOW	0.6	0.7
NAB	0.5	1.0	WPL	0.7	0.7

To see the full Short Report, please go to this link

Guide:

The Short Report draws upon data provided by the Australian Securities & Investment Commission (ASIC) to highlight significant weekly moves in short positions registered on stocks listed on the Australian Securities Exchange (ASX). Short positions in exchange-traded funds (ETF) and non-ordinary shares are not included. Short positions below 5% are not included in the table below but may be noted in the accompanying text if deemed significant.

Please take note of the Important Information provided at the end of this report. Percentage amounts in this report refer to percentage of ordinary shares on issue.

Stock codes highlighted in green have seen their short positions reduce in the week by an amount sufficient to move them into a lower percentage bracket. Stocks highlighted in red have seen their short positions increase in the week by an amount sufficient to move them into a higher percentage bracket. Moves in excess of one percentage point or more are discussed in the Movers & Shakers report below.

IMPORTANT INFORMATION ABOUT THIS REPORT

The above information is sourced from daily reports published by the Australian Investment & Securities Commission (ASIC) and is provided by FNArena unqualified as a service to subscribers. FNArena would like to make it very clear that immediate assumptions cannot be drawn from the numbers alone.

It is wrong to assume that short percentages published by ASIC simply imply negative market positions held by fund managers or others looking to profit from a fall in respective share prices. While all or part of certain short percentages may indeed imply such, there are also a myriad of other reasons why a short position might be held which does not render that position “naked” given offsetting positions held elsewhere. Whatever balance of percentages truly is a “short” position would suggest there are negative views on a stock held by some in the market and also would suggest that were the news flow on that stock to turn suddenly positive, “short covering” may spark a short, sharp rally in that share price. However short positions held as an offset against another position may prove merely benign.

Often large short positions can be attributable to a listed hybrid security on the same stock where traders look to “strip out” the option value of the hybrid with offsetting listed option and stock positions. Short positions may form part of a short stock portfolio offsetting a long share price index (SPI) futures portfolio – a popular trade which seeks to exploit windows of opportunity when the SPI price trades at an overextended discount to fair value. Short positions may be held as a hedge by a broking house providing dividend reinvestment plan (DRP) underwriting services or other similar services. Short positions will occasionally need to be adopted by market makers in listed equity exchange traded fund products (EFT). All of the above are just some of the reasons why a short position may be held in a stock but can be considered benign in share price direction terms due to offsets.

Market makers in stock and stock index options will also hedge their portfolios using short positions where necessary. These delta hedges often form the other side of a client's long stock-long put option protection trade, or perhaps long stock-short call option (“buy-write”) position. In a clear example of how published short percentages can be misleading, an options market maker may hold a short position below the implied delta hedge level and that actually implies a “long” position in that stock.

Another popular trading strategy is that of “pairs trading” in which one stock is held short against a long position in another stock. Such positions look to exploit perceived imbalances in the valuations of two stocks and imply a “net neutral” market position.

Aside from all the above reasons as to why it would be a potential misconception to draw simply conclusions on short percentages, there are even wider issues to consider. ASIC itself will admit that short position data is not an exact science given the onus on market participants to declare to their broker when positions truly are “short”. Without any suggestion of deceit, there are always participants who are ignorant of the regulations. Discrepancies can also arise when short positions are held by a large investment banking operation offering multiple stock market services as well as proprietary trading activities. Such activity can introduce the possibility of either non-counting or double-counting when custodians are involved and beneficial ownership issues become unclear.

Finally, a simple fact is that the Australian Securities Exchange also keeps its own register of short positions. The figures provided by ASIC and by the ASX at any point do not necessarily correlate.

FNArena has offered this qualified explanation of the vagaries of short stock positions as a warning to subscribers not to jump to any conclusions or to make investment decisions based solely on these unqualified numbers. FNArena strongly suggests investors seek advice from their stock broker or financial adviser before acting upon any of the information provided herein.

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