Short Selling: Shorters continue to pile into Pilbara Minerals and Syrah Resources

Welcome back to the Short Seller Series, where we delve into the most heavily shorted stocks on the ASX and highlight those with significant changes over the past week.

Short selling data is four days behind today's date because reporting is not mandatory until three business days after the trade. The tables below compares short interest changes between 25 October and 1 November.

Most shorted stocks

Pilbara Minerals can't seem to catch a break from short sellers. This calls for either one of two things – Continued lethargic price action or an epic short squeeze. Interestingly, Pilbara Chief Executive Dale Henderson says the outsized short interest is more to do with the lack of hedging mechanisms associated with the lithium sector.

“There appears to be a component of the market that wants to short lithium pricing and given that there’s no available mechanism to do that, they have gravitated, it would appear, to Pilbara as a proxy for the lithium market because of our scale, pure play exposure and our liquidity,” he said in a September quarter earnings call.

Syrah Resources is another name that's facing unrelenting pressure from shorters. This is despite a ~65% rally between 19-23 October after China announced plans to curb graphite exports. The continued rise in shorts again calls for either one of two things – China's plans are immaterial and graphite prices continue to spiral lower or graphite prices go on a run when the exports controls kick in (on 1 December) and Syrah experiences a powerful short squeeze.

Where are shorts being covered

Mostly incremental changes in short covering (outside of Tietto, Credit Corp and Inghams).

Tietto Minerals received an off-market takeover offer from China's Zhaojin Capital at 58 cents per share (37% premium) on 30 October. Short interest was previously rising in the gold producer downgrading production guidance (as well as higher costs and lower grades) in early September. What a way to flush out short sellers and turn the share price around.

Credit Corp shorts are winding down after the stock cratered 30.5% about two weeks back (October 18). The company flagged a massive impairment to the value of its US debt assets. This is expected to more than halve its FY24 statutory net profit (year-on-year).

Stocks with rising short interest

Thematically, short sellers continue to target the battery metals sector. Outside of Pilbara Minerals and Syrah Resources, shorters are targeting:

• Argosy Minerals: Shares down around 70% year-to-date. The company has provided at least 30 'Rincon Lithium Project' updates since commencing construction plans in March 2021. Let's say things are moving along quite slowly.

• Sayona Mining: Shares down almost 60% year-to-date. The company's September quarter report flagged $75 million in customer receipts, which was offset by $39 million in operating costs, $30 million in capex and $8 million in exploration expenditure. Or a net cash outflow of $2 million.