When a small, ambitious exploration company starts drilling in a 6.3-million-acre onshore oil play, the vultures descend.
In the case of Reconnaissance Energy Africa (TSXV:RECO; OTC:RECAF), those vultures are in the form of short sellers who have stooped to dangerously low levels in their failed attempt to destroy one of the best exploration plays we’ve seen in a long time… and with a company that isn’t just fully funded for a 4 well drilling campaign, but one that’s already reported results confirming an active petroleum system in its first two test drills, with more results expected in the next few weeks.
In our view the bigger problem isn’t just about ReconAfrica and its exploration play in Namibia’s giant Kavango Basin…
It’s about the wider implications for capital markets, and the free market in general.
It’s about the regulators’ apparent powerlessness to thwart stock manipulation.
It’s about a short-selling free-for-all that allows dubious abusive and manipulative shorters to employ illegal means to try and destroy a company out of sheer greed and the need to cover massive shorts.
There have been instances, in the history of short selling, where short sellers—a necessary market force—may have protected investors, exposed fraudulent companies, and made themselves a nice nest egg doing so.
This is not one of those cases.
More often than not of late, especially on the OTC markets and the Toronto Stock Exchange (TSX), it looks like short sellers don’t protect retail investors from bad companies; instead, they appear to short stocks and then manipulate them to purposefully cause them to fail. Instead of protecting investors, we think they ensure their demise and strip them of their savings.
But based on what we’ve seen with Recon Africa, management is making all the right moves, insiders continue to buy the stock, and most of the selling is short. Shareholders aren’t jumping ship and a huge number of catalysts are just around the corner.
In fact, we think short-sellers of Recon Africa are simply creating a brand new buy opportunity for everyone who has wanted to get in on this fast-moving train.
It matters little at this point where Recon Africa (TSXV:RECO; OTC:RECAF) trades. We believe shorts have only a matter of weeks to try to bring this down more, and even if they manage a few more cents, it just opens the door for more buying ahead of what we are confident will be commercializing of the Kavango Basin oil play. We think shorts will have lost their shirts long before that.
Because Recon Africa has just completed its second drill and is making multiple logging runs. It’s taking up to 50 sidewall cores to maximize hydrocarbon recovery. And then, it will run the VSP between the first two wells, part of the 2D seismic program, which is a 450-kilometer program across the entire basin.
In the coming days and weeks, we are expecting some exciting news on:
More comprehensive results from both test wells
Results from the 450km 2D seismic
The launch of the next two test wells, most likely after the seismic acquisition
And potential JV farmout deals with majors, who will be watching for the next lab and 2D results—which could be one of the biggest paydays for investors
There’s too much going on here—in a positive way—to make investors cut and run simply over fear-mongering by short-sellers.
But that fear-mongering is dangerous, nonetheless—and not just for Recon Africa and shareholders in what we believe is one of the most exciting oil plays the world has seen in a very long time.
The Short-Selling Conspiracy Playing Out on Social Media
There are a lot of theories floating around as to who is behind a massive short, and there have also been attacks on Oilprice.com for its (disclosed) promotions of the company. (We love the stock, and we’re all-in and happy to tell their story to the world. For oil writers and long-time observers such as ourselves, our reasoning is that something like this isn’t likely to happen again in our lifetimes. We have followed this company for years and it’s got big names staking their reputations on it, as well as some of the best in the business—such as Schlumberger and Polaris—doing the logging, coring, and seismic).
But to fully understand how these short sellers operate, we think you have to also understand their relationship with social media. Paid ‘factories’ of social media commentators produce a constant barrage of lies to sow fear and uncertainty around the stock. There have been reports of personal attacks on staff, harassment of Nambian officials, and vile, libelous comments on Twitter and other social media outlets.
To understand more about what investors and companies may be up against with abusive and manipulative short sellers, watch these videos on Youtube:
Some of the short commentators (paid) are so outrageous that they may prompt lawsuits from the company.
And the disinformation campaign appears to be growing more intense by the day because short-sellers are now getting desperate to cover on a stock that we believe has incredible potential. In our view they have no chance of covering now.
The desperation comes from the fact that already by late May, naked short sellers may have been out by up to $4.50 a share—that could represent a huge loss if they don’t manage to take this stock down. The motivation behind the misinformation campaign, then, is crystal clear to us.
Understanding Abusive and Manipulative Shorts
There are 4 trade identifiers – buying, selling, shorting, and covering. But there is also an important difference between declared or covered shorts and what we say are abusive and manipulative (naked) shorts.
Naked shorts (which appears to be what is happening here) could be 8 times higher than a covered short because the funds behind them want to fly under the radar and let people think there is still upside to shorting the stock. ‘Abusive and manipulative’ means that the shorts don’t have the underlying security to back up the sale and have neither located nor borrowed the shares they have shorted. In other words, they have in effect just created stock out of thin air and are selling something that doesn’t exist.
How can these funds get this huge amount of borrow? That’s a good question that we think is really for the banks because shorting without borrowing for this long—as is the case with Recon Africa—is not legal. The borrow rates are so high, the banks may be happy to accommodate this behavior. It’s probably far too tempting to resist. Either way, the banks win.
For instance, shortdata charts on RECO.V don’t show anything out of the ordinary. But this data only shows “covered” shorts, not naked shorts. When we look at market maker shorts, an entirely different story emerges.
The most recent charts from Buyins.net shows the significant extent of U.S. and Canadian shorts:
In the U.S.:
Additionally, the charts from May (we’re still waiting for updated versions), also from Buyins, show how the bulk of the short on Recon Africa came in mid-2020.
With a position this large (and the folks at Buyins say the undisclosed short could be in the tens of millions of shares), we believe short-sellers will do absolutely anything to avoid losing multi-millions of dollars.
So how do you fight such a powerful force when regulators are incapable? Ask Gamestop.
The only thing that can hurt the short-sellers is a big buying squeeze—similar to what happened with Gamestop.
The market actually appears broken, which makes this the only recourse we see as available.
Investing has never been more of a minefield, with out-of-control hedge funds going for maximum greed and creating a very dangerous situation for the future of capital markets, especially in Canada, where every company—good and bad, legitimate and fraudulent alike—is completely vulnerable and unprotected against short sellers whom regulators are seemingly powerless to reign in.
We believe they’ve already won and the shorts aren’t covering.
They’ll lose countless millions in the end, possibly beginning next week.
The first two confirmations of an active petroleum system added to our already huge level of confidence given the big names involved on this one.
And now, in a matter of days, we expect to see more comprehensive results from the first two deep test wells ever drilled in this basin. And any day, RECO says it will launch its 450-km 2D seismic program across the Kavango Basin. Once seismic is done, we’re looking at the launch of the third and fourth drill and then it’s potential JV time—the biggest potential reward for investors and the final death of this short-selling campaign.
This could be the most aggressive and insidious short campaign against an oil company in the history of the industry … but we say it will fail and its failure has already been pre-determined.
Other companies facing off against short sellers:
The Gamestop’s (NYSE:GME) saga is a story for the history books expectations. Gamestop was one of the most successful companies in the video game industry for over the past several decades, but faced a number of headwinds in recent years. The company had been struggling to stay afloat, and until earlier this year, many thought it may never recover. The company’s share price dropped so low that some traders began shorting its stock — borrowing shares from someone else then selling them as if they owned them with the understanding they’ll buy back at a lower price or return those borrowed shares later without having paid anything. And as more short sellers piled into GameStop, the company’s share prices continued to decline; but that wasn’t the end of the story.
Earlier this year, an army of Redditors came to the aid of the ailing stock, sending its share price into the stratosphere and shedding new light on Gamestop’s future. Since the company’s dramatic run-up from $17 in mid-November to its January high of $450, Gamestop has become a success story for a growing number of investors who dislike the concept of short selling. In fact, short-sellers lost billions of dollars on Gamestop, a move that has empowered retail investors and a new generation of traders. Gamestop isn’t the only company that has faced a long list of short sellers in recent years, however.
AMC Entertainment Holdings, Inc. (NYSE:AMC) is another company that drew massive attention for its interest among short sellers. AMC is a holding company with investments in movie theaters and entertainment venues. The company operates through two segments: Domestic Theaters and International & Other Theaters. AMC has been on the radar of short sellers for a long time. AMC’s business model, which includes owning movie theaters and entertainment venues instead of running them, leaves it especially susceptible to an event like the COVID-19 pandemic that closed down most public areas in North America.
Short sellers hit AMC particularly hard last year but were met with a lot of competition as an army of Redditors came to the theater company’s rescue. Since the initial attack, the stock has become somewhat of a cult-stock for many. And while there has been some significant turnaround thanks to shareholder support, the company’s financials are still struggling, and it is facing a number of hurdles still just to avoid bankruptcy.
Virgin Galactic (NYSE:SPCE) has been one of the biggest targets of short sellers since its IPO. In fact, just a couple of months ago, the short volume exceeded 25,000,000, representing over 15% of the company’s float. And it’s not necessarily without undue cause. The company’s share price has been especially volatile throughout the year. And it’s part of a very speculative industry: space tourism.
But is the short attack justified? Some may say it is, considering the company’s continued losses and the delay of a key flight. Others, however, are more optimistic about the company’s future. As with anything in the space industry, what it has planned may not always pan out as expected. But that doesn’t mean there isn’t upside. Once Virgin Galactic is on its feet and routine flights are underway, it has the potential to become a monster in the market.
Tesla (NASDAQ:TSLA) is a company that’s had an interesting rise to the top of the automotive industry. They’ve taken over companies and expanded into new markets with their electric cars, including solar energy, battery production, and space exploration. However, Tesla is not without its detractors in the investment world. Short sellers have repeatedly targeted Tesla, but it hasn’t always worked out in their favor.
In fact, Tesla has made headlines time and time again for its resilience against short sellers. In Feb. 2018, for example, Tesla’s share price (TSLA) dropped from $380 to $266 per share in just a few weeks. This is when short sellers hit the stock hardest, but TSLA didn’t stay there for long – it rose back up to about $300 by May of that year and has continued to skyrocket since.
At the time of writing, Tesla is still valued at over $600 per share, and despite a recent dip due to growing inflation fears, still has plenty of room to grow. And that’s largely due to its extremely vocal CEO, Elon Musk, who has time and time again spoken out against short selling.
AirBNB (NASDAQ:ABNB), which has an estimated 19 million shares of its 110 million-share float held by short sellers with a four day cover time frame should be one of the best stocks to buy in May.
It is estimated that over half of the U.S population has received at least one dose of the vaccine, and close to 38% have been fully vaccinated which would be enough for herd immunity! This means people should not worry about catching the COVID-19 virus when they are traveling because there will be a sufficient amount of those who can’t get it (those with vaccinations). And that may well end up being bad news for short sellers.
Additionally, it’s about to be the time of year when companies report their quarterly operating results, and Airbnb is one that the market is eagerly awaiting. The company has already been showing signs of improvement in sales over the last quarter–and there’s a chance they could surpass Wall Street’s expectations.
Blink Charging (NASDAQ:BLNK) is another company that has been consistently targeted by short sellers. But not necessarily justifiably. While it is still a part of a relatively new industry, Blink Charging really is a mature company, having been around since 1998. Its unique proposition is that many of the company’s charging stations are found in practical locations, such as airports and hotels, making it convenient for drivers to charge up while waiting on flights or in their rooms.
Blink has also been particularly active inking new deals, including 26 dual-port Level 2 IQ 200 EV charging stations at key Burger King locations across the Northeast; 20 Blink-owned IQ 200 electric vehicle charging services with Illinois’ Blessing Health, and an exclusive seven-year agreement with Lehigh Valley Health Network for the former to own and operate charging stations across the health network’s extensive portfolio of locations.
Workhorse Group (NASDAQ:WKHS), like BLNK, is another up and coming competitor in the brand-new electric vehicle industry. And as such, has maintained significant short interest. Itis somewhat of an outlier in the electric vehicle explosion. Because of its delivery-vehicle focus, it’s not necessarily a consumer-focused brand, but more of a business-to-business manufacturer. And that’s not a bad thing. Especially considering the future of this budding industry.
Oppenheimer analyst Colin Rusch notes, ““As the only US-based full EV supplier remaining in the bid, we believe the company remains well positioned to win a sizable portion of the contract. At the same time, we believe activity among buyers of last-mile delivery vehicles is accelerating and that WKHS could see additional customer wins before year-end.”
It’s clear that short-sellers love electric vehicle producers. And Fisker (NYSE:FSR) is no exception. Tesla has come to be known in the markets for catering to high-end customers looking for a luxury EV.But that’s left a gaping hole in the market for those that everyday folks can afford. And if electric vehicles are expected to become mainstream, prices will have to be competitive with the gas-powered vehicles on the market today to make the switch.
That massive market opportunity is where Henrik Fisker is setting his sights. After cutting his teeth as a designer for BMW and Aston Martin, he’s now planning to bring that industry-leading experience to everyday folks. His first vehicle to come to market will be the electric SUV, the Ocean, next year. But Fisker’s production process will also be completely different from Tesla’s.
Shopify (NYSE:SHOP, TSX:SHOP) is a surprising company on short-sellers’ lists. While it may seem overvalued at the moment, what tech stock isn’t? Shopify is an ecommerce company geared towards small and medium-sized businesses. The company was founded in 2004 by Tobias Lütke, Daniel Weinand, and Scott Lake after the three recognized a need for simpler ways to create online stores. Shopify offers various programs that allow entrepreneurs to start their own business with ease.
In fact, because of its simple-to-use platform, it would be hard to have not stumbled onto a shop built with its technology. More than 1,000,000 businesses rely on Shopify’s real-time e-commerce solutions, including Tesla, Budweiser and Red Bull, among many others. Shopify makes purchasing goods and services easy for anyone – and in a time where convenience is king, Shopify surely has staying power.
Canada’s pot stocks have long-been a target for short sellers, especially Aphria, which after merging, is now a part of Tilray (NASDAQ:TLRY, TSX:TLRY) one of the largest marijuana stocks on the market. Largely impacted by rumors and news, Tilray is a super-volatile stock, but that doesn’t mean the short attack is reasonable.
While Tilray, and pot stocks in general, remain in a sort of gray area as some of their largest markets, there are a number of bullish factors to be considered. Legalization isn’t just a pipe-dream anymore. In fact, it’s almost a certainty. And when the floodgates finally do open, Tilray could emerge as one of the biggest winners, especially considering its high profile mergers and acquisitions in the space.
BCE Inc. (TSX:BCE) is household name in Canada. For the past 25 years, BCE has been at the forefront of the environmental movement. Their environmental management system (EMS) has been certified to be ISO 14001-compliant since 2009. Throughout its push into the position of one of Canada’s top telco groups, it has bought and sold a number of different firms. BCE is currently at the forefront of the Internet of Things movement in Canada. That means it will play a vital role in building new sustainability projects and making Canada’s cities smarter and more efficient. Likewise, it will play a key role in the adoption of transportation technologies and self-driving vehicles.
That hasn’t saved it from short sellers, however. Despite its history and continued presence in the country, it remains a massive target for short sellers. In fact, as of July 15th, BCE short interest was as high as 19.61% of total traded value.
Westshore Terminals (TSX:WTE) is a coal export terminal located at Roberts Bank Superport in Delta British Columbia. It is Canada’s largest coal export facility, surpassing the combined coal shipments of all other terminals in Canada. The company exports thermal and metallurgical coals to markets around the world, including Japan, South Korea, China, India and Taiwan. Westshore also offers services to ship various bulk cargoes through its marine facilities. Westshore Terminals has been operating for over 30 years and employs more than 240 employees that work 24/7 shifts to ensure continuous operation. Despite its success and longevity, however, is increasingly being targeted by short sellers.
Short sellers are looking at companies like Westshore Terminals based on a simple fact: they’re in the coal business. While the fossil fuel industry isn’t quite down for the count just yet, coal is seeing a major decline that isn’t likely to slow anytime soon. And without a significant pivot, Westshore’s days could be numbered.
Great-West Lifeco (TSX:GWO) continues to be a popular stock among short sellers on the TSX. This North American and European financial services holding company has seen its shares drop 8.9% year over year yet it still attracts interest from investors globally due to its healthy balance sheet, strong cash flows, and more.
Is the short interest justified? Their record as dividend payers is very strong: Great West has been paying out an average annualized return on investment (ROI) for stockholders since 1948 that currently sits just below 7%. It also offers a quarterly dividend yield with dividends paid every three months which equals about 6%, or more than five times what most people can expect to earn through investing in savings accounts today. This could emerge as a huge incentive to fight off the short sellers and keep the stock afloat for many loyal investors.
By. James Stafford
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Forward-Looking Statements. Statements contained in this document that are not historical facts are forward-looking statements that involve various risks and uncertainty affecting the business of Recon. All estimates and statements with respect to Recon’s operations, its plans and projections, size of potential oil reserves, comparisons to other oil producing fields, oil prices, recoverable oil, production targets, production and other operating costs and likelihood of oil recoverability are forward-looking statements under applicable securities laws and necessarily involve risks and uncertainties including, without limitation: risks associated with oil and gas exploration, including drilling and other exploration activities, timing of reports, development, exploitation and production, geological risks, marketing and transportation, availability of adequate funding, volatility of commodity prices, imprecision of reserve and resource estimates, environmental risks, competition from other producers, government regulation, dates of commencement of production and changes in the regulatory and taxation environment. Actual results may vary materially from the information provided in this document, and there is no representation that the actual results realized in the future will be the same in whole or in part as those presented herein. Other factors that could cause actual results to differ from those contained in the forward-looking statements are also set forth in filings that Recon and its technical analysts have made. We undertake no obligation, except as otherwise required by law, to update these forward-looking statements except as required by law.
Exploration for hydrocarbons is a highly speculative venture necessarily involving substantial risk. Recon’s future success will depend on its ability to develop its current properties and on its ability to discover resources that are capable of commercial production. However, there is no assurance that Recon’s future exploration and development efforts will result in the discovery or development of commercial accumulations of oil and natural gas. In addition, even if hydrocarbons are discovered, the costs of extracting and delivering the hydrocarbons to market and variations in the market price may render uneconomic any discovered deposit. Geological conditions are variable and unpredictable. Even if production is commenced from a well, the quantity of hydrocarbons produced inevitably will decline over time, and production may be adversely affected or may have to be terminated altogether if Recon encounters unforeseen geological conditions. Adverse climatic conditions at such properties may also hinder Recon’s ability to carry on exploration or production activities continuously throughout any given year.
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