"Eric Sprott: Save Canadian Mining, Stop Predatory Short Sellers" https://youtu.be/QBPEnUSCnW0
Charlotte McLeod: I'm Charlotte McLeod with the Investing News Network and here today with me is Eric Sprott, CEO of Sprott Mining. Thanks so much for being here today.
Eric Sprott: Glad to be here.
Charlotte McLeod: Thank you so much for having us. We're here to talk about the "Save Canadian Mining Initiative", which launched this week. The aim is to address predatory short-selling practices, which are harmful to junior miners and have become an issue since the "tick test" was removed by IIROC in 2012. For those who may not be familiar with the situation, can you start by describing why the uptick rule was the right thing to have in the first place.
Eric Sprott: Sure. I've done lots of short selling in my life because I recognize there's anomalies in the market. For example, the NASDAQ peak in 2000 and the great financial crisis in 2008, but I've always worked under the premise of the uptick rule. That means you can only short when a stock is trading up or flat. I've always understood, as an investor, why it was important. It's so easy for predators to create chaos in a stock -- all of a sudden people are looking at it and they're just selling because it's going down. When there's no uptick rule, people can just keep selling down at will. Now, having evolved more into the junior mining space recently, I get to witness these things. I don't have 100% proof that odd things are happening, but I can guarantee you when you see a stock going down 15% in a matter of minutes -- that is not somebody selling who's trying to get the best price. That is someone who's selling to create the worst price.
Eric Sprott: Terry Lynch has begun this "Save Mining" campaign. I relate to it very quickly. I would prefer to see the uptick rule reinstated. I might even go so far as to say, as an investor in junior mines I've probably gained by the uptick rule being gone because people are under-valuing the stocks. By the same token, I want the retail investor to have a fair shot at things. Between the predatory short sellers, the front-runners, the algos -- it's becoming a game that's very difficult for the average investor to win. We've got to get the average investor back in the game.
Charlotte McLeod: You've mentioned some of the consequences we've seen since 2012. Can you talk a little bit more about what's happened from then until now.
Eric Sprott: A couple of things that the group that set up this campaign have determined is that the Venture Exchange, compared to indices that would mirror base metals and gold stocks since 2012 -- the Venture has under-performed those indices by something like 245%. We've also seen the number of financings is plunging. It's down something like +80% from its peak in 2012. I think those data points prove the case. I think anyone who watches these small cap stocks can see it. You can see it in the market. You can see some shorter coming along, right at the end of the day at 3:59:59 knocking the stock down a little. Just for the sake of starting at a lower level. Let's face it, short sellers -- when it's 100% of their business -- are very predatory. They want stocks to go down. They will put out false information, they'll create situations in the market where the stock is technically breaking through some downtrend that they've created. Then, everyone looks at these things. It's easy to create panic and chaos. That's why the uptick rule should be reinstated to my mind.
Charlotte McLeod: Okay. We know you're a very active participant in the junior resource space, especially recently this year. Can you describe how you see the market right now and why it's the right time to be going forward with this initiative?
Eric Sprott: Sure. It's not something special about November, 2019. I've always been a believer in the uptick rule. When it ceased to exist, it was a mistake because it just lets traders come in and overwhelm the market when they choose to do that. I sense, now, that when I see what happens to certain stocks on news releases -- anytime a stock goes up 25% in a day, all of a sudden in come the short sellers. They know that with that kind of volatility, they can cause things to go back down quickly. Between that, the very odd trading that happens, the lack of new issues, and the valuations of the companies -- there are so many companies that have no market cap here. They've just been ground down. I think it's a very opportune. The uptick rule never should have been taken away in all markets, but it's particularly vulnerable in the Venture Exchange when the market caps of the companies are way less, individually, than the money of the guy who's shorting it. When you could have a market cap of $20 million and the guy's got a billion dollars worth of shorting, how are you gonna stand up against that? There's more of a vulnerability there. We've seen, I think, more chaos and devastation in the mining industry on the Venture Exchange than the bigger exchanges.
Charlotte McLeod: What would be the ideal outcome? You mentioned being fair for retail shareholders, but how would you expect to see the junior resource environment change in this ideal situation?
Eric Sprott: If you could reinstate the uptick rule, then you're not going to have these constant smack downs that we have because the guy has to wait for it to go up to put the short on. I think that is much fairer, as I say. It's the environment I lived in and it was fine. I think that there'll be less abuse of the system. I'm very critical of all exchanges, by the way. They have the front-running, which we all know about. The algo trading. Now we have the shorters who can just sell a stock at will to whatever price they want to sell it to -- knowing full well what kind of thinking will go on when something goes down sharply. The whole thing has to stop. I wish they would get rid of front-running, too, but the uptick rule is probably the biggest part of the demise of companies on the Venture Exchange. That is the weakest part because you can just kill the value. The shorters are so much bigger and more organized than the company. The company is out there trying to drill, but the short sellers are just trying to get the stock down, 24/7/365.
Charlotte McLeod: It's worth noting that we are in a challenging market right now. Would we see an improvement in this situation if it changes?
Eric Sprott: I've responded to Toronto Stock Exchange polls before, because I used to run a brokerage firm, and my belief is the market acts better when people are in a fair market and can make money. People are not going to go back to a place where they lose all the time. The exchanges have to think about what they've allowed to happen here. We've noted that the activity keeps going down all the time. Well, why wouldn't it keep going down? They'll cease to exist here somehow! Other exchanges will come along. There are other exchanges that are trying to supersede the TMX by preventing front-running, as an example. In the passage of time, if something's inappropriate then change will happen. Somebody will lose their business and somebody else will take their business. If there was an exchange that banished the uptick rule, then maybe the TMX might find themselves losing business. In which case, they would probably right the ship properly.
Charlotte McLeod: What are the next steps?
Eric Sprott: We've got to organize groups of mining companies, groups of individuals, groups of leaders, and groups of brokerage companies to suggest to the Venture Exchange that this change is long overdue. We, together with Terry and others, will form a group to solicit those opinions and take them to the regulators, take them to the politicians, take them to the Venture Exchange and see if we can have an easy resolution of the matter rather than a major fight. Just a resolution of the matter that they realize it's time for change. If we get enough voices and appropriate voices, I think that could happen very quickly. Thank god that Terry's taken it upon himself. I was his easiest convert of all time when I heard that he was doing that because I know we're ready for it! But I don't want to lead it! I'm happy -- very happy -- to support it.
Charlotte McLeod: How would you want our audience to participate?
Eric Sprott: I ask any of them that are interested in supporting us, whether it's just by a sheer vote of consciousness, to go to the website to say so. For institutions that want to support it financially -- I've supported it financially -- that would help too. I don't think that money is our big problem. I think the problem is getting people to understand the issue. The more people that can bring a voice forward that would support the re-institution of the uptick rule, then it'll give us that much more power with the politicians, the regulators, and the exchange.
Charlotte McLeod: This is a good start to getting the word out. Thank you so much we'll leave it there.
Eric Sprott: Thank you for your time, Charlotte.
Charlotte McLeod: Thank you okay once again. I'm Charlotte McLeod with the Investing News Network and this is Eric Sprott.
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