Top 20 TSX Short Positions For January 31

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 |  Includes: CWEGF, GG, LBLCF, LEGPF, OSKFF, POT, TGA, TRP
by: Chris Damas

This is the fourth edition of my series reporting on the largest short positions on the Toronto Stock Exchange. I try to identify notable short positions to discern potential candidates for purchase or sale.

At the end of January, the top twenty short positions were spread over six gold producers, five energy producers, four financials, three industrials and a pipeline.

It was fruitful to buy the heavily shorted gold shares identified by the December 31 report, as Osisko Gold (OTCPK:OSKFF) engendered an offer from Goldcorp Inc. (NYSE:GG) on January 13, boosting many of these names.

LARGEST TSX SHORT POSITIONS AS OF JANUARY 31, 2014
SYMBOL ISSUE NAME SHORT CHANGE
LUN LUNDIN MINING CORPORATION 59,946,846 (701,417)
OSK OSISKO MINING CORPORATION J 43,056,301 (1,721,563)
ATH ATHABASCA OIL CORPORATION J 38,575,073 (948,807)
K KINROSS GOLD CORPORATION 38,476,484 612,262
NGD NEW GOLD INC. 37,313,906 (9,480,914)
BBD.B BOMBARDIER INC. CL 'B' SV 33,526,452 (19,771,577)
PWT PENN WEST PETROLEUM LTD. 31,049,928 11,062,717
LEG LEGACY OIL + GAS INC. 30,287,180 734,407
TRP TRANSCANADA CORPORATION 29,056,514 2,863,508
CLS CELESTICA INC. SV 28,445,809 (66,562)
PWF POWER FINANCIAL CORPORATION 26,521,888 (256,462)
ECA ENCANA CORPORATION 26,322,063 8,113,149
BNS BANK OF NOVA SCOTIA (THE) 25,837,106 3,017,235
DGC DETOUR GOLD CORPORATION J 25,589,330 687,040
GIB.A CGI GROUP INC. CL 'A' SV 25,403,200 (1,378,893)
TLM TALISMAN ENERGY INC. 23,695,738 1,022,345
EFN ELEMENT FINANCIAL CORPORATION J 23,207,887 (460,749)
L LOBLAW COMPANIES LIMITED 22,848,091 674,077
YRI YAMANA GOLD INC. 22,633,451 4,736,172
RY ROYAL BANK OF CANADA 22,627,454 713,427
Click to enlarge

The Osisko shorts have not covered the position by much on average, probably because the company is fighting the Goldcorp offer, which they consider too low, in the courts.

Another notable and growing short position is on TransCanada Corporation (NYSE:TRP) which added 2.9 million shares over the past two weeks, on top of 6.6 million in the first half of January.

The total short position including 3.4 million on the NYSE, is now 4.6% of the outstanding, and could reflect an overall negative opinion on TRAP's chances of getting approval for the KXL pipeline.

Sometimes we find out the reason for a short position after the fact. Loblaw Companies (OTCPK:LBLCF), Canada's largest food retailer, has had a growing short position. Yesterday, Wal-Mart Canada announced a $500 million store expansion, including more groceries. Someone must have known that would hurt Loblaw.

I like to also print the "also ran" second tier of short positions.

SYMBOL ISSUE NAME SHORT CHANGE
GWO GREAT-WEST LIFECO INC. 22,074,026 (759,686)
BNK BANKERS PETROLEUM LTD. J 21,989,293 (354,179)
MFC MANULIFE FINANCIAL CORPORATION 21,732,697 (16,750,996)
TRI THOMSON REUTERS CORPORATION 21,726,469 (2,614,845)
CR CREW ENERGY INC. 21,710,467 (768,072)
NVA NUVISTA ENERGY LTD. 21,690,438 (73,355)
HSE HUSKY ENERGY INC. 21,110,046 (2,725,368)
BCE BCE INC. 20,487,537 (3,303,359)
ATA ATS AUTOMATION TOOLING SYSTEMS INC. 20,136,035 (174,214)
THO TAHOE RESOURCES INC. J 19,336,074 184,062
POT POTASH CORPORATION OF SASKATCHEWAN INC. 18,898,885 9,187,886
TD TORONTO-DOMINION BANK (THE) 18,018,794 (149,432)
ENB ENBRIDGE INC. 17,418,076 (1,749,006)
BPO BROOKFIELD OFFICE PROPERTIES INC. 17,383,813 1,161,940
TCM THOMPSON CREEK METALS COMPANY INC. 17,119,901 111,462
MEG MEG ENERGY CORP. 17,052,831 (657,815)
TOU TOURMALINE OIL CORP. 16,434,906 388,218
GTE GRAN TIERRA ENERGY INC. J 16,394,083 (175,088)
BTO B2GOLD CORP. J 15,356,511 228,051
TA TRANSALTA CORPORATION 15,266,653 (1,417,322)
Click to enlarge

It has come to my attention some of the large short positions I have noticed on mid-cap Canadian energy companies may actually be trades set up by investment bankers to help their institutional clients skirt around taxes.

For example, the 21.7 million share short position - 18% of the outstanding - on natural gas producer Crew Energy (OTCPK:CWEGF) is actually part of a portfolio of shorts that are used to allow clients to convert fixed income on a bond portfolio into capital gains with, I assume, zero investment risk, hence lowering their investment income taxes payable. These positions could be vulnerable though.

Apparently the Crew Energy shorts were set up between 2010-2012 and the company had no say in the matter. Other synthetic short targets include those on Legacy Oil+Gas (OTCPK:LEGPF) and TransGlobe Energy Corp. (NASDAQ:TGA), shown on the schematic above.

The main criteria for the target is that the shares are liquid, and do not pay a dividend, because the latter would add to the short cost.

These schemes seem to border on tax avoidance schemes, and of course, dilute the informational content of the short positions.

One short position which is definitely information containing is the growing bet against major fertilizer producer Potash Corp (NYSE:POT).

The almost 19 million share Potash Corp TSX short has, for the first time, appeared on my top position list, albeit the second tier.

Combined with the 32.3 million short on the NYSE as of January 15, there is now an astonishing 6.0% bet that the shares of Potash Corp will decline rather than appreciate, in spite of the generous 4.3% dividend yield, and an aggressive share buyback program.

Perhaps investors have noticed the company has begun borrowing to reward shareholders, which isn't much of a reward at all.

Disclosure: I am long CWEGF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.