Are ASX short-sellers right about Sayona Mining shares?

Short-sellers have already made a killing on this lithium stock…

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Just yesterday, my Fool colleague James covered the most short-sold shares on the ASX. And yet again, shares of ASX lithium stock Sayona Mining Ltd (ASX: SYA) made the cut.

In fact, Sayona shares were the sixth-most short-sold on the ASX, with a whopping 9.7% of the company's stock held in a short position. That was up from 9.6% last week.

If you didn't know (or just needed a refresher) short-selling involves an investor borrowing a company's shares from another investor, with an agreed-upon date to return them, The shorter then sells the shares with the plan of buying them back at the agreed-upon return date. If the shares fall in value over this period, the short-seller makes a profit.

As such, Sayona's large short position tells us that a lot of investors (or perhaps a few investors with a lot of money) are betting that the future isn't exactly bright for the lithium producer.

But are these investors right about Sayona? Or are they about to get burned?

The woes of Sayona shares

Well, it's pretty safe to say that anyone who has shorted Sayona shares over 2023 has done exceptionally well for themselves. This company started the year at 19 cents a share and even got as high as 30 cents at one point.

But today, the Sayona share price is languishing at just 5.3 cents. That's down more than 72% year to date, and down more than 82% from its January 52-week high.

In fact, just today, Sayona hit a fresh new 52-week low of 5.1 cents a share.

But if 9.7% of Sayona stock is still being held in a short position, it means that plenty of investors are betting the worst isn't over for the company. So are they right?

Well, there's no real way of knowing, as it's a fool's errand to try and predict the short-term movements of a single share price.

However, we can point out a few things.

Low lithium prices, internal struggles fuel short-selling

Firstly, it seems that the current slump in lithium markets looks set to continue to hurt the ASX lithium space, including Sayona shares. We've seen almost every lithium stock on the market take a significant haircut over the past few months, likely due to plunging lithium prices.

As my colleague noted just this morning, lithium carbonate, hydroxide and spodumene spot prices have all fallen between 5 and 8% over the past week alone. To illustrate, lithium carbonate was going for over US$63,000 a tonne earlier this year. Today, that same tonne will cost just over US$16,000.

If this trend doesn't reverse, there's arguably not much reason to believe that the Sayona share price will recover.

Further, Sayona is a company that has faced its fair share of internal issues in recent months. Investors were rocked back in August after the abrupt exit of former CEO Brett Lynch.

A look at Sayona's books doesn't exactly instil confidence either. Over the 2023 financial year, Sayona lost just over $24 million from operations and reported a loss after tax of $12.93 million. It's a distinct possibility that if this lithium price crash lasts for at least the majority of FY2024, next year's report will be even worse.

As such, we can see why this lithium stock is attracting some short-seller interest. Only time will tell if that sentiment is correct. But Sayona shares have certainly seen better days.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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