Why is short interest in Sayona Mining shares growing?

Why won't short sellers leave this lithium miner alone?

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It's fair to say that Sayona Mining Ltd (ASX: SYA) shares are a firm favourite with one group of investors.

But unfortunately for shareholders, it is a group that you really don't want to show interest in your company's shares.

That group is of course short sellers.

Short sellers are the opposite to regular investors. Instead of profiting when a share price rises, they profit when it falls.

To do this, they sell borrowed shares on-market and then buy them back at a later date (at a cheaper price), pocket the difference, and return them to their owner.

Sayona Mining shares have been targeted by short sellers for some time and they have done exceptionally well from it.

For example, over the last 12 months, the lithium miner's shares have lost over 80% of their value.

Interestingly, despite profiting greatly, short sellers aren't giving up on this one and continue to increase their positions. As I covered here earlier this week, its short interest increased week on week to 9.8%. This means that the miner is among the 10 most shorted ASX shares right now.

Why are short sellers still targeting Sayona Mining shares?

Firstly, it is worth noting that a good number of ASX lithium stocks are being targeted by short sellers. So, this isn't an isolated case.

The main reason for this is that there are forecasts for lithium to remain in surplus for the coming years. A surplus is never good news for the price of a commodity and is likely to mean that lithium prices remain at low levels for the foreseeable future.

This could be particularly bad news for Sayona Mining. During the last quarter, it reported an 18% quarter on quarter increase in production to 40,439 dry metric tonnes (dmt).

This was achieved with a unit operating cost of A$1,536 of dmt, which was up 10% quarter on quarter.

However, during the period, its sales volumes more than doubled to 58,055 dmt with an average realised selling price of A$999 per dmt. This means that it lost over A$500 for every tonne of lithium that it sold.

Core Lithium Ltd (ASX: CXO) opted to suspend mining activities indefinitely to avoid this scenario, but Sayona Mining continues to produce lithium and burn through its cash reserves.

What's next?

In the coming weeks, shareholders and short sellers will no doubt be keeping a close eye on the company's fourth quarter update.

That will reveal if there have been improvements in its realised selling price and costs. But judging by its rising short interest, it seems that short sellers aren't expecting any changes.

Motley Fool contributor James Mickleboro 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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