Decades before he started exploring for minerals in British Columbia’s Golden Triangle, Hugh ‘Mac’ Balkam said he used to investigate stock fraud with the Royal Canadian Mounted Police.
So last week when a hedge fund levelled explosive accusations of fraud against a miner in his district, Pretium Resources Inc., the company behind one of the highest grade gold mines in Canada, and its stock started sinking, Balkam thought about his own investment portfolio.
“Myself, I actually sold some bank stock and bought more Pretium,” said Balkam, chief executive of Toronto-based Eskay Mining Corp. “I think that stock is worth a lot more.”
He is not alone: only one of 12 analysts covering Pretium as of Friday advised selling stock in Pretium, with the rest largely waving off arguments laid out by Viceroy Research — a well-known, albeit anonymous, short-seller — which is betting that Pretium’s Brucejack mine has less gold than claimed and the company is on the precipice of disaster.
But short sellers make money from bets that a company’s stock price will fall, which makes Balkam, and others skeptical. Indeed, while Pretium shares initially sank from US$7.81 to US$6.65 after the accusations last week, the price had fully recovered by Friday.