The Devastating Impact of Short Selling on Canada’s Mining Industry

In 2012, Canada dismantled a 142-year-old trading rule known as the “tick test,” a decision that unleashed a torrent of predatory short selling on the nation’s junior mining sector. The consequences were catastrophic: many companies saw their stock prices plummet, halving in value and then halving again, pushing an industry vital to Canada’s economy to the edge of collapse. At the forefront of the fight to save this sector is Terry Lynch, the household name in the mining industry whose company is backed by legendary billionaire investors and he is the CEO of Power Metallic Mines Inc. (TSXV: PNPN) one of the top mining stocks on the TSXV in 2024. He is also the founder of Save Canadian Mining. Through his relentless advocacy, industry leadership, and strategic vision, Lynch is not only battling market manipulation but also steering Power Metallic Mines toward becoming Canada’s next major polymetallic mine.

Terry Lynch: The Voice of Junior Miners

Terry Lynch is no ordinary CEO. Known for his outspoken criticism of market abuses, he has emerged as a leading crusader against predatory short selling, particularly the illegal practice of naked short selling. As the founder of Save Canadian Mining, a not-for-profit backed by mining tycoon Eric Sprott, Lynch has spent years rallying industry leaders, investors, and regulators to address the systemic issues plaguing Canada’s capital markets. His efforts have earned him widespread respect, culminating in his recent appointment to the board of Quantum BioPharma, where he continues to champion fairness in micro-cap markets.

Lynch’s passion for the junior mining sector stems from his deep understanding of its critical role in Canada’s economy. “Junior miners discover deposits that become tomorrow’s producing mines,” he declared in a recent post on X. “Without them, the entire resource sector will collapse. This is a national security issue.” His words resonate with urgency, reflecting his belief that the survival of junior miners is tied to Canada’s economic future.

The Tick Test Repeal: A Turning Point

The 2012 repeal of the tick test, which required short sellers to wait for an uptick in a stock’s price before selling, marked a turning point for Canada’s mining industry. Lynch describes the rule as “simple but powerful,” a safeguard that maintained market balance for generations. Its removal, driven by regulators’ belief that it was outdated in a multi-exchange trading environment, left junior mining stocks vulnerable to aggressive short-selling campaigns.

Compounding the issue was the Short Market Exempt (SME) rule, which Lynch identifies as a key enabler of market manipulation. This rule allows large institutional traders, often using automated bot-to-bot systems, to execute short sales without the oversight required of retail investors. These trades, unmarked as short sales, evade regulatory scrutiny, enabling predatory players to target junior miners with low trading volumes, limited capital, and long development timelines. “These companies were defenseless,” Lynch notes, highlighting the devastating impact on an industry already grappling with high risks and tight margins.

Naked Short Selling: A Market Fraud

Lynch reserves his sharpest criticism for naked short selling, a practice he calls “literally market fraud.” Unlike legitimate short selling, where investors borrow shares to sell with the expectation of buying them back at a lower price, naked short selling involves selling shares that the seller neither owns nor has borrowed. “It’s like selling a car with a fake title,” Lynch explains. “Anywhere else, that’s called theft. But in capital markets? It’s just a regular Tuesday.”

The impact of naked short selling on junior miners has been profound. Lynch estimates that it has cost Canadian junior mining companies $40 billion, with losses ballooning to over $500 billion when including all small-cap companies. By flooding the market with counterfeit shares, naked short sellers create artificial selling pressure, driving down stock prices and eroding investor confidence. For junior miners, this makes it nearly impossible to raise the capital needed for exploration and development, threatening their survival.

Lynch’s advocacy through Save Canadian Mining has been instrumental in bringing this issue to light. Backed by industry giants like Robert McEwen and Keith Neumayer, he has worked tirelessly to compile evidence, produce reports, and engage with regulators and government officials. His efforts have sparked a broader conversation about market fairness, with some calling for a billion-dollar class-action lawsuit to hold perpetrators accountable.

Power Metallic Mines: A Beacon of Resilience

While Lynch fights for systemic change, he is equally focused on building Power Metallic Mines into a powerhouse in Canada’s mining sector. Under his leadership, the company has transformed from a struggling junior miner to the top-performing mining stock of 2024, with ambitions to surpass that achievement in 2025.

Power Metallic’s flagship Nisk project, a high-grade nickel-copper-PGM deposit in James Bay, has attracted attention from some of the world’s most prominent mining investors, including Robert Friedland and Robert McEwen. A recent $50 million financing, followed by an earlier $20 million flow-through financing, has provided the capital to accelerate exploration and development. Lynch’s vision is bold: to develop Canada’s first carbon-neutral polymetallic mine, with grades boasting 8% copper and over 22 g/t PGMs. “No short attack can change our fundamentals,” he asserts, emphasizing the strength of Power Metallic’s assets.

Lynch’s hands-on leadership has been pivotal to Power Metallic’s success. Eighteen months ago, the company was down to its last drill hole, but Lynch and his team identified a target in the Northeast that yielded “grades so rich, I thought our lab made a mistake.” This discovery has propelled Power Metallic into the spotlight, with each new set of assay results expanding the deposit’s potential. “These orthomagmatic deposits are the world’s richest mines,” Lynch told InvestorNews, underscoring the transformative potential of Nisk.

A Call for Reform and a Vision for the Future

Lynch’s dual role as a CEO and advocate makes him a unique figure in the mining industry. He is not content to merely navigate the challenges of short selling; he is determined to dismantle the mechanisms that enable it. Through Save Canadian Mining, he is pushing for regulatory reforms, including reinstating the tick test, increasing transparency around short sales, and cracking down on naked short selling. He also highlights the role of Canadian banks, which he claims restrict investment in junior mining stocks, further stifling the sector’s growth.

Lynch’s message is clear: the survival of junior miners is a national imperative. “Our country could use a big win,” he said in an interview with news.financial, noting that a major discovery like Nisk could galvanize Canada’s mining industry and restore its global prominence. His optimism is tempered by a sobering reality: without action to curb predatory short selling, the pipeline of new mineral discoveries will dry up, jeopardizing Canada’s position as a mining leader.

Why Terry Lynch’s Is On The Retail Investors Side For Fair Markets..

Terry Lynch is more than a CEO; he is a visionary and a fighter, leading the charge to save Canada’s junior mining industry from the ravages of predatory short selling. Through his leadership at Power Metallic Mines, he is proving that strong fundamentals and strategic vision can withstand market manipulation. Through Save Canadian Mining, he is building a movement to restore fairness to Canada’s capital markets. As he declared at the Commodities Global Expo 2024, “The problem in Canada has been slack regulatory action enabling naked short selling.” Lynch is determined to change that narrative, one discovery and one reform at a time.

For investors, policymakers, and industry stakeholders, Lynch’s work is a clarion call to action. The future of Canada’s mining industry—and the economic prosperity it underpins—depends on leaders like Terry Lynch, who refuse to let short sellers dictate the fate of a nation’s resources.

Disclaimer

Effective Date: January 1, 2025

Ending Date: July 1, 2025

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