MINING MARKETS & INVESTMENT NEWS — Query — Some traders still short Rea Gold

I own a considerable number of shares of Rea Gold, which filed for bankruptcy last winter. In your Sept. 21 issue you stated that they shorted the gold market for 1,100,500 shares. How can they do that? Did they use stockholders’ money for it? What does that leave us stockholders?

John Hunsucker,

Polson, Mont.

You seem to have misunderstood the nature of the TSE Short Positions table. We were not reporting some transaction Rea Gold had made in the gold market. For each company in the listing, the table shows the number of shares that have been sold short in the stock market. For the period ended Aug. 31, 1998, the short position in shares of Rea Gold (reo-t) was 1,100,500 shares.

The exchange, which must track short positions, publishes these figures at mid-month and month-end for all its listed stocks. We review the TSE figures and publish the larger short positions held in mining and exploration stocks.

The sellers have borrowed shares from their broker to sell short, and the shares remain the seller’s debt to his broker. If further shares are sold short, the size of the short position in a company will increase.

As the short-sellers buy shares to repay their broker, they “cover” their short position, and the size of the total short position decreases. You will note that the table also shows the change in the size of the short position (figures like “up 345,000” or “down 429,000”) for some companies.

Trading in Rea Gold shares was suspended by the TSE on Dec. 23, 1997, a week after the company announced it was declaring bankruptcy. At that time there were significant short positions in the market.

There has since been no reason for the shorts to cover, because they have their money from the short sale and the shares are effectively worthless in the absence of trading orders.

There is no time limit on how long a short holder can maintain his position, as long as stock can be borrowed. With trading suspended, the only way a short seller could cover a position in Rea Gold would be through a private purchase — something he does not need to do.