Shares of gold explorer Asanko Gold Inc (NYSEMKT:GAU) fell as much as 31.6% in early trading Wednesday after a short-seller announced its position. At 10:50 a.m. EDT, when shares were halted on Wall Street, shares were down 31% on the day.
Muddy Waters, a well-known short-selling research firm, announced it has a short position in Asanko Gold and thinks the stock will "end up at zero." It points out what it thinks are deteriorating positions in the Nkran mine that it estimates will cost $75 million to $115 million to repair, leaving other sites without the funds to be mined. On top of it, the $2,000 per ounce cold price used to value resources in December 2016 is well above the $1,270 price for the commodity today.
Making a call that a stock will go to zero is a big deal, but if the estimates of costs to keep the Nkran mine running are accurate, the company could be in financial trouble.
Muddy Waters is one of the better-known short-sellers on the market, and its research is taken very seriously after a number of correct calls in the last few years. With that said, it's also true that Muddy Waters takes a short position in the companies it is writing negative research on, so this opinion should be taken with a grain of salt. Investors should take Muddy Waters' opinion and position into account when analyzing the stock, but don't take it as the only reason to sell, especially with the stock down over 30% today.