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July 26, 2021, 7:58 a.m. EDT

The Story Behind Short Sellers' Desperate Battle Against Recon Africa

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Jul 26, 2021 (Baystreet.ca via COMTEX) -- When a small, ambitious exploration company starts drilling in a 6.3-million-acre onshore oil play, the vultures descend.

In the case of Reconnaissance Energy Africa ( TSXV:RECO ; OTC:RECAF ), those vultures are in the form of short sellers who have stooped to dangerously low levels in their failed attempt to destroy one of the best exploration plays we’ve seen in a long time… and with a company that isn’t just fully funded for a 4 well drilling campaign, but one that’s already reported results confirming an active petroleum system in its first two test drills, with more results expected in the next few weeks.

In our view the bigger problem isn’t just about ReconAfrica and its exploration play in Namibia’s giant Kavango Basin…

It's about the wider implications for capital markets, and the free market in general.

It's about the regulators’ apparent powerlessness to thwart stock manipulation.

It's about a short-selling free-for-all that allows dubious abusive and manipulative shorters to employ illegal means to try and destroy a company out of sheer greed and the need to cover massive shorts.

There have been instances, in the history of short selling, where short sellers—a necessary market force—may have protected investors, exposed fraudulent companies, and made themselves a nice nest egg doing so.

This is not one of those cases.

More often than not of late, especially on the OTC markets and the Toronto Stock Exchange (TSX), it looks like short sellers don’t protect retail investors from bad companies; instead, they appear to short stocks and then manipulate them to purposefully cause them to fail. Instead of protecting investors, we think they ensure their demise and strip them of their savings.

But based on what we’ve seen with Recon Africa, management is making all the right moves, insiders continue to buy the stock, and most of the selling is short. Shareholders aren’t jumping ship and a huge number of catalysts are just around the corner.

In fact, we think short-sellers of Recon Africa are simply creating a brand new buy opportunity for everyone who has wanted to get in on this fast-moving train.

It matters little at this point where Recon Africa ( TSXV:RECO ; OTC:RECAF ) trades. We believe shorts have only a matter of weeks to try to bring this down more, and even if they manage a few more cents, it just opens the door for more buying ahead of what we are confident will be commercializing of the Kavango Basin oil play. We think shorts will have lost their shirts long before that.

Why?

Because Recon Africa has just completed its second drill and is making multiple logging runs. It’s taking up to 50 sidewall cores to maximize hydrocarbon recovery. And then, it will run the VSP between the first two wells, part of the 2D seismic program, which is a 450-kilometer program across the entire basin.

In the coming days and weeks, we are expecting some exciting news on:

- More comprehensive results from both test wells

- Results from the 450km 2D seismic

- The launch of the next two test wells, most likely after the seismic acquisition

- And potential JV farmout deals with majors, who will be watching for the next lab and 2D results—which could be one of the biggest paydays for investors.

There’s too much going on here—in a positive way—to make investors cut and run simply over fear-mongering by short-sellers.

But that fear-mongering is dangerous, nonetheless—and not just for Recon Africa and shareholders in what we believe is one of the most exciting oil plays the world has seen in a very long time.

The Short-Selling Conspiracy Playing Out on Social Media

There are a lot of theories floating around as to who is behind a massive short, and there have also been attacks on Oilprice.com for its (disclosed) promotions of the company. (We love the stock, and we’re all-in and happy to tell their story to the world. For oil writers and long-time observers such as ourselves, our reasoning is that something like this isn’t likely to happen again in our lifetimes. We have followed this company for years and it’s got big names staking their reputations on it, as well as some of the best in the business—such as Schlumberger and Polaris—doing the logging, coring and seismic).

But to fully understand how these short sellers operate, we think you have to also understand their relationship with social media. Paid ‘factories’ of social media commentators produce a constant barrage of lies to sow fear and uncertainty around the stock. There have been reports of personal attacks on staff, harassment of Nambian officials and vile, libelous comments on Twitter and other social media outlets.

To understand more about what investors and companies may be up against with abusive and manipulative short sellers, watch these videos on Youtube:
https://www.youtube.com/watch?v=wKXWvEpnN34
https://youtu.be/2rJujnpKiqM
https://youtube.com/watch?v=KHnpPfWdf78&feature=share

Some of the short commentators (paid) are so outrageous that they may prompt lawsuits from the company.

And the disinformation campaign appears to be growing more intense by the day because short-sellers are now getting desperate to cover on a stock that we believe has incredible potential. In our view they have no chance of covering now.

The desperation comes from the fact that already by late May, naked short sellers may have been out by up to $4.50 a share —that could represent a huge loss if they don’t manage to take this stock down. The motivation behind the misinformation campaign, then, is crystal clear to us.

Understanding Abusive and Manipulative Shorts

There are 4 trade identifiers – buying, selling, shorting, and covering. But there is also an important difference between declared or covered shorts and what we say are abusive and manipulative (naked) shorts.

Naked shorts (which appears to be what is happening here) could be 8 times higher than a covered short because the funds behind them want to fly under the radar and let people think there is still upside to shorting the stock. ‘Abusive and manipulative’ means that the shorts don’t have the underlying security to back up the sale and have neither located nor borrowed the shares they have shorted. In other words, they have in effect just created stock out of thin air and are selling something that doesn’t exist.

How can these funds get this huge amount of borrow? That’s a good question that we think is really for the banks because shorting without borrowing for this long—as is the case with Recon Africa—is not legal. The borrow rates are so high, the banks may be happy to accommodate this behavior. It’s probably far too tempting to resist. Either way, the banks win.

For instance, shortdata charts on RECO.V don’t show anything out of the ordinary. But this data only shows “covered” shorts, not naked shorts. When we look at market maker shorts, an entirely different story emerges.

The most recent charts from Buyins.net shows the significant extent of U.S. and Canadian shorts:

In the U.S:


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