“There are undoubtedly geopolitical drivers in the rare earths industry, and parties who would prefer we didn’t get to market. At a minimum, we would seek greater regulation and transparency around the loaning of stock and identification of short sellers,” he said.
“It is incumbent upon ASIC to ensure short selling policy and regulatory requirements align with and support the federal government’s updated critical minerals strategy.”
More opportunities
Pre-revenue minerals developers have long been a favoured target of short-sellers, given mines typically take years to build, cost billions of dollars and are prone to cost and schedule blowouts. They are also subject to the same variability in commodity prices that revenue-earning producers are.
It is common for resource juniors to raise funds by selling new shares, which creates more opportunities for hedge funds to feast on.
South Korean market regulators banned short selling in November, bowing to political pressure to protect returns for retail investors. South Korea’s Financial Services Commission on Monday imposed record fines on two banks; Bloomberg subsequently reported that BNP Paribas and HSBC were together penalised 26.5 billion won ($30 million) for illegal naked short-selling.
Mr McFadyen said he believed other advanced economies such as Singapore, Japan and Germany had tighter short-selling rules than Australia, and foreign hedge funds were flocking in as a result.
“Short-selling should be banned or much better regulated in certain situations, such as for pre-revenue companies,” he said. “It’s also often foreign hedge funds targeting very good companies simply because the regulations are weaker in Australia versus other developed markets.
“It’s nonsensical to continue to allow it and at the same time expect Australian companies to invest in new mines to decarbonise the global economy.”
Treasurer Jim Chalmers has declined to weigh into the debate, but is understood to be reluctant to change Australia’s short-selling rules.
Minerals 260 is exploring for critical minerals in Western Australia and counts Liontown Resources chairman Tim Goyder as a director. Mr McFadyen previously worked atSyrah Resources, which was targetedby activist investors and short-sellers in 2017 and 2018.
Syrah’s graphite mines and processing plants are now built, but the stock remains a hedge fund favourite.
Mrs Rinehart’s flagship private companyHancock Prospecting bought a 10 per centstake in Arafura in 2022. Arafura plans to build a rare earths mine and processing plant about 135 kilometres north of Alice Springs.
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