Rinehart-backed miner wants short-selling reform
Peter KerResources reporter
Dec 27, 2023 – 5.00am
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A rare earths producer backed by
billionaire Gina Rinehart says greater transparency and regulation of short-selling is required to ensure Australia’s securities law is aligned with the federal government’s push to stimulate the
critical minerals sector.
Arafura Rare Earths managing director Gavin Lockyer’s request for intervention came as Minerals 260 chief executive Luke McFadyen also threw his weight behind calls for bespoke regulation of short-selling, which were
ignited last week by Chalice Mining CEO Alex Dorsch.
Arafura managing director Gavin Lockyer. Trevor Collens
Mr Dorsch argued it was in “the national interest” for critical minerals producers to get special protection from short-sellers, given the tactic is – he claims – open to abuse by “geopolitical opponents” intent on slowing development of Australian critical minerals mines.
Short-selling is an accepted practice in advanced markets, including Australia, where investors can profit by betting on the value of a stock falling. Only covered shorts are permitted under Australian Securities and Investments Commission rules, meaning hedge funds must borrow stock from investors willing to lend their shares out.
The federal government has
loaned billions to the mining sector in a bid to break China’s stranglehold on the rare earths supply chain and Mr Lockyer said examining short-selling rules would help that goal.
“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.”
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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 at
Syrah Resources, which was targeted by 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 company
Hancock Prospecting bought a 10 per cent stake in Arafura in 2022. Arafura plans to build a rare earths mine and processing plant about 135 kilometres north of Alice Springs.
Peter Ker covers resource companies for The Australian Financial Review, based in Melbourne. Connect with Peter on
Twitter. Email Peter at
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