Hedge funds ‘pretty brave’ to short Pilbara Minerals, says CEO

Jonathan ShapiroSenior reporter

Dec 4, 2023 – 6.17pm

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KEY POINTS

• Pilbara Minerals CEO says hedge funds could get burnt if the lithium price turns
• The stock is the most shorted on the ASX amid concerns of oversupply
• UBS downgraded Pilbara Minerals to a sell as it forecast a lower lithium price.

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Pilbara Minerals chief executive Dale Henderson has told the hedge funds shorting the shares of the $11 billion lithium miner they were brave to expose themselves to a commodity price that could turn “quickly and severely”.

The Perth-based miner is the most shorted stock on the Australian sharemarket with more than 20 per cent of outstanding shares loaned out to speculators betting on a share price fall. That amounts to an enormous $2.3 billion short bet that has almost doubled in the past six weeks alone.

Lynas CEO Amanda Lacaze and Pilbara Minerals CEO Dale Henderson appearing at a lunch hosted by the Australian British Chamber of Commerce in Sydney. James Brickwood

But Mr Henderson appeared relaxed about the large build-up in bets against the company which he said was part of the “resources roller coaster” while branding hedge funds “pretty brave”.

“What we’ve seen in the lithium market is that when it turns, it can turn quickly and quite severely,” he said at a lunch in Sydney, hosted by the Australian British Chamber of Commerce.

“That happened in 2020 when no one was predicting the market would turn so quickly, and they certainly weren’t predicting those new highs above $US8000 a tonne.”

RELATED QUOTES

PLSPilbara Minerals

$3.530 -2.22%

1 year1 day

Dec 22Jun 23Dec 233.3004.4005.500

Updated: Dec 4, 2023 – 7.41pm. Data is 20 mins delayed.

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LYCLynas Corporation

$6.440 1.42%

Dec 22Jun 23Dec 236.0008.00010.000

Mr Henderson said hedge funds were gravitating towards shorting Pilbara Minerals because “if you want to bet on a downward price movement in lithium there are very few financial instruments to do that”.

“Pilbara [Minerals] presents as an option, given we are a large market cap, liquid stock with a pure play exposure to lithium,” he said.

Broker downgrade

Shares in Pilbara Minerals have fallen about 35 per cent from a 52-week high reached on July 4. Meanwhile, the price of lithium-rich spodumene has fallen from $US8000 a tonne in late 2022 to below $US1500.

UBS analysts told clients on Monday that price could keep “grinding lower” to $US800 a tonne “in the face of weakening demand sentiment and the robust supply outlook”.

The broker downgraded Pilbara Minerals to a “sell” with a $3.05 price target – below the current $3.55 level.

But Mr Henderson said the long-term prospects were sound as demand for batteries was set to ramp up.

“If you put aside the negative rhetoric of the last six months it’s remarkable what is happening. There is huge investment going on and that’s what we keep our eyes trained on.”

Mr Henderson had an ally in the battle against the shorts in the form of Lynas Rare Earths chief executive Amanda Lacaze. She jokingly offered to “strong-arm” the table of sharemarket analysts seated in the audience, on his behalf.

Lynas has also been targeted by short sellers but to a lesser extent than Pilbara Minerals. At present, about 5.5 per cent of outstanding shares are loaned out to short sellers.

“Nothing feels better – because you actually do know who is shorting it – when you actually screw ’em,” she said before apologising for “saying the quiet part out loud”.

Mr Henderson said Pilbara Minerals stood to benefit if the United States disqualified lithium miners with high levels of Chinese ownership or processing from billions of dollars worth of subsidies.

The subsidies will be offered under US President Joe Biden’s two major green innovation reforms: the $US369 billion ($553 billion) Inflation Reduction Act and the $US550 billion Infrastructure and Jobs Act.

“The Inflation Reduction Act is all about fostering supply chain solutions for the US with US-friendly counterparties,” he said, referencing a joint venture with South Korea’s POSCO.

Ms Lacaze said she would not “bet against the Yanks when they are really determined to do something”.

“They have worked out that industrial policy has to be more complex than simply hoping that private enterprise will get it right,” she said. “The IRA in the US really is about tilting the playing field back toward re-shoring manufacturing in the US.”