Short sellers bet against green minerals boom as prices plunge

Investors are placing ever-growing bets against some of the country’s biggest metals and minerals companies following a collapse in battery commodity prices, intensifying debate about the profitability of lithium and nickel miners.

Half of the 10 most shorted stocks on the Australian market are involved in battery minerals or electrification, according to data from the Australian Securities and Investments Commission. Lithium producer Pilbara Minerals tops the list.

The falling profitability of battery mineral companies has led to many scaling back their operations.

Short-selling is a technique used to profit from a fall in the price of a stock.

Lithium prices have dropped more than 80 per cent over the past year, while nickel is down more than 40 per cent. Both commodities are used in batteries, including those in electric vehicles, but weaker-than-expected demand and increased supply have pushed down their prices.

Investment firm East 72 executive director Andrew Brown said the rapid collapse in prices had compromised the economics of many battery minerals companies.

“A lot of these companies are relatively new,” he said. “They’ve gone from earning super-normal profits five or six months ago, to now, some having shut down.”

Brown said the remaining companies in the space could shut down operations or might need to raise new equity to stay afloat, which could dampen their share prices.

East 72 executive director Andrew Brown said short sellers had done extraordinarily well in a short period of time.Credit: Rhett Wyman

“If a company’s going to raise new equity, it has to issue a bunch of shares,” he said. “The prevailing share price will fall when they do that, and hence you make a profit as a short seller.”

The falling profitability of battery mineral companies has led to many scaling back their operations, including the world’s biggest lithium producer, Albemarle, which said this month that it would cut jobs and hold off on expanding a refinery in Western Australia to optimise cash flow.

Meanwhile, Wyloo Metals, owned by Fortescue chair Andrew Forrest, also announced this month that it would cease nickel mining in the WA district of Kambalda. BHP Nickel West followed by shutting down a portion of its processing operations nearby.

In December, UBS analyst Levi Spry said that he had lowered his lithium equity valuations by between 8 per cent and 19 per cent, downgrading Pilbara Minerals to a sell rating and retaining a sell rating on Mineral Resources.

“We flag risks that lithium prices grind lower in the short term in the face of weakening demand sentiment and robust supply,” he said, noting increased supply from China.

Mineral Resources boss Chris Ellison said last week that he expected lithium prices to continue falling into 2024, but he insisted the company’s three lithium mines in WA remained profitable.

However, some industry players are calling for government action to help them remain competitive.

Following a roundtable on Thursday, Association of Mining and Exploration Companies acting chief executive Neil van Drunen said federal Resources Minister Madeleine King and Western Australia’s state Mines Minister, David Michael, had demonstrated a willingness to find solutions to assist nickel and lithium companies.

Van Drunen recommended the introduction of a production tax credit, which he said would provide a 10 per cent tax credit for downstream materials producers and reduce the cost disadvantage faced by Australian projects compared with those in the US.

While demand for electric vehicles has increased, accounting for 7.2 per cent of all vehicles sold in Australia last year, double the proportion in 2022, Brown said negative commentary about the demand for electric vehicles around the world, and the changing economics of battery minerals companies, had weighed on major industry players’ share prices.

“It’s taken the sector from being an absolute darling of a sector in every respect, to one nobody really wants to know about at the moment,” he said. “Bluntly, the short sellers have done extraordinarily well in a short period of time.”

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