Short sellers the big winners from Liontown’s blocked merger and Rinehart play

Liontown Resources' Kathleen Valley project in Western Australia.

The collapse of a $6.6bn buyout proposal for Liontown Resources and a deeply discounted equity raising may have caused plenty of disappointment, but not for short sellers.

Short sellers, who borrow shares with the aim of buying them back at a lower price then pocketing the difference after repaying the initial loan, have made a fortune out of selling shares to interloper Gina Rinehart.

The Perth-based billionaire recently amassed a 19.9 per cent blocking stake in the stock when she was buying shares at $3 to gain a seat at the table when Albemarle was offering $3 a share for the West Australian lithium producer.

And with the opportunity to cover out their short-selling positions through the equity raising announced last week at $1.80 per share, they have made $1.20 per share on their investment within the space of weeks.

It’s unclear how many short sellers participated in the raise, but ASIC records show short positions make up close to 10 per cent of the register, which could mean they have made anything up to $264m out of the latest developments.

However, the thinking is that short sellers were unable to cover fully, which added to the share price on Friday.

Liontown shares closed on Friday above the offer price at $1.90, but down 89c for the day.

Liontown is the fifth most shorted stock on the ASX behind Pilbara Minerals, Genesis Minerals, Syrah Resources and Core Lithium, with lithium producers over-represented due to the falling lithium price in the past three months.

Last week, Liontown locked in a further $1.2bn of funding for its Kathleen Valley lithium project in Western Australia for which it has aspirations to produce up to 500,000 tonnes of spodumene concentrate a year.

This includes $760m of debt and $365m from institutional investors, while chairman Tim Goyder is tipping in $10.8m.