Rough ride for Nickel Mines as disastrous short position roils trading

Shares in Nickel Mines were battered in early trading on Wednesday on speculation a toxic short position taken by its biggest shareholder will flow through to its own operations.

Brokers and dealers on the floor of the London Metal Exchange where trading in nickel was suspended. Picture: Bloomberg

Nickel Mines says a disastrous $US8bn ($11bn) bet on the nickel price by its biggest shareholder won’t disrupt its plans to expand its Indonesian operations, after the company took a battering on Wednesday on speculation over the financial health of its Chinese partner.

Shares in the ASX-listed nickel miner were battered in early trading on Wednesday on speculation a toxic short position taken by Chinese nickel major Tsingshan Holding Group will flow through to its own operations.

Tsingshan reportedly faces paper losses of up to $US8bn after its founder, Chinese metals tycoon Xiang Guangda, took extensive short positions on nickel traded on the London Metal Exchange before being caught short by the commodity’s wild ride this week.

The nickel price rose more than 90 per cent overnight on Monday, touching $US55,000 a tonne in the biggest one-day lift in the commodity’s trading value in the history of the LME.

Tsingshan, and other companies associated with Mr Xiang, are said to have built up a short position that was at one stage worth up to 100,000 tonnes of the metal and were caught out badly by the recent price spike.

The resulting squeeze as traders scrambled to close out loss-making positions forced nickel to stratospheric levels overnight on Tuesday, with nickel briefly trading at more than $US100,000 a tonne before the LME called a halt to the frenzy and flagged the cancellation of the day’s trading in the commodity.

Tsingshan is Nickel Mines biggest shareholder, holding 18.7 per cent of the company’s stock. It is also the sole buyer of nickel pig iron produced at the company’s Indonesian operations, and agreed in February to take more Nickel Mines stock as part of the $US525m acquisition of an Indonesian nickel operation.

Speculation that Tsingshan’s disastrous short position could force it to dump Nickel Mines shares as it scrambles to add cash to its balance sheet shook the ASX-listed company on Wednesday, with the shares crashing more than 22 per cent in early trading before the ASX forced the company into a halt.

Nickel Mines said Tsingshan had “firmly assured” its management it would not sell down stock in the company, and there was no change in the company’s “irrevocable undertaking” to buy Nickel Mines’ output.

“There has been no impact on Tsingshan’s intention to receive Nickel Mines shares in the conditional placement, as detailed on February 9, 2022, as part consideration for the company acquiring a 70 per cent interest in the Oracle nickel project,” the company said.

Nickel’s wild ride was initially sparked by Russia’s invasion of Ukraine, given Russian mines are a major source of nickel used in stainless steel production.

The spike past $US100,000 a tonne forced an unprecedented intervention by the LME, which cancelled all nickel trades that took place between midnight and 8:15am in London, when further trade in the commodity halted.

When the market does eventually reopen, the LME said it planned to introduce circuit breakers that limit movements in the nickel price in either direction to 10 per cent in an attempt to smooth out the volatility that has roiled the market in recent days.

Nickel trading on the LME is not expected to begin again before Friday.

Nickel Mines shares recovered after its afternoon announcement, with the company closing down 7c at $1.405.