Ban short-selling in the ‘national interest’, Chalice boss pleads

Chalice Mining chief executive Alex Dorsch claimed short-selling of critical minerals stocks should be banned “in the national interest” to ensure “geopolitical opponents” cannot hold back the development of Australian mines.

Ban

His plea to replicate a similar ban adopted by South Korea’s regulator in November, which was met with consternation from market participants, follows Chalice shares falling 72.9 per cent this year after the company disappointed the market with the results of a scoping study into its Gonneville project north of Perth.

Chalice has found a critical minerals cluster that contains palladium, platinum, nickel, copper, cobalt and gold. It will need to raise close to $2 billion to build the mine at Gonneville, making it a prime target for hedge funds given its reliance on the capital markets for funding.

Chalice has 5.9 per cent of its register in the hands of short-sellers, according to the latest data from the market regulator. Five of the top-10 biggest ASX hedge fund targets are critical minerals producers and hopefuls.

Mr Dorsch said South Korea had taken “exactly the right approach”.

He said short-selling could help create an efficient market for mature, revenue generating companies, but pre-revenue companies needed more protection from market forces.

“There really is no place for it in the critical minerals space or any sort of growth businesses where you are trying to do something very much in the national interest,” he said. “By allowing short selling you are just allowing your geopolitical opponents to restrict and basically put barriers to entry up to those newer growth players.

“If you allow short selling of those types of pre-revenue companies you are disincentivising entrepreneurialism, you are stymying people who are trying to grow real businesses, people who are trying to create economic wealth and strategically important projects and sources of revenue for the country.”

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 treasurer’s office declined to comment.

Enthusiasm for Chalice’s Gonneville deposit near Toodyay was dealt a blow after the release of the scoping study based on palladium prices averaging $US2000 ($2958) an ounce over the life of the mine.

Palladium is fetching $US1240.70 an ounce on the most actively traded futures contract, leading many investors to conclude that abnormally high prices are required to make the asset viable.

Mr Dorsch has defended the price assumed in the study, suggesting he is more bullish on the outlook for platinum and palladium, particularly if Russian supply of those commodities were blacklisted.

Metal markets got a reminder of how powerful a full-scale Russian blacklisting could be for the global economy on December 14, when prices for palladium and platinum rallied strongly in response to tighter British sanctions on Russia. Palladium advanced 26.4 per cent last week after sinking to a low of $US940.30.

An amended sanctions bill introduced to the United Kingdom parliament effective December 15 bans British citizens from acquiring, importing, supplying or delivering Russian-origin metal. Russia has traditionally supplied about 40 per cent of the world’s palladium.

It triggered a rush to buy equivalent metals from other jurisdictions.

“It is a reminder I think that geopolitical elements are very important in trying to navigate commodity markets,” said Mr Dorsch. “It is a very tight market so any reversing of short positions creates significant volatility in the price.”

Palladium is expected to provide about 55 per cent of the revenue from Chalice’s Gonneville mine, and news of the Russian sanctions drove a 9.4 per cent surge in Chalice shares last Friday.

Upcoming Events

17th February 2022
Investor Webinar: Gateway Mining
Gateway Mining (ASX: GML) Managing Director Mark Cossom will discuss recennt highlights from the Company's Gedgee Gold Project in Western Australia and its exploration strategy for 2022.