Lithium boom draws in short sellers

Short sellers are rapidly ramping up bets against a clutch of local lithium miners as the sector grapples with the after-effects of a record-breaking runup in prices since 2021.

The number of shares sold short doubled in June for lithium players Core Lithium (ASX: CXO) and Lake Resources (ASX: LKE) as both joined the benchmark S&P/ASX 200. Short interest is up eight times since March for miner AVZ Minerals (ASX: AVZ), whose shares are frozen because of a dispute over the ownership of its flagship Congolese mine.

All three companies are among the 50 most shorted stocks on the ASX.

Surging interest from short sellers, who target companies perceived as overvalued and profit when share prices fall, comes after a year-long boom in lithium prices shows signs of slowing. Goldman Sachs declared in May the “battery metals bull market has peaked”, triggering a sharp selloff in local lithium stocks.

Lithium prices are down 5% from an all-time high hit in March but remain up more than four times since August 2021. The investment bank forecasts prices falling from a 2022 average of US$54,000 a tonne to US$16,000 in 2023 as a flood of new capital rapidly expands supply.

“We expect lithium prices to continue to correct for the rest of the year and remain under pressure from increasing supply over the next few years,” wrote bank analysts in May.

Lake Resources, Core Lithium and AVZ Minerals rose between 471%% and 600% between August 2021 and peaks in April.

The rapid runup in prices coincided with enthusiasm over electric vehicle adoption to draw in thousands of retail investors.

Small shareholdings in Lake Resources soared last year, with those holding 5,000 share or less increasing forty times between October 2020 and September 2021, according to data from Morningstar. Larger shareholders increased between 1.5 to three times over the same period.

Controversies are embroiling these local lithium players even as they claim the spots of traditional players like Platinum Asset Management in the benchmark S&P/ASX 200 index.

Lake Resources share price halved within days of the shock departure of managing director Steve Promnitz, announced on 20 June, the stock’s first day in the ASX 200. Promnitz appears to have liquidated his 10.2 million shares on departure. Core Lithium fell by a quarter over the same period.

The company claims Promnitz resigned of his own accord and provided no reason.

Shares in AVZ Minerals, which joined the ASX200 in the March rebalance, were frozen on 11 May amid a dispute over the ownership of its flagship mine in the Democratic Republic of Congo. Shared were down roughly half from their April peak at the time of the freeze.

Chinese miner Jin Cheng launched arbitration proceedings in Paris claiming a share in Dathcom Mining, which owns the flagship Manono Lithium and Tin project. AVZ currently owns 75% of Dathcom.

The suspension has been extended three times and is due to end on 15 July, unless further extended.

Short interest in Lake Resources, Core Lithium and AVZ Minerals sits at 7.9%, 7.6% and 4.3%, respectively.