No trading in nickel on the London Metal Exchange for at least part of this week should be good news for Australia’s Nickel Mines Ltd after its shares lost 25% of their value last week in the wake of the $8 billion trading black hole triggered by its big Chinese partner Tsingshan.
The two companies are involved in an Indonesian nickel mining and processing business worth half a billion dollars.
The Chinese company owns Nickel Mines shares and investors fear those shares will be sold by Tsingshan to raise cash to meet debts on the nickel play and to banks who are financing the position.
Nickel Mines surprised on Friday by dropping its $A18 million share purchase plan (SPP) in the wake of market volatility caused mainly by Tsingshan Holding Group’s short squeeze.
Applications for the share purchase had far exceeded the company’s target to about $A57 million, Nickel Mines CEO Justin Werner explained in a statement to the ASX on Friday.
“However, given market volatility and the retraction in the company’s share price in recent days… it is in the best interests of shareholders to cancel the SPP effective immediately and return all applications in full,” Werner said.
Shares of Nickel Mines rose as much 7% in early trading on Friday, recouping some of the losses suffered earlier in the week but then turned down to close down 1.6% at $1.20 for a loss of 25.23% for the week.
Meanwhile the London Metal Exchange (LME) has again defended its decision to suspend nickel trading on Tuesday when prices doubled within hours, saying the market had become disorderly, with prices not reflecting the physical market.
The exchange halted nickel trading and cancelled trades on Tuesday after prices rocketed to more than $US101,000 a tonne in a surge blamed on short covering by Tsingshan.
“We recognise the frustration of some market participants regarding the decision to suspend nickel trading and to cancel Tuesday early-morning trades on the LME this week,” the exchange said in the second apology in three days for its actions.
This was done “in the interests of systemic stability and market integrity”, during which the 145-year-old exchange followed regulatory due process, it added.
“We are now focused on the mechanics of reopening the market as efficiently and as quickly as possible.”
The exchange, the world’s oldest and largest market for industrial metals, has said it would not reopen the nickel market until it can ensure stability.
Friday’s statement did not provide any further details about reopening, but a previous statement said any decision to reopen would come before 2pm GMT on the prior business day.
So no nickel trading on today (Monday) and no resolution of the apparent impasse between the LME, Tsingshan and dozens of brokers, traders (including many on line) and a reported $US8 billion loss and the position of huge margin calls – reportedly paid but not confirmed.
Margin calls were met via huge loans to Tsingshan from JP Morgan and China Construction Bank, but the metal position is being maintained and no one knows what will happen. Tsingshan clearly wants to still try and make a profit from what was effectively a ’short’ on the metal price (betting it would fall).
Some fraught talks are going on between London, Hong Kong (where the owner of the LME – Hong Kong Stock Exchange and Clearing – is based) and the Chinese government and central bank in Beijing.
