Dramatic events rock Australian market

Press, Volume CXI, Issue 32567, 29 March 1971, Page 20

Dramatic events rock Australian market

(By the Commercial Editor) Last week is bound to go down in the annals of Australian stockmarket history as one of the most eventful on record.

The series of dramatic I happenings began with the suspension of two speculative mining shares, those of Anti- [ mony Nickel N.L. and Northland Minerals, Ltd, after a share dealing crisis because i some investors had succeeded in cornering the shares. I Then there were the remarkable events surrounding the emergence of Leopold Minerals N.L. as a new “Poseidon,” culminating in the suspension of the snares and a police investigation ! into the nickel samples. And if that was not enough, the exchanges were 'stunned by the announcement on Friday that forged scrip had been discovered in four of the leading mining companies: Western Mining, ■ Peko-Wallsend, Consolidated iGold Fields, and Gippsland. As investors on Friday only knew of the existence of forged strip in leading mining houses—the names were revealed only late on Friday night—the markets went into a panic, and prices were massacred as a result. At this stage there are no further useful details to hand of the forged scrip situation, and Leopold is the subject of a separate article on this page, leaving the share dealing crisis to be dealt with here. This crisis is the result of excessive short selling of the shares of a few speculative Australian miners. Short selling is the prac-

tice of selling shares you do not own, for later delivery, with the idea of buying them more cheaply later, when they must be delivered. For instance, if you -think that X.Y.Z. shares, which are selling at present for 300 c, will fall to 250 c in say two months, then you might sell the shares tomorrow for say 295 c for delivery late in May. If you were right, and the market in the shares did indeed fall, you would hope to purchase the shares just before you are bound to deliver, and therefore make a profit. This buying subsej quent to a short sale is called I “covering.”

It would seem that selling | short the shares of Anitmony Nickel and Northland Minerals had become such a popular sport on- the Sydney Stock Exchange, that all traders together, although independantly from one another, short sold more shares than exist. It was estimated that about 120 per cent of the capital of Antimony Nickel needs to be covered because of this! As the directors of Antimony Nickel had been buying in the open market, they now hold about 60 per cent of the company’s capital, while a large Australian share investment group, Tjuringa Securities, claims to hold a further 40 per cent! The result is, of course, that the short sellers, “shorters” for short, have not

a-hope of covering their short sales.

And as they are legally bound to deliver, the persons who are in the position to claim delivery have got the shorters Over a barrel! In fact, it is a classical example of a “comer.”

Many of Antimony Nickel’s 10c shares were sold short at prices between 12c and 20c, whereas the price of the shares subsequently rose to 200 c, because of the copper discovery and the buying pressure of shorters who were desperately trying to cover.

And there is nothing to stop the price of the shares from rising steeper and steeper, to be followed of course by a spectacular drop as soon as the technical position is rectified.

As there are possibly a couple of million shares involved, it may be seen that shorters’ losses are running into millions of dollars. It is believed that most of the short sales came from brokers’ offices, with the brokers either acting as agents, or on their own behalf.

When a buying-in list of shorters in Antimony Nickel was circulated about 10 days ago, it showed the names of 40 Sydney brokers. The Sydney Stock Exchange appears to have no idea how to resolve the situation, beyond the indefinite suspension of the shares. But suspending the shares cannot do any good. As soon as they are relisted, the same shambles will start all over again. Besides, Australians are already grumbling that the exchange is using its rules to protect its own members, rather than in the interest of the public.