Lithium miner Vulcan Energy says JCap short report is ‘disinformation’

Vulcan Energy says it has the support of major shareholders despite J Capital Research’s short-seller attack.

Vulcan Energy has a deal to supply lithium to Renault for electric cars.

Lithium high-flyer Vulcan Energy has hit back at short sellers who released a negative report describing the company’s German lithium project as a “non-starter”, calling the report by J Capital Research “disinformation”.

Despite the attack from JCap, Vulcan managing director Francis Wedin said the company retained the support of major shareholders – which include big institutional investors as well as rich-listers Gina Rinehart and John Hancock.

“While any misinformed short selling attack is disappointing, we are buoyed by the support of our leading institutional investors in understanding the project’s technical detail – and risks,” he said.

JCap set Vulcan Energy in its sights on Tuesday night, claiming the company’s lithium project is unlikely to be approved, or be profitable if it is.

Declaring it was short Vulcan shares, JCap research report accused the company of basing its pre-feasibility study on “highly optimistic assumptions for the project”.

JCap claimed the figures published by Vulcan significantly underestimated the costs of drilling the deep geothermal wells needed to power its lithium project without any carbon emissions.

The report also cast doubt on the lithium grades contained in the brine solution beneath Rhine Valley where Vulcan plans to base its operations, and criticised the lack of details it says the company has disclosed on the extraction technology it plans to use.

“Our research shows that the project may never actually get under way,” said report author Tim Murray.

“The costs are higher than the company claims, output will be lower, the environmental impact is brutal enough that public outcry will block permits, as has happened before in the area, and the quality of the lithium resource is low. Many experts agree with us that this project is a non-starter.”

In a detailed response released on Thursday, Vulcan said JCap had failed to check details of the report with the company before going public, and said it is not “based on reliable information”.

Vulcan said it had released details of its extraction technology to the market “on numerous occasions”.

“Similar approaches are used at multiple locations around the world with existing lithium production, including in China and in Argentina,” Vulcan said.

“Vulcan’s team has designed, built, commissioned and is successfully operating a pilot plant at a geothermal plant in the Upper Rhine Graben, in a ‘livebrine’ environment. We have successfully demonstrated our lithium extraction process … as announced on 27 September 2021.”

Vulcan’s plans to build a “green” lithium mine in Germany, powered by geothermal energy and supplying to European battery makers.

It has been backed by rich-listers including Gina Rinehart and estranged son John Hancock, and in September raised $220m to back its plans to build a lithium production hub in Germany.

Its project will take groundwater from underneath Germany’s Rhine valley, extract the lithium and convert it to higher-value lithium hydroxide to supply European battery factories.

It will be powered by deep geothermal wells that will also help heat the lithium-bearing brine, which Vulcan says will make the commodity easier to extract.

In response to J-Cap’s accusations that Vulcan has underestimated the difficulty in drilling the deep wells needed to provide geothermal power to the project, the company said it was working in a region with a well-understood geology and said projects with similar drilling requirements were underway in Germany.

“The report incorrectly picks an arbitrary 40 per cent for its estimation of failure rate for Vulcan’s planned geothermal well drilling,” the company said.

“Vulcan’s Upper Rhine Graben projects are in a sedimentary basin which has been explored for geothermal energy and hydrocarbons for many years, so contrary to the Reportone would expect Vulcan … to have high success rates.”

“The report incorrectly states that there are no projects in Germany ‘with three production and three injection wells’, as planned by Vulcan. This is incorrect, new projects currently being developed include multi-well, high-flow rate projects, as the trend in the industry is towards larger projects with greater economies of scale, as per the projects Vulcan is developing.”

But Vulcan argues it has adequately disclosed the risks it faces in making both the wells and its processing techniques to work.

“Vulcan’s development timetable is a target, and we continue to keep the market abreast of developments. Our presentations contain our expected timeline to which we are delivering to,” the company said.

“We have flagged in the PFS under ‘Project Risks and Opportunities’ that, like any new project, there is and will remain the risk of delays, including for technical reasons, supply chain delays and for permitting.”

The company has been the hottest lithium stock on the market over the last year, jumping from about 15c in mid-2020 2020 to a market capitalisation of $1.85bn on Tuesday.

Vulcan shares last traded at $14.99 before it called a halt to trading after the release of the JCap report.