Vulcan Energy targeted by short selling fund J Capital Research, requests trading halt
High-flying lithium hopeful Vulcan Energy, which boasts Gina Rinehart and her estranged son John Hancock as investors, has been targeted by short selling fund J Capital Research.
Lithium high-flyer Vulcan Energy Resources has called a trading halt after coming into the cross hairs of a short selling fund that has previously targeted Australian listed technology companies.
J Capital Research set Vulcan Energy in its sights overnight, claiming the company’s lithium project is unlikely to be approved, or be profitable if it is.
JCap, which has previously taken aim at Wisetech and Nearmap, declared it was short Vulcan shares and released a report accusing the company of basing its pre-feasibility study on “highly optimistic assumptions for the project”.
Vulcan’s plans to build a “green” lithium mine in Germany, powered by geothermal energy and supplying to European battery makers, has been the hottest lithium stock on the market over the last year, jumping from a penny stock in January 2020 to a market capitalisation of $1.85bn on Tuesday.
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.
But in its short report, JCap accused Vulcan of understating the costs of the project and understating the strength of community resistance in Germany.
“In effect, management is low-balling the costs and overstating the quality of its resource. They have pushed down discount rates to make the project look profitable,” the report claimed.
Vulcan said on Wednesday the report contained a “large number of inaccurate statements and assertions regarding Vulcan and its Zero Carbon Lithium Project”.
The company then called a halt to trading in its shares as it prepares a more detailed response to the claims in JCap’s short report.
Vulcan released its pre-feasibility study into its German lithium project in January, saying a full build of the project would cost about €1.1bn ($1.79bn), and deliver an after-tax net present value of about €2.25bn with an internal rate of return of 21 per cent.
Vulcan shares jumped on the result, and the company raised $120m in a placement at $6.50 in early February.
It has since announced successful results of pilot work on its lithium project, which 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.
Since the pre-feasibility study was released, Vulcan has also signed term-sheets for the supply of its output battery major LG Energy Solutions, carmaker Renault and in October it announced a binding offtake deal with Umicore.
The company says it expects to be in production by 2024.
But JCap claims the figures published by Vulcan significantly underestimate the costs of drilling the deep geothermal wells needed to make good on the company’s claims its lithium project will be a “zero carbon” operation, citing the failure of other geothermal projects in the region.
“Vulcan plans to drill a total of 26 wells to accommodate five power plants. The largest capital cost of a geothermal power plant is drilling those wells,” the report claims.
“Vulcan’s drilling plan is far more complex than any yet attempted …
“Drilling 26 holes at depths of up to 5 km, the risk of capital-cost overruns is very real and could sink the profitability of the project before it even starts.”
JCap also claims that Vulcan’s assessment of the grades of lithium in the brine beneath its operations is overly-optimistic, and criticises the lack of detail on the technology the company has said it will use to extract the lithium from the salty water.
And the short seller says Vulcan’s project may be stopped before it can begin, citing the closure of nearby geothermal power plants due to seismic activity caused by their operations and a lawsuit against its operator by local homeowners over alleged damage to their properties.
Vulcan is expected to release a more detailed response to the JCap claims before Friday.
Its shares closed at $14.99 on Tuesday.