Allegations by short sellers against geothermal lithium player Vulcan Energy Resources

In recent weeks, Vulcan Energy Resources (VER), the company that has dominated the news about the potential extraction of lithium from geothermal brines in Germany’s Upper Rhine region, has been the subject of numerous reports. on Vulcan Energy Resources (VER). The company is listed on the Australian Stock Exchange under the symbol VUL.

With its stock growing from AUD 2.40 12 months ago (as of November 22, 2021), the stock rallied to a high of around AUD 15.9 on September 10, 2021 (source: Google Finance) and a price of AUD 10.90 with close of business on November 22, 2021. At the same time, there have been critical voices. On October 26, 2021, a short seller called J Capital Research published a report on Vulcan calling the company the “god of empty promises” (Mining Journal), which caused trading for the company to stop the next day (stockhead. com.au)

On October 30, 2021, German newspaper Frankfurter Allgemeine Zeitung reported that Vulcan Energy Resources (VER) had taken its shares off the stock exchange for two days following an attack on a short seller. Another German newspaper Handelsblatt also addressed the allegations by US investment firm J Capital Research (JCap). In its report, JCap accused VER of making empty promises in its “Zero Carbon Lithium” project. According to FAZ and Handelsblatt, JCap is speculating on falling stock prices, meaning they are buying shares of companies they deem to be overvalued. After trading stopped, the VER share price fell 16.5%. A successful blow for the short seller?

“God of empty promises” – the criticism of Vulcan Energy Resources

FAZ cites the JCap report that VER made completely exaggerated claims about the likely feasibility of the project, its profitability and its environmental impact. In addition, allegedly independent forecasts have been made by companies with conflicts of interest vis-à-vis VER.

In January, a feasibility study on behalf of VER promised a billion dollar deal, which sparked investor interest. According to the FAZ, the value of VER shares increased by 3,000 percent last year, the Handelsblatt writes a price increase of 500 percent since the start of the year. Even after the attack on the short sale, the company is still valued at A $ 1.3 billion (around € 830 million).

But the JCap report sees a less bright future for Zero Carbon Lithium. This may never happen, and even if it does, the profitability is questionable. “This project has no prospect,” quoted FAZ Tim Murray, managing partner of JCap. [Here an interview with Tim Murray of Oct. 28, 2021.]

[Note: The allegations were answered by the company in a note on its website on Oct. 28, 2021 and in a research report by AlsterResearch on October 29, 2021, available via VER’s website, as per disclosure in the report, AlsterResearch “has entered into an agreement on the production of the research report with the analyzed company”, in an own release the company ]

Experts find implementation difficult

According to the FAZ, the JCap report cites several reasons at once: twelve experts – regional geologists, politicians and lithium managers – presented the costs as underestimated in their contributions, but presented the potential quantity and quality of the lithium. lithium as overestimated. In addition, there is the feared political and public resistance in the region. Several municipalities in the area of ​​the “Ortenau” authorization have refused VER the authorization to carry out seismic measurements on their districts (TiefeGeothermie report).

The Handelsblatt gives even more facts here. The VER prefeasibility study calculated with flow rates of 100 to 120 liters per second. A value that experts in the geothermal industry would have qualified as clearly too high even before the publication of the J-Capital report. VER founder Horst Kreuter admitted to the Handelsblatt that the figures may have been a little optimistic, but justified his estimates by saying they were based on the latest technology.

Experts from the UnLimited research project, which is studying the possibilities of extracting lithium at the Bruchsal geothermal power plant (we have reported), also assume lower flow rates at around 70 liters per second. In this context, the approx. 40,000 tons of lithium carbonate equivalents (LCE) compatible with the batteries announced for 2025, which must be extracted with only 28 wells, according to the analyst Joh. Berenberg, Gossler & Co. KG described, seem unrealistic. The Handelsblatt mentions the possibility of increasing the production rate by hydraulic fracturing. But the technology is very controversial in Germany, and the possibility of getting approval in Baden-Württemberg is questionable.

[Note: German Berenberg Investment Bank released a report on the initiation of trading of the Vulcan Energy Resources stock on November 9, 2021 – report link]

VER also calculates the efficiency of extracting lithium from warm deep water at 90 percent, according to Handelsblatt, which is significantly too high. Tim Murray thinks 70 percent of the report is more realistic. Taken together, the two factors – the over-calculated throughput and the overestimated efficiency in lithium extraction – are a “project killer.”

In the Wall Street Journal report published on November 17, which also discusses the JCap report, Tobias Tretter of Commodity Capital said: “We consider the stock Vulcan Energy to be absolutely overvalued. A market capitalization of 1.3 billion euros for a company that does not even have an authorization, it’s very sporty, ”explained Tretter to wallstreet: online heute. Tretter continues, ”The recently published Handelsblatt article and the issues it describes are definitely applicable. We do not believe that Vulcan Energy will get the permits for the geothermal power plants and then also receive funding for these mining operations over the next 10 years. “

Vulcan Energy Resources seeks legal action against allegations

Faced with the report, VER denied the allegations to the FAZ. The company is considering legal proceedings which have now been initiated and which lead to an injunction.[Note:envertudel’injonctionJCapnepeutpascommentersonallégationetaétécontraintdesupprimerlerapportoudelerendredisponibleLe16novembre2021l’AustralianFinancialReviewrapporteenfaitqueVulcan”pousseàgarderlesdocumentsduprocèssecrets”nedonnantaucunepossibilitéd’apprendrepourquellesraisonsilcherchaitàbloquerlerapportduvendeuràdécouvert}[Note:undertheinjunctionJCapcannotcommentonitsallegationandwasforcedtoremovethereportormakeitavailableOnNovember162021AustralianFinancialReviewactuallyreportsthatVulcan”pushestokeepthelawsuitdocssecret”givingnoopportunitytolearnonwhatgroundsitsoughttoblocktheshortsellerreport}[Remarque :envertudel’injonctionJCapnepeutpascommentersonallégationetaétécontraintdesupprimerlerapportoudelerendredisponibleLe16novembre2021l’AustralianFinancialReviewrapporteenfaitqueVulcan«pousseàgarderlesdocumentsduprocèssecrets»nedonnantaucunepossibilitéd’apprendrepourquellesraisonsilcherchaitàbloquerlerapportduvendeuràdécouvert}[Note:undertheinjunctionJCapcannotcommentonitsallegationandwasforcedtoremovethereportormakeitavailableOnNovember162021AustralianFinancialReviewactuallyreportsthatVulcan“pushestokeepthelawsuitdocssecret”givingnoopportunitytolearnonwhatgroundsitsoughttoblocktheshortsellerreport}

Additionally, VER board chairman Gavin Rezos attempted to discredit Tim Murray as the author of the report. He is an expert in Chinese political history and has no experience in finance, commodities, or energy. Murray replied to the FAZ that he studied Chinese political economy 30 years ago, but has since analyzed many commodities and energy companies.

However, there is also a certain conflict of interest for JCap: as a short seller of VER shares, the company benefits from declining share prices. VER CEO Francis Wedin blames the short seller. Murray told FAZ it was true, but his report was correct. After all, JCap was one of the first analysts to criticize Wirecard.

As a further argument from Wedin, the FAZ cites a positive analysis by German equity specialist AlsterResearch, which was only published last month. Asked by the FAZ, Oliver Drebing, an analyst at Alster, confirmed that he still trusts VER’s forecast. However, resistance to local geothermal projects could cause the project to fail. In this context, he spoke of “the most important obstacle”.

Finally, Chairman Rezos spoke of the in-depth review of Goldman Sachs and Canaccord Genuity, which then invested AUD 320 million in VER. Murray only said of the reliability of these assessments to the FAZ: “Ernst & Young verified Wirecard.”

The Australian Financial Review statements from early November should also be seen here: Canacord Genuity and AlsterResearch AG submitted positive analyst comments for VER. At the same time, however, they have a business relationship with VER, as can be read in the fine print. The same applies to Joh. Berenberg, Gossler & Co. KG, who consider direct lithium mining technology to be immature. However, like AlsterResearch AG, they recommend a purchase.

Since the release of the Short Sellers Report (currently not available), Vulcan Energy Resources has released a number of news (via its Investor Center)


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