Short-seller allegations against geothermal lithium player Vulcan Energy Resources

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

The FAZ quotes from the JCap report that VER has made completely exaggerated statements about the likely feasibility of the project, its profitability and the environmental impact. In addition, supposedly independent forecasts were made by companies that were burdened with conflicts of interest vis-à-vis VER.

In January, a feasibility study on behalf of VER promised a billion-dollar deal, which aroused the interest of investors. According to the FAZ, the value of the VER shares rose by 3,000 percent last year, the Handelsblatt writes of a price increase of 500 percent since the beginning of the year. Even after the short sale attack, the company is still valued at AUD 1.3 billion (around EUR 830 million).

But the JCap report sees a less bright future for Zero Carbon Lithium. It may never be realized, and even if it does, profitability is questionable. “This project has no perspective”, quoted the FAZ Tim Murray, the 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 consider implementation difficult

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

The Handelsblatt gives even more facts here. The pre-feasibility study by VER calculated with delivery rates of 100 to 120 liters per second. A value that experts from the geothermal industry would have described as being clearly too high even before the J-Capital report was published. VER founder Horst Kreuter admitted to the Handelsblatt that the numbers might be a bit optimistic, but justified his estimates by saying that they were based on the latest technology.

Experts in the UnLimited research project, which is researching the possibilities for lithium extraction at the Bruchsal geothermal plant ( we reported ), are also assuming lower flow rates with around 70 liters per second. In this context, the approx. 40,000 tons of battery-compatible lithium carbonate equivalents (LCE) announced for 2025, which are to be extracted with just 28 wells, as the analyst Joh. Berenberg, Gossler & Co. KG describes, appear unrealistic. The Handelsblatt mentions the option of increasing the production rate through fracking. But the technology is highly controversial in Germany and the ability to obtain 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]

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

In the report of the Wall Street Journal published on November 17th , which also deals with the JCap report, Tobias Tretter from Commodity Capital is quoted saying: “We rate the Vulcan Energy share as absolutely overvalued. A market capitalization of EUR 1.3 billion for a company that doesn’t even have a permission is very sporty, “Tretter explained to wallstreet: online heute. Tretter continues,” The article recently published in the Handelsblatt and the problems it describes are definitive applicable. We do not believe that Vulcan Energy will obtain the permits for the geothermal power plants and then also receive funding for these mining operations within the next 10 years. ”

Vulcan Energy Resources is seeking legal action against the allegations

When confronted with the report, VER denied the allegations to the FAZ. The company is considering legal steps that have now been initiated and lead to an injunction. [Note: under the injunction JCap cannot comment on its allegation and was forced to remove the report or make it available. On November 16, 2021 Australian Financial Review actually reports that Vulcan “pushes to keep the lawsuit docs secret” giving no opportunity to learn on what grounds it sought to block the shortseller report.}

In addition, the VER board chairman Gavin Rezos tried to discredit Tim Murray as the author of the report. He is an expert on Chinese political history and has no experience with finances, raw materials or energy. Murray countered the FAZ that he studied Chinese political economy 30 years ago, but has since analyzed many raw material 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 falling share prices. The CEO of VER, Francis Wedin, accuses the shortseller of this. Murray told the FAZ that this 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 the German stock specialist AlsterResearch, which was only published last month. When asked by the FAZ, Oliver Drebing, an analyst at Alster, confirmed that he still trusts VER’s forecasts. However, resistance to local geothermal projects could cause the project to fail. In this context he spoke of the “most important hurdle”.

Finally, the chairman of the Board of Directors Rezos referred to the in-depth company review of Goldman Sachs and Canaccord Genuity, which then invested AUD 320 million in VER. Murray only said about the reliability of such evaluations to the FAZ: “Ernst & Young has checked Wirecard.”

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