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Lake NL Resources (ASX:LKE) Stocks will be worth watching closely on Tuesday.
Yesterday, the lithium developer was the subject of a short scathing attack from J Capital.
J Capital previously targeted Nearmap Ltd (ASX:NEA), Vulcan Energy Resources Ltd (ASX: VUL), and WiseTech Global Ltd (ASX: WTC).
What is Lake Resources?
First, a little background. Lake Resources is a clean lithium developer that aims to use unproven direct lithium mining (DLE) technology for the production of sustainable high-purity lithium from its flagship Kachi project in the province of Catamarca, in the triangle lithium in Argentina.
The company recently drew attention when its CEO, Steve Promnitz, resigned effective immediately and without comment. He also quickly sold all of his 10.2 million shares the next day.
What does J Capital say about Lake Resources shares?
According to the report, its analysts believe Lake’s DLE technology will not work as expected and will “still use large amounts of water and produce toxic waste.”
The short seller also points out that the technology, which is owned by its partner Lilac Solutions, has recently lost significant support. It said:
Based on our research on cooperation partners, we are skeptical about the functioning of the DLE technology developed by Lilac Solutions “Lilac”. We have discovered that Warren Buffet’s Berkshire Hathaway Energy Renewables (BHE) has “split off” from Lilac.
Investors still have no proof that Lilac DLE technology works at scale and if so at what price. If DLE technology works, the number of “cycles” the extraction medium can be used for will be a key cost factor. If the media can only be used for a few hundred cycles, the costs can be prohibitive.
The short seller also has doubts about Lake Resources’ production schedule. The company aims to begin production in 2024, but J Capital believes that is highly unlikely.
Lake says it will be in production in 2024. Argentinian lawyers we spoke to, who are familiar with mining projects in the region, said it would take at least 3 years for the project to be operational. They considered this project to be in its infancy.
Insider Selling and Options Problems
J Capital has attacked management for steadily selling stock and for the company to reward research firms with options.
Lake Insiders have successfully sold $8.1 million worth of stock over the past year. Lake granted 41.5 million options to financial institutions that published favorable research on the company. Insider stock sales followed the pattern of Lake’s announcement, followed by favorable searches, a rise in stock price, and then insider sales.
As of this writing, Lake has not responded to the short attack.