Lake Resources N.L. (ASX: LKE) shares will be worth watching closely on Tuesday.
Yesterday, the lithium developer was the subject of a scathing short attack from J Capital.
J Capital has previously targeted Nearmap Ltd (ASX: NEA), Vulcan Energy Resources Ltd (ASX: VUL), and WiseTech Global Ltd (ASX: WTC).
What is Lake Resources?
Firstly, a bit of background. Lake Resources is a clean lithium developer aiming to use an unproven direct lithium extraction (DLE) technology for the production of sustainable, high purity lithium from its flagship Kachi Project in Catamarca Province within the Lithium Triangle in Argentina.
The company caught the eye recently when its CEO, Steve Promnitz, quit with immediate effect and without comment. He also promptly sold all of his 10.2 million shares the next day.
What is J Capital saying about Lake Resources shares?
According to the report, its analysts believe Lake's DLE technology isn't going to work as planned and will "still use large amounts of water and produce toxic waste."
The short seller also highlights that the technology, which is owned by partner Lilac Solutions, has lost an important supporter recently. It said:
Based on our research into cooperation partners, we are sceptical that the DLE technology developed by Lilac Solutions "Lilac" works. We have discovered that Warren Buffet's Berkshire Hathaway Energy Renewables (BHE) has "parted ways" with Lilac.
Investors still have no evidence that the Lilac DLE technology works at scale and if so at what cost. If the DLE technology works then the number of "cycles" for which the extraction medium can be used will be a key cost driver. If the medium can only be used for a few hundred cycles then the costs may be prohibitively high.
The short seller also has doubts over Lake Resources' production timeline. The company is aiming to begin production in 2024, but J Capital feels this is highly unlikely.
Lake claims that it will be in production in 2024. Lawyers in Argentina that we spoke to, who are familiar with mining projects in the area, said it would take at least 3 years for the project to be up and running. They considered this project to be in early-stage development.
Insider sales and option issues
J Capital has taken aim at management for consistently selling shares and for the company rewarding research firms with options.
Lake insiders have successfully sold $8.1 mln in stock in the last year. Lake granted 41.5 mln options to financial institutions that published favourable research on the company. Insider share sales have followed a pattern of Lake announcement, followed by favourable research, stock price rise and then insider sales.
At the time of writing, Lake has not responded to the short attack.
