Lake Resources N.L. (ASX: LKE) shares have been in sensational form over the last couple of months.
Since this time in July, the lithium developer's shares have rocketed a whopping 80% higher.
However, despite this impressive gain, Lake Resources shares remain one of the most shorted on the Australian share market.
As covered here, earlier this week approximately 10% of its shares were in the hands of short sellers.
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Why are short sellers targeting Lake Resources shares?
Short sellers often keep their thoughts to themselves, which can make it hard to know exactly why a share is being targeted.
The good news for us, is that research firm J Capital has been very vocal on why it is targeting Lake Resources, so there are no mysteries here.
According to the note, one of the key reasons that J Capital is shorting Lake Resources is its direct lithium extraction (DLE) technology. Its analysts believe that this unproven technology will fail to produce lithium in a clean way and instead produce toxic waste. Which certainly is not something you want to do in the current ESG-focused environment.
J Capital commented:
Lake is claiming to produce "cleaner lithium". We believe, however, DLE will still use large amounts of water and produce toxic waste. Lake has failed to get an operational pilot plant on site three years after promising it would.
Most explorers are working with multiple DLE technology suppliers to discover which may be the best at working at scale. 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.
It is worth noting that Lake has refuted much of J Capital's claims. However, until the technology is proven and the company is producing lithium as planned, short sellers don't appear in a rush to close positions.
