Iperionx Ltd (ASX: IPX) shares are crashing on Monday after returning from a trading halt.
In early trade, the ASX 200 share was down as much as 24% to $4.24.
The titanium powder producer's shares have recovered a touch since then but remain down 12% at the time of writing.
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What is going on with this ASX 200 share?
Investors have been selling Iperionx shares after it was the subject of a short seller report from Spruce Point Management.
The short seller believes that the ASX 200 share could be "significantly overvalued" and highlights that it faces significant challenges to commercialise its products. It said:
After conducting a forensic review of IperionX Ltd and its ambitions of becoming a vertically integrated producer (mining to production) of titanium powders and products, we believe that investor expectations are too high, and it faces significant challenges in commercial efforts that may not be fully reflected in its valuation. We also express concerns with the accuracy of its financial reporting.
We applaud IPX's desire to reshore the U.S. titanium supply chain with a lower cost and more environmentally friendly production process and think management is competent and capable. However, we do not believe the end markets to be attractive or that its highly promoted HAMRTM process is likely to "revolutionize" the industry or displace the 70-year established Kroll process. As such, we question IPX's economic rationale for expanding capacity when it has few customer contracts and no historical revenue.
Spruce Point Management believes there could be potential downside of up to 95% for investors. It concludes:
Originally a penny stock named TAO Commodities, then Hyperion Metals, and now IperionX, the Company has a $1.2 billion market cap and is trading at 9.7x and 24x book value and 2026E revenues vs. the specialty metal industry median of 1.4x and 1.8x, respectively. Based on our analysis, we believe investors should exercise caution because the shares may be significantly overvalued, with potential downside risk of 70% – 95% under certain scenarios outlined in this report.
Iperionx responds
This morning, the ASX 200 share responded to the short seller attack. It notes that the short seller didn't engage with management at any time before releasing its report, it said:
IperionX maintains confidentiality, data-security and intellectual-property controls that meet the stringent contracting requirements of the U.S. Department of War (DoW). IperionX remains focused on executing the commercial scale-up of titanium production and manufacturing in Virginia.
Spruce Point Capital did not engage with IperionX management at any time before releasing its short seller report, and the Company has no record of any attempted outreach by phone or email. Spruce Point Capital has never visited, or requested to visit, IperionX's titanium manufacturing operations in Virginia.
It also went into detail to speak about its patented technologies, US government support, sales contracts, and its addressable market. However, this doesn't appear to have been enough to stop some investors from hitting the sell button on Monday.
