Vulcan Energy accused of misleading investors with positive PFS — report

Image: Vulcan Energy

Vulcan Energy Resources (ASX: VUL) is alleged to have misled investors by issuing a positive pre-feasibility study (PFS) with key assumptions provided by consulting companies owned by management, according to a new report from US-based short-seller J Capital Research.

Vulcan, backed in part by Australian investor Gina Rinehart’s Hancock Prospecting, is aiming to produce the world’s first “zero-carbon lithium” from what it considers to be Europe’s largest lithium resource in the Upper Rhine Valley of Germany.

In a report titled “Vulcan: God of Empty Promises”, the firm specializing in due diligence on public companies calls into question the validity of Vulcan’s claims of building a “profitable geothermal power and green lithium project” to serve the growing European electric vehicle market.

J Capital alleges the project may never actually get underway as the costs are higher than the company claims, output will be lower, the environmental impact is brutal enough that public outcry will block permits, as has happened before in the area, and the quality of the lithium resource is low.

J Capital alleges Vulcan’s management team low-balled the costs, thus making the project look profitable, and overstated the quality of the resource shown in the project’s pre-feasability study (PFS).

The study, which was issued in January, is rife with contradictions, J Capital says, pointing to Vulcan’s usage of so-called “independent experts” who presented contradictory information such as operating costs and discount rates to the German government.

“The PFS contained an unrealistic assumption for the flow rate that beautified the project and can be easily disproved scientifically,” J-Capital says.

Vulcan also claims to have a recovery rate of 90% for the lithium, while other projects with the same lab performance are estimating with a 70% recovery rate, it adds.

Upper Rhine geothermal projects’ actual flow rate vs Vulcan’s assumed rate (l/s). Source: J Capital Research

“Realistic assumptions would halve the output of lithium and kill the commercial viability of the project,” J Capital says.

Vulcan has also reportedly declined to reveal key information about the direct lithium extraction (DLE) technology critical to removing lithium from the brine at a reasonable cost, but claimed to have costs that will be half those of similar proposed projects that are clear about their DLE method, according to J Capital.

More realistic flow and recovery rates will lower lithium output by 50% compared with the PFS, their research estimates.

Here is Vulcan Energy’s response released to the ASX on Wednesday in Australia:

Response to online report 

“Vulcan Energy Resources Ltd. (“Vulcan”, “VUL”, “the Company”) has been requested by ASX to respond to a report published online by a group called “J Capital”. 

“On J Capital’s website, the following information is included: “Be warned. We are activists, usually on the short side. We are biased.” It also states “…we will profit if these stocks decline…”, and the report states that J Capital is “short” Vulcan. J Capital also state that they do not hold an Australian Financial Services License (AFSL). 

“The report is authored by a Mr. Tim Murray, co-founder of J-Capital, who according to his own bio has lived in China for 19 years and has a degree in “Chinese Political Economy”. Based on his online profile, it is not apparent that Mr. Murray has any technical qualifications in geothermal energy or lithium extraction. 

“Mr. Murray’s report makes a large number of inaccurate statements and assertions regarding Vulcan and its Zero Carbon Lithium™ Project, in particular its Pre-Feasibility Study (PFS) published over nine months ago. Given the warning on J Capital’s website, it is clear the report is merely an attempt to profit from “shorting” Vulcan. 

“Vulcan’s team of approximately 80 personnel, with globally unique experience in geothermal energy project development and direct lithium extraction, continue to work and remain focused towards executing on our Project, which we believe will be important in assisting with decarbonising the lithium-ion battery and electric vehicle supply chain in Europe, as well as to provide renewable energy for local communities at a time of energy crisis leading into COP26. 

“We are highly motivated towards achieving our goals of decarbonising these industries, and will always happily dedicate time and effort to answer any questions about our Zero Carbon Lithium™ Project that come from stakeholders with a genuine interest in the Company and the Project.”