Standard Lithium: Short Report A Big Ol' Nothing BurgerFeb. 04,...

Standard Lithium: Short Report A Big Ol' Nothing BurgerFeb. 04, 2022 3:07 PM ETStandard Lithium Ltd. (SLI)ALB, BLILF, CYDVF, HXLTF, LISMF, LLKKF, LTHHF, LTHM, PEMIF271 Comments39 LikesAustin Craig6.78K FollowersFollowSummaryA short seller report was released full of speculation, misdirection, and general omissions.This might present an opportunity for long term lithium / electric car investors.We go though the short seller report and point out flaws in the argument.omersukrugoksu/iStock via Getty ImagesAs a writer you have to respect good writing. The writers at Hindenburg Research (an infamous short seller firm) are quite talented. Part of a good short piece is throwing a ton of spaghetti at the wall. In some cases short sellers do good work; in other cases (when the tips cease to flow) they pen hit pieces. In this article we will review how much Hindenburg got right and how much it got wrong concerning Standard Lithium (NYSE:SLI). Was the $100 million investment (at $7.42) by Koch simply blissful ignorance? Let's explore some of Hindenburg's claims.Paint a PictureRealize a writer can write in several tones. We see the tone of general doom and gloom all over this report and why not? They are short after all. A good writer can paint a picture that might not reflect reality accurately, i.e., spinning reality in a twisted manner by omitting facts. So let's focus and examine the twists and omissions in the article.Nothing BurgersThe first gray tone in which Hindenburg tries to paint is stock promotion. (Another term for this is marketing.) This obviously carries a negative tone with investors, but in the mining industry stock marketing is the norm and is fine if disclosed by the promoter. Now of course marketing comes in various flavors: Paid interviews, research reports, and trade shows can all be considered marketing. Obviously, the first two are the ones to be cautious about. As long as the promoters disclose they are paid to write Bob Ross-like "happy little trees" pieces all is kosher, but the reader must be astute to recognize that any negative information will be ignored or glossed over in these paid reports. That is the danger in reports (be it a bullish or bearish report). Take them with a grain of salt. It is really not that much different from a short seller writing a misguided hit piece full of half truths and then admitting "Well, it is only my opinion, but I get paid if I bash it." In both cases your internal "Danger, Danger... Danger" needs to surface. The take away on marketing is to read, mull it over, and then do your own diligent research.Breaking Down the Hindenburg Groups MisdirectionAny questionable article is going to try to direct your mind down a singular path hoping you concur with their conclusions. It is a bit more organic if you put 2+2 together in your mind rather than the author having to tell you the answer is 4. Let's look at some pathing the author is attempting.1. Stock promotion aka Marketing. This is a reoccurring theme in the Hindenburg article and it is an easy win. Saying the word "promotion" comes with negative connotations. Yet (as previously stated) promotion is normal in the mining industry. Pull up ANY mining company and you will see some degree of promotion. Now how much promotion is too much is a topic of debate. Too much promotion and yes the stock price rockets up; but if the underlying company is not sound it then comes back to earth. Too little promotion and the company never gets the attention it needs and the share price does not rise. This limits the company's ability to tap the markets for capital in order to grow. The prudent thing to do is to examine peers and ask yourself "Is marketing out of line compared to peers?"Breath in Your Fear - DLENow that Hindenburg has pushed the company as having spent some money on marketing, next up they attack the technology being used by calling DLE (Direct Lithium Extraction) into question.Now on this one I got quite the kick out of the tone employed. DLE is everywhere in the industry. Many companies are using or testing DLE. One must also realize though that a part of the industry may not want DLE to be successful as they are extracting lithium via Brine (salt water) evaporation pools or they are crushing rocks to extract lithium.Clay and DLE is the new kid on the block and some vested interests do not want the new kid stepping on their turf. The report tries to paint a glass half empty picture by saying the the patent office has not reviewed one and the other 2 were turned down. The actuality is the one is currently "pending".Hindenburg then continues on to say that DLE is old tech. Well, yes, it is but like engines in cars. Car engines are rather old (1807 in fact) but that does not mean you will not see new patents for engines. The same applies for Standard Lithium.Frankly this point is a nothing burger presented by Hindenburg. Many companies are using DLE and I do not see any patent wars breaking out as, simply put, DLE is too common.But Wait There's More!To quote the late great Billy Mays "But wait there's more!" concerning DLE. Riddle me this. If DLE in general was so unsuccessful why would Bill Gates, Jeff Bezos invest in DLE technology via Liliac Solutions? Why are many players in the industry looking to DLE? Companies such as:Cypress Development (OTCQB:CYDVF) in Nevada has teamed up with none other than the famous Craig Brown of Chemionex (whom Hindenburg noted but failed to research.) If Craig Brown were so inexperienced and the process did not work it's a small wonder that Cypress Development went with it and paid Craig Brown $350,000 CAN dollars and 1 million shares in Cypress (Currently $1.44 USD).Pure Energy (OTCQBEMIF) - Has teamed up with Schlumberger for DLE in Clayton Valley Nevada.Note: Everyone in Clayton Valley, except Albemarle (ALB) has gone the DLE route to my knowledge due to extreme lack of water and ALB is eying DLE tech (more on this later).Author's Note, Feb 5:A point of clarificationA reader asked me about ALB in Clayton Valley with its brine ponds (solar evaporation) and why I said everyone is going with DLE because of a lack of water. Here is the reason all the small players are looking at DLE. ALB has rights to the bulk of water in Clayton Valley. I wrote about it here in detail. seekingalpha.com/...Per the article "Albemarle has the bulk of the rights at 20,000 afa of water use. The second largest holding is Intor Resource Corp (aka Nevada Sunrise) at 1,770 afa which Cypress Development is in the process of buying. Lastly, Scorpio Gold (SNG: TSX) (OTCPK:SRCRF) controls the Mineral Ridge Gold claim and has 1,610 afa water rights." This places all the hopeful small players (that have no water rights) in the position of they want to prove they have lithium and then get brought out by ALB. Hence DLE is the natural fit vs massive water use via giant ponds. Getting back on topic. HeliosX Lithium (OTCQBJIFF) - Formerly known as Dajin Lithium. They have teamed up with Liliac solutions for one of its Nevada properties.Lake Resources (OTCQB:LLKKF) - Has teamed up with Liliac.Vulcan Energy in Europe is going down the DLE route. Livent (LTHM) is using DLE and producing revenue. Lithium South (OTCQB:LISMF) is exploring DLE technology and the list goes on and on.Additional information about DLE and companies using it can be found via Matt Bolshen's article on the subject. It has some informative graphics in it. Moving on.Cherry Picking QuotesI also find it interesting when an author cherry picks a quote from a big name but provides no context nor the full picture. Case in point when Hindenburg quotes Eric Norris but skews the full picture by omitting quotes that go against the picture they are trying to paint. Hindenburg paints DLE in a negative light via:"It's more capital intensive and actually consumes a lot more water and energy" - Eric Norris, President of Lithium Division, Albemarle CorporationYet in the same article we see Eric Norris of Albemarle talking about Arkansas DLE in a somewhat positive light via:"Norris, Albemarle’s president for Lithium, said the company continues to look at its Magnolia-area chemical plants “as being a spot where we could process lithium in DLEs. There is potential technology for that.”(Source: Magnoliareport.com via the Hindenburg Report)You the reader are not being presented with the entire truth but simply one misdirected angle. So now it is time to paint my own picture for you and show you that the big boys are indeed looking at DLE.Albemarle and DLE TechLet's see if Albemarle is playing coy with us. Looking at the September 2021 Investor Day presentation, we see that 35% of sales are from bromine. Keep this in mind as we go to the next slide.Overview of ALB Revenue (Albemarle)(Source: Albemarle)Now realize that only two locations produce bromine for Albemarle (one of which is right next door to where Standard Lithium is operating). Looking at slide #26 of the ALB presentation, we can guess that the Arkansas location brings in 25% of bromine 2021 estimated capacity, if we assign them 175 kT of capacity.Bromine Capacity (Albemarle)(Source: Albemarle Slide #26)Do you think ALB is going to ignore the capability to tap that market much like Standard Lithium is currently endeavoring to do? I think not. Now let's do a bit of guesswork. Given all the locations ALB has world wide, it does not hurt them to expand tried and true processes (like lithium rock extraction or brine), while DLE technology is proven and matures. It hurts them nothing to watch Standard Lithium to see if the technology works, and (if so) mimic it for their bromine operation.Now realize that ALB has some DLE plans even though they might not advertise it constantly. We can theorize this via "Albemarle to double capacity at Silver Peak lithium brine operation". Note the use of the word "clay" in the below snippet. Clay = DLE in many cases. Per the article: