Far East Capital Research Note For information purposes only Non holder and not invest in this story either way.
http://www.fareastcapital.com.au/imagesDB/newsletter/WeeklyComm30October2021.pdf
“Vulcan: God of Empty Promises”
During the week I received research from Tim Murray, from
J Capital Research Limited, covering Vulcan Energy
Resources (VUL). Now, I have never really covered Vulcan
because by the time I was aware of it, the price had
skyrocketed. I don’t like playing catch up, so intuitively, I left
it alone and missed out on a stock that went up 80x. Could
that stock price be too good to be true?
Tim said in his research “We think they (Vulcan) have acted
deceptively. They have based highly optimistic assumptions
for the project on work done by small consultancies that
were owned by management and acquired by Vulcan”. A
comment like this, where an analyst puts his c### on the
block, is worth further consideration.
Vulcan aims to utilise geothermal power on a lithium project
that will provide saleable power as well as powering a brine
extraction operation that will produce lithium, but Tim says
“that the project may never actually get under way: 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”.
Further, “We believe Vulcan management has misled
investors by issuing a positive Pre-Feasibility Study (PFS)
with key assumptions provided by consulting companies
owned by management. Those same managers are
incentivized with performance stock based on the positive
PFS. In effect, management is low-balling the costs and
overstating the quality of its resource. They have pushed
down discount rates to make the project look profitable.
Vulcan has also declined to reveal key information about
the direct lithium extraction (DLE) technology critical to
removing lithium from the brine at reasonable cost”.
We are neither agreeing or disagreeing with what Tim has
written, as we have never researched the company
ourselves. Nevertheless, the fact that Tim has gone to print
must mean that he is confident of what he is saying. Is this
fake news or is it something we should take seriously? The
report was dated 26th October. It caused Vulcan to go into
a trading halt and come out with a 10 page ASX release in
which it rejected the accuracy of the research, saying
amongst other things, that “The Report contains many
claims that are wrong and misleading. Vulcan categorically
rejects the claims contained in the Report in detail below.
While the wrong and misleading statements in the Report
are too numerous to mention.”
Notwithstanding the response, the market is obviously
spooked. The shares fell 16.5% on Friday with nine million
shares trading, to close at $12.51. This could be an
interesting spat to follow
A big promoter of Vulcan has been the online publicist,
Next Investors. It is interesting to see it on the defensive
side of the fence for a change. Yesterday it emphasised the
short selling nature of the news flow in a lengthy email,
adamant that Vulcan was still a good company. That is a
natural response because its reputation is on the line, but
what if J Capital’s opinions are well founded? What if the
shorting activity was based on genuine concerns? Is the
truth coming home to roost? Both sides of the fence can’t
be right.
In the life cycle of a share price a strongly performing stock
sucks in buying as the punters follow the money. It is all
about momentum. The stronger the share price the more
convinced the buyers become. If an analyst proffers a
contrarian view he is usually told to got get out of the way.
Yet, I have seen many occasions where the analyst is
correct but it can take 1-3 years for the truth to come to
light. Punters give the truth scant recognition because the
only thing they care about is the direction of the share
price. Analysts be damned. A good example of this is Syrah
Resources (SYR).
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