Lithium producer Lake Resources downplays windfall from short selling

The chairman of one of the world’s most ambitious emerging lithium producers says fears of oversupply of lithium “defies logic”, despite a sale of the company’s shares following the resignation of its chief executive. chief executive and as warnings mount of a glut.

A selloff that began last week erased more than 50% from Lake Resources’ stock price to close at A$0.87 ($0.60) on Monday after a slight rally.

This followed the sudden resignation of chief executive Stephen Promnitz on June 17, who sold his roughly 1% stake in the company.

Lake Resources was one of the most shorted companies on the Australian Securities Exchange last Tuesday, with more than 7% of shares held short, according to data from the Australian Securities and Investment Commission.

The sale came as analysts warned that higher-than-expected investment in lithium supply could outpace demand as the threat of a global recession risks lowering demand for electric vehicles.

But Lake Resources Chairman Stuart Crow dismissed claims that Promnitz’s actions hinted at deeper issues.

“We are already in a lithium supply deficit,” he said. “The demand is exponential. Supply response is limited at best.

Lake Resources plans to extract lithium from brine in Argentina using new technology developed by US group Lilac Solutions, backed by Bill Gates.

It aims to produce 50,000 tonnes of lithium carbonate per year by 2025, around 10% of total global production last year, and has signed memorandums of understanding to supply US automaker Ford and to the Japanese trading company Hanwa 25,000 tons per year each.

But the company has not started commercial production and must clear a number of hurdles, including testing Lilac’s production capacity, before making a final investment decision.

A short seller, who asked not to be named, said the high rate of short selling was notable because the company’s shares were difficult and expensive to borrow, showing that short sellers believed the stock was significantly overvalued because they were willing to pay a premium to borrow. this.

He said Promnitz’s decision to sell his shares was a bad sign. “If I didn’t have faith in the company, I would quit and sell my shares when the price was high,” the short seller said.

David Talbot, mining analyst at Canadian group Red Cloud, said last week’s share price plunge was a “great investment opportunity to buy Lake Resources at a lower entry point.”

Crow, the chairman of Lake Resources, said the company was in the process of moving its headquarters to Miami in the United States and had been looking for a new US-based chief executive for six months.

He said Promnitz was not in contention for the top job and would have been demoted to a lower position in the company had he stayed. Promnitz did not respond to requests for comment.

Crow said Lake Resources was “one of the few ‘lithium producers’ with an uncommitted drawdown looking to go into production”, and predicted that would be an advantage as prices were likely to rise.

But Credit Suisse analyst Saul Kavonic said there were indications of oversupply in the lithium market.

“Just three or four months ago the lithium market looked like it was in the grip of prolonged deficits for the next few years and there was very little that could stop that,” he said.

“But we can now see oversupply developing for the lithium market next year. On the supply side, we are seeing much faster mining expansion in response to high price signals.

He said high lithium prices have prompted Chinese automakers to shift production from fully electric vehicles to hybrid electric vehicles, which consume less lithium.

He said this demand destruction could be heightened if a global recession hit consumer demand for electric vehicles, which he said were still luxury items.