Short seller J Cap rips into lithium darling Lake Resources

Notorious short seller J Capital is ripping into lithium hopeful Lake Resources (ASX: LKE), taking jabs at its direct lithium extraction (DLE) technology, insider selling and paying options for favourable research reports. 

To save face (and the risk of a massive dip at open), Lake Resources shares will be halted until Thursday, 14 July as management prepares for a rebuttal and possibly legal action.

Why J Capital is shorting Lake Resources

A questionable technology partner

The short report claims that "investors still have no evidence that the Lilac DLE technology works at scale and if so, at what cost."

J Capital reviewed the 9 companies that have disclosed a partnership with Lilac's DLE technology - only two are 'clearly' continuing to work with Lilac.

Pilot plant behind schedule

The report views a working pilot plant as a critical piece of infrastructure to progress the project and a pre-requisite for a Definitive Feasibility Study.

J Capital claims that the pilot plant was first promised to be delivered to the Kachi site in Argentina in the first-half of 2019. The pilot plant has yet to arrive and yet to demonstrate that it works on-site.

Cost and ESG problems

The short report estimates costs to be upwards of US$30,000 to US$100,000 per ton of lithium carbonate, which is not economic to produce.

Engineers familiar with DLE processes told J Capital that there is "still a lot of toxic waste and high water usage".

Lake has not provided any details regarding costs, waste or water usage in feasibility studies to date.

Non-binding

J Capital believes Lake announcements are full of fluff, with non-binding offtake agreements with Ford and Hanwa, an 'expression of interest' from UK Export Finance and a 'letter of interest' from Export Development Canada.

Paying for coverage

J Capital identified four financial service companies that provided positive research reports for Lake Resources, in exchange for shares and options.

Source: J Capital

What happens next?

Management is likely busy preparing a rebuttal to all the points mentioned above.

It might be a good time to revisit how Vulcan Energy (ASX: VUL) responded to J Capital's short report last October.

Though, that debacle ended up with an apology and settlement from J Capital.

Lake Resources price chart