Commodities & Metals

Have Lithium Stocks Lost Their Juice?

One of the lithium industry’s leading stocks this year was clobbered Thursday morning following a negative report from a short seller. Standard Lithium Ltd. (NYSEAMERICAN: SLI) traded down by as much as 16% Thursday after Blue Orca Capital questioned the company’s claims for its unique lithium extraction technology.

Including Thursday’s drop, the company’s stock was up about 290% for the year to date, essentially the same increase as Sigma Lithium Corp. (NASDAQ: SGML). Sigma stock traded down about 1.7% on Thursday morning. The only lithium mining stock that traded up in the morning was Lithium Americas Corp. (NYSE: LAC).

Standard Lithium is based in Canada and is focused on developing its  150,000-acre Lanxess Project in the brine region of southern Arkansas. The company touts its direct lithium extraction (DLE) process as capable of “vastly reduc[ing] the recovery time of extracting lithium from brine from as long as a year for conventional evaporation pond processing to just several hours. The process may also prove to be much more environmentally friendly with a significantly smaller footprint–compared to the conventional evaporation pond processes.”

Blue Orca’s report cited several issues with Standard Lithium’s communications with shareholders, along with a couple of technical reasons, for the negative review. Blue Orca charges that production records for the company’s demonstration plant that have been filed with the Arkansas regulator “indicate that actual recovery rates are far lower than projected by the Company, indicating that the Demonstration Plant is extracting far lower quantities of lithium than should be the case.”

The short seller report also claims that the country’s largest lithium producer, Albemarle Corp. (NYSE: ALB) “chose not to pursue DLE in Arkansas because the operating costs and capital requirements were too onerous given the quality problems with the lithium extracted. … If Albemarle was unable to achieve economically viable lithium extraction in southern Arkansas in 10 years of trying, despite deeper technical expertise and a balance sheet 100x the size of the [Standard Lithium’s], we think it is highly unlikely that Standard Lithium has much more success.”

Looking at Standard Lithium, Sigma and Lithium Americas, it is pretty clear that each is trying to separate itself from the pack of mining companies all chasing lithium. Standard’s DLE process is supposed to shorten dramatically the time it takes for water to evaporate. Sigma claims an environmentally friendlier extraction method while Lithium Americas has recently received legal permission to explore a lithium deposit at Thacker Pass in northern Nevada and, two weeks ago, agreed to pay $400 million to acquire Argentina’s Millennial Lithium, mostly to keep the company out of the hands of one of China’s top battery makers, CATL.

Shares of Lithium Americas traded up about 1.8% shortly before noon Thursday, at $33.52 in a 52-week range of $8.95 to $36.49. When the company reported quarterly results on Monday, it claimed cash and equivalents of $482 million and $134 million in available credit. The company had no revenue in the quarter and posted a net loss of $17.2 million.

Sigma Lithium traded down less than 1% just before noon Thursday, at $9.10 in a 52-week range of $1.68 to $9.97. Fewer than 100,000 shares of Sigma stock are traded on an average day.

Standard Lithium traded down about 10% to $8.88, in a 52-week range of $1.80 to $12.92. More than three times the average daily volume of 2.2 million shares had traded thus far Thursday.