Standard Lithium (SLI -2.46%) stock crashed this morning, plummeting 15.4% as of 10:58 a.m. ET Thursday thanks to a scathing short-seller attack.
Standard Lithium doesn't mine lithium but uses a technology called LiSTR to directly extract lithium from brine. It has a couple of agreements to explore and extract lithium from brine, including one with Germany-based specialty chemicals company Lanxess. Standard Lithium is developing a 150,000-acre flagship project in south Arkansas with Lanxess.
On Nov. 18, Blue Orca released a short-seller report containing some serious allegations against Standard Lithium. Here are some you must know.
- Lower-than-reported recovery rate: Standard Lithium claimed it achieved 90% lithium recovery rate at its demonstration plant built on Germany-based partner Lanxess' bromine facility in south Arkansas. Blue Orca says the company's regulatory filings reveal the project, running for 18 months now, is "barely achieving a fraction" of the projected recovery rate.
- Poor output: Blue Orca says Standard Lithium's demonstration plant has produced only 66 pounds of lithium carbonate to date per regulatory filings, as opposed to the company's claims that it can produce 100 to 150 tonnes per year. Blue Orca also points out that the plant is already nearing the end of its permitted operating life of 18 months.
- Contradictory claims: Standard Lithium claimed it hit "proof of concept" for its technology in December 2020, following which the company can receive funding from Lanxess to construct its flagship commercial plant. Blue Orca quoted Lanxess' CEO from the company's second-quarter conference call as saying Lanxess would inject money only once "proof of concept" from the company's perspective "is fully there in all aspects."
- Questionable viability of lithium extraction at South Arkansas: Blue Orca points out that Albemarle (ALB -1.01%) gave up on its idea to extract lithium from brine in the Smackover formation in south Arkansas because of high operating costs and capital requirements. Blue Orca asks, If the world's largest lithium producer couldn't find lithium extraction in a region economically viable after trying for a decade, how successful could Standard Lithium possibly be?
Blue Orca calls Standard Lithium's a "classic penny stock" given how the company is generating "zero" revenues, burning cash, diluting shareholder wealth, and enriching management with "generous consulting payments and equity grants." It also points out that Standard Lithium has received a "going concern" warning from its auditor, which is uncommon for a company with a market capitalization of over $1.4 billion.
While you should take short-seller reports with a grain of salt, I have called Standard Lithium a speculative stock multiple times in recent weeks, especially after its rally, because the company has yet to prove the viability of its brine-to-lithium technology. While you await a response from the lithium company, you might want to check out other lithium stocks that have proven businesses and are already riding the electric vehicle wave -- one that Standard Lithium is also betting on.