Standard Lithium (SLI -2.46%) stock bounced back sharply today after plunging yesterday, rising as much 12.9% as of 11:55 a.m. ET. Investors are buying into the lithium company's response to a short-seller report.
On Nov. 18, Blue Orca made several allegations against Standard Lithium, calling it a classic penny stock and questioning its lithium recovery rates and the viability of its business of extracting lithium directly from brine, among other things. This morning, Standard Lithium's management called the report "false and misleading."
Blue Orca's key point is that Standard Lithium's claimed recovery rate of 90% at its demonstration plant in south Arkansas was false, as the company's regulatory filings revealed the project was only achieving a fraction of the projected recovery rate.
In clarification, Standard Lithium said Blue Orca has misunderstood the scope of the data reported to the Arkansas Oil and Gas Commission (AOGC), and that the data given to AOGC, as per norms, includes only the volumes of lithium chloride solution stored at Standard Lithium's site and not necessarily the volumes it actually recovered in a given period.
Explaining further, Standard Lithium said its demonstration plant was continuously producing lithium chloride solution that's then reinjected into the brine formation, and only a portion was temporarily stored at the site to be sent for conversion into battery-grade lithium carbonate. It's only this stored portion that was reported to AOGC.
Standard Lithium also refuted Blue Orca's allegation that its demonstration plant was producing only a fraction of the projected 100-150 tonnes. Standard Lithium said the plant was continuously processing brine flow of 50 gallons per minute, or the equivalent of 100-150 tonnes per annum of lithium carbonate. Again, Standard Lithium said the plant wasn't built to store lithium chloride but only aims to optimize the process of converting lithium chloride into sufficient quantities of solid lithium-carbonate off-site. It is this lithium carbonate that Standard Lithium eventually aims to sell to lithium-ion battery manufacturers.
It's encouraging to see Standard Lithium respond to a short-seller report within a day's time, but it's worth noting the company didn't respond to Blue Orca's "proof-of-concept" allegation.
Standard Lithium has a memorandum of understanding with Germany-based Lanxess to test and prove the commercial viability of extracting lithium from brine produced at Lanxess' bromine extraction facilities in south Arkansas. Standard Lithium is currently operating a demonstration plant for the same, and it's only upon proof-of-concept that Lanxess will fund the construction of a commercial plant.
On Dec. 3, 2020, Standard Lithium claimed to have "successfully completed the start-to-finish proof of concept." But in August 2021, Lanxess said on its second-quarter earnings call that it would only inject money once proof-of-concept from its perspective "is fully there in all aspects."
In other words, while Standard Lithium's December statement may have led investors to believe that the company is close to setting up a commercial plant, Lanxess' words suggest otherwise. So while I urge investors to do their due diligence and not make investment decisions based on a short-seller's views, they'll want to tread cautiously with Standard Lithium. The company is yet to prove the viability of its lithium technology at a time when other lithium stocks are already making waves in the hot electric vehicle space.