Spotlight Round-up: 29th October 2021
29th October 2021
We all know that investment in junior and emerging miners comes with risk, but when we look to put our money into a company that seems to have potential, we’re putting our faith in the truthfulness of the information provided by the company. There’s not really an alternative to doing that; we need information to judge whether to invest, and companies have to provide accurate assessments of their projects, right? But there are pitfalls awaiting the incautious. Today I want to look at a case study that that serves as a warning for investors: Vulcan Energy Resources (ASX:VUL), who are accused of publishing a misleading pre-feasibility study (PFS). But there are other potential sources of misinformation out there; for more on that, check out Spotlight’s recent investigation into scummy Twitter cabals that have a real effect on markets and damage honest junior miners.
So, what’s going on with Vulcan? The company’s flagship project is a lithium and geothermal energy plant in Germany, which it claims could be the first zero-carbon lithium producer in the world. But on the 26th of October, a group called J Capital published an exposé on their website taking aim at Vulcan, with big claims that the company had fudged the numbers on the project’s PFS. Let’s list out the issues J Capital pointed to in its report:
- Key claims in the PFS were produced by two supposedly independent consultancies, Gec-co and GeoT, which were acquired by Vulcan right after the PFS was published and before that had close management ties to Vulcan.
- Gec-co’s estimate in the PFS of a 76% profit on energy from the geothermal plant, after operating costs are deducted from the generous feed-in tariff, directly contradicts a report the same company presented to the German government in 2019, in which operating costs were assessed as much higher. This would leave the Vulcan project operating at a pretty significant loss. The government report from Gec-co also panned prospects for unsubsidised deep geothermal energy in general.
- Gec-co and GeoT provided estimates for flow rates and lithium recovery rates that were unrealistic and not known to be achievable using current technology. Compared to other projects, Vulcan estimated flow rates of 100-120 litres/second vs. 50-80 litres/second, and a lithium recovery rate of 90% vs. a more usual 70%. These numbers are the difference between the project being profitable and loss-making.
- Vulcan is over-estimating overall lithium concentrations in the project, because there is substantial risk of drilling into formations with low-grade brine, and even its top numbers are less than half of those in still-struggling lithium brine extraction projects like Salton Sea in California. This again calls into question the potential for profitability.
- Vulcan’s claims that it has Direct Lithium Extraction (DLE) technology that will cause the project to turn a profit are unverifiable and unlikely to be true, because the company will not release details like which absorbent it will use. Its comparisons to DLE usage at projects like Livent in South America are to proprietary technology that is operating in vastly more favourable geological and engineering conditions.
- Vulcan has not published details of the expected failure rate of incredibly expensive deep geothermal wells, but there is a history of well failure in the region that J Capital guesses could be as high as 40% for Vulcan’s projects, which will lead to massive capital cost overruns. In addition, the number of production and re-injection wells planned by Vulcan at each of its five proposed locations is unprecedented in Germany.
- Public resistance to geothermal projects on the basis of increased seismic activity could easily block the project before it begins, with two previous projects in the region being shut down for exactly this reason. Locals report little to no public messaging from Vulcan to mitigate this risk. Permitting alone will take 12 months if there is no opposition, calling into question the very fast timetable to production in the PFS.
This all seems damning. In response, Vulcan halted trading of its shares on the ASX on Wednesday, and the exchange demanded a response from the company, which it provided. It went on the attack with two key points: that J Capital does not appear to have any expertise in lithium extraction or geothermal energy, and, crucially, that J Capital’s website makes it pretty clear that it is short Vulcan and stands to make a profit if its stocks fall. This incentive to trash to project cannot be overlooked: to repeat, J Capital has a financial interest in damaging Vulcan’s stock. But J Capital published a response to Vulcan’s response (I’m suddenly reminded of my high school debating days) on the 28th, pointing out that Vulcan’s statement did not really address any of the key issues in the initial report and was simply a hit J Capital.
Let me make one thing abundantly clear: this is a newsletter, not investment advice of any kind, and I’m in no way saying you should by or sell stocks in Vulcan or any other company. But this saga makes a good study in caution and due diligence for investing in junior miners. It’s important for all investors to look not just at the claims issued by a company, but to gather independent information about the region, the market and the technology with which they intend to operate. Both sides of this shemozzle have a vested financial interest in their positions, and it’s up to investors to sort out the details and choose what risks to take.
Again, if you’re interested in the kinds of shenanigans that can happen with junior mining stocks, it’s worth checking out Spotlight’s recent investigative article on pump-and-dump scams operating on Twitter. Always be wary, friends.
Around the Traps
Aurion Resources (TSXV:AU, OTCQX:AIRFF) keeps on pumping out the news this month. It announced yesterday that it had signed another option agreement with B2Gold (TSX:BTO, NYSE:BTG), this time on the 53 km2 Kuortis property in Finland, which is adjacent to the JV property already shared by the two companies.
Huge news for Guanajuato Silver (TSXV:GSVR, OTCQX:GSVRF), who have completed the first shipment of precious metals concentrate from their refurbished El Cubo mine and processing facilities in Mexico. Processing is ramping up and the company is expecting recovery rates from stockpiled ore to increase over time as well.
Mawson Gold (TSX:MAW, FRA:MXR, PINK:MWSNF) has a lovely bit of news about some fantastic results from its drilling at the Sunday Creek project in the Victorian goldfields in Australia. The company hit 0.4 m at 145.5 g/t Au and a whopping 20% antimony, with good numbers over longer intervals as well.
It’s always exciting to see what geophysical work turns up under the surface, and Palladium One (TSXV:PDM, FRA:7N11, OTC:NKORF) has found four new targets at its Tyko copper-nickel project in Ontario using VTEMmax. The targets are all in the large mafic-ultramafic Bulldozer Intrusion.
Moneta Gold (TSX:ME, OTCQX:MEAUF, XETRA:MOP) reports on drilling at its Tower Gold project near Timmins in Ontario. The campaign has so far seen a lot intersects in the multiple g/t range over good intervals, which is always nice.
Globex Mining (TSX:GMX, FRA:G1MN, OTCQX:GLBXF) has acquired a 2% royalty on two blocks of land east and northwest of Rouyn-Noranda along the Cadillac Break, prospective for gold, in Quebec. It adds those to its very substantial portfolio.
For those with an affinity for financials, Affinity Metals (TSXV:AFF) has announced an extension of the warrant exercise term on 6 million shares.
New Pacific metals, whose focus is on Bolivian silver, is steaming ahead with drilling at their Carangas project, with two new drill rigs mobilised and highlights reported from Phase I.
That's all from me this week, have a good weekend everyone!