Zero-carbon lithium company (and market-darling) Vulcan Energy (ASX:VUL) has issued its retort to the report from short-seller J Capital that caught the market’s attention on Wednesday.

The response was released after markets closed on Thursday, with VUL shares now set to come out of a trading halt that it requested in order to prepare it.

In its response, Vulcan took issue with J Capital’s views concerning:

– the cost of VUL’s Direction Lithium Extraction (DLE) method;
– the amount of lithium it will be able to extract; and
– the assumptions made in Vulcan’s January pre-feasibility study (PFS), by consulting firms subsequently acquired by Vulcan.

Oh, and it also said a picture in the report JCap claimed was Vulcan co-founder Horst Kreuter was actually some other dude they didn’t know.

More seriously, Vulcan disputed a claim from J Capital and report author Tim Murray that Kreuter, who is credited on Vulcan’s website as a ‘board advisor’, sold $10 million worth of shares immediately after stepping down from the company’s board in March. Murray insinuated Kreuter did this to avoid disclosing the sale.

“Whilst it is not improper for an employee or director of a public company to sell shares, the Report incorrectly suggests Dr. Kreuter sold $10m worth of Vulcan shares, which is incorrect,” Vulcan said.

“Dr. Kreuter’s holdings are outlined in our Annual Report. These facts could easily have been corrected had Vulcan been granted the opportunity to fact check the Report prior to its release, as contained in ASIC’s guidance.”

Vulcan is the owner of the Zero Carbon Lithium Project in Germany’s Upper Rhine Valley, where it promises to produce both renewable electricity and lithium on a ‘carbon negative’ basis from deep geothermal wells.

Since May 2020, its share price has risen by around 7,400% — from ~20c to $15.

ASIC guidelines

To return serve, Vulcan began by arguing that J Capital didn’t follow ASIC guidelines on short-seller reports.

Ideally, short-sellers should “check their facts with the target entity to identify and address errors before the release of a short report”, ASIC says.

Vulcan said it didn’t get a call, and added that the short report also used “intemperate and imprecise language” (another ASIC no-no).

Lithium extraction

Among the claims in J Capital’s report was that Vulcan “has yet to release the most critical aspect of its proposed (DLE) process: which absorbent it will use” to extract lithium from geothermal brine.

In response, Vulcan said it has in fact done that, and is using “an aluminate-based sorbent to extract lithium from its brines”.

The company said similar techniques are being used by lithium projects in other jurisdictions.

In addition, the benefit of geothermal brines is that they are pre-heated, thus avoiding the use of fossil fuels to heat them up, Vulcan said.

The company addressed a separate J Capital claim on DLE, which cited research from the U.S. Department of Energy which estimated that the cost to produce a tonne of lithium carbonate using DLE would be around US$4,000.

J Capital said every expert it spoke to estimated Vulcan’s costs “will be at the high end of the cost curve”.

In response, Vulcan said that its projected cost per tonne is US$2,600, as outlined in its PFS.

Additionally, VUL’s goal is to produce lithium hydroxide monohydrate, not lithium carbonate, the company said.

Vulcan also disagreed on J Capital’s position around its projected lithium recovery rates (of ~70%).

The company said it targeted a recovery rate of 88.2% in its PFS, and “it should be noted that recovery rates up to and over 90% are commonly reported in commercial DLE development projects worldwide, including those working on geothermal brines”.

Flow rates

Elsewhere in J Capital’s report, the short seller said Vulcan’s PFS had applied a flow rate (litres/sec) for geothermal DLE process of 100-120 litres per second (lps) — an “unrealistic” measure that sits above the industry standard of 50-80 lps.

On that front, Vulcan conceded that (as stated in its PFS), “we have not drilled any geothermal wells into our greenfields development areas, and until we do so, as we have already stated on numerous occasions, risks around flow rate will remain”.

However, the company said it has an “appropriate level of confidence” around its flow-rate assumptions, based on the experience of its team and the scientific data at its disposal.

Vulcan reiterated that its current methodology is adequate, even though J Capital said research suggests “there is no way to determine flow rates without drilling wells”.

Vulcan said the geological structure of the Upper Rhine Graben is better suited to the kind of seismic data analysis it is currently carrying out.

That’s different from other geothermal plays such as volcanic-hosted projects, where seismic data is “less useful”.

Elsewhere, Vulcan also briefly addressed J Capital’s assertion that consulting firm Gec-co — which was subsequently acquired by VUL and has management ties with the company — had provided unrealistic assumptions around flow rates in the PFS.

As part of that response, VUL published a 2.5 page table at the end of its report listing other geothermal projects that Gec-co had participated in between 2015-2020.

In terms of which side got the best of the latest ASX short-seller stoush, the market will make that decision when Vulcan shares recommence trading at the conclusion their halt.