The chair of one of the world’s most ambitious emerging lithium producers said oversupply predictions “defies logic”, despite a sell-off of the company’s shares following the resignation of its chief executive and as warnings grow over a glut.
A sell-off that started last week wiped more than 50 per cent from Lake Resources’ share price to close at A0.87 ($0.60) on Monday after a slight recovery.
It followed the sudden resignation of chief executive Stephen Promnitz on June 17, who sold his approximately 1 per cent shareholding in the company.
Lake Resources was one of the most shorted companies on the Australian Securities Exchange last Tuesday, with more than 7 per cent of the stock held in a short position, according to Australian Securities and Investment Commission data.
The sell-off came as analysts warned that higher-than-expected investment in lithium supply may be outpacing demand as the threat of a global recession risks pushing down demand for electric vehicles.
But Lake Resources’ chair Stuart Crow rejected claims that Promnitz’s actions hinted at deeper problems.
“We’re already in a lithium supply deficit,” he said. “Demand is exponential. The supply response is constrained at best.”
Lake Resources plans to extract lithium from brine in Argentina using new technology developed by Bill Gates-backed US group Lilac Solutions.
It is targeting production of 50,000 tonnes of lithium carbonate a year by 2025 — about 10 per cent of last year’s total global production — and has signed memoranda of understanding to supply US carmaker Ford and Japanese trading company Hanwa with 25,000 tonnes per annum each.
But the company has not begun commercial production and must pass a number of hurdles, including testing Lilac’s production capacity, before making a final investment decision.
One short seller, who asked not to be named, said this high shorting rate was noteworthy because shares in the company were difficult and expensive to borrow, showing short sellers were confident the stock was significantly overvalued because they were willing to pay a premium to borrow it.
He said Promnitz’s decision to sell his shares was a bad sign. “If I didn’t have faith in the company, I’d quit and sell my shares while the price was high,” the short seller said.
David Talbot, a mining analyst with Canadian group Red Cloud, said the fall in share price last week was a “great investment opportunity to buy Lake Resources at a lower entry point”.
Crow, the Lake Resources chair, said the company was in the process of relocating its head office to Miami in the US, and was six months into a search for a new US-based chief executive.
He said Promnitz was not in the running for the top job and would have been demoted to a less senior role in the company if he had stayed. Promnitz did not respond to requests for comment.
Crow said Lake Resources was “one of the few” lithium producers “with uncommitted offtake looking to go into production”, and predicted this would be an advantage because prices would probably increase.
But Saul Kavonic, an analyst at Credit Suisse, said there were indications of oversupply in the lithium market.
“It was only three or four months ago that the lithium market looked like it was in for protracted deficits for the next few years and there was very little that could stop that,” he said.
“But we can now see oversupply develop for the lithium market next year. On the supply side we see much more rapid expansion of mines in response to high prices signals.”
He said high lithium prices had prompted Chinese carmakers to divert production away from full electric to hybrid electric vehicles, which are less lithium intensive.
He said this demand destruction could be increased if a global recession hit consumer demand for EVs, which he said were still luxury items.