Why are Vulcan shares placed on trading halt?

Highlights 

  • Shares of Vulcan Energy Resources were put under a trading halt after the company featured in a report by an activist research organisation.
  • The J Capital report alleged that the brine flow rate could be much lower than the reported levels by the company.
  • The response by the lithium player stated that the report published by J Capital contained inaccurate statements and assertions.

Shares of Australia-based energy metals exploration company, Vulcan Energy Resources (ASX:VUL), were put under a trading halt after a scathing report by J Capital alleged that Vulcan might have misled investors.  

VUL has requested a trading halt on securities of the company after J Capital published a report on its website claiming that VUL's Zero Carbon Lithium™ Project pre-feasibility study results were misleading.

In response to the matter, the lithium player stated that the report published by J Capital contained inaccuracies. The company also pointed to the fact that J Capital didn't hold an Australian Financial Services Licence and was not eligible to give any investment advice.

Related Article: Why is Vulcan Energy Resource Ltd (ASX: VUL) share price shooting up?

Let us try to understand what is “Short Selling” to get into the depth of the matter.

Benefit for short-sellers

Short selling is an investment strategy based on speculations of the decline of a stock or security. It is a form of advanced strategy that is usually undertaken by experienced investors and traders.

Short selling

Short selling | Source: © Spettacolare | Megapixl.com

Most of the investors and traders buy shares of a company with hopes and expectations that its share price would rise over a period in the long term. In contrast to this, the strategy of short selling relies on the hope that the price of shares will go down over a short to medium period. The investors who short sell a share get the benefit and earn a profit if the share price falls at the expense of investors who are going long.

Suggested Read: How is Vulcan Energy (ASX: VUL) Progressing With Pilot Lithium Extraction Plant?

In short selling, investors first borrow someone's shares and fix a date on which they will be returned to the original owner. A short seller sells borrowed shares and repurchases them at an agreed-upon date at lower prices, booking profits, and returns those shares to the original owner.

J Capital’s Report

The pre-feasibility of Vulcan’s Zero Carbon Lithium™ Project states that the project’s geothermal brine would have a flow rate of 100-120 litres per second with a recovery rate of 90%. However, the report published by J Capital states that other nearby projects have witnessed a flow rate of nearly 8-80 litres and predicts that VUL’s project will probably get a recovery of 70% with a flow rate of 70 litres per second.

The report also states that if the above figures prove to be correct, the amount of lithium extracted from the project will slash down to half of its original value. In addition to that, the activist group also pointed out the legitimacy of the independent consultant to execute the pre-feasibility study.

Related Article: Why are Vulcan Energy (ASX:VUL) shares up ~57% in the last 8 sessions?

Shares of the company will remain under the trading halt until the release of pending response or the ASX’s opening on Friday. 

Bottom Line

Now that the trading of Vulcan shares has been put on a halt, it might be interesting to see any further response from the lithium player. Vulcan’s Zero Carbon Lithium™ Project is believed to be a significant project for the entire European EV ecosystem.

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