Lake Resources and the battle of the bias
Price at posting: $0.645
Lake Resources NL (ASX:LKE)
LKE is a lithium hopeful that aims to begin production at its flagship Kachi project in 2024. Currently though, LKE does not even have a demonstration plant and so is some way off having a product to sell.
Not according to Corporate Connect though which in its favourable and ‘independent’ research report on LKE published on 12 April 2022 stated:
“Kachi is SOLD OUT – With project production capacity of 50,000t/year and two MOU’s on the table, each up to 25,000t/year, Kachi is technically “SOLD OUT”.”
LKE is technically sold out of lithium in the same way that I am technically sold out of lithium, in that I have none to sell and I never did. Never mind that the MOUs are non-binding but for Corporate Connect to call this ‘independent’ research when it was actually commissioned by LKE, well I will tell you who has technically sold out.
Favourable research is perhaps one reason why LKE is a stock loved by the army of retail investors that frequent HotCopper and the subreddit r/ASX_Bets. Retail investors visited these forums to express their disbelief on 11 July when LKE came under attack in a short report published by J Capital.
J Capital are short sellers and describe themselves on their website as follows:
“Be warned. We are activists, usually on the short side. We are biased.
We do our best to find and present facts, based on extensive primary research and using public sources.
But we will profit if these stocks decline or, when we are long, rise in value.”
One issue raised in the short report was the timing of insider share sales totalling roughly $16m.
By LKE’s own admission, one insider share trade did occur in a period when the company’s own share trading policy did not allow for insider sales. What is more problematic though is that insider share sales have tended to follow an established pattern of LKE announcement, the release of favourable research, stock price rise and then insider sale.
The issue is that this pattern resembles the practice of scalping – a variation of a ‘pump and dump’ scheme where a stock promoter takes a position in a stock and then touts the stock without disclosing an intent to sell the stock
The release of the favourable research is also no coincidence. It was directly commissioned by LKE or published by those who have been issued options in LKE and thus stand to benefit from a share price rise.
In 2018, the ASX stated that it was very alert to promoters using various social and other media platforms to ‘promote’ or ‘pump up’ stocks to which they’re connected and was also alive to the issue of ‘independent’ research funded by companies themselves.
Corporate Connect is one such entity that provides self-described ‘independent’ research for a fee. Others that provide access to their user bases of largely retail investors for a fee include Bulls N’ Bears and HotCopper. Fees start at around $2,000 but can be much higher for longer term packages
The ASX companies being covered are also the ones paying for this ongoing research so the independence of this research is questionable. Corporate Connect are however careful to include this statement at the back of the report:
“Corporate Connect Research and its associates, officers, directors and employees, may, from time to time, hold securities in the companies referred to in this report and may trade in those securities as principal and in a manner that may be contrary to recommendations mentioned in this report.”
So perhaps they are independent in the sense that they do not depend on their own recommendations when making investment decisions. At least J Capital stabs you in the front!
Short and distort versus pump and dump
In 2021, ASIC released advice for activist short sellers in an attempt to prevent ‘short and distort’ attacks on Australian companies. ASIC advised short sellers to release reports outside of share market trading hours and were discouraged from using emotive language. Perhaps it is time that similar guidance is given to providers of ‘independent’ research. A good start might be acknowledging bias.
P.S. If you have $10,000 and would like a series of independent, positive stories written about your company, please email me. I will write anything.