Shares of Sigma Lithium (NASDAQ:SGML) stock are down by about 5% following the publication of a short report by Grizzly Research. As its name suggests, Sigma operates as a development-stage lithium mining company with a key focus on its 100% owned Grota do Cirilo project in Brazil.
First, Grizzly brings up the rumor that Tesla (NASDAQ:TSLA) and Elon Musk, or another large mining company, could acquire Sigma. Grizzly believes that this is unlikely due to Musk’s “focus on refining and preference for clay minerals available in Nevada over conventional spodumene, as well as the availability of less risky off take agreements which are standard for OEMs.” The short seller also noted that Sigma’s climate change initiatives are “fickle” due to its low spending on research and development.
SGML Stock: Grizzly Research Releases Short Report
Another bump in the road for a Sigma takeover is valuation. According to experts consulted by Grizzly, a $2 to $3 billion acquisition price is fair, while SGML traded at a ~56% premium to the consulted prices at the time of the report publication. The rising price of lithium has also helped buoy Sigma’s valuation.
Earlier this week, SGML jumped higher upon speculation that two Chinese lithium companies with ties to Tesla were looking to take over the company. However, as a Canadian company, Sigma is subject to strict Chinese investment policies that may not allow the acquisition.
Even without a takeover, Grizzly is still hesitant about SGML as an investment. The research firm points out that the Grota do Cirilo project has been pushed back many times from its initial production date of 2019. When communicating with “local Brazilian mining experts,” Grizzly found out that the company is still missing key environmental licenses. These licenses must be obtained in order to meet the production deadline this April.
Other conversations with industry experts and company insiders revealed that “SGML lacks leadership and technical expertise required to effectively run the mine.” One insider informed Grizzly that Sigma is “lacking PhDs” and that Toronto executives are actually “investment promoters.”
Grizzly also raises doubts concerning co-CEO Ana Cabral’s lack of background in mining. According to the short seller, the other co-CEO of the company just so happens to be divorced from Cabral.
Ultimately, Grizzly believes that SGML stock could decline by between 50% and 75%.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.