Patriot Battery Metals Faces Share Decline Amid Short-Seller Allegations Of Stock Manipulation

Patriot Battery Metals (TSXV: PMET), an Australia-based lithium explorer, has experienced a drop in its shares following allegations made by a short-selling activist investor, Night Market Research.

In its report, the research firm accuses Patriot of manipulating its share price through spreading buyout rumors and intentionally delaying a mineral resource estimate. The short investor also claims that Patriot’s estimated timeline for extracting lithium-rich spodumene concentrate is four years longer than the company’s projected timeframe of 2028.

The release of the report led to a nearly 6% decline in Patriot’s shares on Friday on the ASX, with the stock closing at $1.64. However, despite this recent decline, Patriot’s shares have more than doubled since December 31, 2022, indicating a remarkable 118% increase.

Patriot Battery on TSX Venture

While Night Market Research casts doubts on Patriot’s prospects, Macquarie analysts hold a different view. Macquarie expressed optimism about the results of metallurgical test work conducted by Patriot and maintains a 12-month target of $2.30 per share. They consider Patriot one of their preferred producers, highlighting the company’s potential for exploration upside in the near term.

Night Market Research: “unicorn” with a reckless diluted value

Patriot Battery Metals is a lithium exploration company that has seen a significant increase in valuation despite lacking an established maiden resource, the short seller claims. The company acquired its core asset for $8 million 16 months ago and is now valued at $2 billion, representing a 250x return. Night Market is of the viewpoint that the rally in Patriot’s stock may be due to stock promotion through marketing outlets that other reputable developers would avoid.

According to Night Market Research, Patriot struck a $1.5 million promotion deal with an unknown entity based in a suburban house, whose sole principal has been involved in unsuccessful ventures related to psychedelic mushrooms and cannabis. The leadership of Patriot has a track record of destroying shareholder value, with the CEO having been involved in seven public companies that have experienced an average decline of 70% during his tenure. Six of these companies are currently considered nanocaps.

Meanwhile the appointment of ex-Pilbara CEO Ken Brinsden as Non-Executive Chairman boosted Patriot’s stock. However, Patriot’s trajectory parallels Brinsden’s time at Atlas Iron, which initially soared but eventually restructured and sold at a significant discount to its peak valuation.

Patriot’s CEO, Blair Way, has set high expectations for the company’s initial resource estimate, suggesting figures in the triple digits and comparing favorably to Liontown Resources (ASX: LTR). However, using generous assumptions, the research firm estimates that Patriot’s initial resource will be over 40% lower than anticipated.

There have been multiple delays in Patriot’s disclosure of industry standard data, such as cross sections, which raises concerns about the company’s transparency, as the short seller alleges. Patriot’s management also claims that production will begin by 2028, but given the ecological sensitivity of the location, including portions under a lake, obtaining permits and constructing the mine could be challenging, leading some to believe that the mine won’t be operational until 2032 or later.

Other claims by Night Market include that there are known mining investors and promoters associated with Patriot, including one investor who promotes the company on Twitter without disclosing the award of approximately 5 million shares. The involvement of a junior mining entrepreneur who admitted to inflating an asset’s value by 9x raises further doubts. The stock of the company he was associated with has since declined by 95%.

The lithium market is expected to face oversupply in 2024, causing a decline in spodumene prices by 50% from the current spot prices. This market outlook could lead to a challenging environment for Patriot next year.

There is also the potential for significant selling pressure on Patriot’s stock due to lock-up restrictions on shares and warrants on around 60% of outstanding shares expiring in March. Those shares are said to have unrealized gains of around $700 million, while warrants equivalent to $280 million in stock are set to expire by the end of the year.

Patriot’s current valuation as a “unicorn” implies that the company must navigate several challenges successfully, including resource viability, expedient permitting, attractive financing (estimated at $750 million to $1 billion in construction capital expenditure), and favorable lithium prices in the coming years. If the initial Corvette estimates are indeed 40% too high, the near-term downside could be even greater.

Patriot: “a large number of basic factual errors”

Patriot responded to the report, stating that it contains numerous factual errors. The company questions the accuracy of the resource estimates presented by Night Market Research and highlights the impact of suspicious buyout rumors on its share price. The investor points out that these rumors were initially reported by The West Australian and emphasizes that errors were made by The Australian in an article that underestimated Patriot’s market capitalization by 70% and falsely claimed a halving of the stock’s value this year, despite reaching all-time highs.

The ongoing dispute between Patriot Battery Metals and Night Market Research has brought attention to the company’s leadership and past performance. Night Market Research highlights the CEO’s involvement in multiple public companies that experienced significant declines during his tenure. Additionally, Night Market Research draws comparisons between Patriot and the CEO’s previous company, Atlas Iron, which eventually restructured and sold at a 90% discount to its peak valuation.

The upcoming release of Patriot’s full resource estimates later this month will be closely watched, as it will likely have a significant impact on the company’s valuation and market perception.

Back in June, Patriot Battery Metals issued a clarifying statement this morning related to a story issued by The Australian, which suggested that the company is looking at a potential sale.

The story itself suggests that the company has engaged with Macquarie Capital to discuss potential sale arrangements, which follows reports in February that the company had seen interest from Rio Tinto, Mineral Resources, and Pilbara Minerals among other names.

In response to the report, Patriot clarified that it has “not commenced a process” with regards to initiating a sale of its assets, or itself.

Information for this briefing was found via Financial Review and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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