Vulcan energy asx

Vulcan Energy Resources Limited


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Investment Memo: Vulcan Energy Resources (ASX:VUL) - LIVE

Opened: 21-Dec-2021

Shares Held at Open: 563,000

What does VUL do?

Vulcan Energy Resources (ASX:VUL, FWB:6KO) is aiming to become the world’s first Zero Carbon LithiumTM producer.

VUL plans to produce battery-grade lithium hydroxide from geothermal brines pumped from wells with a renewable geothermal energy by-product.

VUL will sell its lithium product to car manufacturers looking to make Electric Vehicles (EVs) in Europe and electricity and heat energy into local markets.

What is the macro theme?

The rechargeable batteries that power EVs require lithium. And with increasing focus on decarbonisation of EV supply chains, companies that can supply the raw materials for these vehicles with low or zero carbon emissions should thrive. This has appeal for governments, ESG Funds, manufacturers and end users alike.

Why did we invest in VUL?

Excellent execution

VUL has performed extremely well and the management has been excellent in execution. They have delivered every promise since we invested two years ago.

Lots of cash in the bank

VUL raised over $320M in 2021 so we are holding to see how they will deploy this new capital.

Valuable technical skill set

Sustainable lithium from brines and geothermal is growing in popularity globally. VUL has assembled one of the best technical teams with this rare skill set, putting VUL in a strong position to grow through acquisition of geothermal\brine projects.

De-risked capital

Large pools of capital earmarked for Environmental, Social & Governance (ESG) investments need to find a home, meaning that VUL should face fewer hurdles in securing financing.

What do we expect VUL to deliver in 2021?

Objective #1: Complete Phase 1 Definitive Feasibility Study (DFS)

The major milestone of the upcoming year is completing the Phase 1 Definitive Feasibility Study (DFS), also called a Bankable Feasibility Study (BFS), which will provide further clarity on the project’s economics and development feasibility. DFS completion is expected in the second half of 2022.

Objective #2: Secure Project Financing

Having raised $320M via two Placements in 2021, VUL is financed through to completion of its DFS, but further financing will need to be secured to fund project construction.

Objective #3: Expansion of scope

VUL has already signed offtakes for all of its planned Zero Carbon LithiumTM production. We want to see the company expand its scope for future lithium production by acquiring more land holdings and more projects to help meet anticipated rising demand.

Objective #4: Heat offtake agreements

VUL is looking to sign offtake agreements in order to sell renewable heat generated from its geothermal brines into the local market.

Objective #5: More strategic partnerships (to demonstrate execution)

While VUL has already locked away much of its first five years of lithium production, it continues to develop strategic partnerships across all three of its businesses.

What could go wrong?

Development risk

The project economics are hurt by a declining lithium price or cost blow outs in the project construction. Alternatively, the flow rates from the lithium project (how much lithium comes out of their project’s wells) are slower than adequate, in turn hurting the project economics.

Market risk

It's possible the oil price takes a sharp dip on a major global economic slowdown, slowing the uptake of EV vehicles in Europe.

Financing risk

We think the DFS is going to be VUL’s calling card for financing the project, but things may change. For example, the full project currently calls for expenditure of €1.78B ($2.81B) as of the Pre-Feasibility Study (PFS). Should development risks and market risks play out this could negatively impact the level of financing. Put simply, VUL is operating in an early-stage market that could change rapidly.

Stakeholder risk

VUL needs a social licence to operate. Local landowners, business owners and community members may oppose the project’s development, either slowing down the development or preventing it altogether.

What is our investment plan?

VUL has already been a very successful investment for us since we invested at 20c in August 2019 - we have free carried, taken profit and still hold 563,000 shares.

Our plan is to continue to hold a position during 2022 and beyond. We will likely sell another 20% of our holding during the year, hopefully if the share price re-rates on the back of any significant news.

Disclosure: The authors of this memo and owners of Next Investors, S3 Consortium Pty Ltd, and associated entities, own 563,000 VUL shares at the time of writing this investment memo. S3 Consortium Pty Ltd has been engaged by VUL to share our commentary on the progress of our investment in VUL over time.

Investment Milestones for VUL

✅ Initial Investment: @20c
✅ Increase Investment: @40c
✅ Increase Investment: @$6.50

Price increases 500% from initial entry
Price increases 1000% from initial entry
Price increases 2000% from initial entry
12 Month Capital Gain Discount
Free Carry
Take Profit
🔲 Hold remaining Position for next 2+ years

Our Past Commentary on Vulcan Energy Resources

Date Title
18-Jun-2022 $ 5.490 Raising cash in a rough market and what to watch out for
11-Apr-2022 $ 9.500 Why we invest in IPOs and our investment approach
21-Feb-2022 $ 8.950 Why we invest in Oil & Gas and Precious Metals
05-Feb-2022 $ 9.000 The "Lesser Kown" Energy Transition Metals: Copper, Aluminium, Graphite, Helium, Rare Earths
31-Jan-2022 $ 9.090 Inflation, US Fed Reserve, Bond Yield, Cash Buffer Portoflio
22-Jan-2022 $ 9.240 Our Investment Approach, Energy Cold War, Ukraine, Supply Chain Crisis
14-Jan-2022 $ 10.310 How do Fund Managers Invest in Small Cap Stocks?
08-Jan-2022 $ 10.000 Early-year trading indicates market is set for an up-and-down year
21-Dec-2021 $ VUL continues to execute as sustainable lithium demand surges. So what’s next?
11-Dec-2021 $ 11.700 ASX rests pre-Chrsitmas as the market trades on very low volumes
27-Nov-2021 $ 10.750 New COVID strain, Santa Rally, Market Thoughts
20-Nov-2021 $ 10.210 Australia bets big on Hydrogen at COP26, investment in companies that solve problems
06-Nov-2021 $ 12.950 COP26, Battery Metals, Green Energy
30-Oct-2021 $ 12.080 The fallout from the VUL short attack explained
29-Oct-2021 $ VUL Short Squeeze - Here’s Why
25-Oct-2021 $ 13.600 Lockdown lifts, Two stocks to watch: MNB and ONE
18-Oct-2021 $ VUL signs third major offtake in 90 days
16-Oct-2021 $ 12.790 Mainstream media casts a big spotlight on Green Hydrogen
09-Oct-2021 $ 11.650 Investing 101: Key lessons for small cap investors
02-Oct-2021 $ 13.150 Evergrand, Gold and Traditional Energy
27-Sep-2021 $ 13.590 VUL Produces First Battery-Grade Lithium Sample
25-Sep-2021 $ 13.590 Managing a market crash - lessons from March 2020
20-Sep-2021 $ 14.600 ONE, VUL all grown up… BPM, LCL finding targets. PUR drilling again.
18-Sep-2021 $ 14.600 Why uranium stocks are soaring, one good movie recommendation
04-Sep-2021 $ 14.100 Annual Reports, Uranium and a Welcome to New Subscribers
28-Aug-2021 $ 13.480 Recap of the KNI IPO and share price run
23-Aug-2021 $ 12.150 VUL appoints project finance advisor BNP Paribas. Alster upgrades VUL price target (again) to $19.50
21-Aug-2021 $ 12.150 Market fluctuations and portfolio news and quick takes
14-Aug-2021 $ 13.750 Bookmark it, a new Pick of the Year is coming next week
09-Aug-2021 $ 13.890 VUL Now Entering The Big Leagues
07-Aug-2021 $ 13.890 Market swings back up as small caps scramble towards the end of the year
02-Aug-2021 $ 10.150 VUL Signs ANOTHER Lithium offtake - this time worth up to US$255M per year
24-Jul-2021 $ 9.160 Why stocks go into "Quiet Execution Mode", how to spot a cap raise, stock "Confession Season"
19-Jul-2021 $ 10.080 VUL signs ~$150M per year offtake with world’s biggest EV battery Maker LG
17-Jul-2021 $ 10.080 Cash is King, Gold Stocks and Enough of VUL and EMN
16-Jul-2021 $ 9.400 VUL and EMN: Key takeaways out of Europe this week
13-Jul-2021 $ 8.850 Two more key events coming out of Europe in the next 48 hours...
10-Jul-2021 $ 8.200 Breaking News: Stellantis signs offtake MoU with VUL
09-Jul-2021 $ 8.200 Stellantis EV Day: Mystery European Geothermal Lithium MoU & Manganese to be used in all batteries
08-Jul-2021 $ 8.130 Move over Musk. Yet Another Auto giant to reveal Electric strategy tonight at 11:30pm AEST
05-Jul-2021 $ 8.000 World First: Lithium from geothermal brine offtake deal signed in the USA
26-Jun-2021 $ 7.950 June tax loss selling is behind us, KNI IPO expected in August
19-Jun-2021 $ 7.980 What is Tax Loss Selling?
16-Jun-2021 $ 8.360 Last night VW announced it wants to secure battery metals directly from miners...
12-Jun-2021 $ 8.850 What did our investments do this week? CPH, ONE, TMZ, 88E and more...
29-May-2021 $ 7.820 Green Hydrogen in the news, Investment Milestones released, stock portfolio news
27-May-2021 $ 7.310 VUL ASX Achieves Target 90% Lithium Extraction while Billionaires Buying on Market
27-Apr-2021 $ 7.900 Our Portfolio Performance from January 1st to March 31st 2021
15-Apr-2021 $ 7.020 New $15 Analyst Price Target Gives VUL a Nudge
09-Apr-2021 $ 6.450 And our Next Investment is… Going to be Announced in the Coming Weeks
23-Mar-2021 $ 6.480 TRIPLE DOWN ALERT - Plus 6 Hot Stocks
16-Mar-2021 $ 6.710 Power Day Launches Volkswagen’s EU Electric Vehicle Future
25-Feb-2021 $ 6.450 This ASX Stock is Now Cheaper than Where We Last Invested
18-Feb-2021 $ 7.240 We Just Invested More in this Stock ... ... plus what's happening with VUL and EXR?
12-Feb-2021 $ 7.500 What are the best returns in our portfolio?
04-Feb-2021 $ 8.500 Vulcan ASX Bags $120M Bucks from Big Name Backers and Banking Behemoth
25-Jan-2021 $ 8.100 Vulcan ASX has Evolved into a Tesla Like Share Price Story
16-Jan-2021 $ 6.980 Vulcan ASX Reveal A$3.5BN Net Present Value on Zero Carbon Lithium Project
15-Jan-2021 $ 6.980 Our Key Takeaways from VUL’s PFS - What will the VUL share price do next?
12-Jan-2021 $ 6.980 What we are Watching Over the Next 48 Hours
07-Jan-2021 $ 3.550 Our Stock Picks for 2021
11-Dec-2020 $ 2.460 EU Climate Policy - Battery Materials Supply Regulations Leaked?
09-Dec-2020 $ 2.290 Why are We Staying Up to 3am Tonight?
12-Nov-2020 $ 1.445 Vulcan ASX Boosts Confidence in Lithium Resource Ahead of PFS
06-Nov-2020 $ 1.050 Is Vulcan ASX Presenting a Buying Opportunity?
24-Sep-2020 $ 0.880 Tesla Unveils Strategic Battery Plans: What This Means for Our Pick of the Year
03-Aug-2020 $ 0.455 Vul ASX Hits Milestone: Reports 90%+ Lithium Recoveries from Geothermal Brines
11-Jul-2020 $ 0.540 Our Top Pick Up 100% Since Our May Update (Vul ASX) – Now with Institutional Backers
29-May-2020 $ 0.285 Momentum Building in Vul ASX - Our Top Pick of 2020
16-Mar-2020 $ 0.200 Vul ASX “Our First Ten-Bagger” say German Research House
21-Feb-2020 $ 0.245 REVEALED: Our Top Stock Pick for 2020 (Vulcan Energy ASX)
20-Jan-2020 $ 0.175 Vulcan Increases Europe’s Largest Lithium Resource
05-Dec-2019 $ 0.185 A New Number One – Vulcan Energy ASX Now Hold the Largest Lithium Resource in Europe
22-Nov-2019 $ 0.120 Can Vulcan’s Zero Carbon Lithium™ Deliver Emission-Free Cars?
20-Aug-2019 $ 0.185 Vulcan Energy ASX Delivering the World’s First “Zero Carbon” Lithium Project

Investor Presentation

Stellantis to become a substantial shareholder, invests $76M

ASX:VUL Jun 24, 2022 Announcement

Investment Memo: VUL 2022

Objective #2: Secure Project Financing

Objective #5: More Strategic Partnerships

Vulcan Energy Resources (ASX:VUL) today announced that it has agreed to a A$76M (€50M) equity investment from Stellantis N.V., plus a 5-year extension to their offtake agreement.

This investment marks the world’s first upstream investment by a top tier automaker into a listed lithium company.

We were very surprised (positively) by this announcement - having a key offtaker as a substantial shareholder is a huge win for VUL, and a strong signal to the broader lithium market that has been rattled in recent weeks.

Not to mention a material cash injection at a time of tightening capital markets.

Once the fully paid ordinary shares are issued, Stellantis will become the company’s second largest shareholder with a 8% shareholding. The shares are to be issued at the 30-day Volume Weighted Average Price of A$6.622 (€4.367) per share, representing ~11.45M shares.

Stellantis is one of the world’s leading automakers and has 14 vehicle brands and two mobility companies — Abarth, Alfa Romeo, Chrysler, Citroën, Dodge, DS Automobiles, Fiat, Jeep®, Lancia, Maserati, Opel, Peugeot, Ram, Vauxhall, Free2move and Leasys.

It also has one of the largest electrification and decarbonisation plans of any automaker globally: to reach 100% of European passenger car sales to be battery electric vehicles (BEV) by 2030.

On that note, Carlos Tavares, Stellantis CEO, said, “this highly strategic investment in a leading lithium company will help us create a resilient and sustainable value chain for our European electric vehicle battery production”.

Today’s announcement sees further progress against two of our 2022 objectives for VUL, per our Investment Memo:

Objective #2 - Secure Project Financing

While VUL is already financed through to completion of its DFS, it plans to use the Stellantis proceeds for its planned production expansion drilling in its producing Upper Rhine Valley Brine Field.

Objective #5 - More strategic partnerships

VUL had already locked away much of its first five years of its initial forecast lithium production, including with Stellantis. Today’s announcement has extended that binding lithium hydroxide offtake agreement with Stellantis by five years, to 2035.

Local support for Zero Carbon Lithium Project; project expansion

ASX:VUL Jun 17, 2022 Announcement

Investment Memo: VUL 2022

Objective #3: Expansion of Scope

Vulcan Energy Resources Ltd (ASX:VUL | FSE: VUL) announced today that the City Council of Landau has voted to support geothermal energy production at VUL’s dual geothermal energy and Zero Carbon Lithium project in Germany’s Upper Rhine Valley.

The Council voted to support geothermal energy production in the area and has taken a positive stance towards the extraction of lithium from geothermal brine in consideration of climate protection goals and the interests of regional urban development.

The announcement follows news this week, as reported in the AFR, that the European Chemicals Agency (ECHA) to the European Commission has proposed to increase regulatory requirements around the control, processing, packaging, and storage of lithium. However, VUL CEO Francis Wedin said that the ECHA’s proposal is based on incorrectly interpreted applications of the classification criteria and did not take into full consideration more recent studies on the subject.

Adding to its growing pipeline of projects, VUL also announced today that it has increased its Exploration Licence Area by 141km2 to a total of 1,163km2.

This is inline with Objective #3 for VUL in 2022, Expansion of Scope, as outlined in our Investment Memo: “We want to see the company expand its scope for future lithium production by acquiring more land holdings and more projects to help meet anticipated rising demand”.

VUL: Heat offtake - Germany's largest municipal energy supplier

ASX:VUL Apr 06, 2022 Announcement

Our most successful investment to date, Vulcan Energy Resources (ASX:VUL) is now not only a Zero Carbon lithium company but also a renewable geothermal energy company.

Today’s deal with MVV, Germany’s largest municipal energy suppliers, is for between 240,000MWh - 350,000MWh per year to households in Mannheim near Frankfurt, Germany.

VUL says this will be the first of many heat offtake agreements, something we flagged in our VUL Investment Memo:

As long-term holders of VUL, we’re pleased that Monday’s AFR coverage was followed up by a binding purchase agreement.

We also note that MVV is 50.1% owned by the City of Mannheim, indicating to us that VUL’s stakeholder engagement efforts in the Upper Rhine Valley may bear further fruit.

Mannheim is home to ~300,000 residents and you can see how the city is close to VUL’s string of licences in the Upper Rhine Valley:

For a quick high-level summary of our VUL investment thesis, risks and key objectives - here’s our VUL Investment Memo.

Expediting geothermal energy amid German energy crisis

ASX:VUL Apr 05, 2022

As reported in the AFR, Vulcan Energy (ASX:VUL) is upping its focus on its geothermal business in Germany amid Europe’s energy crisis.

Just over half of Germany’s energy consumption is used to produce heat and the main fuel used is gas, half of which comes from Russia.

But now, with gas prices surging after Russia’s invasion of Ukraine, Germany is scrambling to secure local energy supplies and wean itself off its dependence on Russian gas imports.

The AFR quoted VUL Chairman Gavin Rezos, who explained that “Germany’s first response was wind and solar. But now they are looking at the assets they have, and geothermal is the way forward.”

While much of the enthusiasm around VUL to date has been to do with its world first Zero Carbon Lithium ambitions, the geothermal energy side of its business has been seen as somewhat of an afterthought.

Located in the Upper Rhine Valley, VUL already has a 5 megawatt operational geothermal plant. It is now looking to convert that energy to heat, which would allow it to produce about 35 megawatts of heat for local use.

While geothermal is still a relatively expensive way to produce baseload power, VUL says that “in heating, [geothermal] is in pole position”.

The company is now stepping up efforts to sign offtake heat agreements and is lobbying planning authorities to cut red tape.

This was something that we identified in our VUL 2022 Investment Memo, with securing heat offtake agreements outlined as one of the five objectives that we want to see VUL achieve this year.

(You can see all five of those objectives, plus our reasons for continuing to hold VUL this year — even after its impressive share price rise in recent years — in our VUL Investment Memo here.)

Once offtake agreements are secured, VUL will make some infrastructure adjustments at its geothermal plant to switch from electricity to heat production, while the Upper Rhine Valley already has a lot of the core heating-supply infrastructure in place.

Rezos said that the opportunity in geothermal has also prompted VUL to look at potential additional medium- to longer-term opportunities on the French side of the Upper Rhine Valley and in Italy.

CEO Francis Wedin added, “We have the drillers, the rigs, the operations. We are already a producer, we just want to repeat these plants on a larger scale across the Upper Rhine Valley.”

Project update

ASX:VUL Mar 18, 2022

Today VUL provided an update on its Zero Carbon Lithium project in Germany.

The first point covered was around the development works of its Direct Lithium Extraction (DLE) demo plant. At this stage, ~80% of all of the equipment is ordered and off site prefabrication works have started. VUL is expecting the demo plant commissioning stage to begin in the middle of this year.

VUL also confirmed that its DLE pilot plant was still operating and showing lithium recovery rates averaging ~94-95%. Importantly, this is well above the recovery rates used in the 2021 Pre Feasibility Study (which was assuming 88-90% recovery rates). The change might not sound big but the incremental difference makes a huge difference to project economics.

VUL also announced that it had kicked off discussions with BNP Paribas who would be helping secure project financing after the completion of the definitive feasibility study (DFS) which VUL expects to be completed in the second half of 2022.

Overall today’s announcement directly speaks to our Objectives #1 and #2 for VUL, as per our 2022 Investment Memo, which can be viewed here.

In particular, we think that the lithium recovery rates are important and should feed through to improved project economics when that DFS is completed. The 2021 PFS which delivered a €2.25 billion NPV was estimated using a US$14,925 lithium hydroxide price, compared to current spot prices of ~US$78,000.

We think there's a strong chance that VUL puts together a DFS with improved project economics, and hope that this leads to eventual project financing to propel its Zero Carbon lithium project into the development stage.