Even though the price of lithium has dropped by about half from a high of around $87,000 per metric ton in November, there would seem to be plenty of demand for the material that is used in every electric vehicle battery being made. Mining companies focused on lithium ought to be immune from attacks by short sellers.

Grizzly Research, however, has issued a report challenging lithium miner Sigma Lithium Corp. (NASDAQ: SGML) and its 200% share price increase over the past 12 months. Sigma’s stock dropped by less than 2% on Tuesday, after the report was published and traded down about 2.7% in late-morning action Wednesday at $34.32.

Before reviewing Grizzly’s concerns, it is worth noting that BofA Securities on Tuesday reiterated its Buy rating on Sigma stock and a price objective of $45.

One of Sigma’s primary most attractive features is its apparent willingness to be acquired. Grizzly points out that while there are several companies interested in acquiring the mining firm, none is interested in paying Sigma’s asking price.

BofA’s analysts also question Sigma’s valuation of its business. Earlier this month, Sigma’s market cap was about $3.9 billion. At noon Wednesday, its market cap is about $3.6 billion. According to BofA’s report, Sigma’s value is around $5 billion, although the company has been waving around an independent valuation from Benchmark Minerals of $15 billion. The difference between the two is a function of a lower price forecast for lithium.

Another barrier to an acquisition is Canada’s reluctance to allow Chinese buyers ownership of its strategic minerals. BofA agrees that Vancouver-based Sigma may run into regulatory resistance if it finds a Chinese buyer.

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One interested party was reported to be Tesla Inc. (NASDAQ: TSLA). That supposed interest sent the stock shooting to an all-time high in mid-February. CEO Elon Musk told an investor day audience that finding sufficient supplies of lithium to mine is not the problem. The issue is refining the ore into battery-grade lithium carbonate. Grizzly quotes Tesla’s earnings call from last July where Musk said, “The lithium refining business is a license to print money.”

Other potential buyers are large mining firms like Rio Tinto Group (NYSE: RIO), but most of those are looking for smaller acquisitions. BofA noted that Rio is looking for acquisitions in the $1 billion to $2 billion range. The analysts also noted that Rio’s (and other miners’) lowball range may be more a function of the firms’ capital allocation plans than the “perceived valuation of specific assets.”

Grizzly maintains that the acquisition talks are one indication of Sigma’s management “seeking to exit the company.” Another, according to the short seller’s report, is that insiders have sold 924,100 shares for more than $21 million in the second half of last year and the first quarter of this year.

The sum of Grizzly’s report is that the firm sees downside of 50% to 75% for Sigma.

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