J Capital is short Marathon Digital Holdings (MARA)

Mining Investor Gullibility

We conclude that:
  • MARA may have taken at least $250 million out of the company via overstated purchases of miners. We draw that conclusion based on interviews with mining companies in China.
  • About 64% of the mining fleet MARA has ordered, net of disposals, nearly 126,000 machines, are not in use. The most recent order was 11 months ago.
  • Silvergate Bank, historically MARA’s biggest source of liquidity, just announced that it can’t file its 2022 financials on time and may not be able to continue as a going concern. Shares fell about 45% on the news. That was just two days after MARA announced it could not publish its 2022 10K as scheduled “due to certain accounting errors.” Yet the “restatement issues” MARA cited were not among those we discuss in this report. Surely the SEC will sit up and take notice.
  • MARA’s crypto-mining business did not make money even when Bitcoin was averaging around $47,500. When bitcoin prices rise, investors should make money, but potential gains have consistently been lost in stock compensation. In 2021, stock-based compensation was $161 mln – more than net revenue – even as MARA lost $13 mln pre-tax . And in 2021, MARA had just 10 employees.
  • MARA has made a series of highly questionable payments, awarding shares to a company that appears not to exist, paying $35.5 mln to a related party company without disclosing that company’s business, making huge deposits with service providers for unclear reasons, and much more.

History of MARA purchases

Source: company disclosures

FEATURED REPORTS

January 24, 2023
January 11, 2021

YMM

A round trip for investors?

Photo of what we believe are shell companies at the YMM Guiyang headquarters. Photo by J Capital
Check out Anne's brief explanation of YMM on CNBC
  • ​YMM has the hallmarks of notorious Chinese round-tripping schemes. We believe transactions might be overstated by 6-10X.
  • Former salespeople have told us they set up shell companies to churn bank loans back and forth. These boomerang transactions would create the appearance of rising transaction volumes. The cash ultimately appears to get routed back.
  • The reported revenue and transaction volumes don’t line up with tax payments, commission revenue, or basic logic. 
  • We struggle to reconcile “Gross Transaction Value” with YMM’s revenue.
  • YMM’s acquisitions look highly suspicious. $185 million has been written off or impaired to date, with some investments impaired just months after they were made. We believe these write-offs potentially fill out and complete the round tripping.
  • We expect a phase-out of VAT rebates for trucking this year. Interviewees say they believe this will happen and that VAT will be unified by 2024. That would reduce gross profit by about 75% and create a heavy drag on cash flow. We think the margin degradation that would result from a phase-out has not been reflected in analyst estimates.
  • We think some of the short-term assets could also be inflated as a result of round-tripped cash. Short-term assets include ¥3.8 billion held by subsidiaries and VIEs in China.
  • Insider sales ahead of U.S. HFCAA accounting reviews by the PCAOB are a key red flag. The PCAOB says it has gotten access to inspect Chinese firms for the first time ever.

BTBT US

“The Company was not able to reach Mr. Liu.” 

With key executives in jail or on the lam for having bilked Chinese investors out of $42 mln in a fraudulent P2P business, Bit Digital (BTBT) has moved on to a fake crypto currency business. We will show that the assets probably do not exist, and the business is designed to steal funds from investors.
October 7, 2021

FFIE

Move Over, Lordstown:
at Faraday, EV Stands for "Embezzlement Vehicle"

​We don't think Faraday Future (FFIE), an EV SPAC, will ever sell a car. So far, it's nothing but a bucket to collect money from U.S. investors and pour it into the black hole of debt created by its founder, China's best-known securities fraudster, Jia Yueting.
July 22, 2022

LKE ASX

Remote Chance
May 28, 2020

NG TSX

Pipe Dream
December 18, 2020

CBAK US

The Undead: Why CBAT Has Zero Value
Lake Resources (LKE ASX) “Lake” is one of several lithium explorers planning to use an unproven direct lithium extraction (DLE) technology to remove lithium from brine. If Lake can get the DLE technology to work then it plans to build a $1 bln processing facility in a remote location in the Andes.
Lake is claiming to produce “cleaner lithium.” We believe, however, DLE will still use large amounts of water and produce toxic waste. Lake has failed to get an operational pilot plant on site three years after promising it would. Lake insiders have successfully sold $8.1 mln in stock in the last year. Lake granted 41.5 mln options to financial institutions that published favorable research on the company. Insider share sales have followed a pattern of Lake announcement, followed by favorable research, stock price rise, and then insider sales. Investors had been expecting the delivery of the pilot plant to site and a definitive feasibility study (DFS) by the end of June. Instead, they got the resignation of the CEO and Managing Director Steven Promnitz without a replacement.
For the last 15 years, we believe NovaGold’s management team has systematically misled investors with subjective presentation of information about a deposit so remote and technically challenging that the mine will never be built. During that time, management has been treating this 12-person concept company like an ATM, awarding themselves base salaries that rival those of the CEOs at Newmont and Barrick and total compensation packages comparable with those at Rio and BHP. If the information from the company’s feasibility studies were presented in a more honest light, investors would understand that the Donlin deposit, of which they own 50%, is not feasible to put into production at any gold price.

We think management misleads investors with custom metrics designed to deceive, directing investors to presentations which claim the deposit will require $6.7 bln in capital, however, the feasibility study clearly shows this number is $8 bln (already, we believe, far too low). The proposed natural gas pipeline central to powering the project is dead on arrival. The terrain around the Donlin deposit is among the most inhospitable on the planet. Based on recent cost-per-inch/mile data we obtained from ICF, we show the costs of the pipeline (if someone were even to attempt to build it) are likely in excess of $3 bln, two to four times higher than management’s previous forecast. One engineer we spoke with who worked on costing the pipeline told us he doesn’t  know of any engineering company that has the experience to build such a complex pipeline.

Management has a long history of over-promising. The Galore Creek project, once promoted as the company’s key asset, was quietly sold at a loss in 2018 after revised capex estimates increased by 5x.

​In short, this is a stock promote, not a mining plan.
CBAK Energy Technology Inc. (CBAT) represents the barely re-animated corpse of CBAK, a Chinese reverse merger that lost all its manufacturing assets to default in 2014. In 2015-16, CBAT raised $113 mln from investors to build new factories—and, we will show, appears to have simply taken a lot of that ...
Picture
​Cartoon by Johannes Leak
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