Why Archer Materials Stock Should Be Avoided

Want to know the easiest way to make $100,000? Take a million dollars and invest it in any mining company that’s decided to pivot into the latest exciting technology theme. It’s almost a rite of passage for newbie retail investors to view such ventures as “a possible ten bagger.” They’re only parroting whatever drivel it is they’re being fed that keeps them in the bag holder corner – waiting and hoping.

In our recent piece titled Rigetti Computing Stock: A Pure-Play on Quantum Computing, we talked about how there are only two publicly traded pure-play quantum computing stocks out there – Rigetti (when their SPAC merger completes), and IonQ (IONQ). Of the many quantum computing startups out there, just two have chosen to go public. Our piece on Quantum Computing Stocks Are Having a Moment talked about the many private companies dabbling in quantum such as:

A week after we published that update on quantum computing stocks, we published a piece titled Why Quantum Computing Inc. QUBT Is Not a Good Stock. It’s mainly because QUBT is throwing off far too many red flags, and they’re not a contender in any way, shape, or form. Another company that’s trying to elbow its way into the quantum computing domain is Archer Materials (AXE.AX).

About Archer Materials Stock

Click for company website

When graphene was the disruptive technology du jour, we saw so many graphene miners trying to catch that hype train that we had to write about it in a piece titled Graphite Miners are Not a Play on Graphene. If graphene producers can’t manage to sell their product because graphene hasn’t achieved the commercial demand that investors expected, then any firm claiming they can mine a whole bunch of graphite, then turn it into some super-quality graphene products, is selling vaporware. One company that tried pulling off the “our graphite mining claim will produce graphene-enabled products” thesis was Archer Exploration (now Archer Materials). Below is the first press item on the “News & Media” section of the company’s website from July 2017.

An article on Archer Materials developing new graphene products back in Jul 2017
Credit: Proactive Investors

The company was hanging their graphene-enabled hat on a mining claim called “the Campoona Project.” Several months later, they “acquired a graphene and graphite online marketplace” called Carbon Allotropes and appointed the founder, Mohammad Choucair, as their new CEO. Dig into the details and you’ll see that the consideration for the purchase was what amounts to a $176,788 USD bonus for the newly hired CEO. The last press release that year talked about government approval for mining “the Campoona Project.”

The following year, dozens of press releases hinted that their Campoona graphite was on the cusp of commercialization. That summer, lithium-ion batteries and graphene electronic inks were produced using the magical Poon graphite. The icing on the cake – a legally binding agreement with a leading German biotechnology company for the development of an electrochemical biosensor. Going into 2019, future prospects were positive, albeit scattered all over the place, and the company had struck gold – literally:

Our prospects for 2019 are very positive. We will undertake our maiden drill program at Blue Hills where we hope to make a new copper gold discovery close to Adelaide. At the same time, we will continue to develop the quantum technology, human health and reliable energy parts of the Advanced Materials business.

Credit: Archer Materials 2018 Annual Report

In August of 2019, the same news was released again. Poon graphite can be used in lithium ion batteries. Months before that, it was printing human antibodies on graphene biosensors. This completely scattered “dabble in everything that’s currently being talked about on the news” approach is a massive red flag, especially when it involves a mining company with no meaningful revenues. Remember that biosensor they were working on? As of last year they’ve added some 3D printing to the mix.

While Archer spun their wheels trying to commercialize graphene products like everyone else, they were also weaving a tale about how they planned to become a player in quantum computing. Eventually, the quantum story took center stage.

All those great mineral resources Archer was talking up for the last four years must not have been that valuable. They’ve now been disposed of in the form of a new company that’s being taken public – iTech Minerals – which touts the exact same “biosensors produced from Campoona graphene” value proposition, but with a $14 million USD market cap. Archer Materials has now transformed into a $247 million tech company.

Credit: Archer Materials Latest Annual Report

Turns out all those mineral resources weren’t worth what the company claimed, and we’re expected to believe that all work they’ve done around filing a patent in multiple jurisdictions and some letters of intent constitute nearly a quarter of a billion dollars worth of value.

Archer Enters Quantum Computing

In the latter half of 2018, Archer started adding quantum computing to their list of value propositions. As you would expect, a lot of over communication accompanied their latest pivot – like three press releases relating to a single licensing event with The University of Sydney.

  • May 2018 – Archer to enter exclusive negotiations on quantum technology IP with The University of Sydney
  • Aug 2018 – Key license terms for quantum technology IP finalized with the University of Sydney
  • Dec 2018 – Exclusive license obtained for breakthrough quantum computing IP

Since then, the company has released a relentless barrage of press releases, news articles, and updates that talk about every little iota of perceived progress they claim to be making. Like others of its ilk, there’s a major focus placed on that one big piece of intellectual property they plan to use to capture the billion-dollar quantum computing opportunity. Archer joined the IBM Quantum Network which any firm can apply to join, and then touted the news as if they bedded Ginni Rometty herself. A blog post over at IBM has Archer discussing their “plan to use IBM’s open-source Qiskit programming software stack,” not exactly the sort of collaboration one would conceive when reading last Spring’s ZDNet article headline, “Archer to work alongside IBM in progressing quantum computing.”

Pause and Reflect

Let’s break from this story for a second and reflect on what’s happened so far. This mining cum disruptive technology company has pivoted into about half a dozen products without managing to show meaningful progress in any. All these graphene products we’ve been promised are always just a memorandum of understanding away from something actually being produced and sold. Not one of these many press releases provides investors with tangible dates as to when we should expect to see some real traction.

We’ve seen hundreds of companies like this over the years and find it incomprehensible that some people – even those with a decent amount of investing acumen – will cling on to these stories hoping that success is just around the corner. Paid stock promoters fuel this hope with pumped-up pieces that parrot management’s value proposition du jour.

One of the paid media placements that Archer uses/has used to tell their story.  Credit: Small Caps
There may be a conflict of interest present with commercial arrangements with companies and/or stock held. Small Caps or an associate may receive a commission for funds raised. Credit: Small Caps

They’re just one of several firms that Archer uses/has used to tell their story via paid media placements. Over communicating your value proposition is bad enough, but then compensating media pundits to spread the story is a big red flag.

Just some of the latest news paid for by Archer. Credit: Proactive Investors
In exchange for publishing services rendered by the Company on behalf of any issuer named on the Site, including the promotion by the Company of the issuer in any Content on the Site, the Company receives from said issuer annual aggregate cash compensation in an amount equal to Twenty Five Thousand dollars ($25,000) – Credit: Proactive Investors

At this point in time, there’s little point in further examining this $250 million mining-turn-tech company that’s throwing off more red flags than a Chinese military parade.

Criticism of companies like Archer Materials will be quickly muted and disparaged by both the company and its investors. For example, some pundits pointed out that a patent status was incorrectly stated – as if the status of a single patent is something actually worth debating. Here’s one response to that scrutiny by The Sentiment:

Investors have been impressed by Archer’s efforts to “comprehensively smash that hatchet job” as one investor wrote, “certainly only increases this shareholder’s loyalty”. With overwhelming praise for the Company “dropping the mic on the useless reporter” on investor forums,  the advanced materials company has developed a legion of supporters.

Credit: The Sentiment

Inevitably, this legion of supporters will start to level “you must be short the stock” accusations, or our favorite: “you’re just trying to bash the company so you can get cheaper shares.” Let’s be clear on this. We’d never remotely considered buying this bag of stories, nor would we ever consider shorting any company. As a Redditor once correctly said, “we can stay retarded longer than you can stay solvent.”

We don’t get involved in stocks like this. We simply walk the other way and dedicate our valuable time researching companies that are actually accomplishing things, and that demonstrate their traction in the form of meaningful revenues, as opposed to progress-by-press-release.

Conclusion

Even experienced investors seem drawn to stories without considering the length of time these stories get spun and the number of pivots they take along the way. Companies can keep this no-revenue show up for decades through persistent communication with shareholders, never committing to any specific dates, and paying for third parties to provide some external validation that keeps people holding the bag. Rigetti and IonQ may be extremely overvalued, but at least they’re realizing some revenues (albeit miniscule ones from IonQ so far) from whatever quantum computing devices or services they’re offering. Archer Materials is not.

Want to know what 30 tech stocks we own right now? Want to know which ones we think are too risky to hold? Become a Nanalyze Premium member and find out today!

Leave a Reply

Your email address will not be published. Required fields are marked *