The latest on Weebit Nano and a look at the gold space in this week’s webinar

 

The latest on Weebit Nano and why you need to watch these gold stocks:

 

– Stuart, our own gold bug, updates us on what’s happening in the gold space at the moment.

– And Mr. Semiconductor, Marc, updates us on Weebit Nano (ASX:WBT)!

Full transcription below.

 

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Transcription

 

Marc: Good morning. It’s the 24th of May. And this is our weekly investor webinar. Good morning, Stuart.

Stuart: Good morning.

Marc: So, if you hear some noise in the background, they’re actually installing a Tesla Powerwall at my place. And they’re some people working on that. So, I’m doing my bit for the environment. I’m getting a battery to go with my solar. So, anyone who tells us we’re not woke, Stuart, yeah, we’ve proven them wrong, basically, with this Powerwall stuff.

Stuart: Right. But Marc, what’s your preferred pronouns for today?

Marc: All sorts of things came to mind right now, but I’m not gonna say that here. Maybe we should start [crosstalk 00:00:51.705]

Stuart: Should we start that again, or that might annoy a few people, right?

Marc: No, I think we’re fine. For people that have never seen Friday Beers, back in the day, Stuart and I used to record Friday Beers, you can still find some episodes on the history research website, actually. But that’s where we used to do all sorts of non-woke stuff all the time.

Stuart: Right. We’re just not woken up for the 21st century, right?

Marc: Exactly. But now we are, I think, with this Powerwall and solar. Anyway, if there’s some noise in the background, there are guys working on that. We’ve got a book today that we wanna talk about, it’s kicking off with a gold, Stuart. What’s happening in that space?

Stuart: I’m very excited about gold because the metal itself has done quite well in 2023. What hasn’t done so well is gold equities. And every now and then you get this mismatch between the commodity and the thing that the miners are either exploring, developing, or actually producing. And I think we’re reaching one of those times. So, I’m encouraging folks to take a look at gold.

Let me step at my thesis. There’s the price of gold. Now, through confession, I am what they call a gold bug. I just love gold. And I’ve been on record as saying that one of these days, the middle will go to something like US$10,000 an ounce. Now, it’s pushed up against about $2,050, three times in the last few years. That seems to be at the peak of the range, but after last year’s…well, after the 2020 peak, it came down to about $1,650 and then rallied. So, 2023 has been good times for the metal. And I think once it busts above about $2,050, then it potentially could go all the way to $2,500. What’s my thinking there?

Well, central banks are printing money all the time, they might have to print a bit more. Now, the debt ceiling is about to get hit in the U.S. Who knows? What I have noticed is that gold equities aren’t doing so well. So, I encourage folks, go take a look at the Stocks Down Under website and click the videos, and there’s a video we just put up of me interviewing Chris Gerteisen. So, Chris is an explorer, his company Nova Minerals has just discovered 10 million ounces or thereabouts in the container built in Central Alaska. That is an extraordinarily sized deposit. Ordinarily, just getting one to start with gets people excited.

This company in just four years working at breakneck speed is up to 10 and there’s more that came from. But Marc, take a look at the share price there on that chart. The market is not giving this company any love at the moment, And I just think that’s because gold is out of favor. I capture a magic moment in the interview where Chris says, “You know what? You need to change the name ASX to ALEX, the Australian Lithium Exchange because that’s the only commodity that people wanna know about right now.”

Marc: That’s a good one.

Stuart: And it’s true, lithium and battery minerals are a head running like, the gold has been out of favor. Now, I think given how well the mineral has been doing that there can be a snapback. And this one is trading at a particularly tiny discount at the amount of ounces that the company has down in the ground. And it’s a pretty good interview, so I encourage people to go take a look.

Now, a warning. Chris is an American, so he has a certain American showmanship about it when he presents, but it’s quite a compelling story. Okay. So, why gold equity is out of favor. That chart on the left is little bit out of date. It comes from Sprott, the Canadian group, which is a strong opinion leader in precious metals. And what that’s showing is at that time, the equities were lagging what the metal was doing. And I think we’re seeing the same sort of trend playing out in 2023.

Well, first of all, as I said before, gold isn’t lithium, and that’s what everyone wants to get a piece of. The second thing is, people are a little more confused than they used to be about gold’s role in the world financial system. Now, let me give a primer for people who have only started following monetary stability since Bitcoin came on the scene. Gold is the original cryptocurrency since about 10,000 BC. It tends to be resistant to inflation. And people buy it when there’s been too much money printed by central banks, which is definitely what we’ve had since about 2008. In addition, it tends to go up when times are uncertain of the world.

And Marc, it’s fair to say you and I are halfway through life. And I don’t think we’ve seen as much uncertainty in the world as we have almost our entire life. Would you agree or am I being a bit too pessimistic?

Marc: I think GFC, while you haven’t really had the GFC in Australia, but GFC in the rest of the world was pretty uncertain times. And of course, COVID was uncertain. I think right now, we’re coming out of that. I think things are starting to normalize a little bit. But yeah, looking in uncertain times, if majority of people feel that way, then gold is definitely a good place to hide, so to speak.

Stuart: Yeah. And then, every now and then, gold just goes out of favor. It’s just not sexy like something like a battery mineral, even though, you know, I kind of like the look of gold hanging around my wife’s neck, for example. Gold mining tends to go out of favor. This is one of those times. So, I’m encouraging investors to take a look carefully at what’s going on in the gold space.

So, we’ve recorded a few interviews lately. I mentioned the Nova Minerals interview, which you can see on our website now. There’s a few preview of coming attractions. Toubani, Sarama, and Brightstar are interviews we’ve recorded, and we’ll put them up on the website in due course. These are all outstanding development plays, trading at an inexpensive level compared to where you’d price them once the market got used to what they’re dealing with. If you watch those four interviews, it’ll be a good education about some of the trends about what’s going on in gold.

And we’ve got a good geographic spread, we’ve got Nova for Alaska, Sarama and Toubani for West Africa. And Brightstar is developing a couple of new gold mines in the eastern goldfields of Western Australia. So, a bit of geographic spread to help educate you about what’s going on in the gold space. So, whenever gold is on the run, there’s always a few big companies who have benefited from that. Newcrest and Northern Star will do well. Westgold for some of the medium-sized companies. And mature developers, Bellevue and De Grey Mining.

So, De Grey have discovered a monster deposit in the Pilbara region of Western Australia. They have basically proved to the world that you can actually find a major deposit in the Pilbara. People have been kicking around in the Pilbara for ages looking for major gold deposits. Everyone had gotten close, but no one had quite scored the home run until De Grey started getting some magnificent hits in 2020.

And Marc, I have a chuckle every time I see De Grey because we were talking to that company back in 2019 about providing some research coverage at Pitt Street Research. And they’re a heck of a lot less expensive than they’ve become in the meantime, thanks to the truly amazing Hemi discovery. So, we get a few questions about every now and then that has tended to rewrite quite well, but were getting ready to talk about a new goldmine in the not-too-distant future. So, people ought to at least watch what’s going on.

Look, this might not be the right time to actually buy. I’m saying people ought to watch carefully right now with what’s going on because I think there’s gonna be a snapback in terms of popularity of gold equities. And the developers tend to do better because they’ve got more leverage to the upside. Once you’re producing, you tend to get rerouted up and down with the gold price. If you’re a developer or an explorer, the market tends to give you a premium for what you can discover, or, you know, extra reserves or resources that you can add to your user base, or to your deposit base, I should say.

The other thing to be aware of is there will be activity. People are buying gold in a serious way right around the world. This is not just an emerging market phenomenon. I’m hearing now that Americans are buying gold and put it away in their safe. So, it’s turning out to be global. And a rational investment strategy that a lot of people are pursuing is putting 10% of their portfolio into gold bars that they’re either putting in storage somewhere or maybe even in safes in their own home.

So, those people who are buying gold, I think will ultimately start to buy gold equities again. You’re seeing the Africa discount persist. And so developers and producers in West Africa are gonna have a discount compared to what you’ve got here. That’s not gonna deter major companies who know how to operate right around the world. So, I’m flagging the Tietto, which has one of the newest gold mines in West Africa, called Abujar in Cote d’Ivoire. I’m wondering how long that can stay independent before someone swoops because it feels to me like they’re trading at half price compared to… Well, half price compared to what the DFS had a couple of years ago.

Now, the other thing to pay attention to is there’ll be M&A here on the homefront. We’ve seen that with St. Barbara being fought over by Silver Lake and Genesis Minerals. And whenever M&A is going on in a particular sector, it tells you you’ve reached the bottom because assets are cheap and companies that are cashed up are ready to move. So, if we see more M&A in the gold sector, that’s gotta be good for gold equities going forward.

The final take-home lesson from today, watch out for these charts you’ll see in a lot of presentations. It’s easy enterprise value per resource ounce. I looked at this one from a recent presentation by Ausgold. So, they’ve laid out a group of companies they think are their peers. So, as of a recent presentation, Ausgold, they’re at $100 per reserve ounce or resource ounce, as the case may be, compared to Bellevue Gold, the developer over there on the left-hand side where they’re up closer to 600. They’re saying, “We’re cheap because you can buy…it costs a lot more money to get Bellevue, Genesis, De Grey etc.”

And equally down the other end of the curve, Breaker Resources are saying, “Well, look how expensive we are.” The key is to watch where your preferred investment is compared to others. Some of the companies I’ve been talking to lately, you need a magnifying glass to see the EVP resource ounce. They’re so inexpensive. Others I believe they’re at the middle of the range. But basically, a lot of decent gold developers are way below that $40 now that you can see about the middle of this chart here. And anything to the right of that chart is probably worth paying attention to right now. And that’s gold. All that glitters sometimes is gold buck.

Marc: [inaudible 00:11:40.484] gold. You know, we’ve had Weebit Nano, is a stock that we’ve been very bullish on for a really long time. And things have happened with that company over the last couple of months, actually. So, we thought we’d have a look at that and see what’s going on there. So, if you look at that share price. And by the way, full disclosure, by now everyone knows, I think, Stuart, that you and I own some Weebit Nano shares. But just to make sure everyone understands that. So, we own the stock. But there’s been a lot of volatility over the last few months. And basically, that started when the stock got included into the MSCI Australia and the ASX 300.

The positive side of that is, you know, there’s many more instos looking at it, so liquidity increases. But it also creates the opportunity for instos to short the stock. And that’s what’s happened, at least in March. We saw just right before the cap rates was announced, a massive dump, basically, of the stock, a lot of shorts coming in at that point. And that happened a little while ago, so that’s two weeks ago. Actually, last week, we saw that [inaudible 00.12.48.128] as well, but that one was much smaller.

So, the first one was about 9 million shares shorted. And just last week, it was 4.5 million, so about half of that. But that explains those big drops that you’re seeing there where the stock in March went all the way back down to support levels around 450 and bounce up from there nicely and it’s moved up since then. But yeah, as you can see, we’ve had another dump last week where the stock got traded down quite a bit.

The short interest, the net short interest stabilized around 2.5%, and that’s not a lot. So, right now Weebit is around the 92nd most shorted stock on ASX. I don’t think it’s anything to be concerned about. It’s just a part of growing up on ASX.

Stuart: You wanna see a shorted company, go look at Flight Center, they routinely have 9 or 10% of their stock shorted. And it hasn’t stopped them rewriting in recent days. So, the presence of shorts is never the end of the story in terms of whether a stock’s headed up or down.

Marc: No, exactly. I think yeah, around 2.5%, nothing spectacular. So, it may go up a little bit because in the last few days through up to the 22nd of May, which is the last data we got, there was an additional 271,000 shares shorter, but that was gross. So, it doesn’t include whoever bought back some shares.

Anyway, this is nothing to be concerned about in my view. So, the question really is, what’s next? So, Weebit fell below that rising trendline as you see that to the right with the blue arrow. Ideally, that stock goes above back to that level, hopefully above that really soon. If it doesn’t, we should see some support around $5 or $4.60. And $4.60 is sort of where we were in March. So, those I think are pretty solid support levels. But again, ideally, we see that share price go back up to that trend line, because then basically that breakout to the downside would be sort of nullified as a result of that.

But near term more fundamentally, what are we waiting for really? Well, the final SkyWater qualification, that’s imminent. So, it’s all done. It’s all put into…it stepped out, it’s working. Really the final thing is now in their fab to make sure that whatever was manufactured there is actually fastened to final hurdles. We’re in a very sort of, at the end stage of that. And once that is done, which I expect, really, you know, in the next couple of months, we should actually start to see revenues come through.

And I think that’s really where we should see a pivot at some point. There’s really a new territory for Weebit, when they’re actually starting to generate revenues. And this is all for 130-nanometer designs at SkyWater. What’s potentially more interesting is the collaboration they have in GlobalFoundries because that’s at much smaller resolutions, below 30, around 28, 22. That’s sort of what they’re working on, I think, at the moment. That’s where, you know, the scalability of ReRAM actually comes into play.

So, that’s interesting if we can see some more formal announcements around that. But that may be hard because, you know, chip companies don’t really like their name out there. In this case, GlobalFoundries was okay, we’ve been talking about the name GlobalFoundries in some reports, but usually, it’s all hush-hush. So, that’s always tricky.

And then, of course, we’re looking for other announcements, new customers, foundries, or IDM, so integrated device manufacturers that wants to integrate ReRAM into their technology, or into their chips, and also further technical progress. So, specifically on small capacity ReRAM. So, this is discrete chips. So, standalone memory that you can use in small capacities, like 256k, for instance, that’s really where, you know, you don’t need a selector, it’s really easy, fairly easy to get that done up to one meg, and a little bit above that.

So, that’s something that could be announced really soon. Further work on fully depleted silicon on insulator at 22 nanometers, they’ve been talking about that, but maybe we can get an announcement at some point where they say they’ve gone below 20 nanometers, that would be really good.

Stuart: And if you go on below 20 nanometers, this is a huge breakthrough, right? This is, like, well, maybe not Nobel Prize-winning stuff, but I’m guessing it would make everyone in the world sit up and take notice.

Marc: Definitely, yeah. So, that would be a really important one. Then there’s potential for, and this is a bit longer term, so we don’t expect any announcements soon, but larger capacity, discrete ReRAM. So, you’re talking about larger chip sizes that you can actually use for large-scale storage on your mobile, for instance, or on your laptop, or even in data centers longer term. Those need a selector. And the selector basically is an addition to the chip where you can address individual sales. And that’s really important because that’s to a large extent where ReRAM gets his low energy consumption from. So, that’s a really important one. But again, that will be longer term.

Others I put it there, neuromorphic processing. Again, this is a couple of years out for Weebit if they develop that further. So, I don’t expect anything in-depth on that front. But it might be some left-field announcements coming through that could push the share price higher. So, there’s a lot of stuff happening fundamentally that could drive the share price.

Now, if you look at the valuation, stock is valued just over 1 billion, fully diluted. So, some people might say, “Well, that’s pretty high if you don’t have any revenues.” And of course, we all know about the non-believers and the haters that are talking about stocks that, you know, don’t have revenues and are valued at certain levels. So, there’s a lot of talk obviously in the mainstream media, like, AFR doesn’t like stocks like this at all. But we think this stock can go a lot higher if you’re looking at M&A scenarios, because M&A in the semiconductor industry is extremely common. It happens all the time, mostly during appearance in cycle. And right now, we’re sort of at the bottom, I think, of a down cycle. So, we should be seeing more enthusiasm coming into the broader semiconductor space later this year.

And with that, 100% you’ll see more interested in M&A in the broader sector. And who knows, Weebit could be part of that at some point for companies looking for the expansion of their IP portfolios. So, we think even if Weebit stand alone, we’ll see a big uplift in valuations, for instance, coming from the commercialization of embedded ReRAM that they’re working on just now beyond SkyWater.

So, no additional announcements, new customers, etc. The rollout of the non-selector discreet ReRAM. So, that’s, again, sort of short to medium term, where they can actually put out products. I think that will definitely help in internal evaluation. And then medium to longer term, there’s the opportunity for Weebit to actually start selling its own high-capacity discreet ReRAM chips.

So, these are just memory chips for large-scale storage on your phone, etc., you know, videos, photos, that sort of stuff. They plan to do that in-house. So, they will sell the chips to an end customer, like an electronics company looking for memory capacity in their products. But Weebit, we’ve outsourced the production of that to a foundry, and then, you know, it will be shipped from the foundry to the end customer. That’s what they plan to do in-house, but again, that’s sort of medium, you know, a bit longer term. But that will definitely lift evaluation as well.

And look, I think if they can commercialize the high-capacity discrete ReRAM, it will join the ranks of the foundry chip companies. They sell the chips on market themselves, have them manufactured by foundry, but this is high return on equity, high valuation. So, that’s definitely something down the line that will push the share price higher, in my view. That’s what I expect anyway, nothing is a given in this space. But that’s what we’re looking at, Stuart.

So, for people that wanna trade stocks, you know, this volatility and Weebit is a gift. You can trade the stock if you want. There’s a lot of [crosstalk 00:21:00.728]

Stuart: You’ll hold your stock up I presume, Marc.

Marc: Yeah. You know, Stuart, you and I are both long-term holders of this one, and we’ll stay long-term holders because we have a lot of faith in this company and everything that’s coming. So, this is a stock that you can hold for long term, or you can trade it if you want. But just for us, we’re not, you know, sort of jumping in and out of stocks. So, this is one that we’ve got for a little while now and we’ll hold it for a lot longer, it’s my suspicion, because this stock is going places. And that’s it, I think, Stuart.

Stuart: I’d just like… We’ve got a few more videos other than the ones I talked about earlier on the website. I’ve recorded a fair bit of video content. So, we’ve got a lot of stuff that’s coming. I draw your attention as well to the Po Valley Energy interview that I did with the executive team, Kevin Bailey, a very interesting opportunity that’s just jumped off on people’s radar screens. I’ve got my Italian flag here. They’ve just developed a new gas field in northern Italy, the Po Valley being in the industrial heartland of northern Europe. The stars have aligned for this one. So, go take a look at that. But there’s always plenty of new video content to educate yourself, and we make folks aware of what’s going on, plenty of ways to educate yourself about interesting new companies.

Marc: All right. And on that note, we’ll wrap it up here, and we’ll see you next week.

Stuart: See you soon.