Q4 2021 Stronghold Digital Mining Inc Earnings Call
Good evening and welcome to the strong hold digital mining conference call for the fourth quarter and full year ended December 31, 2021. My name is Jonathan and I will be your operator. This afternoon before this call stronghold issued its results for the fourth quarter and full year 2021, and a press release, which.
Is available in the investors section of the company's website at Www Dot stronghold digital mining dotcom.
Can find the link it to it in the investors section at the top of the homepage joining us on today's call our strongholds co chairman and CEO Greg Beard.
F O Ricardo that Rudy and the company's outside Investor Relations adviser, Jeff Grant with Gateway Investor Relations. Following their remarks, we will open the call for your questions and now I'd like to turn the call over to Mr. Grant for some introductory comments.
Okay.
Thank you good evening, everyone and welcome today's slide presentation, along with our earnings release and financial disclosures were posted to our website earlier today and can be accessed on our website at stronghold digital mining dotcom. Some statements. We're making today may be considered forward looking statements under securities laws and involve a number of risks and.
<unk> as a result, we caution you that there are a number of factors many of which are beyond our control, which could cause actual results and events to differ materially from those described in the forward looking statements for more detailed risks uncertainties and assumptions relating to our forward looking statements. Please see the disclosures in our earnings release and public filings made with the Securities and Exchange Commission.
We disclaim any obligation.
Well the undertaking to update forward looking statements to reflect circumstances or events that occur. After the date. The forward looking statements are made except as required by law. We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables to applicable GAAP measures in our earnings release carefully as you consider these metrics.
We filed today, our annual report on Form 10-K , with the Securities and Exchange Commission, which sets forth detailed disclosures and descriptions of our business as well as uncertainties and other variable circumstances, including but not limited to risks and uncertainties identified under the caption risk factors in our 10-K, you may get strongholds Securities and Exchange Commission filings for free by visiting the S E.
C website at S E C dot Gov or strongholds Investor Relations website at IR Dot stronghold digital mining dot com I would like to remind everyone that this call is being recorded and will be made available for replay via a link available in the Investor Relations section of strongholds website now I would like to turn the call over to strongholds co chairman and CEO .
Greg Bier, Sir please proceed.
Thank you Jeff Good evening, everyone and thank you for joining us on our fourth quarter and full year 2021 earnings call for todays call were going to reference and associated slide presentation that is available through the webcast and on the IR portion of our corporate website. We will review the presentation before taking your questions.
We will start first on slide three for a quick overview of who we are at stronghold. We are the only environmentally beneficial vertically integrated public bitcoin miner with among the lowest power cost in the industry. We believe our unique power assets not only provide us with a low cost of power.
But also provide positive environmental benefits the areas in which we operate through the reclamation of toxic waste coal piles throughout the Commonwealth of Pennsylvania.
In fact during the fourth quarter alone, we reclaimed approximately 265000 tons of coal refuse.
Which we believe makes us highly differentiated relative to our peers.
Our current hatchery capacity is approximately 2.3 axa has per second.
And we have contracted miners that bring us to a hash rate capacity of approximately 5.5 Axa has per second.
Including all of the Minerva miners assuming.
Assuming we do not receive any additional Minerva miners are halfway capacity is expected to be four three <unk> per second.
To date, we have received approximately 3300 nerve of minors and are in near constant contact on the projected delivery date regarding remaining miners to Minerva.
<unk> has been unreliable and hitting their projected date, thus far and we are not confident in their ability to deliver the remaining miners on any timeframe or in early 2022 as we previously assumed.
Excluding Minerva, we expect to receive a majority of miners from our other partners over the next six months.
Now a brief note on slide four I want to highlight our mission statement.
Salaries, the remediation of environmentally neglected communities to the mining of digital assets.
While bitcoin mining gets most of the attention. We are proud that our business is driving increased awareness of the environmental hazards that we are in.
In place and some of the most neglected to regions in the United States.
We were able to provide increased transparency and clarity around our operational activities through a recent congressional inquiry into the operations of bitcoin miners in the U S including stronghold.
We responded thoroughly indirectly to the congressional inquiry and we look forward to continued engagement with policymakers and stakeholders are congressional response letter is available on our website. Our mission will remain to use our vertically integrated business model to improve the quality of life when knee within these affected <unk>.
<unk>, while continuing to grow our power generation and digital mining capacity.
Moving to slide five which gives you an important visual AD to the impact we have in the communities, where we operate we take an active role in removing coal refuse from the environment through our coal refuse to energy power facilities, which have received bipartisan support in Pennsylvania.
While the full extent of the coal refuse problem is I know there are potentially billions of tons of coal refuse requiring the remediation efforts like ours.
So while we have removed a meaningful amount of approximately 265000 tons of coal waste from the environment in the fourth quarter. There is still significant work ahead for US are specialized purpose built facilities ease circulating fluidized bed technology that removes nearly all nitrogen oxide.
Sulfur dioxide particulate and mercury emissions with a byproduct being beneficial use ash, which is a certified liming agent that can be huge used to remediate the land where the refuse piles existed these.
These toxic piles are the leading source of water pollution in Pennsylvania, and many of these pals spontaneously combust or are on fire as we speak we believe combustion through our facilities as one of the cleanest means of removing these pilots.
Moving to slide six where I'd like to cover the value of our vertically integrated model.
By owning and operating our own power assets, we believe we maintain operational control to maximize efficiency and reduce costs, putting ourselves in control of our own destiny. We also believe owning our own power assets also provides downside protection and arbitrage opportunities.
Additionally, with renewables, which are intermittent by nature, becoming more prevalent it is widely accepted that the grid is becoming increasingly unstable.
Combination of our power and data center assets allows us to redirect energy to the grid on short notice that improves grid stability and it helps to make more carbon free sources of power possible.
This has played out recently on numerous occasions with the grid, calling on us to supply power.
As a matter of fact, we are currently testing with PJM to qualify for a Reg a payment.
The PJM regulation market provides compensation for being able to quickly adjust power output based on real time supply demand fluctuations.
While we are in the early stages of testing with PJM. If we qualified Reg egg Reg E payments would allow us to monetize on these unique capabilities that are inherent to our vertically integrated business model.
An additional benefit we have specific to our plants is that the oil and natural gas markets have very little impact on our operations, which has become increasingly apparent in the current macro environment.
While there are clear benefits to owning our own power assets.
Does not come without challenges are scrubbed breast plant has experienced more downtime due to repair and maintenance than we previously anticipated and we continue to invest in plant upgrades that we expect will allow scrub grass run at its base load with more consistency.
We expect these upgrades to cost approximately $5 million over the next several months, we made similar investments at Panther Creek around the time of acquisition.
And they have resulted in more reliable plant performance and uptime to date.
Additionally, owning developing the operating our own data centers allows us to better manage supply chain and counterparty risk to date, we have manufactured 101 strong boxes, representing 101 megawatts of our proprietary strong boxes that we used to house, our miners and have been pleased with it.
Cost profile pace of build out in operational results.
The value of building and owning our own data centers was recently validated validated when the modular data center parts associated with our joint venture partner were delayed.
Other than putting miners in our warehouse, we quickly pivoted to put these miners and our strong boxes to capture value that others may not have been able to accomplish.
And the picture on the slide which I'll note is a few months dated the top right depicts the strongbox is put in place on a temporary basis to tap into the power infrastructure for the JV data center.
And of course, we will own and operate our bitcoin miners and look to be a reliable and scalable counterparty to suppliers of miners to ensure the best terms and access to miners.
Slide seven reviews some of our recent accomplishments as we announced on January 6th we met our 2021 exit rate goal of at least one <unk> per second of capacity. Despite some strong headwinds in parts of our business and our current hash rate is approximately 2.3 ex <unk>.
Per second we also continue to grow our mining capabilities acquiring 21100, bitcoin miners in the fourth quarter and 3675 in the first quarter of 2022 with aggregate hash rate capacity of over 2.4 ex ash.
On November 2nd we closed the acquisition of our second power generation asset Panther Creek, and we've been pleased with the operational performance and integration of the asset. We also continue to make progress on diligence ing additional power generation assets to further expand our vertically integrated capabilities.
Data center build out is also progressing with approximately 60 megawatts of data center capacity commissioned.
Financially, we continue to successfully leverage our relationships to secure attractive equipment financing arrangements. These include two financings with nine dig totaling approximately 67 million. We also just amended our financing agreement with white Hot upsizing, it by $25 million by increasingly collateral basket.
While removing all Minerva miners from the collateral this fully eliminates the potential impact from further Minerva delays in regards to financing.
Now moving to slide eight there are two key factors that have negatively impacted our operations and near term growth trajectory. We estimate these factors collectively created a $40 million to $45 million reduction in cash flow to date relative to relative to our base case plan.
As many of you know we placed an order for miners with a minor manufacturer called Minerva in 2020 one.
Additionally, Minerva presented a compelling value proposition for the price of roughly $50 per Terra hash.
Significant a significant discount to prevailing market rates. However to date, we have only received approximately 3300 out of the 15000 miners originally ordered from Minerva that were scheduled for delivery by December .
As they have continually fallen short of contractual and communicated delivery timelines based on what we know today and our recent communications with them there, but we cannot provide any definitive guidance.
As to the timing of future deliveries, we are evaluating all appropriate avenues to extract value from Minerva.
And I've also proactive removed all Minerva miners from the collateral base supporting our equipment financing agreements.
Additionally operations with our data center build out partner have progressed slower than expected.
Minor deliveries associated with the build out were moderately delayed and commissioning of the datacenter has progressed slower than expected largely driven by delayed deliveries of the datacenter pods with only four of the 24 pods currently operational relative to plans to have all 24 commissioned by year end 2021.
As I mentioned earlier, we believe that because we are vertically integrated we have been able to mitigate some of the downtime through installing these miners and our own strong boxes.
Rather than meet leaving the miners on the sidelines. Additionally, we successfully negotiated an amendment and expansion to the datacenter arrangement.
Under the amended terms, our partner will manage miners hashing out our strong boxes and earn a 20% profit share on those miners initially.
And the profit share for miners and their containers will temporarily be reduced 30%.
We also agreed to purchase an additional 2675 miners for $37 50 per Taro has and will pay for them five months after delivery.
These matters will be installed in a strong boxes managed by our partner and subject to the respective profit share.
For this amended agreement these miners and all remaining miners are to be delivered by the end of April .
Or the JV profit share will be reduced to a partner.
Further if our partner does not complete commissioning the data center by the end of June .
Their profit share will be eliminated until commissioning is complete.
While we are disappointed with this confluence of events and the associated impact on our operations. We have spent considerable time and resources developing a revised growth strategy that we believe can be funded whether existing resources and represents the optimal strategy given the circumstances, while setting us up for long term success.
I will now hand, the call over to our CFO Ricardo <unk> de for a financial review.
Thank you, Greg and good evening everyone.
I will start my comments on slide nine and similar to our last call. We will cover the numbers relatively briefly as a results do not reflect the recent and future minded deliveries that we believe will allow us to better scale, our organization and demonstrate results that we think are more meaningful for investors.
Revenue for the fourth quarter of 2021 was $17 million with adjusted EBITDA of <unk> 3 million.
Our average cash rate during that period with 0.3 X the half per second and we ended the year with 182 Big point on our balance sheet.
Slide 10 demonstrates the ramp and miners and accurate capacity since we began scaling up pick when you're mining capacity last year.
To date, we have received about 25000 miners with little halfway capacity up to three extra half per second.
For the fourth quarter of 2022, we expect will have average attach rate of point <unk> behalf for a second with growth somewhat constrained due to the issues previously discussed by Greg.
The previously discussed issues combined with a drop in bitcoin prices since our IPO have negatively impacted our cash position. Therefore, we ever visited our growth plans for 2022.
We are no longer targeting organic growth to eight acts to ask for a second by the end of the year 2022 if.
If we receive and install the remaining miners we have contractor that wouldn't buy a maximum halfway capacity of $5 buyback. The hash if all of the remaining <unk> are delivered were $4 three <unk> when excluding any further minor of our deliveries.
We're guiding to $4 one axa has installed by the end of the year based on the capacity of our current power assets, but we are actively engaged with tailored multiple power assets.
But I haven't 11 details our liquidity and capital resources. We ended 2021 with total liquidity of about 75 million, including 31 8 million in cash $7 7 million in unrestricted digital currencies and approximately $35 million and availability under our existing equipment financing agreements.
We currently have approximately $30 million of cash on our balance sheet, and 344, BTC and our wallets with approximately $80 million and undrawn and equipment financing.
We expect this liquidity and cash flow from operations to fund our capital needs and also have unencumbered assets that we can finance if necessary.
I will now turn the call back over to Greg.
Thank you Ricardo Slide 12 lays out the remainder of our goals for 2022, including receiving and installing the remaining miners we have on order pursuant to definitive agreements active.
Actively working to a satisfactory and beneficial resolution with Minerva completing the necessary capital investments at scrub grass to make the plant fully operational per our expectations and strategically exploring potentially accretive M&A opportunities.
Where we have begun to see increased opportunities. We also continue to pursue the acquisition of additional power assets and still have a non binding letter of intent in place for a third coal refuse reclamation facility with 112 megawatts of power generation capacity.
We are also revisiting our minor procurement strategy to put a greater emphasis on spot purchases over four deliveries. We believe for deliveries have an elevated risk profile given potential delays to delivery timing.
Certainty related to big Horn fundamentals at time of receipt.
We believe our spot purchases to date have been successful with most miners hashing at our facilities within weeks of entering into the purchase agreements. We think this provides a much more attractive risk adjusted return profile.
I will wrap up on slide 13, and want to be clear to everyone.
Our recent results are not up to the expectations. We have at stronghold and are not representative of the potential we aim to deliver on.
We understand the importance of timely execution.
I firmly believe stronghold has the foundational pieces to be a successful and differentiated company.
We are focused on improving the environment, our vertically integrated business model offers low costs, we have significant scale.
And our management team is highly aligned with over 50% ownership in the company we.
We are working tirelessly to deliver on the high expectations, we have for ourselves.
Thank you everyone for taking the time to dial in and we are now ready to take your quest.
Operator.
Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue. Please press the pound key our first question comes from the line of Lucas pipes from B Riley Securities. Your question. Please.
Hey, good afternoon, everyone. Thanks, very much for hosting the call and for taking my question I wanted to dig a little bit deeper on on on the Minerva situation.
Specifically, what when did when did.
<unk> fall short of your expectations over the course of.
This first quarter I assume and.
When was the last delivery of a nerve a minor made.
Yeah, Hey, Lucas. Thank you, so hey, I, a minerva is deeply disappointed us we've gotten.
Communication from them in writing as as to when the revised delivery schedule and what would he.
I have the miners at all in our hands earlier in the year, we were notified that we'd have them all by the end of March that Hasnt happened given there's only received 3300, we have been told that we have another.
There was another batch that as you know that has cleared customs in the U S and is on its way to US now that would represent probably hundreds of miners, but not the thousands that we're expecting.
The last time, we received the batch of of a larger batch of miners was.
And let's see on February 1st.
This year I think that being said I think with regard to the Minerva hey, they're not.
We're communicating well so we probably talked to are.
I'm going over our founder.
Mark MA on a either daily basis by phone or by text he's been with us on site on Pennsylvania.
10 days in the path of the past 30, so he's he's not hiding a and I think he is doing his best to try to.
Get his side of the deal.
Working well enough to fulfill the order.
He tells US he has the chips and the parts to do it and in fact, we have received you know 3300 as I as we said on the call.
I think that but there they are not they haven't proven reliable. They have they are in violation of the in our original delivery schedule that you would've had the all the miners.
In our hands by.
October November December of last year and they've consistently.
Missed on promises made and so on.
No longer windows that have had my reputation depend on on the on Minerva keeping their their promises and that word they havent been why don't I do not think it is a.
I do personally believe we're going to get these miners I would not.
Staking my reputation to the timing of exactly when theyre going to arrive.
And so I think just for the.
The avoidance of doubt.
Like you know for analysts like you Lucas like Hey, why don't you just presumably don't get anymore in your model and at that way. We can we can begin to beat the estimates and the numbers you know hopefully next quarter and the quarter after and eliminate the issue, but I think the.
That would make me more comfortable so we'll just we'll take our lumps on this quarter.
And tell you that hey, we're doing everything we can to to get the miners out of Minerva.
But I think it's it's I'm not willing to and buy and they're showing up for conversations in person.
<unk>.
But I'm not in spite of that I'm still not comfortable with making representation as to when the rest of them are going to arrive.
Hi, I very much appreciate that detailed answer Greg that is that it's very helpful. One follow up before I wanted to change topics.
Performance.
Considerations that you mentioned in the release and just now.
Do you have a sense for what is causing that.
Kind of technically what what's what's causing the lower than expected performance.
Okay.
You know what I'd say, hey that that's I really don't want to you know I think you might just told everyone. Hey, just presume that we don't get anymore I don't want to make it more of a call. We have heard every excuse you could here.
As to why they are delayed so you know if you name one I can probably tell you they've said that you know.
And so I think.
I'm not and I don't think I don't want to really get into hey, why they're saying they're late.
Because then you can say what makes us believe that this time.
And the answer is I don't.
While I'm happy that we're continuing dialogue.
With them and I do think theyre doing their best.
Given that they've been so late.
I don't want to really contemplate and why there why it's different this time and why am I personally expecting them to.
To deliver even though I'm, giving guidance and say hey, just don't presume it.
Okay.
Very helpful. Thank you, Greg I really I really appreciate your candor on this.
On.
Switching topics.
You pointed to a plan that is now.
Fully funded if I understood correctly, I, just thought I double check on that.
I think that's that's a that's an incredibly encouraging.
Outlook. So really appreciate your comments on that thank you yeah, you bet. So in terms of it right now and we own obviously two plants and have two data center data center at each plant and for US to say Hey, we're fully fund out on those two plants and the Axa hash limit of the two plants.
What 4.14 0.1 extra cash so I think just for your models presume that we're fully funded to 4.1 acts of hash. We have axa has capacity of what 5355555, but we need the third plant in order to get past the 414.1.
So I think that's on slide 10 of the of the deck that we that's hopefully posted on our website.
So just just for clarity.
For one with the two plants fully funded.
5555, plus if we will need additional equity and our debt financing to to get to that if we wanted to accelerate and do that this year.
Which obviously we are not Ah.
No I think I think what you've heard on this call is that we were.
<unk>.
Probably just for clarity five five if if if I'm wrong and all of these and other minor show up. It's five five is the is the extra hash per second 5.5 actually ask for a second is the run rate that we need a third plant and additional financing to close.
Obviously, hey, what the reason why you would do that is to accelerate the the growth plan.
So if we slow the growth rate down ultimately, we're going to end up you know right now a lot of our cash flow is going to do that service for equipment financing for the miners that we bought.
So yeah, we will ultimately generate the cash to continue a a growth profile, but for us to do that this year, we need external financing of and we'd probably would seek equity and our debt to do it.
Which obviously, who we are and we want to do if it makes economic sense to do that.
Great really appreciate it thank you very much and best of luck.
Thanks Lucas.
Thank you. Our next question comes from the line of Steven <unk> from Cowen Your question. Please.
Hi, Thanks for the question, Greg and Ricardo.
Wanted to ask you your hatchery capacity for most of Q1 has been.
North of a 1.3 actually hasher, north and Youre guiding to an average operating hash rate of I believe sharepoint Nymex a hash for.
For the quarter, implying a sub optimal utilization rate. So just wanted to unpack you know, what's what's driving that and just want to unpack some of the operational challenges you're experiencing at scrub grass delays in sort of these third party data center deliveries is providing some more color there.
There and what steps are you undertaking to sort of rectify.
Utilization across your minor fleets implants. Thanks, yeah.
Yeah. That's a great question. So a are our immediate goal was I think keep in mind sort of in our defense a little bit we built out two data centers in the past.
Probably six months between scrub grass and Panther and they're big and complicated Buildout, we had we were expecting.
Our JV partner to show up with pods to make the.
Implementation of that data center.
Derisked.
That was our goal was to was too.
And it really derisked the business model by having a data center operator show up with their containers and that way, we can sort of say, hey, hey, guys on the datacenter number one.
We're going to be.
Yes, it really trusting into someone else's expertise.
Unfortunately, the pods weren't ready and so it kind of on an emergency basis. We built a I think we built maybe more than 100 of our own proprietary strongbox as to how is the container or how is the miners.
And our goal is just to.
And sort of fight for our own electricity capacity and plug these miners in plug our boxes in plug our miners in as quickly as they possibly could recognizing that hey. This is this is far from optimal like expect to our expected case was we'd have 14000, J D minus arrive and they would quickly.
Seamlessly get installed in these you know.
Fancy mobile data center boxes that our JV partner had began to drop off and it said, we found ourselves scrambling to rework, our electrical situation build our own boxes and in a very heard fashion plug them in so I think our R. R. You know hey, why we apologize that we don't have.
A a mid nineties uptime, which is why we think we're going to end up we have you know our goal is just to have as much as we can as quickly as we can given that we had a a much slower to point with deployment from are our suppliers and JV partners. So I think you know judge.
Just give us a a quarter or two before you judge us on that time.
But I think right now it's you know it's it's it is not where we expect it to to end up.
But it is inching up.
Every day I think today, where our uptime is averaging.
<unk>.
Just over 80%.
And I would tell you what we'll end up getting to the mid nineties as we are.
Optimize the fleet they would just plugged in and configure on sort of an emergency basis.
Okay does that help answer.
Alright, thanks, very much and I just had a quick.
Follow up too on I noticed in the 10-K that the tier two racks are now valued at $11 a megawatt hour down from 15 last July .
And.
My channel checks earlier with third party Rec brokers earlier in the quarter suggested somewhat north, but then I think recently they've come down I just wanted to see can you comment on what is sort of driven the.
Lower rec valuation and what Youre seeing there.
Yeah, I think I think you've got to look at it in aggregate. So if you looked at just speaking to as a power business.
If you looked at where we were expecting power pricing when you sell power into the grid at this point.
I had you asked me a year ago, I would've said, hey, we'd probably averaging in a mid thirties per megawatt we saw on the grid and then add another 20 Bucks for Rex and Thats mid fifties.
And so what's happened is power prices have come up materially from that probably you know now we're averaging mid fifties and racks are getting estimate 60. So on a net basis, we're still 20% better off than we would've been otherwise, but hey, this is an open market so as the Iraq.
The more expensive Rex are and the more people want to.
Being that business and so I think it's probably gonna bad is going to be a itself as is commoditized.
And so I think you have to think about it that way, but on an aggregate basis between power and Rex.
Where I am I am relieved and happy that we have a source of of power that is related to reclamation of waste coal and not related to the oil and gas, it's going to improve our margins as a power business, but I think the like.
The intricacies of the Rec market.
Expect that I would say expect that market to bounce around but still trend upward.
Okay. Thank you very much.
Sure.
Thank you. Our next question comes from the line of Mike Grondahl from Northland Securities. Your question. Please.
Yes, thanks, guys.
Two questions one how do you guys feel kind of your confidence level on the bid.
Deliveries the rest of the year.
And then secondly.
You sound fully funded on the 4.1.
Excess cash.
If you're able to get those Minerva miners.
Or other miners up to 5.5, and you need that third plant.
What is the capital you need it doesn't matter, if it's equity or debt, but.
What is that bridge of capital that you would need to get there roughly.
Yeah, So what I think between the.
So that's that's a great question. So first I guess first off only them nervous affect us vexed us the other miners generally show up within.
Let's say one to two months when they're supposed to.
And.
We're actually our JV partner is a part of the sort of re negotiating of that JV agreement.
They've agreed to send about 6700 miners by the end of April which I think it was mentioned on the in our power part of this call and I would expect you know given that that's in the next 30 days they were expecting those to show up.
If everything shows up as if those minor show up Yeah. Then were fully funded on the sort of the 4.1 extra cash to get us through the you know that that build out if we want to go beyond that and we do.
We need.
It took to acquire the next plant, which we have identified and we're sort of in the final stages of the LOI.
To get that done.
I already have all the transformers, an order or two to build it out so that's all known.
In aggregate, we would say, it's probably around $150 million of investment that is required to get the remaining minor because right now we have.
We'll have more than an extra hash like if you don't get this third plant we have an extra how's your miners that will be.
Any of them all of the minerals are delivered that will be on the shelf and what Ive of course, we're not going to live that way, we're either going to find a way to finance the third plant.
Or we're going to divest of that Axa hash and living in cash flow and grow again win when we can.
But obviously, we want to be aggressive.
And so it would be financially prudent and I think the answer there, which we can give you a a P.
By piece breakdown, how does that capital spent but it's around $150 million given that we already have.
One axa hash.
That's that's the Minerva will represent presuming they are delivered this year.
Got it okay. Thank you.
Okay.
Youre welcome. Thank you.
Our next question comes the line of Crisp Linda from D. A Davidson your question. Please.
Just wanted to understand a little better on the operational.
Issues at scrub grass I thought the scrub grass was the first plant so what's different about scrub grass.
Panther Creek and do you expect to have some of these higher maintenance costs, if and when the third facility closes as well I'd say, a little more detail on exactly what the problem is it would be great.
Yeah. So on on Panther before we closed it we did all of our diligence we had identified.
Probably about three.
$3 million to $5 million of upgrades to due to that plant.
While we were installing me.
The data center.
And.
The Panther really had the advantage of of being.
Sort of.
A fresh refurb.
That gives it that baseload uptime, that's in the above 90%.
Scrub grass did not have the benefit of that we kept sort of running wild weren't selling the data center and so we haven't we didn't put that capital in.
I think I think we're publishing scrub grass may need $5 million I don't think it's going to be that much and we kind of review.
Every week the schedule and Capex items are to that that it needs, but it just is it spent years as a as a baseload plant and then spent years essentially as a peaking plant.
And now we're asking them to asking it to run at a base load plant again and so it just has a you know it's a laundry list of of <unk>.
Very solvable issues that we are really that we are very confident that will be done in months not quarters that will get scrub grass back to the.
The 90% uptime Baseload performance that we see at Panther.
So that's really what's happened, but it's a it's a.
You know that.
The hey, there are all sorts of safety measures at the plant and essentially you know probably about Ah.
A half a dozen different recurring issues are causing the planned to trip off.
He then and then takes you know.
I a couple of days, if not a week two to address that issue and restart one of the boilers again. So it's just a it's a.
I guess.
I wish that we had done the pay these scrub grass upgrades at the same time, we did that datacenter can it didn't have the luxury but we're and we're doing it now while we're running I think we debated whether or not we wanted to take that plant offline altogether altogether.
And we don't think we need to do that to get it back to.
Sure.
It's sort of nameplate capacity and uptime capacity is designed for I mean, just to be clear. The plants are if they're not brand new obviously they were designed to run around.
Around the clock.
As baseload facilities.
In fact, they perform better when they do.
It is a massive amount of steel and if it's off and on all the time youre expanding and contracting that actually is part of what can wear it out and so by keeping it hard all the time, where actually we expect to see a a.
A compounding improvement in uptime.
So I mean, I think if you if youre going to be on that on the call.
Late in the evening here, we can give you the sort of the.
The stroke by stroke as to what those items are we went through it today than it was it was actually under $1 million worth of of estimated updates and upgrades that are needed and I think just just for hey in your model I presume it's fast.
But I think we were trying to.
To give ourselves one in a row here, where we actually have to hit your estimates.
Okay.
That's helpful.
And this is probably not.
Good answer but.
Is there any recourse to Minerva at this point like when you get under your money back and they still get equity.
You know, what's the is there any sort of way.
Where you can recoup any of those losses, if they don't deliver.
And I'd, just say hey, we evaluate all of our options.
They have delivered on 3300, so you know they they wouldn't they do that it was the full amount.
And I would just say it does it from my view, if we thought there were no chance if they quit answering the phone I think whats showing up if they could be constructive.
Yeah, we would have obviously litigate to recoup what we can but I can't at this point, it's not really constructive for us to put them into such dire Straits that they cant deliver.
So we're trying to be a as cooperative as we can be well being as forceful as it can be and still let them stay in business.
Oh.
Just one final quick one.
Is there a time that the the LOI on the third site expires or do you have time to wait.
We have time.
Okay.
Great well best of luck this quarter and how things go better.
You bet. Thank you.
Thank you. Our next question comes from the line of Chase White from Compass point Your question. Please.
Thanks, Good evening guys.
So just.
On the prior question.
The resolution for the minimum of nervous situation.
And if we assuming that we don't get to the point, where theyre going to actually deliver the miners.
Obviously, you said that.
Uh huh.
And you're kind of making that decision at this point at what point does that become the end game.
When do we kind of look for that to be the resolution.
You're asking when will we what at what on which quarterly call. We say hey, we're no longer expecting and it will no longer even talk to them. It's now all all between lawyers and the court system is that what youre asking.
Yes.
Oh, I don't know I can't I can't right now, we're not we have not hired litigators too.
Build the case against them, we're still talking with them and cooperating with them.
Yeah.
I think it you know at some point if they if they end up.
<unk>.
Not returning our phone calls not shrink in person not not trying to communicate and collaborate with us.
Neal we will absolutely it'll probably have to put out an 8-K that effect.
And until the world, but we're not that's not what's happening right now.
Yeah.
Got you Thanks and then.
On the decision to purchase the third plant. The one you have the LOI on.
What do you need to see to make that decision like what what goes what is your thought process around making that.
It's a matter, it's a mathematical decision and.
It'll it'll depend on.
If we issue equity additional equity or preferred or do some type of financing to buy it.
<unk>.
If if if it's too dear and it's not accretive to do so then expect us not to do it.
But it's just it's purely financial math that we will.
That will be dictated that will dictate it.
But I would say hey, the tie is going to go to trying to do it.
No.
We still want to.
In our growth.
We're still believers that we can.
You know can enter into LOI by plants and continue to grow our our exit hash run rate. So that's if we can do it that's what we're working to do but I'm not going to do it if.
If it's massively dilutive to shareholders.
Growth growth that.
Is uneconomic isn't helpful.
So I think that's probably that's part of what I.
So to criticize a bright and my peers.
Peers and competitors.
Like a growth for growth's sake doesn't really make sense, if it's economically.
If it economically makes sense, we'll do it if it doesn't if it increases risk.
And decreases earnings earnings potential expect us not to so that's really a you know I think we can we can probably share with you our.
Financing thoughts equity value thoughts.
As you build your model out but.
That's how we're that's how we're wired.
Got you. Thank you.
Sure.
Thank you. Our next question comes from the line of Jacob Roberts from Tudor Pickering Holt Your question. Please.
Afternoon, guys.
Hi, Jacob.
I'm just curious if you could comment on what you guys are seeing in the spot market for miners at the moment.
And how that evolves maybe over the course of this year and really what I'm trying to pinpoint it.
Guys are willing to wait because you see a better opportunity maybe in Q3 or Q4 for that market.
Maybe open up a little bit.
Yeah, I'd say I guess, a couple of things one is hey, the financing markets for.
For bitcoin mining for crypto generally have cooled, which you know I think in a way those that have and that have financing in place and and capital available.
While it feels worse, because everyone's equity values are less than half of what they used to be those that have access to capital that can that can execute on their plan are going to be better off because global hash rate well.
Continue up at a hockey stick level I think in fact, we've seen global hash rate.
Begin to level off and crest, so everything that's beneficial in terms of the cost to acquire new machines.
The spot market is it depending on the machine probably as little as 50 largest hair harsh where if you get the latest and greatest it's closer to 75.
And that's down and that's probably down 30% 40%.
From the peak numbers that you saw late last year.
Just just to.
Defend the decision that we that we that we made when we agreed to buy them normal miners.
Our purchase price for Terra hashed for those miners was looked at it.
$50 Terra ash at a time when the market for those miners in the spot rate was probably.
90, plus maybe even over 100.
And so the.
Sure.
Hey, it is damaging.
And we are are absolutely upset that theyre not living the miners on the pace that.
That was.
It was promised.
We also but by buying them in that way, we didn't spend an additional $75 million that we would have spent have we bought in the spot market so that.
Hey.
Terms are like looking backward, what we've done differently.
It's tough to say that I would have.
Obviously, we would have.
Maybe ask for more protections or.
Maybe a different payment plan to to to pay more along the way, but I think the decision to pay $50 at her house when the market was at 100.
Regret that.
Thank you.
The second question I was wondering if you guys could comment on just the general inflationary environment.
How that might impact.
The upgrades to scrub browse and then if we do assume a third plant get across the finish line.
The back half of this year.
Yeah.
Or kind of how are you seeing that impact there and then maybe also how it's impacting the labor market in the near term.
Yes, it's the labor market has always been it's always been tough our plants are operating and mostly rural areas, where typically like the highest paying best employer in the neighborhood.
So.
We have not.
While we are constantly hiring we have not had labor shortages that impact our operations in a.
<unk> mentioned, a bold way.
<unk>.
I think inflation is going to hit every aspect of everyone's business.
I think the way we're seeing it now is is through higher our biggest our biggest biggest expense on the operation side is trucking and I think we're getting like a fuel surcharge right now.
For trucking and that's that I'm not sure that's going to be a really a big determinant in.
Our overall margins I think actually we're benefiting more from a higher power prices and we're being hurt by <unk>.
Trucking surcharges.
But that's that's inflationary obviously.
The the biggest component of upgrades of the upgrade for plant number three is the transformers and Theyre already bought.
And so that won't be it won't be a factor and I think it will have a lot of copper to buy.
So I don't know I think it's only fair to presume a.
A slightly more money to build out the third plant, but I'm not expecting it to be a.
A an expense that is dramatically different from what we've already.
Well, we already have modeled for just given that we've already bought the most the most important pieces.
Thank you appreciate the time guys.
Sure.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to grid beard for any further remarks.
No hey shareholders. Thank you for your support and now it's been a disappointing quarter I think where we are doing our best to.
To turn the story around and deliver what was promised.
And the IPO I think while it while it is a challenging environment and we certainly had our fair share of headwinds that seem to be happening and as soon as it happened all at once with Minerva delays.
JV partner delays bitcoin price.
Sure.
Reductions.
I think our are we firmly believe that our that the fundamentals of the business are still very much intact and that what we have here is a delay of a.
Performance not a a and.
That reduction what we can do.
So I guess the back on the phone here in about a month and hopefully with.
And I would say.
A bit better news in the first quarter.
Thank you operator.
Thank you and thank you ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Okay.
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