Q4 2022 Bitfarms Ltd Earnings Call
Good morning.
And welcome to the bit farms fourth quarter and full year 2022 financial results Conference call.
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I would now like to turn the conference over to David Barden with L. H, a investor Relations. Please go ahead Sir.
Thank you Joe Good morning, everyone welcome to bit farms conference call for the fourth for 2022 with me on the call today is Jeff Murphy, President and Chief Executive Officer, and Jeff Lucas Chief Financial Officer.
Before we begin. Please note this call is being webcast live and an accompanying presentation to watch along with the slides you can log into our website at www dot their farms dot com under investors presentations, if you prefer to simply calling your smartphone you can download the presentation from there as well I would like to remind you that this morning's bit farms issued.
A press release announcing its fourth quarter 2022 financial results.
Turning to slide two I'll remind everyone that certain forward looking statements will be made during the call future results could differ materially from those quiet in your statements and forward looking information is based on certain assumptions and are subject to risks and uncertainties and invite you to consult pit firms M. DNA for a complete list of these also during the call reference.
It will be made to supporting slides and you can find the presentation again on our website at pit farms Dot com under the Investor Relations section.
The company will also refer to certain measures not recognized under ifr S and that do not have a standardized meaning prescribed by ifr S. And therefore may not be comparable to similar measures presented by other companies. We invite listeners to refer to today's earnings release, and the company's fourth quarter 2022 N V in APAC.
Our aforementioned non ifr measures and their reconciliations to ifr measures. Please note that all financial references are denominated in U S dollars unless otherwise noted.
During today's call CEO , Jeff Murphy.
Operations for the quarter and CFO , Jeff Lucas.
Follow with a detailed financial review and Jeff Moorefield will return for some closing remarks after the Q&A you've requested investors to send questions as well.
I may restate to management time permitting you after the call to analysts interested in the live Q&A now turning to slide three its my pleasure to turn the call over to Jeff Murphy.
Thank you for joining us today as we are excited to talk to you about our recent successes and wipe it farms is well positioned in the current environment to take advantage of improving market conditions.
As a leading publicly traded international Bitcoin mining company, we continue to carefully assess strategic decisions regarding geographic diversification farm expansion minor utilization.
Public and private company acquisitions and capital allocation.
We have created the following key differentiators.
Yeah.
We ensure our competitive low cost structure by maintaining strict discipline when evaluating expansion opportunities.
We seek out and sourced stable and surplus sources of energy with attractive pricing to continue to expand with a view to reducing our production costs.
We utilized and continue to enhance our proprietary mining management software and vertically integrated electrical subsidiary to yield an improved fleet and operational efficiencies.
Yeah.
We set the standard for K P I reporting transparency.
We maintain the highest standards in financial controls and reporting and had been audited by a big four accounting firm since going public in 2017.
During the past year and one half we have built an exceptional management team.
Our international team has significant experience and enables us to scale our operations without additional resources.
And for the past nine months, we have implemented and continue to improve on our highly disciplined approach to growth and capital preservation, including debt reduction.
We will continue these efforts in 2023 by.
Continuing to seek out accretive and cost effective acquisition opportunities too.
To bring further expansion.
Increased cash flow from operations.
Diversify our international footprint and leverage capabilities of our management team and using our proprietary software to add immediate value.
Industry consolidation will continue and big farms.
As we have mentioned numerous times in the past has a superior platform for this type of growth.
Completing and integrating acquisitions prior to the next having in Q2 to 24 is strategically important.
Also in real core to Argentina, we plan to soon overcome recent impediments and execute on our plan to fully activate our new farm with 50 megawatts of low cost electricity.
And adding well over onex, a hash of new production. Most importantly, this will be accomplished with very little capital outlay.
On the development front the pipeline is robust and there are emerging opportunities that may meet our fundamental criteria for transaction growth, which we are working to realize.
Now I'll review, our accomplishments since the beginning of 2022.
Please turn to slide four which shows some highlights.
We more than doubled our hatch rate in 2022.
To further so far in 2023, reaching 4.7 extra hash per second at the end of February .
We mined 5167 bitcoin in 'twenty to 'twenty, two and in February 2023 surpassed the 20000 milestone forbid coins mined by bit farm since its inception over five years ago.
Okay.
We generated $142 million in revenue and $52 million and adjusted EBITDA in 2022.
Our costs remain amongst the lowest in the industry.
With our all in quarterly cash cost of production lower than the quarterly average bitcoin price.
We again posted positive cash flow from operations in Q4 of 2022.
Which is an accomplishment as the industry struggled.
We also significantly increased our flexibility and liquidity by reducing debt by over $140 million during the last nine months and lowering capex commitments by almost $70 million.
Slide five summarizes the status of our farms.
We ended 2022 with 10 farms in four countries.
We have 188 megawatts and operating capacity.
95% of which is powered by a sustainable hydro electricity and additional 40 megawatts built capacity in Argentina is waiting and pending approvals, which will allow for substantially and timely expansion with electricity costs that we fully expect will bring down our overall corporate did quite production Josh.
Turning to slide six.
We show some of our particularly noteworthy achievements at our farms.
Ahead of schedule, we successfully completed our ambitious Canadian expansion plan, increasing our hydro powered megawatts.
Specifically at our three new farms located in Sherbrooke, Quebec, we achieve full capacity at 96 megawatts under a power purchase agreement.
During Q4 of 2022.
At our Garlock farm, we energized 18 megawatts at the bunker, we energized a man.
Meaning 12 megawatts capacity, bringing it to 48 megawatts.
And as planned we decommissioned and sold the della point facility for net proceeds of $3 6 million.
In Paraguay at Arby's, Eureka farm, we imported and installed 2888, new micro V T M thirties.
Which added a net 168 had a harsh per second at the farm, bringing the total hash rate in Paraguay to 288 pet harsh per second at January 31, 2023, and improved our overall efficiency 39 watts per taro harsh.
The previous miners have been sold.
In Washington State, we are operating 20 megawatts and generating approximately 600 pet a hash per second.
Farm highlights our continued by turning to slide seven.
And railcar till Argentina, there are approximately 10 megawatts currently online and additional 40 megawatts of capacity built and awaiting approvals.
We expect approval of our power permit very soon.
Once we received this approval we can draw power under a power purchase agreement from our private power producer.
Once activated we expect this farm to benefit from the lowest cost power across our operations.
Then when the importation of new equipment has been approved using some of our $22 million of hardware credits, we will purchase and import eight to 9000 miners.
Based on current prices of miners, we expect a hard good credit to more than cover our capital expenditure requirements to bring this 50 megawatt warehouse into full production during 2023.
When complete this will increase our corporate hatch rate to six extra hashed per second for our existing portfolio.
After the first 50 megawatts are deployed we can ascertain the timing of the construction and build out of the second megawatts.
The second 50 megawatts on the same property with the same beneficial attributes.
For a glimpse of our operations in real quartile I encourage you to refer to the two minute video that was recently posted to our website.
Please turn to slide eight.
Which summarizes and highlights our operations and positions as we proceed in 2023 with that I will now hand, the call over to Jeff Lucas for the financial review.
Thank you Jeff.
Network difficult increases are raising the cost of production for everyone at <unk>.
New mine has continued to be added to the global network and complete for a fixed number of big claim block rewards only the most efficient players will succeed.
<unk> continues to execute tactics to maintain an efficient cost structure and strong balance sheet.
Physicians aspirin intelligent growth consistent with our strategy.
Carefully pursuing accretive growth opportunities and their operational capabilities enable us to achieve the superior financial performance.
Capital investment.
I'll review, our money economic performance and our financial strategy.
Turning to slide nine.
In the fourth quarter of 2022, we mined 134, bitcoin compared to 515 Bitcoin third quarter. The difference is primarily due to the 20% increase in average total network difficulty.
The third quarter to the fourth quarter that said over the full year, our hatch rate expansion delivered mining dose 3000 important 53, bitcoin in 2020 one.
<unk> 5167 bed Queen mine in 2022, an increase of 50%.
Our fourth quarter revenue was $27 million.
The $26 million from our mining activities and about $1 million from a bulk of electrical subsidiary this compared to $33 million in the third quarter, reflecting a 15% decline in the average claim price quarter over quarter and about 5% if you're a big mine mine during the quarter and the network Difficultly increase offset our average high.
That rate increase of 13% these.
These factors also impacted the full year in 2022 revenue was $142 million compared to $169 million in 2021.
Focusing on our many economic please now turn to slide 10.
In the fourth quarter of 2022, there's times direct cost of production per bitcoin remain among the lowest reported in the industry, averaging just under $11100, albeit up from $9600, a bitcoin and the third quarter of 2020 two.
The change reflects the increase in network difficulty, partially offset by greater efficiency from our miners and a modest decrease in our total cost of electricity per kilowatt hour, primarily attributable to a favorable U S. Canadian dollar exchange rate.
While direct mining cost did increase this quarter, our hydro power electricity costs are not impacted by volatility in fossil fuel prices and that's making cans had benefit from stable electricity cost.
As a result, our direct cost of production.
Bitcoin has remained relatively steady and its headquarters the 10 quarters.
Tabbing.
Fourth quarter gross profit was $8 million up 33% of revenue compared to $17 million or 52% of revenue in the third quarter.
This reflects an average they claim price in the fourth quarter of $18100, which is 15% lower than the average price of $21300 in the third quarter.
Our total cash cost of production, including the direct mining costs, plus the fixed cost of revenue, including event ignition salaries and cash general and administrative expenses, otherwise referred to as G&A or overhead with $16800.
This increase in $2300 or 16% in the third.
Third quarter was again due primarily to the impact of the higher that would typically on a direct mining cost.
Importantly, our cash cost of production in the fourth quarter remained below the average paid claim price of $18100, that's delivering positive cash flow from our mining activities.
From an I F. I R. S reporting standpoint for the fourth quarter, we reported an operating loss of $20 million.
Which included a $29 million realized loss on the disposition and digital assets, a $23 million change in unrealized gain on the revaluation of digital assets.
That impairment charge excuse me net impairment reversal up $9 million.
This compares to the third quarter operating loss of $98 million, which included a $44 million realized loss from the disposition of digital assets $46 million unrealized gain on the revaluation digital assets and $84 million impairment charge to our property plant and equipment and a $14 million foreign exchange gain.
They'll shaded with funding our Argentinian operation.
Our net loss for the quarter was $17 million or eight cents per basic and fully diluted share. This compares to a third quarter 2022, net loss of $85 million or 40 cents per basic and fully diluted share.
Importantly, we continue to generate cash from our operations during the quarter and achieved adjusted EBITDA of a positive $1.1 million, even with a low average pigment prices the industry experience in the fourth quarter 2022.
Turning now to slide 11, our balance sheet strength and flexibility to continue to be our highest priority.
This strategy is predicated on our principles of operational excellence.
Financial stability and intelligent accretive growth.
Supports our key goals are prudently funding financial commitments planned growth and selective opportunities at a relatively low cost of capital.
Our approach to financial management is straightforward, we look to utilize the proceeds from the sale of our daily Big claim production to fund our operating expenses contributed to our desk habits requirements and reduced our leverage while affording us the financial flexibility to continue our growth activity, even amidst the current period of bitcoin price volatility.
We use our ATM or at the market programs judiciously to fund that growth investment so as to minimize shareholder dilution.
Through our efforts to deleverage the balance sheet, we lower total indebtedness.
$5 million at its peak in early June 2000, $20 million to $47 million at December 31st and a further reduction of $23 million as of February 28.
We also have reduced our capex commitments from over $100 million for 2000 $23 million to $32 million at the end of the year during.
During the fourth quarter, we renegotiated might've purchasing agreement extinguishing without penalty payment obligations are $45 million and establishing a $22 4 million dollar credit that's available for future purchases.
By way that completed 40 megawatts of built out and in place capacity and real quick, though we have dramatically reduced our capex financing needs, creating financial flexibility to fund further growth.
At December 31st we had cash of $31 million and 405 big coin valued at $6 $7 million with total liquidity of $38 million.
During the fourth quarter, we generated $54 million of proceeds by selling a total of 3093 bitcoin.
Working hard on the 34 production is 659 from Treasury.
We received $3 $6 million net cash proceeds from the sale of about Gillette quantify them in December .
And we raised $6 million net proceeds from our ATM program.
For the first quarter of 2023 through March 'twenty, you raised additional net proceeds of $14 million.
In the fourth quarter, we also continued to lower our outstanding indebtedness.
We retired our two oldest and most expensive equipment debt financing facility for $8 million.
The fully extinguish our revolving debt claimed back credit facility, we paid $23 million, which freed up over $8 million of bitcoin.
Otherwise collateralized in alone and encumbered.
We restructured a couple of financial block by paying off the outstanding balance of $21 million or settlement of $7 $8 million in February of 2023.
In addition to selling the block buy of loan subsequent to quarter end, we paid off and sell about $380000 due to realize technology group for about $118000. As a result, we ended February 2023, they just $23 million of total indebtedness, which is scheduled to mature by February of 'twenty 'twenty four.
Sure well in advance of the expected having data as planned when we entered into the facilities.
As a result, we successfully eliminated debt obligations of over $21 million, reducing principal and interest payments by $1.6 million per month or about $20 million in total.
Turning to slide 12, I'll now turn the call back over to Jeff.
Thank you Jeff.
We manage our business with 2024, having clearly I'm not.
Our sites.
While no one can predict or control the price of bitcoin only the most efficient mining companies will succeed.
Our performance metrics are consistently industry leading.
We have maintained low direct cost of production and we are working diligently to reduce our corporate overhead costs.
Even at Q4, 2022, bitcoin price levels, we continue to generate positive cash from mining operations.
We substantially reduced our debt capex and monthly cash obligations.
Also importantly, our debt obligations are scheduled to be fully repaid in February 2024 over two months ahead of the next topic.
With our existing infrastructure and $22 4 million in available credits for mining purchases, we expect to substantially cover our capex requirements to achieve six acts of hash per second by the end of 2023 from our current portfolio of farms.
In addition, we expect a cash tax recovery in mid 2023, which will further improve our liquidity and ability to quickly execute on a rising opportunities.
Our experienced global management team is highly capable of finding negotiating and integrating new international opportunities and then to design and build new farms in a cost effective manner.
Having vertically integrated operations developed over the last over the past five years continues to be a key competitive strength.
We are following a path of growth with absolute discipline.
And as evidenced by our track record of operating excellence, we remained well positioned to take advantage of emerging opportunities and be a respected consolidator in the industry.
Before the Q&A session I would like to mention that we will present at the Sidoti small cap conference being held virtually on March 22nd and 23rd and the Ladenburg Thalmann Technology Expo in New York on April 27.
Operator, we can now open the call for questions. Please go ahead.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And our first question here will come from Kevin Dede with H C. Wainwright. Please go ahead.
Good morning, Mr Murphy and Mr. Lucas Thanks for having me on.
Kevin Good morning, Kevin.
Maybe a little more granularity on the Argentina situation, you talked a lot about.
I guess power.
Authority I'm, just kind of wondering where the miners are and because I know about getting through customers was an issue in the past I, maybe you get a sort of caught up on.
On timing there.
And.
And maybe also what are your.
Talking to that point are addressed the $22 million in credits and the opportunity that affords you in shipping more miners there.
Sure. Let me start I'll tell you about the current climate and environment in Argentina, and then Jeff Lucas can can talk to you about the minor credits and the Capex anticipated for Argentina, but Kevin. We're we're very excited about where we stand in Argentina right now it it came with some impediments.
So some slowdowns last year as a result of the government and some of their physical.
But they've made adjustments and we are moving with them. So the first situation was the power permit.
The power permit once once the high voltage lines and facilities.
We had six months to review the situation and provide approval to our private power contract contractor to be able to turn on and provide power to us in the meantime, we've had to provide we've had to take.
Take and pay for power from from the power grid and at higher prices.
We believe we are very soon going to get approval from the government to allow our private power producer to turn on the power.
And as soon as that happens we will start benefiting from.
Lower cost power as we get more miners into the facility.
The costs will even get lower because right now with the power contractor being utility scale they need to produce at least 26 megawatts of power. You're currently are closer to 10 megawatts.
Before we can start getting the full benefit out of the power being taken from that facility.
<unk>.
We are excited that that seems to be around the corner and at a lower cost or are going to be coming into us.
We expect that.
The second challenge was.
Importing miners into the country, which.
Stalled as a result of.
The country's balance sheet and they have made changes since I've mentioned and now we are expecting.
Expect it probably within the next 30 to 45 days that it will be open to us to start bringing miners into the country.
And initially that would be a few thousand but then that will move up to eight to 9000 miners and fingers crossed it looks like we should be in full production during the third quarter.
Up this year and that facility will be at full production and then depending on the.
The markets and the prices and the harsh pricing and all the other factors that will come into it along the way we will make a decision about implementing.
Implementing the second 50 megawatt warehouses that we can put them in the same site with us all the same favorable attributes.
Okay. So.
Your hashing their now what.
About what level are you hashing now when you're running completely off the grid.
We are pulling power exclusively from the grid right now because the private power producer doesn't have the green light to turn the power on for US. So the cost is higher because we're taking grid power.
That that will.
Substantially reduce based on energy prices right now and our contract with the private power producer. So that's should be around the corner and okay. What can I.
I was remiss in my previous comment of saying that.
Tween, the approximately 10 megawatts that were drag now and approximately 26 megawatts.
When they turn on utility scale, they will produce more power than we need and they will sell that power to the grid.
<unk> tends to be at a at a loss to them. So we'll have to make it up but it'll be a blended power rate that'll take us down to where it should be three cents per kilowatt and expressed in U S dollars or less.
Once where we're in production there.
Yeah, we're we're drawing.
Generally eight to 10 megawatts right now.
And and with full sites on on drawing a full 50 megawatts later this year.
So per your.
Discussion, Jeff regarding the government do you think they've sort of backed off a little bit on the custom clamped down do you think machines flow in with less hiccups in the future. So that such that you can get to that sort of 26.
Meg consumption.
More near term than the full 50 in the third quarter.
More near term than the full 50 in the third quarter.
A different lens Kevin.
Under the under the former program.
They provided a advantageous exchange rate called the Blue Chip exchange rate, it's called a variety of things that us in a variety of other foreign direct investors were taking advantage of.
To bring equipment into the country. It was a more favorable exchange rate, but that also impacted the country's balance sheet at a time when it really didn't have the wherewithal to be able to stomach that any any longer so it put a stop to the that practice.
And then it needed to bring in new channels to be able to allow foreign direct investors to invest in the country, which is now done and because we've been there.
For two years have employees in the country have a track record of being able to.
Build and pay suppliers, we now have.
What the application required to be able to submit the application and get approval to become a direct importer when we're a direct importer.
We can bring equipment in we will pay not at the C. C L a and a b, where the blue chip exchange rate, but at the official exchange rate, but we will also have a.
Substantially less in broker charges to do it they they pretty much offset each other but the best part of it is that.
Under this this new.
Approval process, which we are in the queue and we feel very strongly that we're going to get approval within the next 30 to 45 days that will be allowed to be a direct importer.
Well theres still be communications with the governments and in smaller approvals it's in their best interest.
Because of the cash flows that we'll be bringing to the economy.
Two to approve that application and and.
Joe will be a good corporate citizen to being able to do that.
We're excited for.
For that to happen.
Okay, and then with regard to the 22 no credit.
Do you foresee dedicating its used to going from the 26 level, you're anticipating near term to 50 in the third quarter in terms of megawatts.
I'll, let Jeff answer that but it'll it'll take us from the eight to 10 that we're at now right up to the 50.
And you still have some credit leftover, but go ahead Jeff.
Yeah sure. Thank you.
Good morning, Kevin So we have right now a little under 2500 miners that are deployed here in Argentina.
And we'll be looking at approximately 13000 for the fourth.
We had a 52 megawatts take advantage of that.
The capital costs of those minor completely covered and then some as you pointed out with the $22 $4 million of credits that we have there.
Other words will be capping a large portion, but not the entirety of that credit to fulfill and meet our capital requirements for the minor but fully for the warehouse.
Yeah.
Okay and that gets you to the six extra hash target you're.
Offering for the year.
Correct correct.
Okay.
In fact, it was probably in.
In fact, there's probably more miners in that so that if we were given other opportunities we should be able to flex beyond six X a harsh with that credit as well.
So that's kind of where I was going.
There has been some talk there's an opportunity for expansion in Washington, you asked there is.
Hydro, Quebec, that's offering I think $2 60 to $2 80 megawatts and then I think.
There has been some news out of Paraguay with more big coin miners going there and I was wondering if you could sort of round out.
Our anticipated expansion in those geographies.
Sure.
In Quebec, which is our home base, where we have seven operations.
The RFP is still there, but sustained by changes in our in.
In the political government.
We're still hopeful and we continue to participate in discussions to allow that RFP to rollout in a way that's beneficial for the problems Quebec.
As well as a beneficial for us.
We can't give you any estimate or any guidance on when that will come to play in fact.
Uh huh.
There is some factions that we'd like to see that canceled.
We think we bring a considerable amount of value to the province of Quebec and were supported by the towns in the Mers in M P's.
Or we do our operations and we see.
The operation the opportunity to set up and in towns and cities, where there's a lot of surplus hydro power.
Employment that is necessary skilled labor that has that exists for them since I'm, the forestry and mining industry. So we're excited about Quebec right at the moment, we can't count on it given.
Given the moves by the province to.
To get the new rules of the RFP in place so that's there.
Washington is a wonderful area, where we had successful operations.
And once again, it's hydropower.
And we're seeing both greenfield opportunities brownfield opportunities and acquisitions in that area.
Discussions continue.
So that's a that's a bright spot.
Oh Boy Paraguay are we we're very excited about and probably about this time last year I was telling you. How excited we were for it. It's it's they've got a surplus hydro load there that we'd love to take advantage of.
Brush.
And they brought in some rules that resulted in a tariff on it.
In that area are increasing.
Probably too much and it seems to have poured cold water on.
The interest of us and a variety of other miners going to Paraguay do you think this is a mistake.
In fact I'm headed to.
Argentina and Paraguay are later on Tonight to have some of those discussions with those people to try to bring some more reasonable.
Our balance to what they want in exchange for power.
Power cost per kilowatt hour, the dental stash or the curtailment.
Factors and things like that but Paraguay in the meantime.
It's an election year and as such things are somewhat shelf is until the election goes through so we don't expect really much change in Paraguay until later this year, but yes. There is one power. There's one bitcoin company, that's announced that youre going into Paraguay with a 100 megawatt.
The opportunity and we wish them. Good luck. This time last year, we were working on.
Multiple 100 megawatt opportunities in Paraguay, and they were they've been put on the shelf based on.
Some of them.
Announcements.
Hopefully that covers some of the geographies you asked about Kevin.
Absolutely all of them. Thanks, Jeff One last question for me before I turn the floor over Don can we talk about our mining efficiencies you noted in the.
And on the slide deck.
You're now at about 39 tools for tear hashing.
As of February I'm wondering.
As you look across the fleet.
And.
Leftover credit that Mr. Lucas has spoken to.
Yeah.
Is there a thinking internally about how you might consider optimizing machine performance.
Sure.
I think that that to push that efficiency lower.
Or higher depending on your perspective.
Exactly [laughter], Kevin we're doing that every day.
We utilize all the latest generation miners.
We have.
The concentration of the M 30 microbes to use but we also have the S 19th they're all very good miners and.
We are able to achieve.
Amongst the best efficiencies.
Efficiencies in the industry right now based on our software system in our operations and our technicians and that comes from.
Making sure that you have all your machines up and running.
Fully running and.
Fully optimized and we're very good at that and that's why we continue to achieve these great.
Great efficiencies now sure there are a great.
Oh sort of high performance S 19, fifties that or are you achieving even better efficiencies, but there are two or three times the cost and this has been a challenging environment.
We think that you you can't just take a look at the watch for Terra Hasher jewels procure hash in isolation you need to take it combined with how well you operate your fleet and your power costs because at the end of the day, what you need is cash flow from operations to provide a return on investment.
And I think Theres a lot of other people out there that are growing for growth's sake.
And clearly with our our targets of six X at Ash.
We're not doing that we are prudent growth very disciplined too because we want to provide value to our shareholders and as Jeff Lucas as mentioned with these hardware credits.
We're able to roll out a substantial increase in production.
Without a substantial cash outlay, which means a far less dilution to shareholders. We think this is key we think this is important for our shareholders to know that we can substantially grow without a substantial outlay and we have been achieving positive cash flow from operations, even through some pretty lean times.
So Kevin when you look at the the jewels procure ashburn for these miners you also have to look at power costs and taken in conjunction with that and your payback periods in your ROI. So that's what we do our R.
Our computational.
So our calculations on how to do it is a mixture of the performance of the machine the capital cost of machine and then the expected output.
A cashflow so it's it's more complicated than just looking at the jobs picture hashed, but when you get that figured out you can generate good returns.
But let me add a comment that if I may you know we're also as we look at ROI and payback. We're also very aware that we have of having a bank coming next year and so while we've got a lot of our peer companies may be investing in higher performing and more expensive miners out. There you know I think people have to be very attuned to it.
Things that go beyond the one year payback recognizing of years, two or three would be impacted by the happy event, which of course is a great elements of uncertainty.
Yeah.
Well. Thank you gentlemen, appreciate you taking the time.
Thanks, Kevin.
Our next question will come from Bill pick on the stage with Stifel. Please go ahead.
Hi, gentlemen, thanks for taking my questions.
No.
Alright, and congrats again on the recent efforts to reduce the indebtedness M. B a renegotiation of those contracts are my first question is related to Treasury management.
First couple of months this year.
The company has maintained a hurdle balance of just over 400 bed corn, but we continue to see positive price action.
For the digital asset and you know based on the macroeconomic outlook.
It seems like things are only going to improve from here fingers crossed.
I'm just wondering whether you can share your outlook on in terms of you know.
Treasury management strategy as we progress into 2023 with.
Having an in in the back of our minds.
Sure. So let me start off with that and then Jeff can they fill in as well here.
We made the conscious decision last year actually use our bitcoin holdings to pay down a lot of our indebtedness.
Deleveraged the company overall, we recognized and adopted the.
Strategic intention at that point in time that we feel investors described greater value to our financial performance.
Than they do in a result, certainly.
And the building of a treasury, a bitcoin, which day of course any investor can do on his or her own here.
An important point to keep in mind going forward that while we're looking at growing the business. We wanted to do so it'd be accretively, when there's minimal dilution to our shareholders as possible.
With that in mind, Bill, what's going to drive our tuck in strategy going forward.
Utilizing the big clients on production you need of course, their operating expenses and debt service requirements and to the extent it makes sense to contribute to our capital expansion plans as well.
As we continue to see and if we continue to see an increment in the half price added of course, you know the amount of revenue that we derive from every carrier has sure we.
We may be in a position here, where we'd be generating greater revenues above and beyond our operating expenses and debt service requirements at that point in time, we may give consideration.
You need to build up our treasury reserves, but again the overarching goal here is to minimize dilution to shareholders would rather use or actually the BTC proceeds.
Actually engage in the ATM to fund the growth of our business going forward.
Thanks for some great color.
Just moving gear shifting gears to Argentina.
Speak a bit more to the opportunity there.
Why you remain so bullish you know my understanding is that the that there's a significant amount of natural gas and it trades at a discount and you add more color to that and.
We've recently seen natural gas prices reduced this year and I'm wondering.
If you're able to comment whether this reduction in natural gas could have an impact to the power costs that you'll be drawing on the future through Albert I C or the other.
Energy provider.
Right.
Absolutely.
Yes, the lower natural gas prices will help us as well as <unk>.
Any of the other miners that are described in power from natural gas field electricity.
In real corridor Argentina.
The whole country benefits from the fact that I think it's the third.
The country with the third largest reserves of natural gas in the World I think there's second or third and and and.
In oil reserves as well.
So they have their energy rich and what's also a benefit to us.
Certainly a benefit to them as being in the southern Hemisphere, a long way from the population centers of the world.
There's no.
No LNG terminals, it's hard to.
It's hard to move that oil and natural gas anywhere else. So there's just like what we look for in hydro a surplus hydro they have surplus.
Energy in the form of natural gas and we can help monetize that which is good for the country and it's good for us and.
As I as we said in the script, we expect when this thing when this.
Facilities is fully activated and it's going to be our lowest cost energy of any of our sites right now where natural gas prices are we think it's gonna be three cents per kilowatt or less.
It's an eight year contract the first four years.
60% of the <unk>.
60% is at 2.2 cents per kilowatt and the rest is it at market prices, which we do not expect to exceed much over or three cents per kilowatt. So.
We are very hopeful that this will be subs recent power, which will bring our total cost across our whole fleet down and down quite significantly. So this.
This is a strategically important area for us strategically important for our shareholders and we know what it's taken longer to put in place and it's been a bit of a.
A black cloud for our shareholders and her and her evaluation. So we are excited to hopefully pass. This hurdle soon and show everybody that this is going to be activated and a very successful project.
Thanks, Jess lastly.
Just wanted to circle back to the equipment credit, but Kevin was asking on and just expand on it a bit more.
If I do some back of the envelope math it appears that.
We were to consider a 15 dollar for Terra hash.
Pricing H ex U.
Get.
To about 6.2 extra has an existing 4.7.
And drastically reduced the machine efficiency are you able to comment on whether you know there's a particular makes that you like.
Do you like.
Uh huh.
Six you select to deploy into the Argentina facility.
Does the credit pertain only to Michael B T. R. R.
Can you purchase other types of equipment.
And you know my understanding is that Michael <unk> has been a significant.
<unk> utilized all their operations have been significantly utilized that the farms and you know you continue to get very high efficiencies just any color on there.
Yes.
You're right. It's it's it's Ben.
A good portion of our fleet is micro V. T. M 30 series miners are there a workhorse they've been tried and true.
When they do falter, we can we have the knowledge under repair shops to fix them and get them back in action.
And they have an amazing longevity there.
They're not a super high performance unit, but they they truck along with very good efficiencies and yes, your math in terms of Cal.
Calculating ex ash mirrors, some of our calculations as well so it really represents an opportunity should an acquisition come along that we can utilize that credit elsewhere, but yes. These credits are all for my micro beta units.
We have the flexibility that we don't have to put them all in Argentina, but that seems to be the longing for right now so that.
Where we will go but we're open.
That sex acts of harsh to putting them elsewhere as well.
But we're.
As we look at expansion opportunities, we'll be happy to use a bit main equipment as well as I said earlier to two Kevin.
It's just a mix of of the circumstances at that particular site and the capital cost that goes with the miners versus their performance and then when we make the decision.
Yeah Bill.
But 85% of our miners I'm not going to be T. We've had a great track record as Jeff pointed out and repair record of these things is excellent.
Yeah.
Hmm.
Thank you I appreciate the color guys Thats all my questions.
Thanks Bill.
And our next question will come from Dillon Heslin with Ross I'm, Ken. Please go ahead.
Hey, Thanks for taking my question.
First I wanted to talk a little bit about Argentina again.
<unk>.
Talk a little bit about this.
Next steps in the build out I'm sort of being on pause.
What exactly do you think you need to see what gives you confidence that you can continue to pursue that opportunity.
We are very advanced done.
The first 50 megawatt site was completed in October it's ready for miners all the equipment all the I T connections.
They're all in place. It's just that we had the setback from the government government approval changes so as soon as we can get the miners in there and the power turned on.
Oh, where gold.
And it seems.
Both of those approvals or are imminent. So as soon as miners arrive at site. It can be plugged into them and we'll increase our hash just like that right.
Right up to 50 megawatts, so really after that it's it's considering.
Like as you recall, we have a 210 megawatt contract there.
We had initially planned on building all that out, but then wind conditions in the market deteriorated.
We are really focused on two warehouses rather than four warehouses. So we're really looking at 100 megawatts. So if.
The.
And what's happened in the industry over the last.
A few weeks.
The last couple of months is very encouraging yes that hash price can can continue to improve and the economics look good and the paybacks periods look good.
We will.
View the timing for it to having in mind, that's probably about April 30th 24.
See if we can build out facility.
And and have it contribute to our accretive growth for for our operations and our shareholders.
Those are some of the factors that we're looking into but we're not going to jump into it quickly we're going to evaluate all the variables and make a smart and prudent decision.
When the time comes but the gating item is getting the power turned on it.
At the park.
With the government approval and the ability to bring miners into a country. If we can get both of those things achieved in the next number of weeks.
Then we.
We will we will have the good fortune of being able to make those decisions.
Got it thanks, Yeah yeah.
Yeah, I understand with the with what.
While the existing I guess, what I'm, referring to more so or you haven't built yet I'm sure if you.
Get what you're talking about online and the machines and like do you see any more potential hiccups that could exist with the government. If you did decide to go through or do you think once you get there.
The first building online and it's sort of a bit more smooth sailing from that.
Oh, it should be smooth sailing C. The power permit.
Will allow for not just the power of the first facility, but should be the lion's share of the second facility as well so that should be covered all with the power permit approval in <unk>.
So bringing miners into the country, we think that's imminent Ah the.
The government's made their changes it's good for the government.
That our application should be clear, we're able to then layer on additional applications very quickly for additional amounts to come into the country.
I think over the last two years, we've learned a lot and we've learned that this is a country that's not quite as nimble as what we're used to in North America, but we have we have now approximately 40 people on the ground there.
Between technicians and our regional office.
And we know the system a lot better we know the people a lot better.
We were probably a bit naive to start with but we've overcome those things were on the ground.
The government is well aware of us and is supportive of us. So I think we paid our dues and that we're going to get the benefits of them.
Got it. Thank you and then as a follow up.
Talk a bit about potentially looking at cookie acquisitions.
Do you think that's in markets, where you already operate.
I E countries or is it something where you're looking at new countries. It's sort of what what are your thoughts in terms of something that might already be built out or something that you're just buying access to land and power.
Let me give you a little background on that and some metrics at the beginning of 2022.
We decided because we thought consolidation was coming and acquisitions would be coming that we should develop a corporate development group.
We have three talented individuals within that group and over the last 14 months. They have reviewed 80 opportunities in 17 countries with over 6500 megawatts of power.
We have issued 15 allies.
We are very busy and looking at opportunities, but very disciplined at what might work for us.
Often there is a mismatch of our value expectations versus their value expectations, but I think given the tightness of the marketplace in the fourth quarter last year, the difficulty rises and so far in this quarter.
People have realized that this is a very challenging.
Business sector.
And that you need industrial scale and experience to be able to do it successfully and we are seeing better opportunities more realistic pricing and we are.
Hoping that what.
We're going to be able to complement our organic expansion with some acquisitions.
And those and just to follow on with your question. Yes. They are particularly good if they are already in geographies that we are we reside in because we have people. There just makes sense and there are also areas in which we know the laws and the rules far better but it doesn't.
Keep us out of looking at our other jurisdictions that might be favorable for growth as well.
Okay I appreciate the comments that logically.
Pretty good.
Yeah.
And this concludes our question and answer session.
I would now like to turn the conference back over to Jeff Murphy for any closing remarks.
Thank you I would like to reiterate three points about their farms.
First we mined 5167 bitcoin in 2022.
Placing us high and total production for the year and further validating our capabilities to scale the business.
Second.
<unk>.
We've maintained profitable mining operation each quarter as a result of our determination to maintain stable low energy and operating costs.
Three we deleverage our balance sheet as of February with $22 4 million in available equipment credits and just $23 million in total indebtedness, we have ample flexibility to grow in 2023 orgs.
Organically with little capital, we expect to reach six X a hash per second by year end from our existing portfolio and we expect that one or more acquisitions will bring us even further value to shareholders.
Thank you all for attending today's conference call. We look forward to updating you with our monthly production reports as well as other development and our Q1 conference call in May Thank you very much.
Yeah.
The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.