Q1 2023 Cipher Mining Inc Earnings Call
Good morning, and welcome to the side for mining first quarter 'twenty to 'twenty three conference calls.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question press the star one again.
For operator assistance throughout the call. Please press star Zero, and finally, I would like to advise all participants that this call is being recorded. Thank you I'd now like to welcome Josh Kane with Investor Relations to begin the conference Josh over to you.
Good morning, Thank you for joining us on this conference call to discuss site for Mining's first quarter 2023 business update joining me on the call today are Tyler page, Chief Executive Officer, and Ed Farrell Chief Financial Officer. Please note that you May also review our press release and presentation, which can be found on the Investor Relations section.
Of the company's website. Please note that this call will also be simultaneously webcast on the Investor Relations section of the company's website.
The conference call is the property site for mining and any taping or other reproduction is expressly prohibited without prior consent.
Before we start I'd like to remind you that the following discussion as well as our press release and presentation contain forward looking statements, including but not limited to Cypress financial outlook business plans and objectives and other future events and developments, including statements about the market potential of our business operations potential competition and our goals.
Strategies the forward looking statements and risks in this conference call, including responses to your questions are based on current expectations as of today and <unk> assumes no obligation to update or revise them, whether as a result of new developments or otherwise except as required by law.
Additionally, the following discussion may contain non-GAAP financial measures, we may use non-GAAP measures to describe the way in which we manage and operate our business. We're reconciling non-GAAP measures to the most directly comparable GAAP measures and you are encouraged to examine those reconciliations which are found at the end of our earnings release issued earlier this morning.
Now I'll turn the call over to Tyler Tyler.
Thanks, Josh Hi, This is Tyler page CEO of safer mining. Thank you very much for joining our first quarter 2023 business update call. Let me start with some key developments since our last update.
In the brief period since our Q4 call we've achieved several milestones.
Most importantly, we recently announced that Viper has achieved over six <unk> per second of self mining capacity across our portfolio.
Over the last year and a half we have financed designed built and now operate one of the largest mining fleets in the world.
With the completion of this first phase of growth safer now operates over 59000 machines.
We're extremely proud that we have done this in the timeframe that we set out and without having to dilute shareholders or take on the burdensome debt the crippled many others in the industry.
Following the successful completion of this first phase of growth. We are delighted to announce today that we recently agreed to purchase another 11000 miners to finalize the Odessa datacenter.
We expect to complete this final phase of the data center by the end of Q3, which will bring our self mining capacity to over 7.2 <unk> per second across our portfolio.
This purchase agreement secures rigs for safer and a very attractive pricing market and continues our track record of taking advantage of cyclical opportunities.
We continue to evaluate the potential expansion at our bear and chief data centers and we are also reviewing a broad range of new data center opportunities.
We are very excited about the new opportunities we are seeing today with the experience and expertise across our team from power origination to construction to operations to technology and finance, we are able to assess and potentially pursue transactions that would deliver similar returns to our existing portfolio.
As a reminder, our weighted average cost of power is approximately $2.07 per kilowatt hour and about 96% of our portfolio is energized through fixed price power.
Hello represents roughly 80% of our operating costs and is a key driver of our best in class unit economics.
Structuring favorable energy economics remains the most important element of any future opportunities we consider.
This is a cyclical business.
Managing through the cycle as a fundamental part of our philosophy and reflects the way we run every aspect of our business whether that involves finding low cost power.
Or not overpaying for machines during bull markets or avoiding overly burdensome debt.
On page four we give some key performance indicators that we currently observe in the business as we continue to ramp up.
Our self mining hash rate is six <unk> per second and we expect to reach seven point to exit has per second by the end of Q3 as we plug in the recently purchased additional 11000 new rigs.
Should we decide to expand at Barron Chief we could bring our self mining capacity to eight point to exit has per second by year end 2023.
We currently operate roughly 59000 rigs and our new purchase will bring our operating fleet to over 70000 in the third quarter.
Using newer inefficient machines with a low cost of power makes us a low cost producer of bitcoin, giving us resilience in the bear market and also operational leverage in a bull market.
On the bottom of this slide you can see some of our current production numbers.
We continue to apply prudence to the management of our bitcoin Treasury and generally sell enough Bitcoin every month to fund our operating expenses.
Given current market conditions, we have also been funding our capex at Odessa through ongoing operations.
We constantly assess the right approach to funding growth.
But our best in class unit economics, and strong balance sheet give us the flexibility to self fund growth with debt and equity markets are less favorable.
Before diving deeper into our market update let me take a moment to remind everyone. How our business model works.
On slide five you will see a simple overview of a bitcoin mining business we.
We operate the box in the middle of the drawing that says mining equipment, which represents our data centers and mining rigs.
As I discussed earlier, we spend the majority of our operating expenses on electricity, which are data centers convert into computing output.
Unlike traditional data centers, which operate a similar model and sell their computing outputs of enterprise clients for dollars safer sells its computing output called hash rate to the bitcoin network for bitcoins.
To make this model operate profitably a bitcoin mining company needs to control both its electricity costs and the capital its been to build its data centers, including what it spends to purchase mining equipment.
Controlling these costs enables a minor to be a lower cost producer and our focus at seifer has always been on controlling these specific costs to produce the best possible unit economics.
Let's now turn to page six and take a look at recent market events in the bitcoin mining space and talk about <unk> approach to these volatile markets.
During the quarter, we have seen a rally in bitcoin prices, which may be part of a flight to safe Haven assets in times of banking stress and increased correlation between bitcoin and safe Haven assets may lead to greater bitcoin adoption in the coming years.
However, accompanying this price increase has been a steady climb to an all time high in Bitcoin network cash rate, which continues to suppress overall mining economics.
With this market backdrop, we continue to believe that it's a buyer's market for rigs for those who can afford them and as we announced we have been focused on taking advantage of those conditions.
On slide seven we give a portfolio overview of our data centers. We have completed the build out of our Alberta bear and chief data centers and expect full completion of Odessa by the end of the third quarter.
Our cost of electricity for bitcoin generated at our sites are some of the lowest in the industry.
And for those who are relatively new to the story. The chart on the right shows you the dramatic Buildout in Cyprus overall hatch rate from Q4 2022 through today as well as the additional one point to exit has per second that we expect to come online with the completion of Odessa in the near future.
Moving to more specific highlights on each data center slide eight shows an overview of operational highlights at our Albert's data center.
<unk> is 100% powered by wind and as a joint venture that we share with our energy provider.
It has a total operating capacity when the wind blows of 40 megawatts.
At 40 megawatts Power's roughly one three <unk> per second of rigs.
Albert can mind, roughly 3.5 bitcoin per day and year to date. The site is mined approximately 320 bitcoin.
Roughly half of that total capacity and production belongs to cipher.
Most importantly, our recent all in electricity cost per bitcoin at <unk> was approximately $6747 demonstrating our resilient low cost structure.
Slide nine shows operational highlights from our bear and chief data centers.
Bear in Chi for completed and made fully operational last October .
Combined the sites operate 20 megawatts, which power approximately 0.65 exit has per second and can generate roughly $1 76 bitcoins per day and current market conditions.
Bear in Chief are also structured as joint ventures with similar shared economics to Albert's.
Unlike our other sites, which have behind the meter power arrangements bear and chief are set up in front of the meter in our location within Texas that typically features attractive market prices.
Our recent all in electricity cost per bitcoin at the combined sites was approximately $5927.
Turning to our Odessa datacenter Slide 10 includes our most recent production numbers as well as a timeline for the completion of our site Buildout.
At the end of April we reported a cash rate of approximately five <unk> per second at the site.
Generated using approximately 170 megawatts.
We have mined roughly 1306 bitcoins at the site year to date.
And had a recent daily mining capacity of approximately $13 six bitcoins per day.
Our recent all in electricity cost to produce a bitcoin at Odessa was approximately $7309.
As previously discussed we expect to energize, our newly purchased 11000 rigs by the end of the third quarter.
Which will bring the full capacity at the Odessa site to six point to exit hash per second.
Turning to slide 11.
I'd like to walk you through a case study to demonstrate some of the competitive advantages of our setup in Odessa.
As the Odessa site ramps up we are just beginning to see the tremendous positive impact that our power purchase agreement gives us in terms of mining economics.
And the upside potential from selling power.
Slide 11 is a case study showing how we operated the Odessa datacenter on March 28 and 29%.
Our operations on these particular days illustrate how we monetize our flexibility on the power side.
Under our Odessa contract the power provider has the right to curtail our power use up two 5% of ours over the course of the year.
They will generally try to do this when open market prices for power are high so that they can reap larger returns from selling power in the market as opposed to selling it to us at our low contracted fixed price.
We also have the right to self curtail shutdown our machines and sell the power. We are then not using at our data center back into the market.
The graph on slide 11 has vertical bars that illustrate the open market floating price for power in 15 minute increments.
It also features a blue horizontal line, representing our fixed price for power and an orange horizontal line showing the then current bitcoin mining revenue priced in dollars per megawatt hour.
It's worth looking at the spread between these two horizontal lines to get a sense of are very attractive operating margins at Odessa.
As you can see the market price for power fluctuate wildly during the two days between negative $20 per megawatt hour, all the way up to $2000 and beyond.
The white vertical lines show, what the open market floating power prices were during times when Cypher was my aimed at coin and paying the low fixed price represented by the blue horizontal line.
For many of our competitors without a fixed price power contract those tall spikes shown in the white lines would result in either loss inducing bitcoin mining operations.
Or having to shut down to avoid losses.
During these two days, we had a stretch of time with the power provider curtailed cypress mining operations and have colored that time period and red.
During this time period, we produced no revenue at the site.
On the other hand, the green vertical lines represent the floating market power prices during times, when seifer opted to self curtail volte.
Voluntarily shutdown, our machines and sell power back into the market.
By doing this we realized excess power trading profits above bitcoin mining of over $145000.
Period of less than three hours.
On the whole in this two day period cipher missed out on roughly five hours of mining profits. When it was curtailed by our power provider, but we also made excess profits by self curtailing and selling power back to the grid for two and a half hours.
The net result was a particularly strong one for our operations, where we made more money through managing curtailment than if we had been bitcoin mining for 100% of the time.
And this one two day period in March you can see many of the favorable elements of our power arrangement at Odessa inaction.
Can see the value of locking in a cheap electricity price well below where floating prices can spike.
But you can also see the tremendous net value to cipher of monetizing the flexibility of our datacenter.
Our operations benefit from this ability to mine bitcoin or resale power and pursue whatever strategy is most profitable.
Also the times when we happen to resale power are not only profitable, but also coincide with the times when the grid needs that power the most.
This phenomenon illustrates the tremendous symbiotic nature of adding flexible bitcoin mining loads to grids overall.
We expect to continue to see examples of this especially in seasons like summer and winter. When there is a greater likelihood of spikes in the market's floating power prices.
It is also worth noting that for those of you who follow our monthly production report we are not like many other bitcoin miners, where you can draw a straight line from bitcoin production to revenues.
In our case, a lower bitcoin production number may reflect periods, where we self curtail and take advantage of power sales to increase profitability.
And even in cases, where we are not mining because were curtailed by the power provider.
That ultimately means we will have more optionality to optimize our profits later in the year as our counterparty uses up their annual curtailment allotment.
This complex optimization process is only possible because of the prodigious skills, we have assembled on our team and the tremendous industrial and technological operations. They have built.
With that I'd like to turn it over to our Chief Financial Officer, Ed Farrell.
Thank you Tyler and Hello to everyone on the call.
Now, let's talk about the impressive ramp up in our operations that we have seen over the past several quarters and we are now beginning to see that flow through to the financials I am happy to report for the three months ended March 31, 2023 that our production at our Odessa facility by 947 Big.
Resulting in cipher reporting $21 $9 million in revenue.
This coupled with the 198 bitcoin we earned at our JV resulted in a total of 1145 bitcoin mined in the first quarter.
Please note that the financial impact of the bitcoin bind at our JV is included in equity Investees, it's out on the income statement.
With the build out of Odessa expected to be complete in the first half of 2023, we look forward to providing the market with greater detail on our financials, which we believe will highlight our best in class unit economics.
And at the corporate level, our philosophy towards our financial strategy mirrors, our prudent approach to the rest of our business.
It is a cyclical business and we want to maintain a strong balance sheet and financial position that gives us maximum flexibility over the course of the cycle.
We have no debt at the corporate level and one small equipment financing loan at the project level as we've talked about in our monthly production reports were not managing our bitcoin treasury.
On both the remaining Capex that Odessa and the day to day operations with current bitcoin production.
The ability to fund both capital expenditures and operating expenses, while building a big claim reserve reflects our best in class unit economics that will become more and more apparent as we get to a full run rate later in the year.
Now I'd like to turn to the Odessa PPA on slide 11 pilot work through a very helpful case on the business opportunity that we obstruction with aluminum power agreement.
We believe the value of that PPA does not fully appreciated by the market.
As a reminder, we began publishing a third party mark for this agreement in the third quarter of 2022, which we believe underlies the fundamental value in the business.
This market is shown as a derivative out asset on the balance sheet.
Revalued each reporting period.
It essentially reflects the in the money value of the contract relative to the current market.
Oil prices that Odessa.
On March 31, the SaaS that was valued at $72 million or an increase of $5 3 million, which is recorded as a gain in our income statement.
Please note that this asset is in two components.
$17 million as a current asset and $55 million as a non current asset.
For this period in future periods the change in fair asset of this contract will flow through our GAAP earnings and we will exclude the impact for non-GAAP reporting.
Other significant assets include liquidity of $13 5 billion. This includes $3 $9 million in cash and midpoint of $9 $6 million.
Property and equipment of $263 million is primarily related to the Odessa facility, which includes miners of 135 billion.
Leasehold improvements of $118 million and construction in progress $24 3 million.
These items are offset by $15 $4 million of accumulated depreciation.
In addition, we have security deposits of $17 $7 million that primarily relate to the collateral for our aluminum power agreement.
Our equity investments of $35 5 million relates to our JV, our borders bear and chief.
Our current liquidity position is $14 $8 million in cash and bitcoin.
Also to date, we have not utilized at $250 million ATM program, because we believe it would be dilutive to shareholders in the current conditions.
Because of our strong financial position and unit economics, we can fund our ongoing growth without tapping the ATM.
We do believe the ATM is a useful tool, which we can access for the right opportunity and the right market conditions, but the hurdle for US is the project or opportunity that is accretive to the company and shareholders.
Now, let's look at our GAAP operating results for the quarter ended March 31.
We had a net loss of $6 $6 million, resulting in a net loss of <unk> <unk> per share versus prior year quarter, where we had a net loss of $17 5 million or a net loss of <unk> <unk> per share.
Again, bitcoin mining operations at our Augusta facility, and 947, Bitcoin and generated $21 9 million for the three months ended March 31 at an average price per bit point of $23000.
On a comparative basis, the Odessa facility began mining operations in mid November 2022, Therefore, the company did not earn revenue from bitcoin mining during the three months ended March 31 2022.
Cost of revenue for the three months ended March 31, 2023 was $8 1 million and consisted primarily of power costs at the Odessa facility as well as maintenance expenses for mining operations.
We did not incur power costs in the prior year's quarter as again.
Facility mining operations did not begin until late 2022.
The change in fair value of our Odessa power agreement, which I mentioned earlier resulted in the gain of $5 $3 million.
Equity in losses of equity Investees totaled approximately $800000 for the quarter ended March 31, an increase of $600000 from the three months ended March 31 2022.
To remind everyone equity in losses of equity Investees consists of about 49% share in the earnings or losses generated by our three partially on binding sites.
General and administrative expenses of $17 $4 million for the current quarter remained flat from the previous year's first quarter.
Within G&A the primary drivers are.
<unk> based compensation of $8 $8 million in the current quarter versus $9 5 million in the prior year quarter.
Compensation and benefits of $3 1 million versus $725000 in the prior quarter. This increase is attributed to building out the team over the course of the year.
Corporate insurance of $2 million in the current quarter versus $2 4 million in the prior year quarter.
Professional fees of $1 $5 million in the current quarter versus $2 six in the prior year quarter.
Other G&A of $1 8 million that includes Aki.
Occupancy and other public company expenses versus $2 1 million for the three months ended March 31 2022.
Depreciation for the current quarter was $11 $7 million versus an immaterial amount in the prior year quarter.
Again. This is a result of our Odessa facility being energized the mid November 2022.
We had a realized gain on the sale of <unk> of $4 million in the current quarter.
As I mentioned earlier, we began selling a portion of our bitcoin holdings at the start of 2023 to support our operations and cash requirements.
We recognized a $1 8 million impairment or a bitcoin holdings in the current quarter.
Impairment of bitcoin for the prior year quarter was immaterial.
Finally, we recognized proceeds of approximately $2 $3 million in the current quarter related to the sale of transferable coupons, we received from a minor manufacturer.
Now, let's move on to our non-GAAP financial measures.
We are providing supplemental financial measures for non-GAAP from operations that excludes the impact of depreciation of fixed assets stock compensation deferred tax expense the nonrecurring gain on the sale machine coupons and the noncash change in fair value of our derivative asset.
These supplemental financial measures are not measurements of financial performance in accordance with U S. GAAP and as a result, these supplemental financial measures may not be comparable to similarly titled measures of other companies.
We believe that these non-GAAP measures are useful to investors in comparing our performance across reporting periods on a consistent basis.
Management uses these non-GAAP financial measures internally to help understand manage and evaluate business performance and help make operating decisions.
So for the three months ended March 31, 2023, we had a non-GAAP net income of $6 $4 million, resulting in non-GAAP net income of <unk> <unk> per share versus a non-GAAP loss of $7 9 million or a net loss of <unk> <unk> per share for the three month.
<unk> ended March 31 2022.
We have provided a reconciliation of GAAP versus non-GAAP results detailing the items and related amounts.
In conclusion, our team is very proud of the success we've had in executing the plan we presented back in 2021.
We have delivered and executed on the initial four data centers, we set out to build and now look forward to the next stages of growth for the company.
We believe our financial position and best in Class unit Economics will give us opportunity to take advantage of the volatile markets. We may expect to see over the coming years.
In closing, we look forward to updating you in greater detail on the financial results as the desk is completed and we begin to see the operations at a full run rate.
I will pause and Tyler and I are happy to answer your questions.
At this time I would like to remind everyone in order to ask a question press the.
Sorry, and then number one on your telephone keypad, well pause for just a moment to compile the Q&A roster.
Your first question comes from the line of John to Darrow of Needham. Your line is open.
Great. Thanks for taking my question guys and congrats on the quarter.
I have two here for you. So first we are starting to see bitcoin transaction fees as a percent of mining revenues increased quite a bit.
It seems mostly on the back of these new token protocol issued on the bitcoin blockchain all coins.
But it looks like total mining revenue was up around 60%, maybe a little bit more even over the past several days because of the higher fees. In your view do you believe this is sustainable and just kind of any general commentary on fees become a bigger revenue generating item for miners and then all of a sudden question.
Thanks, John .
Yeah. It's look I think we are watching like everyone else things happened so fast in this space.
Hard to keep up if you file all you're a public company filings on time, you almost by definition and bitcoin can't keep everything up to the minute.
So to give you some stats I looked we've had consecutively our highest days of revenue ever.
Last two days, we mined about 'twenty, one bitcoin on Sunday and about 24 yesterday.
You know I'm not sure that that trend is sustainable I think we are watching it like everyone else I think long term.
It's very good for the Bitcoin network.
Personally.
Jay pegs.
Wizards and things like that on the Bitcoin blockchain don't don't excite me all that much but increasing use cases and users obviously fees going up for transactions are good for us as a business.
Think long term that also drives increased interest and second layer solutions.
Not to have everything transacting on the base layer.
And look speculation has proven not only in this asset class, but in lots of asset classes as a good early use case and if you if you want to come for the speculation and stay for the fundamentals.
I think that's fine with us.
I think at the level of the fees have gone up that is just a very expensive marketing campaign. It seems like for what's going on and so I'm not sure that can be sustainable unless the appetite.
For these various other I guess I'll call them products, but your alternative uses of block space.
Maintain at that same kind of speculative level, we had days yet or blocks yesterday, where there were more transaction fees than the Coinbase Award.
It's hard for me to believe that as long term sustainable, but what I hope we see is an increased interest in the network and then maybe we do see a sustainable reasonable increase in transaction fees as we start to figure out that maybe there's even more upside to the bitcoin blockchain then everyone was pricing in that.
Market for block space could develop with with new use cases that vastly expand what we could see for the network.
In the short term, we love the extra revenue that that's great.
We will just have to see like everyone else how it plays out.
Great guys. Thank you for that that was Super helpful. Second question here and this is more operational.
Can you remind us outside of energy cost how much that direct operational overhead.
About 25% of energy cost each quarter, and then is there any levers you can pull to get that number down.
Yeah, I mean, I think we gave a rough rounded estimate that I cite some times of about 20% is non electricity related part of it has to do with the line drawing exercise of where you allocate.
Things like compensation for certain peoples titles and so forth.
Because a large part of that is paying for our team what I would point out is I think that's already we are extremely competitive.
On what we pay for those non electricity operating expenses in that we're up to roughly 28 employees right. Now I think if you look at any of our comps that operate anywhere near the amount of hash rate. We operate they do not have a workforce that looks like that there are many multiples of that and that's what will drive that expense up.
The reason for that is that from day. One we have tried to design a firm that Leverages <unk> technology as best we can to squeeze efficiencies out of the operation.
I do think over time, we will drive that down further.
But are you already think it's best in class and again, it's a bit of a line drawing exercise, which is why I like to say, it's approximately 20% of the total cost.
Because I could use different definitions to try to massage it but overall, that's what I think the most fair look at it is.
Great. Thank you for that.
Your next question comes from the line of Joseph <unk> of Canaccord. Your line is open.
Hey, guys. Good morning, nice to see the hatch rate ramp here.
Just maybe we'll just start.
With the announcement on the new mining rigs it looks like Youre going with the I guess, it's cannot kanan miners I'm sure you did some due diligence on all of those miners are before you you chose to.
Under that agreement I was wondering if you just give us a little more color on what steered you that way with those with those rigs versus a couple of the other brands that a quick follow up.
Sure. Thanks, Joe.
Yeah. So I think building on a theme that we've had in the last few calls.
It is a buyers market for rigs.
Because so few miners have the capital to spend on rigs and even fewer have attractive places to plug those miners and if they could get them. So we spent a lot of focus recently on trying to drive candidly a better relationship with all the rig manufacturers.
Our C O O N I made a multi week trip to Asia. This past month.
We met with the C suite of Kanon micro beauty and Batman.
To really try to talk to them about how we think Cyprus should be judged differently than the other bitcoin miners and the reason for that is we try to stress are very sustainable business model and how we are we think the best in the world at identifying and operating facilities.
That presents a very sustainable client to them and having that reliable future purchaser of consist that as a consistent buyer of rigs has extra value to a rig manufacturer.
On the back of meeting with all three of them I'm happy to say, we were very pleased with Canaan.
They expressed a desire that we become their number one focus for a new industrial customer.
We hosted them at Odessa.
On the back of your question about diligence, we actually asked for test rigs to plug in at Odessa, and we've been testing them for over a month before committing to a purchase.
And then I'm happy to say that they understood that we didn't want to go out and try to get are you serious loan to.
To try to take advantage of this opportunity we've got at Odessa, and so I'm happy to say that.
In terms of headline price that we paid and the payment terms in terms of scheduling when cashes do.
It is by far the best deal, we have ever done and frankly seen in the space and so I'm very excited to have a third manufacturer of rigs involved at our at our site in and I think one thing that was particularly interesting to us is that cane and stress that they believe their machine.
<unk> operate better in the heat.
Then any other rigs in the world and so we're excited to have that plugged in the summer in Texas.
And look we still have a great relationship with micro beauty and bip, Maine and planned to be huge customers of all of theirs, but very excited to have this this new provider.
That's great color. Thanks, Tyler and then secondly, as you kind of look beyond.
Completing the Odessa capacity in <unk>.
Maybe you look to the future I know bear Chief I mean, clearly you've got cheap power.
Kind of everywhere, but I mean, it does feel like the bear and chief power is pretty attractive and what would what where do you think at this point would push you to a brand new site versus.
You know building those out.
Thanks, a lot.
Thanks, Joe that's a great question, a bear and chief are very attractive and as I said on the call.
We're going through the necessary steps to analyze timelines and thinking about availability and in the risk return with our joint venture partner there.
And they're both fabulous sites with a lot of potential.
You also alluded to we have seen an uptick recently and very attractive opportunities and to give you color on the direction, where I think it could go.
We showed.
The case study for sort of a day in the life at Odessa, and that's really a day in the life. It's pretty early on we're really just developing our optimization tools to try to capture and maximize revenue as much as possible.
Building on that theme I have talked about really since we went public is that we see a future where there is upstream integration from the bitcoin mining companies into the broader energy industry.
And on the back of that I would say, we're looking at some opportunities now that would like Odessa allow us to participate in those energy markets and so our goal is to get to a point, where our economics look like a best of option on bitcoin mining or providing power when it's most dear.
<unk> <unk>.
Back to the to the grid.
So none of that is far enough along to be done, but we are in multiple data rooms, and negotiations looking at different opportunities and I'm happy to say I think there's a lot of them.
So as far as picking which one gets prioritized.
We're pretty data driven in our numbers driven and so it will really come down to sort of figuring out where we think the most long term value can be generated for the company.
Great.
Thanks, Tyler and nice to see the progress across the portfolio.
Thank you Joe.
Your next question comes from the line of Whaler Carlson of Cantor Fitzgerald. Your line is open.
Thanks for taking the question guys.
Was curious if you could provide a little bit color on how you're thinking about the capex spend to go from 7.2 to eight two with E. Barron Chief expansion and then a second question would be.
I know you guys mentioned that youre not looking to use the shelf offering but what are you currently seeing in the debt markets and if they are beginning to open up.
Compared to earlier this year.
<unk>.
Thanks will so let me say on Capex I'll break that into a couple of buckets.
First of all the expansion to finish Odessa out to build our seven two portfolio.
We current model is being able to be done just out of the revenue production.
And the lion's share of that Capex will be finished in the third quarter, there will be some smaller lingering payments into the fourth quarter, but the overwhelming majority of that is in the third quarter.
As far as expansion beyond that whether that's bear in cheap or something else.
It's really a matter of looking at.
How accretive the opportunity can be when we analyzed using the shelf I think ed alluded to that.
As we've demonstrated.
We have a high bar I would say a higher bar than most of our competitors for tapping the shelf that.
We are trying to drive as much shareholder value as possible to our shareholders.
I think when we look at expansion, we would way are really our three main levers are.
Selling bitcoin selling.
Selling equity or selling that and Theres also some smaller derivative options. Some interesting things being developed on kind of selling forward production and hash rate things like that but we have not done any of that yet and I'm not sure. It's at the scale that could pay for a sizable expansion at least not yet.
I'd say in the debt markets, what we've seen is.
More lenders have come looking.
I'm still not sure we've seen the terms that we feel great about.
Generally I would still say the interest rates are too high or they only come with some sort of conversion kicker or warrant offer that just isn't really that valuable to us. We are you know as I.
I mentioned.
Minting twenty-four bitcoin yesterday with our low cost of power gives you a sense, we're throwing off a lot of cash and so our option is always just to take our time, especially as we look towards the having which is less than a year out at this point.
So you know I.
I I'd say weekly we're in contact with multiple potential lenders, we're always looking.
And on the shelf tapping the shelf, it's really just a matter of is this accretive I do think a lot of the opportunities. We look at if you look at the compelling cost of power even through the having.
There are some big opportunities out there, where it might make sense, but that's a little bit of a dynamic question too I think the stock has underperformed, where we would like to see it and if anything I think what's interesting about the recent spike in transaction fees. It demonstrates that I'm not sure the equity market's fully understand the business model.
Of the miners I think theres a lot of algorithms that see bitcoin down a couple percent and said the miners have a bad day that the equities of the miners have a bad day like yesterday when in fact, not only us, but probably most of our competitors had their biggest revenue day in over a year.
So you know that.
That's kind of the part of the complex dynamic what's happening the shelf is trying to make sure that.
The stock is fairly valued before we sell it if possible.
Got it thanks for the color guys.
Again, if you would like to ask a question Press Star then the number one on your telephone keypad.
There are no further questions at this time I'd like to turn the call back over to Tyler.
Thank you as always to everyone for your continuing support and we look forward to updating you in August on the progress. We've made then thanks again have a great day.
This now concludes today's conference call you may now disconnect.
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