Q2 2023 Bitfarms Ltd Earnings Call
Yeah.
Good morning, everyone. My name is Ellen and I will be your conference operator today at this time I would like to welcome everyone to the bit Farms' second quarter 2023 financial results Conference call should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero. After today's presentation, there will be an opportunity to.
Ask questions to ask a question you May Press Star then one on your Touchtone phone as a reminder, this conference is being recorded today August eight 2023, I would like now to turn the call over to David Bernard from LH, a Investor Relations. David You May begin your conference.
Great. Thank you Alan Good morning, everyone and welcome to the farms conference call for the second quarter of 2023 with me on the call today is Jeff Moorefield, President and CEO 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 onto our website at www dot bid farms dot com com under the investors presentation.
If you prefer to listen to the call on your smartphone you can download the presentation from there as well I would like to remind you that this morning bid farms issued a press release announcing its second quarter 2023 financial results turning to slide two I'll remind everyone that certain forward looking statements will be made during the call and future results could differ materially.
From those implied in these statements.
The forward looking information is based on certain assumptions and are subject to risks and uncertainties and I invite you to consult bit farms N. DNA for a complete list of the also during the call reference made to supporting slides and you can find the presentation again on our website at www dot their farms dot com under the Investor Relations section.
The company will also refer to certain measures not recognized under Ifr S and it did 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 press release and the company's second quarter 2023 M D.
For definitions of the aforementioned non ifr measures and their reconciliation to ifr measures. Please note that all financial references are denominated in U S dollars unless otherwise noted.
During today's call CEO , Jeff Moorefield will review our operations for the quarter CFO , Jeff Lucas will follow with a detailed financial review and Jeff more people return for some closing remarks after the Q&A.
We have also requested investors sent questions in advance, which I will read two management. After we open the call to analysts interested in the live Q&A and now it's my pleasure to turn the call over to Jeff Martin.
Thank you for joining us today.
I'll begin by emphasizing that we have built a quality portfolio of assets and the resources to manage them very effectively.
Together with ongoing investments they provide investors with excellent exposure to rising bitcoin prices, particularly as we approach the next day quite happy.
To capitalize on this further we are executing an aggressive and disciplined growth strategy to optimize overall risk returns while managing risks.
Hello, the pillars of our growth strategy our.
Responsible capital deployment.
Reinvestment in our fleet with the latest in minor technology.
Continued geographic diversification.
Adherence to strong financial and operating controls.
Audited by a big four accounting firm since incorporation over five years ago.
And we have the most highly experienced and accomplished team supporting our global growth.
In the past 24 months, we have expanded from 69 megawatts powering five production facilities in Quebec to 212 megawatts Energizing 11 operating farms in four countries.
During this time, we increased our hash rate over 275% to five three <unk> per second.
We have built an incredibly sound infrastructure to support scalable and sustainable growth.
And we are now leveraging our infrastructure as we pursue current and future opportunities.
I'll now review our foundation.
Our farms are well established and efficient maximizing output, while minimizing costs, leading to higher and more consistent profitability.
With each location contributing positively.
We excel in operations and continuously work to improve facilities and processes, including the adoption of cutting edge technologies to enhance efficiency and productivity.
Driving effective deployment of minors and fleet enhancements.
We carefully manage our capital structure.
And this quarter, we further deleveraged, our balance sheet by utilizing our surplus free cash flow after debt service.
While still investing in growth.
We ended June with only $16 million in debt enhancing our financial flexibility to expeditiously seize upon growth opportunities and deploy capital quickly and effectively.
A perfect example is our accretive expansion in Paraguay, where we acquired a 150 megawatts of hydro power contracts in July and recently initiated deployment plans for the first 50 megawatts, which I'll detail in a moment.
We are truly a global player.
With a well diversified portfolio of production assets and management personnel.
These attributes mitigates risk associated with concentrated operations and a small number of facilities in a single region.
Our stellar corporate development team is actively seeking new opportunities, including expanding expanding into new geographies, adding complementary businesses and improving overall operations.
With just eight months until the next bitcoin, having the pipeline is growing.
And with our global footprint.
<unk> balance sheet.
And respect integrity bid farms is well positioned to take advantage of situations meeting our criteria.
Table low cost power contracts quick paybacks and high return on invested capital.
Simply put our portfolio of high quality assets offers exposure to rising bitcoin prices.
And bit Barmes leverages this inherent value with efficient operations.
Execution financial discipline global diversification and a proactive approach to identify and act on opportunities.
And risk management practices incorporated to safeguard against potential adverse developments.
On slide five.
I'll review some of our accomplishments for Q2 2023.
We ended June 2023, with 5.3 Axa hashed per second.
10% from March 31, 2023, and up 47% from June 32022.
Current installations, and real quartile and Bay Como continue.
And our target targeted for completion.
In September increasing our hatch rate, 19% to six three <unk> per second.
During Q2 2023, we mined 1223 bitcoin.
With higher average bitcoin prices Q2, 2023 revenue increased 18% from Q1 2023.
We delivered adjusted EBITDA of $8 million and increased our Hottle to 594 Bitcoin at June 32023.
Slide six.
Shows a summary of operating capacity and installed miners for our farms.
11 operating in four countries and we now consider our two new locations in Paraguay as farms under development.
In July we reached 212 megawatts and operating capacity.
Up 28% from a year ago.
Notably, 86% is powered by sustainable Hydroelectricity.
I will now review our operations and development plans.
To slide seven.
In Paraguay.
We acquired two power purchase agreements totaling a 150 megawatts of low cost hydropower.
In July that will energize two new farms.
Yeah.
These were very strategic acquisitions, because Paraguay is highly attractive for development.
Based on our experience this country has amongst the lowest buildup cost quickest.
Quickest project timelines to completion in a straightforward importation regime.
Yesterday, we announced our initial deployment at our new Paso pay farm.
The Paso pay farm will be only about one kilometer away from our existing these Eureka Park.
In addition to plans for 30 megawatts of air cooled facilities, we purchased micro P. T hydro cooled miners and related containers entirely with vendor credits.
Or 20 megawatts of deployment of this latest mining technology.
We expect the new farm to be fully commissioned at 50 megawatts in Q1 2024.
Turning to slide eight.
In real core to Argentina.
We increased production to 29 megawatts as we imported and installed approximately 5100, new M 30 S. What's miner miners.
This added approximately 510 kind of harsh per second to that facility and brought its total hatch rate to approximately 700 pet Ashford select.
We also qualified and Stu Shea strategically became a self importer of miners.
Doing so streamlines and lowers the cost of importing miners into the country.
And as of today 4680, additional miners have arrived and are being processed by Argentine customs.
An additional 2000 and 797 miners are in transit and.
And all miners are expected to be installed and running in Q3 2023.
Which will bring us up to 50 megawatts at this farm.
We can provide more details on this equipment if so desired.
In Canada we.
We closed the purchase of the Bay Como acquisition.
<unk> initiated production in early July the.
Acquisition, not only brought new production capacity, but also provide us with the opportunity to optimize our fleet by redeploying miners from Magog.
Yeah.
This was undertaken to free up suitable rackspace in magog for higher performance miners.
They come on farm is presently operating with 1300 miners at.
At five megawatts and with the remaining miners from Magog.
Reach 11 megawatts in Q3 2023 as planned.
This in conjunction with the real core to build out that I just mentioned.
US confidence we can achieve our $6 three extra half per second in Q3 2023 target.
Regarding Mega in July we leveraged our assets to respond quickly to a lightning strike that took out our primary transformer.
Our proactive risk mitigation strategy handle the unforeseen incidents and minimize their impact on production and operations.
By combining redundancy geographic diversification in house capabilities and spare equipment. We were we were able to respond swiftly and effectively to the outage ensuring minimal disruption to our overall business.
Favorably facilities hashing, its full capacity and no miners were damaged as part of this lightning strike.
In Washington State.
We upgraded intake and exhaust systems greatly improving efficiencies.
The intake is now equipped with a two stage filter, which includes an evaporator cooling component, which saves energy and reducing service requirements.
The exhaust system now includes automated fence, reducing power consumption by as much as 90%.
Results have been impressive.
For example, deterioration of hatch rate on 100, plus degree day has been limited to only 2% to 3% versus approximately 30% previously.
Considering this we are now evaluating these enhancements for use on our other farms.
We continue to enhance it.
Our MGMT proprietary software.
This software remains one of the longest running and robust systems in the industry.
New capabilities include the precise tracking of power consumption and operating performance for minor per location.
This enables greater detail on minor performance the optimization and reconciliation with conciliation of electricity consumption and that's the predictive capabilities power forecasting for all micro V T miners, which comprise about 90% of our fleet.
In summary, as we execute against our fleet expansion and upgrade plants, we're projecting 20% sequential growth in our hatch rate in Q3 2023 and.
And with Paso pay expected to come online in Q1 2024.
We are expecting to achieve seven ex ash in Q1 'twenty fund before.
Those are our near term goals as we continue to evaluate other diverse capital efficient development opportunities.
Please turn to slide nine.
With that I will now hand over the call over to Jeff Lucas with a financial review.
Thank you, Jeff I'll begin by highlighting.
Some key elements of our financial strategy and position.
We have efficient operation and stable and predictable energy rates that with over 85% hydro are not subject to the energy cost variability associated with fossil fuels.
We have a laser focus on rapid payback of capital.
We enjoy low capital requirements necessary to meet our near term growth plan, including using our existing equipment credits to reduce the capital expenditure funding needs.
And we enjoy the strongest balance sheet in the history of our company. It gives us the flexibility and enables us to utilize our operational expertise to take advantage of attractive growth opportunities and positions us well for the unpredictable economics that they're having.
I will now review, our money economics, our performance and our balance sheet.
Turning to slide 10 in the second quarter of 'twenty to 'twenty, three we mined 1200 twenty-three bitcoin compared to 1200 and 97 in the first quarter of 'twenty, three and 1200 and 57 in the second quarter of 'twenty two.
The difference is to reflect the increases in average total network difficulty about 24% sequentially and 67% year over year offset by our hash rate, which was 10% higher sequentially and 52% higher year over year excuse me.
Our second quarter revenue was $35 million comprised of $34 million for my mining activities. This compares to $29 million for mining in the first quarter of 'twenty three and reflects a 24% increase in the average paid claim price quarter over quarter, partially offset by 6%. If you were a bitcoin mining.
During the quarter.
Focusing on our money economics, we turn to slide 11 here.
In the second quarter of 'twenty, three fed funds direct cost of production per bitcoin was under $15700.
It's up from $12500 per bitcoin in the first quarter of 'twenty three.
The change reflects the aforementioned increase in network difficulty and approximately 7% higher energy costs quarter over quarter.
While we benefit from a low cost stable hydro power of class a productive capacity in Quebec for the first time in several years, we had a rate increase that resulted in 6% higher energy costs.
With Quebec, representing about three quarters of our total Q2 'twenty three production the impact was significant.
That said, our increasing geographic diversification paid off the impact of rate adjustments they want jurisdiction it's moderated.
One more caveat, but does building financial models.
Our direct cost of production in February 2022 includes a 15% accrual for a value added taxes on Canadian energy costs, reflecting proposed legislation, which had not yet been determined or legislated.
Excluding that accrual in the second quarter of twenty-three our direct cost of production would have been about $14000 to bitcoin $1700 less than our reported direct cost of production.
Second quarter gross margin profit was $14 million or 42% of revenue compared to $12 million or 42% of revenue in the first quarter.
The total cash cost of production per BTC was just under $21800 in the second quarter of 23 up from $17600 in Q1 'twenty three.
The largest contributor to the increase with higher and higher network difficulties, which resulted in higher energy cost predictably.
General and administrative or G&A expenses were also higher over the prior quarter as a result of cost associated with moving miners among our farms to optimize efficiency.
I shall service fees related to corporate development and Prospected due diligence work and business taxes in Argentina that were incurred and paid during the quarter.
The quarter over quarter comparison also reflected benefits in the prior quarter, one time insurance refund.
Fill up an accrual associated with the dismissal of noise penalties at the former deal upon facilities and sugar.
Going forward with having in mind, we will continue to focus on reducing our G&A cost structure and have already identified savings in insurance and other discretionary areas.
Please now turn to slide 12 for.
For the second quarter, our operating loss was $25 million, including noncash depreciation expense of $21 million and an impairment and short term prepaid deposits and P. P knee a $10 million.
This compared to an operating loss of $15 million in the first quarter of 'twenty, three including a $3 million reversal of revaluation loss and digital assets too.
$2 million loss and disposition of PP&E, and a $1 million realized gain on disposition of digital assets.
Our net loss for the second quarter with $25 million or 10 cents per basic and fully diluted share compared to a net loss for the first quarter of 'twenty, three up $2 million or one cents per basic and fully diluted share.
I had a claim prices contribute to improved profitability with adjusted EBITDA, increasing from $7 million in the first quarter of 'twenty $3 million to $8 million in the second quarter of 23.
Profitability in the quarter with $5200 per bitcoin versus $4900 for bitcoin and the first quarter of 'twenty three.
Turning to slide 13.
At June 30th we had cash of $31 million and 549, BTC valued at $17 million with total liquidity of $48 million. This compares to $42 million of liquidity at March 31st of 'twenty three.
In summary of it.
1200, twenty-three bitcoin, we mined during the second quarter, we saw the 1100 nine to generate $31 million of proceeds to fund our operating and debt service requirements and a positive 114, BTC and treasury with a June month end value, but about $4 million.
In July we deposited another 45, big treasury, increasing or declining custody as of July 31, 23 to 594 Bitcoin is right, but is that the total value of approximately $17 million based on the decline in price that day of just over $29200.
In the second quarter of 'twenty three we also raised $22 million net proceeds from our ATM program.
For the third quarter of 23 through August 7th we have raised additional net proceeds of $26 million. These monies that we raised under our ATM, specifically earmark for the growth initiatives, which Jeff spoke about earlier.
We continue to use cash generative and operations to deleverage our balance sheet total indebtedness was reduced to $16 million at June 30th and to under $14 million at July 31st.
As we've noted in previous earnings calls our debt is scheduled to be fully repaid by the end of February 2024, well in advance of having with that I'll now turn the call back over to Jeff.
Thank you Jeff.
Before I open the call for questions I would like to mention some upcoming events, especially our analyst day on September 14th which will begin at eight a M. At the convenient in New York City.
In addition, we will be at the Canaccord Forty-third annual growth conference in Boston on August 9th and 10th.
The third annual Needham Virtual Crypto conference on September 7th.
The H C Wainwright conference in New York September 11th 12th and 13th.
And we will also be presenting at several industry events and Europe . This fall.
In summary, good farms remains focused on accretive and diversified growth, while further optimizing our facilities sweetened.
Fleet investments and infrastructure, including the adoption of innovative technologies and practices to enhance efficiency.
Our core strengths include.
A competitive low cost structure.
Stable and surplus sources of energy with attractive pricing.
Proprietary mining and facility management software.
Our vertically integrated electrical subsidiary and an exceptional management team.
Our growth in 2023.
In advance of having will come with minimal capital outlay.
Given our full use of our micro BT hardware credits.
We expect to meet our near term six three <unk> per second target before the end of September .
And seven extra hashed per second in Q1 2024.
The first megawatt.
First 50 megawatts of our 150 megawatt expansion in Paraguay is underway.
And opportunities that meet our criteria for growth both before and after that haven't are abundant.
Operator, you can now open the call for questions.
Please go ahead.
We will now begin.
And just before you do it just got a note from David I understand that we'd have a few questions from online investors, let's handle those questions first if you would and then we'll go to the analysts.
Sure.
Thanks, Jeff I'll read them Theres two questions I'll repeat them both at the same time and then you can answer.
One of the questions is how great. These do you think the big point, having will impact financial results in the coming fiscal year 2024, and then another question totally different does fit farms run any third party firmware.
Oh interesting go ahead.
Okay, let's start with having them, having we've seen it before they happen every four years, it's gonna be a big event.
And nobody's really anybody here is that.
We have to get miners that want to survive the having need to be well prepared.
We have a cost structure that is as good as anybody in the business and as we've said in the past we are planning to get our our debts completely repaid so that we don't have P&I payments.
We plan to get all our construction finished so that we don't have construction commitments, we plan to get all of our miners bought and installed so that we don't have a capex commitments. So that when you go into that having and frankly right now with the corn prices.
It was just below 30000 are cost to mine a bitcoin.
On a cash basis is 15700 <unk>, if we get the accrual back from the Canadian government and it'll be 14000, but it just goes to show that that margin will quickly disappear I can.
We all see the the analysts talking about margins.
And how other people's costs.
Our higher some are lower but are some are much higher there are going to be.
Extremely stressed and.
Typically we've seen in the past.
The adjustment to the having takes five or six months.
My gut is telling me this time than it might be a little quicker because there's more adoption and more knowledge in the industry.
And you know that.
That's 456 months later bitcoin prices go up and then things get really exciting but in the meantime, you have to be battened down and ready for them.
A storm frankly and.
We.
Like for example, it's because of that discipline and or orientation that when bitcoin prices fell below $16000 in the fourth quarter last year, we don't want them very few miners with a positive adjusted EBITDA.
And that goes to show what happens I think if you really want to test what miners word go back to the fourth quarter of last year and see their results.
We're well positioned and I think I'm sure that as we go into the next summer when they're having is going to take place without that we're going to even be better positioned and with the the Paraguay expansion those are going to be low cost.
We are going to have more cash flow and the other thing you have to remember when things get adverse like they do.
Miners with inefficient operations go offline.
So that's when the network hash rate goes down our market share goes up our block rewards go up and there's a compensating factor there we think we're well positioned.
So that's the first question.
Okay firmware.
Yes.
Because we are so operationally focused we have people within our operations that look at these types of things and test them all the time so it's.
Getting better control of your miners squeezing more output from them of course, we all we all want to do that sometimes it's firmware and now when there's some hardware fixes with cards as well, we test a number of them and.
Because there's there's advantages to that sometimes the the OEM firmware is fine.
And the other thing that we need to keep in track, which is a little bit different from some of the others about 90% of our fleet.
As Mike will be T versus bit me. So some of these firm, whereas our firmware.
Changes are more tailored for bidding some work with micro beauty, but yes.
We're always looking at these trying to trying to get an advantage.
And it's not necessarily uniformly applied across the fleet.
We do not want to.
Fall into a bug or something like that so we test them on a very limited basis and roll them out a little more when appropriate.
Hopefully that.
Address those two questions.
So operator, let's.
Go to the analysts please.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
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.
Our first question comes from Josh Seigler from Cantor Fitzgerald. Please go ahead.
Yeah, Hi, guys. Thanks for taking my question today I guess the start.
You're standing at how you're thinking about future growth, specifically, which geography is really going to drive that growth you know with the new Paraguay contracts in place, but still opportunity in Argentina, how are you going to balance between the two geographies when thinking about scaling in the future. Thanks.
Josh.
We've got management and personnel in every single geography. It it makes sense to have critical mass in every geography that we operate in so that we can do that and we over the last two two and a half years have done an active.
Technology and knowledge transfer amongst employees, so that we have Argentine employees, Washington employees coming up to Quebec, Quebec employees going to the other geographies and and teaching so those best practices that we developed in Quebec years ago, there now embedded in our other geographies.
Now feel we've got critical mass in Argentina, We've got a good team solid team in Washington and of course in Quebec. So now the opportunity came about to to really take our 10 megawatt operation in Paraguay and build it up and frankly, we're excited about Paraguay. It was it was the site where it was a bit of a test bed bath.
Yeah.
In late 'twenty, one when we built it it became active in January 'twenty two.
10 megawatts, we shipped down used minor circle back the experiment was a very good success, we put that facility together, it's a warehouse style building in about three and a half months it.
It was our lowest cost infrastructure to build and we subsequently put a brand new miners in there and brought the production up.
But our plan is to to hire more personnel in Paraguay for this built and establish critical mass the Paso pay.
Facility as one kilometer from our visa Rico site. So we can already take advantage of some of the talent there, but this is a much bigger build out it is.
It's 50 megawatts involves the build of a substation.
So we're going to high voltage knocking it down.
50 megawatts is what's been announced we've announced 20 megawatts using the micro V T hydro containers and those orders have been placed.
Uh huh.
I guess as I said in my script.
We're feeling very confident about the $6 three growth.
Or September because that's going to be from the miners coming into Argentina, right now and from taking they como from.
485 megawatts right now up to 11, which is the maximum capacity of the electrical current available it'll be upgraded next year.
And then with the 20 megawatts.
Contracts that we've done that'll take us up to seven.
Civil.
Civil work is going to start.
In early September there miners are going to start arriving later in the year and into January .
The longest.
Contract there is the transformer the big main transformer there.
We were actually overbuilding it with hope that we can get more expansion in the area. So instead of 50, where we're buying an 80 megawatt transformer there.
And.
It's got the longest lead time 657 months, we plan to put that order in.
In the next number of days to get that started it's actually going to be the last thing to arrive. So we expect to go from basically zero zero megawatts to 50 megawatts.
Megawatts literally went to flipping the switch hopefully that's in the latter part of February maybe it's early March but certainly before that haven't and that's for 20 megawatts and then Theres 30 megawatts that we have not talked about yet.
And that 30 megawatts.
We hope to provide more news in.
In the coming days and weeks.
But.
This isn't guidance, but that could vary very much take us up to 77.8 extra hash if things come together and so we expect our guidance is right now for seven extra cash in the first quarter of next year.
I added a little bit extra there, but feel free to have a follow up.
No. That's that's all really helpful color. Thank you I appreciate that and then I also wanted to touch on you know as we're heading into the having and mining rigs in the secondary market at least still remain at fairly depressed price levels are you thinking about.
It's really replacing some older machines and improving the efficiency across the fleet.
Josh all the time all the time, that's that's the nature of the business we're in.
You do not upgrade your fleet.
Frankly, you're going to die and having is going to expedite that process. So I think we have some M 30 ones right now some of them were redeploying, but other ones were selling.
But most of those are coming out there the.
Least efficient of our miners and.
We continued upgrades case in point. These these hydro miners.
Are amongst the most efficient in the world with the highest output they are going to very much enhance our efficiency across the fleet.
And just.
Just like what I mentioned about Washington in terms of.
The changes to the intake and exhaust systems, there and bringing the temperature down and getting more out of our existing miners, but our fleet. If you were to look look from top to bottom.
Already modern and we're continuing.
To modernize it and go with the latest models are.
We are not going for immersion cooling.
We're going to air cooled, which we do very very well, particularly with our geographies and.
The hydro matters, we're very excited about that.
Got it. Thank you very much for answering my questions today.
Thank you.
Our next question comes from Kevin Dede of H C. W. Please go ahead.
Mr Murphy Mr. Lucas Thanks for taking my question.
Good morning.
I guess the first thing is maybe you can peel the onion back a little bit on the PPA, the ppas plural I guess in Paraguay.
Are they both with it with Andy are there.
Can you talk at all to <unk>.
The costs associated with them and whether or not their curtailment opportunities for you there.
Okay. So the first answer to the question is yes. There is we bought companies that owned.
Two separate companies that owned power purchase agreements they are both with Andrei.
So the the these Eureka site.
With cliffs, so we moved from the regional.
Distributor to the national distributor.
Cost of the power for VAT is 3.9 cents and as I've talked about before there's some optimism and hope that.
With the new party in the election, and the promises that we're given that that power might actually be reduced like the cost of it. So you know fingers crossed there and it could be a tangible reduction.
That we haven't we haven't banked on that but that's what we're hoping for in terms of the deployment.
I think we haven't put out any big any of the numbers on on that yet except for the fact that the <unk>.
20 megawatts of micro V T hydro containers.
We used our credits.
So from a cached there still costs, there, but from a cash perspective.
We're not out of pockets. So really it's the substation that that has a cost to it.
The air cooled warehouses have a cost to them, but we do that very efficiently and in Paraguay, It's frankly, the lowest cost.
In our in our whole fleet.
I'm, Jeff Lucas do you want to come in with a sort of a little more.
Finality with with some of the costs there are like what the 30 megawatts not announced yet.
Kind of stuck on being able to sort of give total project costs at this point, so I give that as a caveat.
Yeah, sure I'm more than glad to speak to that here, so or for a path of pay what we're looking at here, we're contemplating roughly 24 million.
And that company is not only the infrastructure build out here, including a substation and Eddie megawatt substation versus.
First is the initial opportunity to 50 megawatts here and secondly, certain guarantees and other payment that we made about $4 million to.
So the power provider here, but overall, we're looking roughly again around $20 million of what's happening in class okay.
Which we're contemplating $14 million being paid the remainder of this calendar year and the other $6 million or so it will be done in early 2024.
Alright, I know.
Mr. Moore for you mention that importing things into Paraguay was a little bit easier than Argentina.
And I'm wondering if the.
The hydro machines already manufacturer.
Would you expect any delay.
Delay getting those onto site or is it really exclusively just a matter of getting that I mean.
From what I understand you're starting with a greenfield open.
A lot of land and that needs to be treated in the substation in the grid connection and all of that has to come in and I'm. Just wondering if you're expecting or should would it be prudent on our from our perspective to assume that micro V T might hit hurdles in getting their new.
Their new machines to your site.
We really don't anticipate any problems, bringing bringing the equipment into Paraguay, it's always been pretty straightforward.
Compared to Argentina.
It's always been quicker and easier to get equipment in fact, even used equipment into Paraguay and the ability to source other equipment that goes into the infrastructure, it's always been areas really.
And Paraguay as long as you have the right documents.
You can bring it in you pay to that and you get it on site, Argentina as we've learned over the last.
Two and a half years.
It's been more difficult first we didn't have the self importation.
Rates, because we hadn't done business there for a couple of years and didn't have the track record to apply for that self importation.
We had to rely on brokers that were expensive they only had small allocations.
And then my last summer.
When the government was was really under strain for its U S dollar reserves.
They stopped direct importation, where for people like us and many other industries dead in its tracks and we were stymied for a lot of months and.
Okay.
Our our 50 megawatt warehouse there was fully constructed in October , but we werent able to put it into.
Sort of bring it up to full operation until earlier this year and that was a real setback in the government didn't provide any.
Alternative mechanisms until we could qualify for to be a self importer, which Fortunately we are things are a lot better now, but they also have a government change coming in November .
There is uncertainty there and it's one of the reasons why we decided to.
Take advantage of these opportunities in Paraguay.
And really <unk>.
Make that one of our our geographics pumps.
Pumps like the whole Latam areas is a geographic cut but are putting more emphasis.
Emphasis and more growth into Paraguay at this time.
Also oh hydro too which are.
We think long run is going to be a win for the industry and our company.
Just switching gears.
To go back for the moment you spoke to a rate increase I'm wondering if that was universally and I apologize for not having researched. This I was wondering if that was universally applied by hydro, Quebec or if it was more.
Sort of a township regulated and.
Whether or not you would expect that to be rolled back or something that.
Continues forever going forward.
Well Unfortunately rate increases in Quebec don't happen very often.
And.
But this this was applied right across the board it applied to our tariff, but a few.
Nuances.
It happens to other industrial tariffs this was pretty much right across the board.
And this is hydro Quebec.
Reassessing, where they are realizing their electricity grid.
We'll become more strained as electric vehicles and greenhouses in other industries using electricity in the future surge and they contemplate building new hydro hydro projects down the road.
There's a lot of discussion with the new provincial government and hydro, Quebec about that we've been intervening in some of the.
Hearings and some other things happening.
It was actually a great opportunity for us too.
Once again talk about some of the benefits that we can bring to hydro, Quebec, a bitcoin mining taking arm minors and putting them in areas, where the hydro is rather than really empower long distances.
Using some of the thermal benefits that are available.
And.
I think they're finally seeing that.
Our ability to curtail on a moment's notice can actually be a huge benefit to them and we're unique in that feature so theres more development is going to happen in Quebec, but I do not contemplate.
Another increase of at least for the foreseeable future in Quebec, but yeah. This was a universal one.
It's too bad and it impacted our results are and will continue to impact our results but.
Compared to the level of inflation.
Like we've had one increase.
Per cent.
That was basically the rate of less than the rate of inflation last year and this has been several years since our last rate increase so.
Really we're still below the increases inflation, which Brian .
By and large is good.
Last question for me gentlemen.
In the past there was some discussion of a future opportunity in Washington, Congrats on improving your efficiency, there, but I'm curious to how you might see potential expansion in Washington State.
Washington still is a very attractive place and it's nice that we have talent. There. It's one of the the hotbeds of crypto mining so there's opportunities to expand both greenfield.
And through acquisitions, but the one thing that happened at least in the county, we're in and with the utility we're dealing with as they put up the.
Rice of power earlier this year as well.
So we've gone from being one of the low cost power facilities that we have to once again sort of being sort of more in the.
Upper quartile or so.
And.
So that's taken some of the <unk>.
Attractiveness of out of Washington for the time being.
But similarly, we're having discussions with that utility talking about the benefits and looking around that whole area that Columbia River and what was built for effectively that the smelters from days gone by.
Makes it makes it a very interesting area. So no we're not giving up on that area.
Thanks, Thanks, very much I appreciate the color.
Thanks, Kevin.
Okay.
Our next question comes from Bill <unk> of Stifel. Please go ahead.
Good morning, just morphine, Jeff Lucas Thanks for taking my questions Hello, Bill Hi.
Hi, Bill Yeah. So for my first question, just hoping to gain some insight on the average cost of power that was realized in Argentina in the quarter.
Just for the purposes of measuring the impact of margins on the road ahead now obviously the company has shifted from drawing on power.
From the grid and real quarto.
To the very attractive <unk> power contract, how should we look at that.
Sure Let me, let me speak to that and Jeff can add further color to that.
So we are starting to get the benefits and we did see the benefits begin to accrue in the second quarter from that shift that you spoke to.
Well, we didn't get all the benefit here, so we've talked about Argentina costing in the three.
Range here, and we Didnt experience that in a quarter again, because part of that quarter was actually from the grid itself. So.
So while we didn't get that much of a savings to give you some concrete numbers here in the first quarter the cost of power in Argentina for US is about 4.6 cents in.
In the second quarter, the average amount in Argentina again was about 4.4 cents.
That includes this period of time will be had and three cent range getting it right from the power provider and then also a period of time, where we're getting them from the grid as well.
Does that kind of gives you a bit of a context. So the expectation here is that we're actually going to continue to achieve.
Great improvements in Argentina, that's actually going to lower our rates overall now bear in mind. Another common keep nine here that Argentina wasn't that large of a contributor in the second quarter as we're ramping up to 29 megawatts and then going to 50 megawatts, perhaps even beyond here you know we're going to have a much larger proportion of the total bitcoin its actually will be.
In mind.
Argentina today also named <unk> benefit.
Okay, let me handle that.
Let me add to that too like as Jeff mentioned, where we're moving from the 29 megawatts up to a 50 megawatts very soon that will optimize.
Our facility there we're still we're still ramping up so there's cost to do that in terms of.
The natural gas and the power costs. Once we're at 50 megawatts, we can optimize better.
But almost more importantly.
Is.
Trying to get a little cooler and that's part of the world in the northern Hemisphere, and southern time part of the atmosphere.
Theyre warning into summer season, and starting in October , which is where there's some restarts warmer temperatures that you consume less natural gas.
Price of natural gas goes down and that's where.
For the 678 months, we are we should see much lower natural gas prices, which will lead to more.
Electricity prices and that's where I think when you when we do our next quarter results are certainly in March when we do our full year results, you'll be able to ask the same question.
And hopefully we are talking more of the we've had lessons resets, we really are averaging with recent type of area and we start seeing the real margins coming out of that facility.
And and there's one other thing they are putting in extra pipeline up.
Writing more natural gas to the area in which our empower.
Our plant next door to us is.
Which is which was a supply constraint in the past that was being activated in July so it should be in pretty good state right now so with more natural gas coming up and not being constrained that should help the price too.
Our next question comes from Chase White of Compass point research and trading. Please go ahead.
Thanks, guys.
So.
Just to just so unclear does it excuse me.
Seven extra hashed target includes only the 20 megawatts of the 150, you just acquired and Ppas in Paraguay right.
So there's nothing incremental from Argentina past 50 megawatts I'm just.
The additional 20 megawatts pare away, Okay, just making sure correct.
So yes, if we can fill the 30 megawatts on that 50 megawatts as we expect.
I think you'll see us bump our guidance.
To sort of that 7.8 ish area, but.
But we're not ready to do that we want.
We generally only do guidance when we have clear and firmer.
Sightlines to how to get there.
Gotcha.
And then.
And in terms of obviously that would still just be 50, or 150, plus everything else in Argentina, I mean, what would you need to see in the market for to want a green light all of your potential expansion projects and would you generally finances with.
The bitcoin failed in selling ATM shares and how do you think about that.
Let me start and I cant go ahead, Jeff.
Jeff Lucas go ahead, okay sure so.
You know the one thing we need to see more than anything else.
A little more stability and certainty in terms of what the Argentinian outlook is and I say that because bear in mind right now they are in the cost of going through the election. They actually have their presidential primaries. This Sunday and it had a presidential election itself on October 22nd there are four different candidates and not to dwell too much on the politics here, but there are of course different candidates who are in March.
Secondly, closing the polls.
Some are advocating financial policies seem to be very constructive for us I'll just require a little more thinking involved here and part of it by the way what's driving the fact that their U S. Dollar in Europe , they're asking negative to the tune of about $8 billion.
Do they know they have the country has to address this that can introduce uncertainties.
We saw in the pain that we experienced I would say last year. So we wanted to make sure that we're looking at great opportunities here. We're also very cognizant of the potential impact and the benefits. It there hadn't been a bring it make sure that we're moving very carefully and very thoughtfully. So from that angle in terms of how we're going to finance. It first of all this is Argentina, you don't finance debt.
I mean, those opportunities just really aren't available at anything worthy of a reasonable rates our price, but the goal here primarily as overall strategy speaks to is to use our excess cash flow from operations to fund the capital expenditures down there and then secondly of course to use the ATM, but we're always always tapping the ATM.
With a very careful eye to how we apply those funds to make sure that they are accretive to never get an attractive ROI and a short payback on them go.
Go ahead, Jeff.
That's right.
Paraguay as I mentioned, the longest lead time as the primary transformer.
Seven months that gets us.
Really closer to having and with our own internal guidelines is that we do not want to be in construction. We do not want to have that all of this dream. During those first few months of the having we wanna be lean.
We want to survive we got long term goals. So when we saw this opportunity to buy these two contracts we.
We didn't see it for necessarily immediate buildout, although we were hoping we might be able to we saw it as a long term.
And so that 100 megawatts.
<unk> is an opportunity to expand we are looking at developing it right now.
Maybe we'll do the substation sort of over the next seven months.
We can add some production or maybe we just do substation and maybe we we get ready so that we have warehouses and on our site ready to go.
Sort of that 456 months after the having when bitcoin prices start to Rep again, when the network hash rate is lower and we have more market share and it makes sure sense because of our capital structure and what we built over the last number of years to then just jump right in with both feet and fully built it out but we.
In practice, a very disciplined decision process here.
And so far the pieces are coming together to build it out over the next seven or eight months, but we are examining that very closely and we're looking at a number of other things too. So our capital allocation is important and.
We continue to want to be a diversified company.
And make sure that we have.
Our precious capital, where it'll do the most good.
Got it helpful. Thank you.
No I think bill got disconnected there from a note that I got so maybe he's back in maybe operator, you can put them back in I think he has another question. We will take another question from Bill puppet and start to please go ahead.
Hi, Thanks, guys, sorry about that I'm not sure why it disconnected, but I just wanted to talk about the recent purchase of the M 53 S plus machines.
So these are the first hydro cooled mining units in the fleet.
I believe you alluded to the fact that you know we could see a higher proportion of hydro cooled miners.
In the overall.
<unk> fleet in the long run that's continued to improve fleet efficiencies I just wanted to gain kind of a high level understanding of how the company is looking at hydro Coeur mining units compared to other types of of Asics.
Uses such as air cooling or immersion cooling.
Could we see more peers also moved towards hydro Coeur mining.
Sure.
Well I can't really speak for our peers, but I can speak for us.
And.
Hydro hydro cooled is a new technology, it's not that we are on the bleeding edge here. They are there are deployments.
And it's it's can be more efficient in that you do not have to plunger miners into about of the of dielectric fluid sticky oily.
Oily dielectric fluid.
More efficient, but then we're going into more plumbing related.
Type of things were.
You have cool water, that's going through your cooling the circuits.
And we think it's more efficient we think it supersedes the conversion I guess time will tell but that's our position on it.
Immersion has turned out to be expensive.
And I think this offers.
More opportunities for expansion like these things push out production that.
But.
Two and a half two two and a half times more than sort of pretty much the.
Yes, 19th and <unk> in our fleet.
The efficiencies are tremendous so.
We know enough and we think this is exciting enough that this is where we're going to go next it will not replace air cooled air cooled is still something we do very very well, but as you look at supercomputers and other things.
They use these type of technologies and and as we continue to push for higher levels of efficiency you have to look at what some of the other industries have done.
So we're doing that by the way and I can tell you as well Bill go ahead.
I was going to say and by the way I was I know once you're up Jeff here, but what gets US excited not only in the performance doesn't change, but the economics behind it for my benefit as well.
Have you just aren't familiar particularly with the empathy three X plus plus plus you seem to have twenty-four what's the terror ash thereabout at 280 at their ash per unit and the economics of these things is well below a third less than for example in X P around it which maybe a little better performance here, but a dramatically more expensive.
Right.
I'm sorry go ahead, where I was going to go next is because you have this hot fluid.
You can also take this industry to what we think is also sort of the next frontier and that's getting some capturing the residual heat and putting it to get use when you have air cooled.
It's very tough to transport Hot air than you need.
Distance at all we do it now in Quebec by eating some of the warehouse spaces and adjacent industries with what for Aqua Aqua farming and various other things, but in fluid form and not dielectric fluid you can push this into other things and.
I know Michael Beatty is looking at.
Future generations, where they put a COO.
Concentrate more heat into the.
It's growing and I think the ability to.
To provide heat to buildings and other things much more effectively and efficiently is there so.
Well, we don't know that for sure by by buying these machines are getting more familiar with them. Now we are very hopeful that there's that we can squeeze more efficiency out by possibly selling some of the heat in the fluid form.
Down the road.
That would be particularly attractive.
And possibly Washington, more so in Quebec, as we get more adjacent industries and things like that.
Thank you for that color.
And Jeff you know you were talking about the the havoc that's coming up and I was just hoping to get your expert knowledge teams expert knowledge.
On kind of the evolution of Mining's now as we proceed to another event.
Corn rewards getting halves.
We've seen a lot of bitcoin mining operators.
The transition their business.
From being completely self mining to diversifying into high performance in cloud computing and more.
Many of these players cite that you know they've gained a significant amount of experience of operating data centers.
But you know, but farms is arguably.
Has the most long standing experience guy.
We're scaling to 12 farms by early next year.
How do you see kind of the industry evolving from.
You know.
From from where it is today.
Given you know a potential trend of margin deterioration.
Bitcoin is an amazing thing that protocol with itself adjustment mechanisms.
And with adoption and everything else, we we absolutely feel confident that over time, the adoption of bitcoin with the inflation in the world with government's printing money.
<unk>.
That bitcoin has a real place and.
Over the next few years $5 10, the adoption is going to be tremendous.
That will take care of a lot of things because the price is going to go up and that will allow the industry through the having to sort of reinvent itself. The weakest players will get will go bankrupt there'll be some ups starts, but then there's going to be a handful of us that are public and and others. So there's a lot of private brands.
But companies in the world that will do very well and and they will expand they will continue to push the barriers in terms of efficiency as I said using their thermal properties the residual heat and other applications.
Being closer to sources too to the electricity sources to be able to work on solar and wind and these type of things and energy management all of that's going to continue to evolve but in terms of other opportunities in data Center management.
We we operate data centers basically on steroids high performance, but not like tier three data centers, where there's redundancy and everything else. They use a lot less electricity they need to have 99, 9% uptime.
And then we see AI and high power computing, that's sort of some come somewhere between just gonna be a huge demand for that.
Oh.
High power computing, we can sort of do them.
But it has but we're not set up to have redundancy in terms of diesel generators to come on when we.
We have to curtail.
So there has to be a fine place for us to play.
Hi.
Right.
It is exciting some of the high power computing is excited and they are talking about phenomenal growth over the next six years.
We do have experience, but I'm not sure if it's the right experience and.
And frankly, where we're doing that research to understand whether there might be a role for us there, but we're not going to jump Willy nilly into.
It's something where you don't know much about and it changes the fundamental aspect of your commercial operations due right now effectively we have no clients, we mined bitcoin and we felt that going.
To the pool, and then we get them in and we sell them to make the business work.
Start getting into commercial contracts, sometimes you're hosting sometimes not these contracts tend to have two or three years you have to be much more customer focused none of us really have those customer facing people right. Now so we'd have to build that are part of the business and get ready for churn.
It's not as simple overnight decision just to jump into that type of business and if we're going to do it it means that the margins and longevity to make sense.
We're evaluating that very closely.
One other comment to make here actually a shadow go through our I T team because the economics naturally tightened where they havent coming up here managing and getting information from your miners to run them more precisely and more efficiently is going to be key and I think.
Our MGMT to programming and the developments are making to that right now really give us an edge in that area and we think that's going to work to our advantage certainly wouldn't having codes.
Yeah.
Great I really appreciate that color color Amazing response.
That concludes our question and answer session.
Now turn the call back over to Jeff Morphy CEO of bit farms. Please go ahead Sir.
Thank you Alan I would like to reiterate three points above the firms one.
We'd maintain profitable mining operations each quarter as a result of our determination to maintain stable low energy and operating costs.
Two.
With little capital outlay.
We expect to reach $6 <unk> per second by the end of Q3 from our existing.
Portfolio and reached seven extra hashed per second in Q1 2024.
Three a major expansion is underway and in Paraguay, and we are well positioned to move quickly on other major as well as minor expansion opportunities that meet our investment criteria.
Thank you all for attending today's conference call. We look forward to updating you with our monthly production reports as well as our other developments at our upcoming analyst day in September 14th and when we announce our Q3 results in the fall. Thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
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Yeah.
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