Q2 2023 Cipher Mining Inc Earnings Call
Okay.
Good day, and thank you for standing by welcome to the side for mining second quarter 2023 business update.
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Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Jess you Kane head of Investor Relations.
Good morning, Thank you for joining us on this conference call to discuss say for mining second quarter 2023 business update.
Joining me on the call today are toddler 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.
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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.
Actual competition and our goals and strategies.
Before looking statements and risks in this conference call, including responses to your questions are based on current expectations as of today and sorry for 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 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.
I will now turn the call over to Tyler Tyler.
Thanks, Josh.
Hi, This is Tyler page CEO of sorry from mining. Thank you very much for joining our second quarter 2023 business update call.
As we start the call I'd like to take a moment to point out that this is our eighth public earnings call and I am extremely proud of what we've accomplished over the past two years as a public company.
Our philosophy from day, one has been to invest in great people operations and technology with the goal of becoming the leading bitcoin miner in the world.
Over the past several quarters, we have made tremendous strides on the production front and like last quarter, we are delighted to announce record production.
In addition to discussing our ramp up in production I will also discuss the continued growth of the corporate side of the company and other areas of the business, which are important to the long term success of the company.
As you've seen from our monthly production reports and commentary our team constantly works to drive operating improvements and cost savings. We have learned a great deal about improving efficiencies in our fleet even under the extreme weather conditions, we have seen this summer in Texas.
They are having is an event that happens every four years and refers to the reduction in supply of new bitcoin awarded to miners.
It is an event that can be challenging for even the most disciplined companies in our space.
We believe <unk> is very well positioned to be a winner on the other side of the upcoming having.
Slide three shows a number of our distinguishing characteristics, which we believe are critical to our long term positioning.
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.
As a reminder, power represents the overwhelming majority 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.
As we've said before this is a cyclical business managing through the cycle is fundamental to our approach whether that involves finding low cost power not overpaying for mining rigs during bull markets, you're avoiding overly burdensome debt.
On top of the attractive power contracts. We have negotiated we also have more than 70000 purchased rigs and as of this week run the entire business with a total of 32 employees.
We have talked in previous quarters about the attractive organic growth opportunities that are at some of our existing sites and we've continued to make progress at those sites.
At each of bear and Chief we have acquired long lead time items for 30 megawatt expansion.
And then outdoors, we recently received FERC approval for a supplemental grid connection that would potentially allow us to expand our existing data center by 10 megawatts in the near term as well as increase our targeted operational uptime significantly.
We have also identified another 117 megawatts of potential JV opportunities at new sites with our partner <unk> that should be available in 2024.
Also we continue to see acquisition opportunities in the marketplace.
Having is growing ever closer and miners are faced with a challenging operating environment.
As the reality of the having the effects on miners with high costs sets in we think there may arise interesting opportunities for growth.
On page four we give some key performance indicators that we observe in the business as we continue to ramp up.
Our current self mining hash rate is six eight <unk> per second and we expect to reach seven point to exit hash per second by the end of Q3 as we complete the build out.
Of the Odessa facility.
With the potential expansion at <unk> bear achieved that we talked about on slide three we see the opportunity for near term organic growth up to $8 seven <unk> per second.
On the bottom of this slide you can see some of our current and year to date production numbers, which reflect the rapid pace of our buildout.
In the middle of the page you can see our bitcoin held which has risen quarter over quarter.
We manage our bitcoin treasury by generally selling enough bitcoin every month to fund our operating expenses.
Beyond those sales, we may choose to sell more bitcoin for dollars to invest in expansion opportunities.
Our hedge our inventory with futures or options or to hold excess bitcoin to build our overall treasury balance.
It's our goal to build our bitcoin inventory over time and with Capex winding down at our Odessa site, we have increased flexibility to build that inventory.
Slide five is a high level overview of our bitcoin mining business, which we like to include each quarter to remind everyone. How our business model works.
We operate the box in the middle of the drawing that says mining equipment, which represents our datacenters in 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 output to enterprise clients for dollars cyber sells its computing output called hash rate. So 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 expense to build its data centers, including what expense to purchase mining equipment.
Controlling these costs enables a minor could 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.
That illustration hopefully gives you a good sense of a straightforward bitcoin mining business.
Seifer, However, does have an additional element to our business, which is incredibly valuable.
We have the ability to sell power back to the grid at our Odessa facility.
That aspect of our PPA gives us both an element of downside risk protection as well as upside optionality to our revenue streams that doesn't exist for most traditional miners.
At our Odessa datacenter the power provider has the right to curtail our power use up to 5% of hours over the course of the year.
It will generally try to do this one open market purchase prices for power are high so.
They can reap larger returns from selling power in the market as opposed to selling it to us at our lower contracted fixed price.
We can also curtailed the datacenter ourselves shutdown, our machines and sell the power we are not using back into the market.
This is not the same as being in ERCOT ancillary services participant.
We are behind the meter.
But it affords us some similar advantages when power markets are volatile.
Let's now turn to page six and take a look at recent bitcoin market events and ciphers approach to these volatile markets.
During the quarter, we have seen many positive headlines for bitcoin.
Leading the way we saw a number of the largest institutions file or refile for their bitcoin spot Etfs other large institutions applying for various crypto currency licenses.
And crypto currency Bill make it out of committee in Congress.
The news drove a rally in bitcoin up to around $32500 before it fizzled and retreated to being range bound in the high 20 thousands.
During this price movement, there has been a steady climb to an all time high in overall Bitcoin network hash rate, which continues to suppress mining economics.
So what does all this mean for how we are approaching the remainder of 2023 and.
And next year going into the habit.
With this market backdrop, we believe it is crucial to optimize our current production.
We weigh a long list of potential expansion opportunities from both our existing sites and new opportunities.
On slide seven we give a portfolio overview of our data centers. We have completed the build out of our al Boras 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.
Year to date across our portfolio, we have paid approximately $8034 all in electricity costs per bitcoin produced.
We are very proud of this.
And for those who are relatively new to the story. The chart on the right shows you the dramatic Buildout and safer overall hash rate year to date as well as the additional potential near term growth opportunities that we outlined earlier.
Let's dive into specifics for each site.
Turning to slide eight you can see a picture of our Odessa facility, which we anticipate completing by the end of Q3.
ADESA is clearly the most significant part of our portfolio as it represents approximately 90% of our bitcoin production.
ADESA is a wholly owned facility with a five year fixed price PPA and some of the lowest cost power in the industry and.
In fact as of the third quarter last year, we began reporting a third party independent valuation to give investors a sense of how much value is represented in the contract alone.
Ed will talk more about it in his remarks.
At the end of July we generated approximately five eight <unk> per second at the site using approximately 193 megawatts. We have mined roughly 2443 bitcoins at the site year to date and had a recent maximum daily mining capacity of approximately $14 two.
Bitcoins per day.
In the coming months, we will be hosting an investor day at Odessa and look forward to showcasing the operations and team as we finished the last pieces of the Buildout.
Moving to slide nine.
Let's take a look at an overview of operational highlights at our Albert's data center.
Ours is 100% powered by wind and as a joint venture that we share with our energy provider <unk>.
Currently has a total operating capacity when the wind blows of 40 megawatts.
That 40 megawatts Power's roughly one three <unk> per second of rigs.
Albert can mine a maximum of roughly $3 107, bitcoins per day and year to date. The site is mined approximately 464 bitcoins.
Roughly half of that total capacity and site production belong to a safer.
Most importantly, our <unk>.
Year to date, all in electricity cost per bitcoin at <unk> was approximately $6312 demonstrating our resilient low cost structure.
We are working to supplement the wind production at <unk> with a grid connection which would allow us to increase our uptime and generate more bitcoin with the existing equipment at the site.
We are also looking at a potential 10 megawatt expansion of the site in the coming quarters.
With potential larger expansion up to 165 megawatts in the future.
Slide 10 shows the operational highlights from our bare and chief data centers combined the sites operate 20 megawatts, which power approximately 0.65 <unk> per second and can generate roughly $1 five eight bitcoins per day and current market conditions.
Baron Chief are also structured as joint ventures with similar shared economics to <unk>.
Like our other sites, which have behind the meter power arrangements.
Aron Chief are set up in front of the meter at a location in Texas that typically features attractive market prices.
Our year to date, all in electricity cost per bit coin at the combined sites was approximately $6511.
As I mentioned earlier Barron chief each have the potential for 30 megawatt expansions in the coming quarters, and we have been acquiring long lead time infrastructure like transformers to ensure that we will be able to expand when we choose to do so.
We are continuing to monitor the market for favorable machine purchases and being thoughtful and deliberate as we consider the upcoming having.
The wonderful advantage of our expansions at these sites is that we have no deadline to start drawing power that is we have no take or pay obligations.
Thus, we can continue to be opportunistic and expand at our own pace.
As a final note before I turn the call over to Ed I'd like to share one more important announcement.
We are adding Rob flatly to our board of directors.
Rob is the CEO of TFS imagine and has deep experience in electronic trading.
He has founded and led multiple companies specializing in data analytics and securities trading and has pioneered efforts to bring traditional financial trading infrastructure to crypto.
As we enter our next phase of growth, we believe that utilizing the immense datasets, we collect and analyze while operating our data centers and treasury will be key to successfully expanding safer beyond being just another bitcoin miner.
And look forward to his advice and assistance in the coming years welcome Rob.
Now I'll turn it over to our Chief Financial Officer Ed.
Ed Farrell.
Thank you Tyler and Hello to everyone on the call.
Before I move on to my remarks on the quarter I'd like to remind everyone that I will be referring to the reported financial results.
Six months ended June 30th.
Our public does contain several slides, which referred to the updated data.
Those numbers are footnoted and referenced as current as of July 31 2023.
Over the past several quarters, we have reported a steady ramp up in production as we move toward the completion of our debt facility.
Last quarter, we began to see the operational development flow through to the financials and we're delighted to see that trend continue in the second quarter.
The second quarter was characterized by further topline growth.
Free cash flow and improved liquidity.
I am happy to report for the three months ended June 32023.
ADESA facility nine 1114, bitcoin, resulting in syp reporting $31 $2 million in revenue and for the first half of 2023, Odessa mind, 2061, bitcoin, resulting in $53 $1 million in revenue.
This coupled with the 143 bitcoin, we werent that our JV resulted in a total of 1200.
257, bitcoin mined in the second quarter and for the six months, our JV earned 341 bitcoin for total of 2402 Bitcoin. Please.
Please note that the financial impact of the Bitcoin minded. Our JV is included in equity invest the account on the income statement.
I would talk about the upcoming having and the importance of the ability of the company to weather financial challenging market.
Our unit economics as a critical part of our ability not only to survive, but come out a winner on the other side of the half.
Equally important is the health of our financial position as.
As we like to remind investors. This 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 continue to have no debt at the corporate level, just equipment financing at the project level and.
And in the current market conditions, we do not generally that is an attractive form of financing.
The ability to fund both capital expenditures and operating expenses through ongoing operations, while building a bitcoin reserve is a key differentiator for us versus many of our competitors.
It also reflect our prudent approach as we look towards the having.
Now I'd like to turn to the Odessa PPA.
Now, let's talk about the competitive advantage, our power contract that to give that.
As a reminder, we began publishing a third party.
The agreement in the third quarter of 2022, which we believe underlying fundamental value in the business.
That market has shown that the derivative asked about the balance sheet that gets revalued each reporting period.
It essentially reflects the in the money value of the contract relative to the current market for the power prices at our debt.
At June 30 is that that was valued at $75 3 million or.
Or an increase of $3 2 million, which is recorded as a gain on our income statement.
Please note that this asset is in two components.
$5 8 million as a current asset and $49 5 million as a non current asset.
For this period in future periods the change in fair value of this contract will flow through our GAAP earnings and we exclude the impact for non-GAAP reporting.
Our other significant assets at the.
Ended the quarter include liquidity of $12 2 million.
This includes cash of $1 7 million and bitcoin of $10 5 million.
Property and equipment of $208 million is primarily related to the Odessa facility, which includes minus of $158 million we.
Leasehold improvements of $135 million and other fixed assets of $3 6 million.
These items are offset by 29.
$4 million of accumulated depreciation.
In addition, we have security deposits of $17 7 million, primarily relate to collateral posted to our desktop power provider.
Our equity investment of $33 1 million relates to our JV <unk> guarantees.
Currently our liquidity position at $15 9 million comprised.
Comprised of $1 1 million in cash and $14 $8 million in bitcoin.
We utilized the ATM for the first time this quarter and issued approximately 978000 shares at an average fair market value of $2 78.
With $2 $7 million net of issuance fees.
We believe the ATM would be useful to which we can access and the right market conditions.
Bright growth opportunities.
Now, let's look at our GAAP operating results for the quarter ended June 30th.
We had a net loss of $12 7 million.
Our net loss of <unk> <unk> per share.
This compares to the prior year's second quarter, where we had a net loss of $29 2 million or a net loss of <unk> 12 per share.
Again, our Odessa facility mind 1000.
114, bitcoin and gerrick generated revenue of $31 2 million for the three months ended June 30th using an average price per bitcoin of about $28000.
Cost of revenue for the three months ended June 32023 was $15 9 million and consisted primarily of power costs at the Odessa facility as well as maintenance expense for the mining operations.
In addition, we have reported power sales of $5 7 million for the quarter.
I would like to highlight that we had offsetting adjustments of $2 7 million in both the cost of power and power sales as they are offsetting they have no impact in current results.
The change in fair value of our desktop power agreement, which I mentioned earlier resulted in a gain of $3 2 million.
Equity in losses of equity investments totaled approximately $1 4 million for the quarter ended June 30, a decrease of $10 6 million for the three months ended June 32022.
To remind everyone equity in losses of equity Investees consists of our 49% share in the earnings or losses generated by our three partially owned mining sites.
General and administrative expenses totaled $21 $3 million for the current quarter versus.
$16 7 million from the previous year's quarter.
Within G&A the primary drivers are.
Based compensation of $9 $2 million in the current quarter versus $10 one in the prior year's quarter.
Compensation and benefits of $3 4 million versus $1 1 million in the prior year quarter.
This increase is attributed to building out our team over the course of the year.
We doubled the size of our team this past year as we built out the data centers and our corporate businesses, but we're still at only 30 employee.
Corporate insurance totaled $2 $4 million in the current quarter versus two five in the prior year quarter.
Other G&A totaled $3 million and include IP.
Fee and other public company expenses versus $2 1 million for the three months ended June 32022.
The other increase for this quarter was that we accrued $2 million for the costs related to resolving our payments with illuminate.
Depreciation for the second quarter was $14 4 million versus an immaterial amount in the prior year second quarter.
This is because of the second quarter of 2022, we haven't yet started mining at Odessa, So the depreciation on the equipment with minimal.
We had a realized gain on the sale of bitcoin of $4 2 million in the second quarter.
As I've mentioned on previous call, we began selling a portion of our bitcoin holdings at the start of 2023 quarter operations and cash requirements.
Finally, we recognize the $2 8 million impairment on our big clean holdings in the second quarter, Chris was $500000 in the previous year's second quarter.
Let's move on now to our non-GAAP financial measures.
We are providing supplemental financial metrics for our non-GAAP income from operations that excludes the impact of depreciation of fixed assets.
Share based compensation expense.
Noncash change in the fair value of our warrant liability.
Tax expense and the noncash change in the fair value of our derivative asset.
Which again is the power contract that Odessa.
These supplemental financial measures did not measurement of financial performance in accordance with U S GAAP and as such they may not be comparable to similarly titled measures of other companies.
We believe that these non-GAAP measures may be useful to investors when comparing our performance across reporting periods on a consistent basis.
Management uses these non-GAAP financial measures internally to help understand manage and evaluate our business performance and to help make operating decisions.
So for the three months ended June 32023, we had a non-GAAP net income of $7 $3 million with <unk> per share.
This compares to a non-GAAP net loss of $19 1 million or net loss of <unk> <unk> per share for the previous year second quarter.
I encourage you to review our earnings release.
We have provided a reconciliation of GAAP versus non-GAAP results.
I would close out our presentation by saying we're pleased with the continued build out at our ADESA facility and remain on track to achieve seven to exit by the end of Q3.
Looking out towards the having we cannot predict the price of bitcoin future cash rate.
Our financial position and best in Class unit economics should position us well to take advantage of the volatile markets, we expect to see.
In closing, we look forward to updating you in greater detail on the financial results as a desk is completed in the third quarter and we began to see operations at a full run rate.
I will pause and Tyler and I are happy to answer your question.
Thank you I will now open the lines now further questions and as a reminder to ask a question simply press Star one one on your telephone and wait for your name to be announced to withdraw your question simply press Star One again, one moment, while we compile the Q&A roster.
Okay.
And our first question comes from the line of Chase White with Compass point research.
Thanks, Good morning, guys couple if I may.
First of all just an housekeeping can you give us a sense of what the EBITDA generated by the JV It was in the quarter.
Sure I can do that Jason.
Good to have you on the call the EBITA for the JV is about $7 million.
Gotcha, that's helpful and then.
It would be great if you could.
Walk us through.
Capex needs for the JV expansion and any color you can give us on potential timelines.
Any details would be great.
Thanks.
I can provide some color on that hi chase.
So I think.
With the JV expansions and consistent with the theme that we've been talking about for a while.
We are waiting sort of cautious expansion and timelines versus having them sort of economics in the space.
Re builds in bitcoin stays stagnant so what we've done is we've invested.
The Jv's have invested a few million dollars in getting the longest lead time items.
Transformers in the necessary equipment sort of up to that point, we have not secured containers and miners yet, but the lead times on that is is less.
I think as I mentioned on the call. The thing we are keeping in mind here is that we don't have a deadline to expand or take or pay and so we can be frankly cautious as we think about allocating further capital.
If we were to hit go tomorrow.
I would still say that probably assuming everything stays on track and things were delivered on time that would be close to year end would be my guess.
But we haven't made that decision yet to purchase their containers and miners that would be necessary and so that's why we're non specific on the timing of how we're thinking about that.
Got it that makes sense and any color on kind of cost per megawatt for the infrastructure.
Anything like that that you could give us.
I think its ballpark typically about half the cost per megawatt is in.
The miners themselves and so.
Historically, we have spent.
About $500000 on non mining rig infrastructure per megawatt.
So if you just use that figure whatever the going rate for rigs as we will make up on top of that with you in.
Within that.
Has that has the infrastructure transformers are meaningful but not majority of it. So that's not specific I realize but there is still I would say the majority of cost per megawatt has not been spent yet.
Got it that's helpful. Thank you.
For a moment for our next question. Please.
And it comes from the line of John Todaro, with Needham and company.
Great. Thanks for taking my questions guys.
Q4, you here, if I could get them both in.
First.
Trying to understand the uptick in cost of revenue so it sounds like energy.
Maybe it was around eight to 9 million.
It looks like that maintenance expense.
<unk> been up a little bit can you just talk a little bit about the drivers there any commentary on that.
Sure John Hi, Ted.
Yes, I can give you some color there.
The drivers for the cost of revenue, yes, we have.
Part of that is there.
Our team that's down there.
Monitoring and maintaining the facilities and yes, we are.
Increase at ADESA, we have increased the staff there so thats somewhat.
Driver of it the actual cost of revenue.
In that number for the current period, there was an accounting adjustment of about $2 $7 million, that's offset by the power sales equal an offset so there's no impact there was just a catch up adjustment based upon some.
New data that we received again doesn't have an impact to the bottom line. So if you're looking at that of current quarter number that's probably it.
Is the overstated by about $2 $7 million as is the cost of it.
The power sales number that we had.
That makes sense.
Yes.
That's helpful. Thanks for that.
And then my next question a little bit different.
But.
<unk> sale increase.
Kind of makes sense with the weather here any expectations for the remainder of the year kind of what we should expect prepare ourselves.
I think that's hard to answer Jon because.
I think this year has been a bit.
Learning experiment for everyone dealing with power in Texas, I think as everyone knows we've had record temperatures across the state record power demand.
But simultaneously while that has led to some higher prices people are also aware of that there are more curtailed below available and generally it's hard to predict sort of prices around the market, it's not as simple.
Linear exercise, where you say it is hotter therefore people want more air conditioning. Therefore prices will go up because more power is also available and so theres a bit of a game theory for sort of what people are selling ahead whats available in real time et cetera.
When we think about opportunistic power sales.
First things first we as you know offer 5% of our hours as curtailment to our power provider at Odessa and they.
Generally use those pretty well around the highest price moments they have used over 50 decent amount over 50% of their.
Curtail about hours year to date.
And so I think if we see conditions persist you could see more opportunistic power sales from us depending on how that curtailment budget gets spent by our counterparty. So it's very hard to predict I mean, I think what I would say if you compare us to other miners that are front of the meter and may have power.
<unk> from participating in ancillary services keep in mind that a lot of the value. We've got is baked into our two 7%.
Price across the portfolio.
That sort of keeps in mind. This curtailment that is meant to pick up some of those big spikes in power. So on the opportunistic side well I think we will continue to have power sales it has mostly been.
Where we have had excess power available to us because we have not had all the equipment plugged in yet.
As far as capturing the spike like I know, we talked about in previous quarters that can happen, but it's very hard to predict because there's a lot of dynamics that go into pricing and also calculating how our curtailment budget gets used.
Got it thanks, guys appreciate it.
Thank you.
One moment for our next question please.
And it comes from the line of Josh <unk> with Cantor Fitzgerald.
Yes, hi, guys. Good morning, Thanks for taking my question today. So first of all as we're heading into the having how are you thinking about your growth strategy. Most importantly, what would cause you to take a more aggressive approach to scaling or a more conservative approach.
Thanks, Josh I think it's.
The level of comfort for projecting the economics I think if you look at a fast rate on the network that has continued to build while we've had this range bound bitcoin.
If you project out into the future and look at the modeling as everyone knows the revenue numbers for all miners will drop off a cliff towards the end of next April .
Probably if we were to have market conditions similar to today that would cause quite a shakeout in the industry.
Seifer would be very well positioned I think we're cognizant of not trying to get over extended with that expansion.
Even if we can cash flow positive in that environment, we want to be careful about how we fund such growth at the JV. So it's impossible to say exactly but if we all come back.
After the end of the summer.
And it feels like we're not so range bound maybe bitcoin breaks out and we have reasons to believe that that'll be a sustainable breakout that could lead us to have more confidence to push forward with.
Order in rigs that would accommodate our expansions at behr and chief but it's hard to say there is not one thing I think we're taking advantage of the fact that we.
We don't have a take or pay deadline and so we can afford to be flexible.
We think we are really the best position minor when we get through the having we just want to be cautious not to sort of push.
Not have that advantage because we were too aggressive so we're just being deliberate.
Understood. Thank you Tyler and.
I'd also like to talk a little bit about your hollow balance so as the Odessa expansion is nearing it and you've clearly increased this hollow balance over time, how are you thinking about balancing.
<unk> tapping the huddle and raising new capital to fund future growth.
Yes, I'd say thats, a dynamic decision, making process that is pretty intensive between our treasury management team and management I think in general the guidance, we have given our investors is that it is our goal over time to build the bitcoin balanced that we hold.
Of course weigh that against how we use capital in the business and what we pay for day to day, so as a general guideline.
We sell Bitcoin every day $4 to cover our operational expenses and Thats kind of a baseline where we start.
Beyond that then we think about do we sell extra bitcoin for capital do.
Do we potentially hedge some of that bitcoin or try to generate some yield because we're selling a futures position or an options position against bitcoin we hold in treasury.
Theoretically we tap.
Our ATM to be able to sell equity.
That has to do with the dynamic between realm.
Relatively where is the stock price trading to bitcoin price and how we feel against the overall goal of building the balance over time. So it's hard to give a specific formula other than the starting point, which is we want to guide people to understand that we pay for operational expenses with the bitcoin, we produce beyond that we'd like to retain flexibility.
<unk>.
Understood. Thanks for taking my question.
Thank you one moment for our next question. Please.
Comes from the line of Mike colonies with H C. W.
Hi, Good morning color net and thank you for taking my questions. This morning.
First for me can you provide a little more color on the 117 megawatts of new expansion opportunities in 2024 with HQ Your JV partner and why it look to go to the JV route for expansion, especially given the success you've had over to desktop.
Sure. Thanks, Mike So I think we've benefited from having a.
Diversity in our approach to sites.
<unk> is a great partner and as I mentioned about the expansions in Barron chief.
Sort of the wonderful thing about the arrangement at those sites is that there is not a take or pay deadline, where you have to have a site built by this date, where else you start paying for power, we can make a joint decision.
When we want to begin to draw power and then plan our capital expenditures around that.
As far as the sites 117 megawatts go we.
Have a framework arrangement with windows Q to scope out several sites for future joint ventures that operate in principle.
On the way that the first three do and they have a series of sites that they have scoped out and are working on interconnection and all the various approvals you would need to have ready currently those are estimated to be ready to build a data center in 2024, and so its three sites specifically.
Texas.
Okay.
As time goes by again, we will make we will make progress on the sort of timelines for thinking about that as time goes by and then we will apply a similar framework too we do how we do with bear and chief with trying to target. How we think about spending the capital for those expansions to lineup when it's ready.
Got it that's helpful. I appreciate that and if you could just provide I assume your detail on the or kind of approval of your grid connection in all doors with the timeline looks like to complete that connection operationally really what that entails.
Sure so keep in mind that our borders.
Is it a regulated area in Texas, So theres, a little bit of complexity to setting up the specific arrangement there for everyones benefit as a reminder, it al bores, we draw power directly.
Power is generated in a co located wind farm because of the area of Texas. It is located in that power from a contractual standpoint gets routed through a local co op.
We have a 50 megawatt PPA there.
Have a 40 megawatt data center currently and so.
Currently the data center operates with a targeted uptime of about 75% and Thats because.
The wind doesn't always blow and we've sized the data center to be somewhat smaller than the overall size of the wind farm.
With the court approval for a grid connection that would allow us to bring that uptime targeted from 75% to high 90%.
Because we would be using the wind farms power supplemented with when there is no wind what we could draw from the grid.
We do need to go through the rest of the steps beyond just in Arcata approval, which would involve getting a contract set up with the co op and so forth that go through the structure that is required in that area of Texas.
Overall, it's hard to predict an exact timeline for that but I would say.
A few months.
It's probably likely to make progress on that and then obviously the first step would be we already have 40 megawatts. There. So the day you can flip that on the uptime on the existing 40 megawatts would go up.
Beyond that as I mentioned, the PPA is actually for 50 megawatts. There. So we would have a 10 megawatt expansion available under the existing PPA.
And then ultimately there would probably be more regulatory steps to get a full expansion. So it's a longer timeline, but there is 165 megawatt wind farm. There. So given that we could supplement the wind power with grid power. There is no reason, we would have to downsize the datacenter theoretically assuming we go.
Through all the necessary regulatory approvals.
Great. Thanks Tyler.
Thank you Anna and I will end the Q&A session now and I'll pass it back to Tyler page for final remarks.
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Okay.
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