Q2 2023 Argo Blockchain plc Earnings Call

August 29, 2023

Speaker 1: Welcome to the Argo Blockchain PLC Investor Presentation. Throughout this recorded presentation, investors will be in this and only mode. Questions are encouraged and can be submitted at any time using the Kine tab situated on the right hand corner of your screen. Simply type in your questions and press send.

Good afternoon, and welcome to the Argo Blockchain plc investor presentation.

This presentation will be in listen only.

Questions on coach them can be submitted at any time using the Kinect Hep C tranches one right.

Simply type your questions.

Speaker 1: Given the large attendance of this call, the company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit the following poll.

Given the large attendance of disc rules the company may not be in a position to answer every question received during the meeting itself how does the company who's People's questions submitted today publishers like yourself.

So again I would like Smith good morning, Paul.

Speaker 1: And I would now like to hand you over to Tom Devine, Vice President of Investor Relations. Good off.

And I would now like to hanger come behind Vice President of Investor Relations Good afternoon tea.

Speaker 2: Thanks, Alex. Before we begin, I'd like to remind everyone that today's presentation and remarks may contain forward-looking statements. For our full risk factors, please see our Form 20F filed with Securities and Exchange Commission for the year 2022.

Yeah.

Thanks, Alex before we begin I'd like to remind everyone that today's presentation and remarks may contain forward looking statements for our full risk factors. Please see our form 20-F filed with the Securities and Exchange Commission for the year 2022.

Speaker 2: With us today for our discussion of Q2 and first half 2023 results are Saif El-Bakloui, Argo's interim chief executive officer and Jim McCallum, Argo's chief financial officer.

With us today for our discussion of Q2 and first half 2023 results are Steve <unk>, <unk> interim Chief Executive Officer, and Jim Mccallum, Argos Chief Financial Officer.

And now I'll turn it over to Steve.

Yeah.

Speaker 3: Thanks Tom. Good morning everyone and good afternoon to our shareholders in the UK. It's great to have you with us today to discuss our Q2 earnings and first half of 2023 results.

Yeah.

Thanks, Tom Good morning, everyone and good afternoon to our shareholders in the U K, it's great to have you with us today to discuss our Q2 earnings in first half of 2023 results.

Speaker 3: As mentioned in previous calls ever since Jim and I took the helm at Argo, we focused on three key priorities, which are financial discipline and deleveraging, operational excellence and growth and strategic partnerships for the sustainable future.

As mentioned in previous calls ever since Jim and I took the helm at Argo, we focused on three key priorities, which are our financial discipline and deleveraging operational excellence and growth and strategic partnerships for the sustainable future of the company.

Speaker 3: In my comments, I'll provide updates on our progress as they relate to these key pillars. With that,

And my comments I'll provide updates on our progress as they relate to these key pillars with that lets look at how Q2 shaped up.

Speaker 3: In the second quarter, we mined 456 Bitcoin and generated revenue of 12.6 million, which is an increase of 10% over our revenue from Q1 of

Yeah.

In the second quarter, we mined 456, bitcoin and generated revenue of $12 6 million, which is an increase of 10% over our revenue from Q1 of this year.

Speaker 3: Our mining margin percentage came in at 36%, which is down from the 49% mining margin we achieved in Q1.

Our mining margin percentage came in at 36%, which is down from the 49% mining margin we achieved in Q1.

Speaker 3: There are a couple of drivers for this, so I'll take some time to address that now. Helios now has a fixed price PPA for a significant portion of the facility's power load. Because we get access to the fixed power price on a pass-through basis, it provides us with greater certainty over power costs going forward, and it also allows us to participate in economic retic-

There are a couple of drivers for for this so I'll take some time to address that now Helios now has a fixed price PPA for a significant portion.

Of the facility's power load because we get access to this fixed power price on a pass through basis. It provides us with greater certainty over power costs going forward.

And it also allows us to participate and economic curtailment.

Speaker 3: This means that during periods of the day when power prices are really high, helios can curtail operations and sell that power back to the grid in real time.

This means that during periods of the day when power prices are really high Helios can curtail operations and sell that power back to the grid in real time.

Speaker 3: This generates power credits for us, which ultimately reduces our power.

This generates power credits for us, which ultimately reduces our power bills.

Speaker 3: In Q2 alone, we generated $1.1 million worth of power credits. This is equivalent to mining an additional $1.1 million.

In Q2 alone we generated $1.1 million worth of power credits. This is equivalent to a mining an additional 38 bitcoin.

Speaker 3: In certain instances where power prices spike, it can be more profitable to curtail and monetize that fixed price PPA than it is to mine. And that's something we're closely monitoring.

In certain instances, where power prices spike it can be more profitable to curtail and monetize that fixed price PPA than it is to mine and that is something we're closely monitoring.

Speaker 3: And with the ongoing heat wave in Texas, we are expecting significantly more power credits in Texas.

And with the ongoing heat wave in Texas, we are expecting significantly more power credits in Q3.

Speaker 3: For those of you who live in North America, you know that the summer has been exceptionally hot. Texas especially. It has several weeks of temperatures over 100 degrees.

For those of you who live in North America, you know that the summer has been exceptionally hot Texas, especially it has several weeks has had several weeks of temperatures over 100 degrees.

Speaker 3: So that led to very high power prices at certain times and although we were hedge for the majority of our load We were still exposed to those prices for the portion of the load that is not covered by the

So that led to very high power prices at certain times and although we were hedged for the majority of our load we were still exposed to those prices for the portion of the load that is not covered by the fixed PPA.

Speaker 3: But the fixed PPA is ultimately a good hedge, and it's proving itself to be very valuable so far for the third.

But the fixed PPA is ultimately a good hedge and it's proving itself to be very valuable so far for the third quarter.

Speaker 3: All in, our average power and hosting cost for the first half of the year was slightly over five cents per kilowatt hour. For the second quarter, we generated an adjusted EBITDA of $1.1 million, bringing our half-year adjusted EBITDA to $2.3 million.

All in our average power and hosting costs for the first half of the year was slightly over five cents per kilowatt hour.

For the second quarter, we generated an adjusted EBITDA of $1 1 million, bringing our half year adjusted EBITDA to $2 3 million.

Speaker 3: As I said on the last call, cash generation is top of mind for us. We ended the second quarter with just over $9 million of cash on the balance sheet.

As I said on the last call cash generation is top of mind for US. We ended the second quarter with just over $9 million of cash on the balance sheet.

Speaker 3: So now I'll let Jim provide some additional comments on our financial results for the quarter.

So now I'll, let Jim provide some additional comments on our financial results for the quarter.

Speaker 4: We generated 12.6 million of revenue for the quarter with 4.5 million of mining profit for a mining margin percentage of 36%.

Thank you Seth.

We generated $12 6 million of revenue for the quarter with $4 5 million of mining profit for mining margin percentage of 36%.

Speaker 4: As Saif said, we face higher power costs in the second quarter relative to the first quarter, but the fixed-price PPA at Helios provides us with greater certainty over our power costs going forward. We expect significant power credits from economic curtailment in the third quarter.

As Steve said, we faced higher power costs in the second quarter relative to the first quarter, but the fixed price PPA Helios provides us with greater certainty over our power costs going forward, we expect significant power credits from economic curtailment in the third quarter.

Speaker 4: Our core business operations remain profitable and we generated an adjusted EBITDA of $1.1 million.

Our core business operations remain profitable and we generated adjusted EBITDA of $1 1 million.

Speaker 4: In comparison to Q1, we saw higher revenues and lower non-mining operating expenses.

In comparison to Q1, we saw higher revenues and lower non mining operating expenses.

Speaker 4: We reduced our non-mining operating expenses by 21% over the first quarter.

We reduced our non mining operating expenses by 21% over the first quarter.

Speaker 4: At the end of June , we had $9.1 million of cash on hand.

At the end of June we had $9 1 million of cash on hand.

Speaker 4: As you can see on this chart, our operating cash flow remained positive in Q2.

As you can see on this chart, our operating cash flow remained positive in Q2.

Speaker 4: Debt service makes up a sizable portion of our cash outflows, which is why we are continuing to focus on deleveraging the balance sheet.

That service makes up a sizeable portion of our cash outflows, which is why we are continuing to focus on deleveraging the balance sheet.

Speaker 4: In May we sold roughly $1 million worth of Ethereum at an average price of $1900 and we used those proceeds to pay down debt.

In May we sold roughly $1 million worth of a theory.

At an average price of 1900 dollar and.

And we use those proceeds to pay down debt.

Speaker 4: In July , subsequent to the period end, we completed the share placement and raised $7.5 million of gross proceeds. Of this, $1.8 million was used to pay down the Galaxy loan.

In July subsequent to the period end, we completed the share placement and raised $75 million of gross proceeds one point of this $1 8 million was used to pay down the galaxy loan.

Speaker 4: On a pro forma basis, after the equity raise and the Galaxy debt pay down, our June 30th cash position would have been $14.5 million and our Galaxy debt position was $30 million.

On a pro forma basis after the equity raise and the galaxy debt Paydown our June 30th.

Cash position would have been $14 5 million and our galaxy debt position was $30 million.

Okay.

Speaker 4: Moving to the next slide, we continue to scrutinize all of our non-mining operating expenses and find ways to reduce costs.

Moving to the next slide we continue to scrutinize all of our non mining operating expenses and find ways to reduce costs.

Speaker 4: In Q2, we reduce these non-mining operating expenses by 21 percent.

In Q2, we reduced these non mining operating expenses by 21%.

Speaker 4: This means that since the second half of 2022, we've cut our non-mining operating expenses by 75%.

This means that since the second half of 2022, we've cut our non mining operating expenses by 75%.

Speaker 4: This cost reduction is important because it improves cash flow generation and allows us to continue deleveraging.

This cost reduction is important because it improves cash flow generation and allows us to continue deleveraging.

Speaker 4: One of the key themes that Safe and I have been emphasizing is deliveraging. In Q2, we reduced our debt by $3 million. And in Q3, we expect a further reduction of approximately $5 million.

Okay.

One of the key themes that safe and I have been emphasizing is deleveraging in Q2, we reduced our debt by $3 million and in Q3, we expect a further reduction of approximately $5 million in.

Speaker 4: In addition to that, we've also discussed the possibility of selling non-core assets.

In addition to that we've also discussed the possibility of selling noncore assets.

Speaker 4: We are in advanced discussions regarding the sale of certain of these non-core assets, and we anticipate providing more details and do course. With that,

We are in advanced discussions regarding the sale of certain of these noncore assets and we anticipate providing more details in due course.

With that I'll pass it back to safe.

Speaker 3: In Quebec, we continue the installation of our EPIC block miners. In July 23, we deployed 1,242 block miners representing about 130 petahash of additional hashrate capacity.

Quebec, we continue the installation of our epic block miners in July 23, we deployed 12 142 block miners, representing about 130, <unk> hash of additional hatch rate capacity.

Speaker 3: We expect to deploy the remaining block miners by the end of the year. Additionally, our operations team has been collaborating very closely with Galaxy on ways to improve the operational efficiency of the fleet at Helios, so we expect to see the results of that work in the coming years.

We expect to deploy the remaining block miners by the end of the year. Additionally, our operations team has been collaborating very closely with galaxy on ways to improve the operational efficiency of the fleet at Helios should we expect to see the results of that work in the coming months.

Speaker 3: And finally, we continue to explore some interesting growth opportunities to maintain our market share as the Hatch rate network continues to grow. We continue to engage with energy and power providers looking for opportunities to pair Bitcoin mining with underutilized or excess.

And finally, we continue to explore some interesting growth opportunities to maintain our market share as the hatch rate network continues to grow.

Continue to engage with energy and power providers looking for opportunities to pair bitcoin mining with underutilized or excess energy.

Speaker 3: We're thinking about ways that we can partner with energy companies in an asset-light manner and bring our expertise in Bitcoin mining to a strategic partnership.

We're thinking about ways that we can partner with energy companies, and then asset light manner and bring our expertise in bitcoin mining to a strategic partnership.

Speaker 3: So that's it for now. Jim and I are gonna take your questions. Alex and Mark.

So that's it for now Jim and I are open to take your questions Alex and Mark.

Speaker 3: Actually, not Mark, but Alex, back to you. Safe, Jim. Thank you very much indeed for your presentation. Ladies and gentlemen, please do continue to submit your questions using the Q&A tab situated on the right hand corner of your screen.

Actually not mark but Alex.

Thanks, James Thank you very much indeed for your presentation, ladies and gentlemen, please do you continue to submit your questions using the Jennie touched on the screen.

Speaker 1: While the company take a few moments to review those questions submitted today, I would like to remind you that a recording of this presentation, along with a copy of the slides and a published Q&A can be accessed via Invested Dashboard. Save, Jim, Tom, as you can see, we have received a number of questions throughout today's presentation. And Tom, if I may hand over to you to read out the questions, or appropriate to do so, and I'll pick up from you at the end.

While the company take a few moments to VITAS questions submitted today.

I would like to remind you that a recording of this presentation along with a copy of the slides on the public can I can be access.

Thanks, Jim Tom as you can see we have received a number of questions from today's presentation.

If I may hand over to me to ask the question where appropriate.

And I'll pick up for me.

Great. Thank you Alex.

Speaker 2: So our first question comes from Chase White at Compass Point. Can you give us some color on the details of your arrangement with Galaxy in terms of the size of the markup on the pass-through cost of power and how you go about sharing the economics of curtailment?

Our first question comes from Chase why Compass point can.

Can you give us some color on the details of your arrangement with Galaxy in terms of the size of the markup on the pass through cost of power and how you go about sharing the economics of curtailment.

Speaker 3: Yeah, thanks, Chase. So under the current hosting agreement that we have with Galaxy, there is no markup on the power cost. So basically what we have is a pass through power agreement on a, so there's a fixed power price, and then there's a pass through agreement and a hosting charge on top.

Yes, Thanks Chase so under the current hosting agreement that we have a galaxy. There is no mark up on the power cost. So basically what we have is a pass through power agreement.

So there is a fix power price.

And then Theres a theres a pass through of agreement and a housing charge on top of that.

Speaker 3: In regards to curtailment, we essentially split the proceeds from any economic curtailment that we get from Galaxy and we split that evenly.

And in regards to curtailment, we essentially split the proceeds from.

Any economic curtailment that.

That we get from from Galaxy, and we split that evenly so hopefully that answers your question.

Okay.

Speaker 2: Great. Our next question comes from Darren of Tahi at Roth MKM. How is management positioning itself ahead of the halving?

Great. Our next question comes from Darren <unk> at Roth MKS.

Thanks, how is management positioning itself ahead of the having next year.

Speaker 3: Hey Darren, good question. Like all of our peers, what we're trying to do is we're trying to essentially have the least amount of fixed costs as possible. We're trying to reduce our OpEx as much as possible. We're trying to de-lever. We're thinking about growth opportunities. We're thinking about sort of...

Yeah, Hey, Darrin good question I mean look like like all of our peers. What we're trying to do is we're trying to essentially have the least amount of <unk>.

Fixed cost as possible.

We're trying to reduce our opex as much as possible, we're trying to de lever, we're thinking about growth opportunities.

Speaker 3: continuing to take advantage of the fixed price PPA that we have with Galaxy. We're thinking about positioning and really we're just thinking about the health of our balance sheet and the market share that we have from a hash rate perspective.

We're thinking about sort of.

Continuing to take advantage of that.

The fixed price PPA that we have with galaxy.

We're thinking about positioning and really what we're we're just thinking about the health of our balance sheet.

And the market share that we have from our hatch rate perspective.

Speaker 3: And so I think the last the last obligations that that you have The better off you're gonna be so that's really how we're thinking about the

And so I think the last the last obligations that you have.

The better off you are going to be so that's really how we're thinking about the having.

Speaker 2: Great. Faith, the next question comes from a couple folks, including Bill Papandastasio at STIFL, as well as Matthew R. from the webcast. Can you give an update on the asset divestitures that you mentioned?

Great.

Next question comes from a couple of folks, including Bill pop in the stock at Stifel as well as Matthew or from the webcast can you give an update on the asset divestitures that you mentioned.

Speaker 3: Yeah, so we've met, you know, in the past, we've mentioned excess inventory in real estate as examples of non-corassants that we can potentially monetize to generate additional cash. And Bill, we're currently in advanced discussions with some of those as well. So...

Yes, so we've met in the past we've mentioned excess inventory in real estate as examples of noncore assets that we can potentially monetize monetize to generate additional cash.

And Bill we're currently in advanced discussions with some of those as well so.

Speaker 3: I think we're in a good place, we're in a good position. And back to sort of their question, we're thinking about using that cash flow to deliver some more and reduce our obligations. Bell and sheath's been top of mind for Jim and I. And so we're happy with where we are, we're happy with the discussions that we're having. They're advanced and I'm confident that

<unk>.

I think where we're in a good place we're in a good position.

And back to sort of Dan's question, we're thinking about.

Using that cash flow to delever, some more and reduce our obligations.

The balance sheets been top of mind for Gemini.

And so we're happy with where we are we're happy with the discussions that we're having there are advanced and.

I'm confident that.

Speaker 3: We'll get something going in the near future.

Well get something going.

And.

In the near future.

Speaker 2: Great, thanks. Our next question is for Jim and this comes from Shagar S. Can you talk a little bit more about your plans for debt reduction?

Great. Thanks. Our next question is for Jim and this comes from <unk>.

Can you talk a little bit more about your plans for debt reduction.

Yeah.

Okay.

Speaker 4: Hey, my name is Anthony Galatee, we've used the proceeds of our Ethereum sale, as well as the portion of the equity raise that we just completed. There's additional levers that we continue to look at, including a sale of nine core assets to further reduce the debt. It's a key focus for safe and eye, and we've had a big reduction since June 30 of last year in our debt reduction goals.

Okay.

Payments on the Galaxy that we've used the proceeds of our theory on Seo.

As well as a portion of the equity raise that we just completed.

There's additional levers that we continue to look at including the sale of noncore assets to further reduce the debt. It's a key focus for say F&I.

And we've done it.

And then had a big reduction since June 30 of last year and are in our debt reduction goals.

Thank you.

Speaker 2: Thanks Jim. Next question comes from someone in the chat.

Yes.

Thanks, Jim.

Next question comes.

From someone in the chat.

Speaker 2: for safe, what impact does the hot temperatures have on mining Bitcoin?

For Steve what impact does the hot temperatures have on mining bitcoin in Texas.

Speaker 3: Yeah, it's a good question. So, you know, a lot of people have asked us.

Yes, it's a good question so.

A lot of people have asked us.

Speaker 3: This is probably the best time for Bitcoin prices to be depressed for us. Like obviously, Bitcoin prices being depressed is not a good thing. But generally, if there was a good time for Bitcoin prices to be depressed, it would really be now. And the reason is because when you essentially have, you know,

Sure.

This is probably the best time for bitcoin prices could be depressed for us like obviously quite prices being depressed. It is not a good thing, but generally if there was a good time for bitcoin prices to be depressed it would really be DAU and the reason is is because when you essentially have.

Speaker 3: a six ppa or where you're dealing with a counterparty that has a six ppa you can pretty much Use those power blocks and sell it back to the grid. So essentially when it gets

Okay.

Fixed PPA or where youre dealing with the counterparty that has a fixed PPA you can pretty much use those power blocks and sell it back to the grid.

Speaker 3: We curtail, meaning we just shut down our machines and the power that we're essentially not using, we can sell that power back.

So essentially when it gets really hot there.

We curtail, meaning we just shut down our machines and the power that we're essentially not using we can sell that power back to the grid.

Speaker 3: And so when Bitcoin prices are high, sometimes when prices spike, and it gets really hot in Texas, and prices start spiking.

And so when bitcoin prices are high sometimes when prices spike and it gets really hot in Texas and prices start spiking.

Speaker 3: we essentially turn off our machines, but the higher the Bitcoin prices are, the more of an opportunity cost it is for us not to mine. And at times it's actually more beneficial for us not to mine and sell that power back to the grid rather than...

We essentially turn off from machines, but the higher the bitcoin prices are the more of an opportunity cost that is for us not to mine and at times, it's actually more beneficial for us not to mine and sell that power back to the grid, rather than keep mining and so and those in the last week.

Speaker 3: And so in those in the last weeks and in the coming sort of weeks when temperatures are really hot and Bitcoin prices are low, it lowers our opportunity costs and it gives us the opportunity to sell our power back.

<unk> and <unk>.

And then the coming sort of weeks when temperatures are really hot in bitcoin prices are low it lowers our opportunity costs and it gives us the opportunity to sell our power back to the grid.

Speaker 3: So ultimately, that's the impact it's been having that we are curtailing, but we are getting rewarded for curtailing at a low opportunity.

Ultimately that's the impact that's been having that we are curtailing, but we are getting rewarded for curtailing at a low opportunity cost.

Speaker 2: Great, thanks Dave. Next question comes from Jeff H. This is for Jim. Can you give some more color on our current cash balance and liquidity?

Great. Thanks, Dave next.

Next question comes from Jessica H or Jim can you give some more color on our current cash balance and liquidity.

Speaker 4: I think, as I mentioned on the call, at the end of June , our cash balance was $9.1 million. We completed the equity raise in July for $7.5 million through the share placement in the UK, so that strengthened our cash and balance sheet.

Yes, I think Jeff as I mentioned on the call at the end of June our cash balance was $9 1 million.

We completed the equity raised in July for seven 5 billion.

Through the share placement in the U K, so that strengthened our cash and balance sheet.

Speaker 4: Of that $7.5 million that we raised, approximately 25% of that proceeds went to pay down the Galaxy debt.

Yes.

Of that $7 5 billion that we raised.

Approximately 25% of the proceeds went to pay down the galaxy debt.

Speaker 2: So our pro forma cash balance at June 30th would have been 14.5 million or was 14.5 million if you take the 9.1 and then the net cash after the after the debt paid out.

So our pro forma cash balance at June 30 would have been $14 5 million or was 14 $514 5 million.

If you take the $9 one and then the net cash after the after the debt pay down.

Speaker 5: Great, thanks Jim. Another one for you, this came from a couple of folks in the chat. Can you give an update on Argo's investment in Pluto's Flash Emergent?

Great. Thanks, Jim another one for you.

From a couple of folks in the chat.

Can you give an update on argo's investment in pluto's loss emergence.

Speaker 2: Yeah, no, we are taking a more active role in our investment in Emergent. We've recently joined the board a

Yes no.

We are taking a more active role in our in our investment in emerging.

We've recently joined the board.

Speaker 2: We've taken a position on the board, so we're being more active and we'll give updates as we have them moving forward.

We've taken a position on the board. So we're just we're being more active and we will give updates.

As we as we have them moving forward.

Okay.

Speaker 5: Thanks, Jim. I think our last question.

Thanks, Jim.

Speaker 5: going to be from Chase White at Compass Point. This is for safe. You mentioned getting to 2.8 extra hash by the end of the year. Could this come earlier? What sort of time range are you targeting internally?

Thank you our last question.

It's going to be from chase why at Compass point.

Steve you mentioned getting to $2 eight <unk> by the end of the year.

Some earlier, what sort of time range are you targeting internally.

Speaker 3: Yeah, thanks Chase. The team has been doing a really, really good job at installing, our teams in Quebec and Bicamo have been doing, our Ops team, just the entire Ops team have been doing a really good job at installing those.

Yes. Thanks Chase the team has been doing a really really good job at installing our teams in Quebec and <unk> have been doing our ops team just about the entire ops team have.

Been doing a really good job at installing those.

Speaker 3: Those miners at a really good pace and good rate. Right now, our turtle capacity is around 2.6x a hash. And so we are confident that by the end of the year, all of the nearly 2900 machines will be deployed, which should bring us back around the 2.8x a hash target that we have.

Those miners at a really good pace and good rate right now our total capacity is around $2 six X a hash and so.

We are confident that by the end of the year.

All of the nearly 2900 machines.

Will be deployed.

Which should bring us back around the $2 eight <unk> target that we have.

Speaker 3: Given the current deployment rate, I'm confident that we can likely deploy them before Q4 of 2021.

Given the current deployment rate.

I'm confident that we can likely deploy them.

Before Q4 of 2023.

Speaker 1: Safe, Jim and Tom, thank you for that. And I think you have addressed those questions you can from investors today. And of course, the company will review all questions submitted today. And we'll publish those responses on the investment company platform. But before we direct the investors to provide you with a feedback, which is a particularly important to the company, Safe, could I please ask you for a few closing comments?

Hey, Jim and Tom. Thank you for that and I think you have addressed this question comes from investors today and of course the company. What was your question summit today, and we'll publish Theres just one company capsule before we'd have it to investors to provide you with a feedback which is particularly important to the company. Thanks can I. Please ask you question.

Speaker 3: Sure, thanks Alex. I just want to thank everyone for tuning into our earnings call today. Again, just to reiterate, we're really focused on deleveraging and strengthening our balance sheet. And we're focused on reducing costs and being opportunistic with financing and focusing on operational excellence and yield. So until next time, I thank everyone for being here and we will be in touch soon. Thanks.

Any comments.

Sure. Thanks, Alex I, just want to thank everyone for tuning into our earnings call. Today again, just to reiterate we are really focused on deleveraging and strengthening our balance sheet.

And we're focused on reducing costs and being opportunistic with financing and focusing on operational excellence and yields.

Until next time, thank everyone for being here and we will be in touch soon thank you.

Speaker 1: Pasquare, Saif, Jim, and Tom, thank you once again for updating investors today. Could I please ask investors not to close this session, as you will now be automatically redirected to provide your feedback in order that a board can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of Argo Blockchain PLC, we'd like to thank you for attending today's presentation. And good afternoon to you.

Thanks, Jim and Tom. Thank you once again for updating investors today can I. Please ask investors not to place. This session. As you will now be automatically lead diavik providing feedback.

Can that time span youll see some expectations.

Take a few moments to compete and I'm sure we'll be sorry.

At the company on behalf of the management team of Alco Blockchain plc, we'd like to thank you for attending today's presentation and good afternoon to you.

Unknown Executive: Welcome to the Argo Blockchain PLC Investor Presentation. Throughout this recorded presentation investors will be in this and only mode. Questions are encouraged and can be submitted at any time using the KNA tab to sit created on the right hand corner of your screen, simply typing your questions and percent. Given the large attendance of this call, the company may not be in a position to answer every question it seems during the meeting itself, however the company will review all questions submitted today and publish responses with its appropriate to do so.

Unknown Executive: Given the large attendance of this call, the company may not be in a position to answer every question it seems during the meeting itself, however the company will review all questions submitted today and publish responses with its appropriate to do so. Before we begin, I would like to submit the following poll and I would now like to hand you over to Tom Divine, Vice President of Investor Relations.

Tom Divine: Before we begin, I would like to submit the following poll and I would now like to hand you over to Tom Divine, Vice President of Investor Relations.

Tom Divine: Good afternoon to you. Thanks Alex.

Tom Divine: Before we begin, I'd like to remind everyone that today's presentation and remarks may contain forward-looking statements. For our full risk factors, please see our form 20F filed with the Securities and Exchange Commission for the year 2022.

Seif El: With us today for our discussion of Q2 and first half 2023 results are safe, ill-backly, Argo's in-term Chief Executive Officer and Jim McCallum, Argo's Chief Financial Officer, and now I'll turn it over to safe. Thanks Tom. Good morning everyone and good afternoon to our shareholders and the UK. It's great to have you with us today to discuss our Q2 earnings and first half of 2023 results. As mentioned in previous calls ever since Jim and I took the helmet Argo, we focused on three key priorities, which are financial discipline and de-leveraging, operational excellence, and growth and strategic partnerships for the sustainable future of the company.

Seif El: As mentioned in previous calls ever since Jim and I took the helmet Argo, we focused on three key priorities, which are financial discipline and de-leveraging, operational excellence, and growth and strategic partnerships for the sustainable future of the company. In my comments, I'll provide updates on our progress as they relate to these key pillars. With that, let's look at 56-bit coin and generated revenue of 12.6 million, which is an increase of 10% over revenue from Q1 of this year.

Seif El: In my comments, I'll provide updates on our progress as they relate to these key pillars. With that, let's look at 56-bit coin and generated revenue of 12.6 million, which is an increase of 10% over revenue from Q1 of this year. Our mining margin percentage came in at 36%, which is down from the 49% mining margin we achieved in Q1. There are a couple of drivers for this, so I'll take some time to address that now.

Seif El: Our mining margin percentage came in at 36%, which is down from the 49% mining margin we achieved in Q1. There are a couple of drivers for this, so I'll take some time to address that now. Helios now has a fixed price PPA for a significant portion of the facilities power load because we get access to this fixed power price on a pass-through basis. It provides us with greater certainty over power costs going forward and it also allows us to participate in economic curtailment.

Seif El: Helios now has a fixed price PPA for a significant portion of the facilities power load because we get access to this fixed power price on a pass-through basis. It provides us with greater certainty over power costs going forward and it also allows us to participate in economic curtailment. This means that during periods of the day when power prices are really high, Helios can curtail operations and sell that power back to the grid in real time.

Seif El: This means that during periods of the day when power prices are really high, Helios can curtail operations and sell that power back to the grid in real time. This generates power credits for us, which ultimately reduces our power bills. In Q2 alone, we generated $1.1 million worth of power credits. This is equivalent to mining an additional 38-bit coin. In certain instances where power prices spike, it can be more profitable to curtail and monetize that fixed price PPA than it is to mine.

Seif El: This generates power credits for us, which ultimately reduces our power bills. In Q2 alone, we generated $1.1 million worth of power credits. This is equivalent to mining an additional 38-bit coin. In certain instances where power prices spike, it can be more profitable to curtail and monetize that fixed price PPA than it is to mine. That's something we're closely monitoring. With the ongoing heat wave in Texas, we are expecting significantly more power credits in Q3.

Seif El: That's something we're closely monitoring. With the ongoing heat wave in Texas, we are expecting significantly more power credits in Q3. For those of you who live in North America, you know that the summer has been exceptionally hot. Texas, especially, it has several weeks of temperatures over 100 degrees. So that led to very high power prices at certain times, and although we were hedge for the majority of our load, we were still exposed to those prices for the portion of the load that is not covered by the fixed PPA.

Seif El: For those of you who live in North America, you know that the summer has been exceptionally hot. Texas, especially, it has several weeks of temperatures over 100 degrees. So that led to very high power prices at certain times, and although we were hedge for the majority of our load, we were still exposed to those prices for the portion of the load that is not covered by the fixed PPA. But the fixed PPA is ultimately a good hedge, and it's proving itself to be very valuable so far for the third quarter.

Seif El: But the fixed PPA is ultimately a good hedge, and it's proving itself to be very valuable so far for the third quarter. Of 1.1 million, bringing our half year adjusted EBITDA to 2.3 million. As I said on the last call, cash generation is top of mine for us. We ended the second quarter with just over 9 million of cash on the balance sheet.

Seif El: Of 1.1 million, bringing our half year adjusted EBITDA to 2.3 million. As I said on the last call, cash generation is top of mine for us. We ended the second quarter with just over 9 million of cash on the balance sheet.

Jim MacCallum: So now, I'll let Jim provide some additional comments on our financial results for the quarter. Thank you, Seif. We generated 12.6 million of revenue for the quarter with 4.5 million of mining profit for a mining margin percentage of 36%. As Seif said, we face higher power costs in the second quarter, relative to the first quarter, but the fixed price PPA at Helios provides us with greater certainty over our power costs going forward.

Jim MacCallum: We expect significant power credits from economic procurement in the third quarter. Our core business operations remain profitable, and we generated adjusted EBITDA of 1.1 million. In comparison to Q1, we saw higher revenues and lowered non-mining operating expenses. We reduced our non-mining operating expenses by 21% over the first quarter. At the end of June, we had 9.1 million of cash on hand. As you can see on this chart, our operating cash flow remained positive in Q2.

Jim MacCallum: That service makes up a sizable portion of our cash outflows, which is why we are continuing to focus on delivering the balance sheet. In May, we sold roughly $1 million worth of Ethereum at an average price of $1900, and we used those proceeds to pay down debt. In July, subsequent to the period end, we completed the share placement and raised $7.5 million of gross proceeds. One point of this $1.98 million was used to pay down the galaxy loan.

Jim MacCallum: On a pro forma basis after the equity raise and the galaxy debt pay down, our June 30th cash position would have been $14.5 million, and our galaxy debt position was $30 million. Moving to the next slide, we continue to scrutinize all of our non-mining operating expenses and find ways to reduce costs. In Q2, we reduce these non-mining operating expenses by 21%. This means that since the second half of 2022, we've cut our non-mining operating expenses by 75%.

Jim MacCallum: This cost reduction is important because it improves cash flow generation and allows us to continue delivering. One of the key themes that Safe and I have been emphasizing is the leveraging. In Q2, we reduced our debt by $3 million, and in Q3, we expected further reduction of approximately $5 million. In addition to that, we've also discussed the possibility of selling non-core assets.

Jim MacCallum: We are in advanced discussions regarding the sale of certain of these non-core assets, and we anticipate providing more details and due course.

Seif El: With that, I'll pass it back to Seif. To back, we continue the installation of our epic block miners. In July 23, we deployed 1242 block miners representing about 130 petahash of additional hash rate capacity.

Seif El: We expect to deploy the remaining block miners by the end of the year. Additionally, our operations team has been collaborating very closely with Galaxy on Waste to improve the operational efficiency of the fleet at Helios, so we expect to see the results of that work in the coming months. And finally, we continue to explore some interesting growth opportunities to maintain our market share as the hash rate network continues to grow. We continue to engage with energy and power providers looking for opportunities to pair Bitcoin mining with underutilized or excess energy. We're thinking about ways that we can partner with energy companies in an asset-light manner and bring our expertise in Bitcoin mining to a strategic partnership.

Seif El: So that's it for now.

Seif El: And finally, we continue to explore some interesting growth opportunities to maintain our market share as the hash rate network continues to grow. We continue to engage with energy and power providers looking for opportunities to pair Bitcoin mining with underutilized or excess energy. We're thinking about ways that we can partner with energy companies in an asset-light manner and bring our expertise in Bitcoin mining to a strategic partnership.

Seif El: So that's it for now.

Tom Divine: Jim and I are open to take your questions. Alex and Mark, actually not Mark, but Alex, back to you. Safe, Jim.

Tom Divine: Thank you very much indeed for your presentation. Ladies and gentlemen, please be continued to submit your questions using the KNATOT situated on the right hand corner of your screen. While the company take a few moments to reveal those questions submitted today, I would like to remind you that a recording of this presentation along with a copy of the slides and the published KNA can be accessed via our investor dashboard. Safe, Jim, Tom.

Tom Divine: As you can see, we have received a number of questions throughout today's presentation, and Tom, if I may hand over to you to read out the questions or appropriate to be so, and I'll pick up for me at the end. Great. Thank you, Alex.

Tom Divine: Safe, our first question comes from Chase White at Compass Point.

Seif El: Can you give us some color on the details of your arrangement with Galaxy in terms of the size of the markup on the past through cost of power and how you go about sharing the economics of curtailment? Yeah, thanks, Chase. So under the current hosting agreement that we have with Galaxy, there is no markup on the power cost. So basically, what we have is a past through power agreement on a fixed power price, and then there's a past through agreement and a hosting charge on top of that. And in regards to curtailment, we essentially split the proceeds from any economic curtailment that we get from Galaxy, and we split that evenly. So hopefully that answers your question.

Seif El: Great.

Seif El: So under the current hosting agreement that we have with Galaxy, there is no markup on the power cost. So basically, what we have is a past through power agreement on a fixed power price, and then there's a past through agreement and a hosting charge on top of that. And in regards to curtailment, we essentially split the proceeds from any economic curtailment that we get from Galaxy, and we split that evenly. So hopefully that answers your question. Great.

Unknown Executive: Our next question comes from Darren of Tahi at Roth M.K.M.

Tom Divine: Our next question comes from Darren of Tahi at Roth M.K.M.

Seif El: Safe, how is management positioning itself ahead of the having next year? Yeah, hey, Darren. Good question. I mean, look, like all of our peers, what we're trying to do is we're trying to essentially have the least amount of six costs as possible. We're trying to reduce our op-ex as much as possible. We're trying to deliver. We're thinking about growth opportunities. We're thinking about sort of.., continuing to take advantage of the fixed price PPA that we have with Galaxy.

Seif El: We're thinking about positioning and really we're just thinking about the health of our balance sheet and the market share that we have from a hash rate perspective. And so I think the less obligations that you have, the better off you're going to be. So that's really how we're thinking about the having. Right.

Seif El: Say the next question comes from a couple of folks, including Bill, Pop and the Stasio at Steve Fall as well as a Matthew R from the the webcast. Can you give an update on the asset, the vestitures that you mentioned? Yeah, so we've met in the past we've mentioned access inventory and real estate as examples of non-core assets that we can potentially monetize to generate additional cash. And Bill, we're currently in advanced discussions with some of those as well. So I think we're in a good place, we're in a good position.

Seif El: Can you give an update on the asset, the vestitures that you mentioned? Yeah, so we've met in the past we've mentioned access inventory and real estate as examples of non-core assets that we can potentially monetize to generate additional cash. And Bill, we're currently in advanced discussions with some of those as well. So I think we're in a good place, we're in a good position. And back to sort of Darren's question, we're thinking about using that cash flow to deliver some more and reduce our obligations.

Seif El: And back to sort of Darren's question, we're thinking about using that cash flow to deliver some more and reduce our obligations. Balance sheet's been top of mind for Jim and I. And so we're happy with where we are, we're happy with the discussions that we're having, they're advanced. And you know, I'm confident that we'll get something going in the near future.

Seif El: Balance sheet's been top of mind for Jim and I. And so we're happy with where we are, we're happy with the discussions that we're having, they're advanced. And you know, I'm confident that we'll get something going in the near future. Great, thanks.

Seif El: Great, thanks.

Jim MacCallum: Our next question is for Jim and this comes from Shigar S. Can you talk a little bit more about your plans for debt reduction? Hey, man, it's on the Galaxy debt. We've used the proceeds of our Ethereum sale as well as a portion of the equity raise that we just completed. There's additional levers that we continue to look at, including the sale of non-core assets to further reduce the debt. It's a key focus for safe and eye.

Jim MacCallum: And we've done a, had a big reduction since June 30 of last year in our debt reduction goals. Thank you. Thanks, Jim.

Jim MacCallum: It's a key focus for safe and eye. And we've done a, had a big reduction since June 30 of last year in our debt reduction goals.

Jim MacCallum: Thank you. Thanks, Jim.

Seif El: The next question comes from someone in the chat. For safe, what impact does the hot temperatures have on mining Bitcoin and Texas? Yeah, it's a good question.

Seif El: For safe, what impact does the hot temperatures have on mining Bitcoin and Texas? Yeah, it's a good question.

Seif El: So, you know, a lot of people have asked us, this is probably the best time for Bitcoin prices to be depressed for us. Like, obviously, Bitcoin price is being depressed. It's not a good thing. But generally, if there was a good time for Bitcoin prices to be depressed, it would really be now. And the reason is, is because when you essentially have a fixed PPA, or where you're dealing with a counterparty that has a fixed PPA, you can pretty much use those power blocks and sell it back to to the grid.

Seif El: So, essentially, when it gets really hot there, we curtail, meaning we just shut down our machines, and the power that we're essentially not using, we can sell that power back to the grid. And so, when Bitcoin prices are high, sometimes when prices spike, and it gets really hot in Texas, and prices start spiking, we essentially turn off from machines, but the higher the Bitcoin prices are, the more of an opportunity cost it is for us not to mine.

Seif El: And at times, it's actually more beneficial for us not to mine, and sell that power back to the grid, rather than keep mining. And so, in those in the last weeks, and in the coming sort of weeks, when temperatures are really hot and Bitcoin prices are low, it lowers our opportunity cost, and it gives us the opportunity to sell our power back to the grid. So, ultimately, that's the impact it's been having, that we are curtailing, but we are getting rewarded for curtailing at a low opportunity cost.

Seif El: Great. Thanks, Dave.

Jim MacCallum: Next question comes from Jeff H. Since for Jim, can you give some more color on our current cash balance and liquidity? I think, as I mentioned on the call, at the end of June, our cash balance was $9.1 million.

Jim MacCallum: Since for Jim, can you give some more color on our current cash balance and liquidity? I think, as I mentioned on the call, at the end of June, our cash balance was $9.1 million.

Jim MacCallum: We completed the equity raised in July for $7.5 billion through the share placement in the UK, so that strengthened our cash and balance sheet of that $7.5 million that we raised, approximately 25% of that proceeds went to pay down the Galaxy debt. So, our pro forma cash balance at June 30th would have been $14.5 million or was $14.5 million if it takes the $9.1 and then the net cash after the debt pay down. Great. Thanks, Jim.

Jim MacCallum: Another one for you. This came from a couple of folks in the chat. Can you give an update on our goes investment in Pluto's flash emergent? Yeah, no, we are taking a more active role in our investment in emergent. We've recently joined the board. We've taken a position on the board, so we're being more active and we'll give updates as we have them moving forward. Thanks, Jim.

Seif El: I think our last question is going to be from Chase White at Compass Point. This is for Chase. You mentioned getting to 2.8X the hash by the end of the year. Could this come earlier? What sort of time range are you targeting internally? Yeah, thanks, Chase. The team's been doing a really, really good job at installing, our teams in Quebec and Vekamo have been doing our ops team, just the entire ops team have been doing a really good job at installing those minors at a really good pace and good rate.

Seif El: Right now, our turtle capacity is around 2.6X the hash, and so we are confident that by the end of the year, all of the nearly 29-hundred machines will be deployed, which should bring us back around the 2.8X the hash target that we have, has given the current deployment rate. I'm confident that we can likely deploy them before Q4 of 2023. Seif, Jim and Tom, thank you for that, and I think you have addressed those questions you can from investors today. And of course, the company will review all questions submitted today, and we'll publish those responses on the investment company platform.

Tom Divine: I'm confident that we can likely deploy them before Q4 of 2023. Seif, Jim and Tom, thank you for that, and I think you have addressed those questions you can from investors today. And of course, the company will review all questions submitted today, and we'll publish those responses on the investment company platform.

Unknown Executive: But before we direct the investors to provide you with a feedback, which is particularly important to the company.

Seif El: Seif, could I please ask you for a few closing comments? Sure. Thanks, Alex.

Seif El: Seif, could I please ask you for a few closing comments? Sure. Thanks, Alex. Just want to thank everyone for tuning into our earnings call today. Again, just to reiterate, we're really focused on deleveraging and strengthening our balance sheet. And we're focused on reducing costs and being opportunistic with financing and focusing on operational excellence and yield.

Seif El: Just want to thank everyone for tuning into our earnings call today. Again, just to reiterate, we're really focused on deleveraging and strengthening our balance sheet. And we're focused on reducing costs and being opportunistic with financing and focusing on operational excellence and yield. So until next time, I thank everyone for being here, and we will be in touch soon. Thank you.

Unknown Executive: So until next time, I thank everyone for being here, and we will be in touch soon. Thank you.

Unknown Executive: That's great, Seif, Jim and Tom, thank you once again for updating investors today. Could I please ask investors not to close this session, as you will now be automatically redirected to provide your feedback in order to avoid combat or understand your views and expectations. This will only take a few moments to complete, and I'm sure we'll be greatly valued by the company.

Unknown Executive: On behalf of the management team of Argo Blockchain PLC, we'd like to thank you for attending today's presentation and good afternoon to you.

Q2 2023 Argo Blockchain plc Earnings Call

Request a DemoDemo

ARBK

Argo Blockchain

Earnings