Q3 2023 Stronghold Digital Mining Inc Earnings Call

Okay.

Good morning, and welcome to stronghold digital Mining's conference call for the third quarter ended September 30th 20 twenty-three My name is Liz and I'll be your operator this morning.

Before this call strong called issued its results for the third quarter, 2023, and announced a new business initiative and a press release, which is available in the investors section of the company's website at Www Dot stronghold digital mining dot com.

You can find the link in the investors section at the top of the homepage.

Joining us on today's call, our strongholds, chairman and CEO, Greg Baird and CFO, Matt Smith.

Following their remarks, we will open the call for questions.

Before we begin Alex Kovtun from Gateway group will make a brief introductory statement Mr. Gupta. Please proceed.

Great. Thank you operator, good morning, everyone and welcome today's slide presentation, along with our earnings release and financial disclosures were posted to our website earlier today.

And can be accessed on our website at www dot stronghold digital mining dot com.

Some statements, we're making today may be considered forward looking statements under securities law and involve a number of risks and uncertainties.

As a result, we caution you that there are a number of factors many of which are beyond our control, which could cause actual results and events.

For materially from those described in the forward looking statements.

For more detailed risks uncertainties and assumptions relating to our forward looking statements. Please see the disclosures in our earnings release and public filings made with the Securities Exchange Commission.

We disclaim any obligation or undertaking to update forward looking statements to reflect circumstances or events that occur. After the date. The forward looking statements are made except as required by law.

We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and the reconciliation tables capital to GAAP measures in our earnings release carefully as you consider these metrics.

We expect to file our quarterly report on Form 10-Q on or prior to November 14, 2023, with the Securities and Exchange Commission, which set forth detailed disclosures and descriptions of our business as well as uncertainties and other variable circumstances, including but not limited to risks and uncertainties identified under the caption risk factors.

In our previously filed annual report on Form 10-K filed on April 3rd 2023, and our subsequently filed quarterly report on Form 10-Q.

You May access strongholds Securities Exchange Commission filing for free.

Visiting the SEC website at Www Dot S E C dot Gov or strongholds Investor Relations website at IR Dot stronghold digital mining Dot com.

I would like to remind everyone that this call is being recorded and will be made available for replay via a link available in the Investor Relations section of strongholds website.

Now I would like to turn the call over to strongholds, Chairman and CEO, Greg here Greg.

Good morning, everyone and thank you for joining us and our announcement of our carbon capture initiative and our third quarter 2023 results.

We will be referencing and associated slide presentation throughout the call that is available through the webcast and on the Investor Relations section of our corporate website.

Also alive today, so forgive any pharma is that as we get through it but we are really excited about what we're presenting today. So hopefully that'll come out in the slides and in the Q&A. So let's start on slide three.

As a reminder to everyone joining us today stronghold is the only environmentally beneficial and vertically integrated public bitcoin miner, we own and operate two mining waste to power facilities in Pennsylvania, scrub grass and Panther Creek with aggregate power capacity of 165.

Five megawatts.

Through our process, we have removed nearly $1 7 million tonnes of toxic mining waste from the environment. Since the beginning of 2022 today, we have over 40000 bed coin miners and continue to seek opportunities to expand our capacity by dipped.

Falling 25 megawatts of owned and and data center equipment.

Moving to slide four.

We are a bitcoin miner and remain committed to bitcoin mining however, as a vertically integrated big quite minor we have a unique substantial asset base with significant potential for complementary revenue streams.

We've talked a lot about our ash byproduct in the past year and have spent significant time testing. It I am excited to tell you that this has created a potentially transformational opportunity.

Cash can capture carbon dioxide directly out of the atmosphere.

And we are forming a highly complementary business stronghold carbon capture around this discovery.

Slide five.

We're going to use the majority of this call to explain how our reclamation process results and potential to capture a significant amount of carbon directly from ambient air the scale of this opportunity.

And also how we might be able to monetize it and the new carbon market.

Slide six.

Yeah.

Over the last few years carbon markets have grown and developed both private markets and the federal government have established significant initiatives for those who capture carbon and reduce carbon emissions.

Private market consists of registries that validate certain projects and upon validation credits from those projects can be sold to buyers looking to offset their emissions. Additionally, inflation reduction Act expanded IRS section 45, Q tax credits.

Which can pay up to $180 per ton.

Of carbon captured by qualifying direct air capture projects also known as Dirk.

While it is not entirely clear if our project qualifies today.

We are evaluating opportunities for qualification and believe our project is consistent with the intent of the IRI.

Yes.

Moving to slide seven.

We have studied our ash extensively and over the past several months, we learned that can capture carbon while we are in the early stages of the project and developing a better understanding of variables such as weather construction ash placement, we believe that we ultimately have the potential to capture about 100.

<unk> tons of carbon from ambient air annually using the ash produced by our facilities.

Assuming that would qualify for 45% <unk> tax credits and we are able to sell voluntary carbon credits. This can drive up to $30 million of incremental annual EBITDA.

And reduce our net cost of power to as low as $16 per megawatt hour and importantly, while carbon capture is perceived to have significant technology risk. We believe that our project has relatively low technology risk because our process is just a combination of accepted chemistry.

And airflow.

Moving to slide eight.

To review, our mining to waste to power process. As this process is responsible for the production of our ash byproduct that can capture carbon.

We own two reclamation facilities that utilize circulating fluidized beds to convert mining waste into electricity. So what does that mean it means our primary source of fuel for these facilities as mining waste, which is sourced from the reclamation of some of the 840 <unk> mining wave.

Piles littered across Pennsylvania.

These large mountains of waste pollute, the land water and air and sometimes spontaneously combust.

Our unique purpose built CFB power generation process takes this toxic waste from the environment combines it with limestone to neutralize sulfur dioxide and creates electricity there.

Our primary purpose as reclamation.

Primary product that electricity.

A calcium rich ash is the byproduct most of this ash is return to mining waste piles to facilitate the reclamation and re vegetation to the previously unusable land.

Moving to slide nine.

For those who think they are burning waste coal and pumping cotwo into the atmosphere I want to highlight findings a recent third party studies.

Earlier this year, both Lehigh University, and Trc Environmental published studies examining the environmental impact of mining waste piles.

In the mining waste the power industry.

Both studies concluded that our process is carbon negative.

We reduced net greenhouse gas emissions by over 50% compared to expected emissions from mining waste had it not been removed from the environment.

I'm not going to cover the mining waste crisis in Pennsylvania on the call today, but I encourage you to take a look at the appendix for a comprehensive overview.

Includes a description of over 5000 miles of contaminated waterways that extend the Chesapeake Bay, the Ohio River and more.

Dozens of burning waste piles, and hundreds of millions of tonnes of waste.

Are impacting some of the most economically disadvantaged counties in Pennsylvania.

These studies underscore that not only do our plan to reduce the harm associated with waterways burning piles in land pollution, but theyre also carbon negative.

Moving to slide 10.

After extensive third party testing of our scrub grass ash by our partners Cognetics over the last four months, which we conducted under conditions intended to replicate scrubber gas weather conditions, we have determined that our ash can capture carbon at a capacity of up to 12%.

By starting weight of the ash.

Our asking capture carbon because it contains reactive calcium oxide, which bonds with carbon dioxide to form calcium carbonate.

In other words, the ash, Paul the carbon dioxide out of the air creating a permanent geologically stable solid.

We have worked with construction design and engineering partners to developed direct air capture technology. The technology uses a stack of fact that drive are through the ash to facilitate and expedite this combination process.

We are excited to announce that our first direct air capture unit has been deployed at scrub grass and while we anticipate iterating around design and process to maximize carbon capture and minimized costs testing is currently underway.

We expect field results within the next month.

In advance of our Investor day, that's coming up this December.

Moving to slide 11.

Scrub grass and Panther Creek facilities can produce 800 to 900000 metric tons of ash per year, when operating at Baseload capacity, which equates to approximately 100000 tonnes of carbon capture at 12% capture capacity for reference.

This is the same as eliminating the emissions from almost 22000 cars and they would take over a $4 5 million mature trees to capture this much carbon.

Last Friday, we deployed our first carbon capture unit at scrub grass our partner carbon Eric has branded these proprietary patent pending units as carbo less very importantly, we have exclusivity with carbon Eric we're the only group allowed to use this patent pending technology and intellectual property.

In connection with mining to waste power CFP facilities.

The equipment cost for our first cover lift was less than $100000 compared to other <unk> projects in the U S. We believe that ours has best in class capital efficiency currently estimated at 50 to $125 per ton of annual carbon capture capacity recall.

That strong hold ons to specialized CFB plants with an estimated replacement cost in excess of $400 million.

Historical investments in these facilities provide the foundation for this modest incremental investment that we believe is required to capture carbon.

In September we engaged in environmental consulting firm called carbon Nymex to advise on carbon capture verification documentation and listing our project on a registry to monetize carbon removal removals in the private markets. We are pursuing a listing on a pure registry, which is <unk>.

Owned by NASDAQ.

And we're pleased to discover multiple existing methodologies that could be applicable to our project using a previously approved methodology can reduce lead times and generating high value carbon credits from years. Two months, we have already submitted a concept paper to piero receive supportive feedback.

And plan to submit a formal project design dynamic documentation with the goal of having a project listed in Q1 2024, we anticipate monetization efforts to follow shortly thereafter.

Moving to slide 12.

Here, we lay out our status quo ash removal operations and the new process incorporating carbon capture we typically you remove asked from our facilities and transported back to the mining waste piles.

It is packed into the ground to neutralize the acidity of the site and Revegetate. The land the current process allowance for little combination given ashes. The ash has limited exposure to air.

Our carbon capture project will simply be a new step added into the existing process.

After the Ash is produced by the plant we will methodically distributed among the carbo list to drive ore flow through the ash facilitating the absorption of carbon post carbonation. The ash will follow our current process and be transported back to the mining waste sites. We are also evaluating opportunities to sell.

Our newly culminated ash into new markets, such as green cement to generate additional value from the process.

Moving to slide 13.

If our carbon capture process becomes fully operational as planned it would be one of the largest announced direct air capture projects in the world and it could be the largest operational U S. Direct air capture project in 2024.

This slide also illustrates the two potential income streams, resulting from this carbon capture opportunity with the first being the sale of carbon credits into the private markets and the second being received a 45% <unk> tax credits both represent <unk> tremendous value potential for stronghold.

Initially as we work to qualify for a 45% year tax credits under the IRS, we plan to sell into the private carbon credit markets, where the average index price for PURA carbon removal credits in 2023 has ranged from approximately 130 to $190 per ton.

Carbon.

This range implies $13 million to $19 million in annual proceeds assuming 100000 tons of carbon capture to annually.

Qualification for $180 per tonne 45 through tax credits would imply $18 million in additional annual proceeds at 100000 tonnes of carbon removed annually. While it is not entirely clear that we'll be able to qualify for 45 tax credits. It is important to <unk>.

Note that 45 Q has a three year look back so even if we don't qualify for number of years carbon captured before qualification could be eligible.

I'll now turn the call over to Matt Smith to discuss the financial impact of stronghold carbon capture.

Thank you Greg.

We would remind you as we discuss financial estimates, we would refer you to the presentation for various assumptions qualifications and risk factors.

As you can see on slide 14, our carbon capture opportunity represents a compelling value proposition for stronghold.

As we have the potential to capture up to a 100000 tons of carbon dioxide annually.

This could drive up to $30 million of incremental EBITDA, assuming receipt of 45 to <unk> tax credits or up to $14 million of incremental EBITDA without tax credits.

In terms of timing, we think that we will be positioned to start monetizing private carbon credits in 2024 at some level and in earnest in 2025.

The earliest we would hope to receive $45. Two tax credits is in 2025 with a higher likelihood in 2026.

Simply put carbon capture as the potential to transform the cash flow profile of the business in an exponential way further expanding optionality beyond the power and bitcoin markets.

Moving to slide 15.

This slide details the financial benefit of carbon capture to our cost of power. Currently we have guided to a net cost of power of 40 to $45 per megawatt hour.

This carbon capture opportunity provides a significant potential reduction approaching $20 per megawatt hour, assuming receipt of $45 two tax credits.

This would result in a pro forma cost of power of under $25 per megawatt hour.

Lastly on slide 16.

As some may be aware the electricity is the largest cost to mine bitcoin.

Looking at the carbon capture opportunity through the bitcoin mining lens. This initiative has the potential to reduce our cost of power. So the lowest among public bitcoin mining peers.

I'd like to note there or not there are not many ways to express concentrated exposure to carbon capture in the public markets today.

As we seek to create value with this initiative, we hope to become that opportunity for our investors with that I will turn the call back over to Greg for closing remarks and Q&A.

Thanks, Matt hopefully as you can tell we are extremely excited about this new opportunity, we started and the environmental reclamation and power generation business and cleaning up toxic mining waste has always been and will continue to be a cornerstone of our business.

Three years ago in response to depressed power markets.

We're innovative in entering the bitcoin mining space, creating an alternative market for our power <unk>.

Formed stronghold around this strategy, producing our own power and having the option to either sell that power to the PJM grid or user demand bitcoin whichever is more beneficial to the company and its stakeholders. This opportunity was enabled by our plants.

Now ownership of these valuable assets has created a yet another new opportunity that will help.

From carbon markets.

And the IRI and has the potential to transform our business once again.

What makes stronghold unique is that we can pursue reclamation power generation bitcoin mining and carbon capture.

And all are completely complementary.

From a bitcoin mining perspective, producing power allows us to control costs and benefits from opportunistically selling power to the grid and carbon capture has the potential to reduce our net cost of power to best in class levels.

From a power generation perspective, bitcoin mining and carbon capture serve as additional revenue lines that boost the value of our power assets from a carbon capture perspective, we have the potential to have one of the largest direct air capture projects in the world with relatively less technology risk and a shorter.

Timeline than the other announced projects.

So I think before we open this up to questions. Obviously, we just want to recognize is there's a lot of work has gone into this over the past six months, Matt using who is sitting at the table here with me has as shepherded a lot of.

The technology through and through testing the understanding the markets that we have.

Partners in California, carbon attic, Mike and Mark with a shout out to them.

Of course.

Bill stance, our cofounder of stronghold is always thinking creatively about new opportunities to get the most out of our assets and of course, the guys that are doing the <unk>.

Tough reclamation work and keeping these plants running.

That is really what gives us the optionality and the.

The new business lines.

Making power, making big coin in and now capturing carbon so hey, we're excited about the future and with that I'll open up to questions operator.

As a reminder, if you'd like to ask a question at this time. Please press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

These standby, while we compile the Q&A roster.

Yes.

Our first question comes from the line of Lucas pipes with B Riley Securities.

Thank you operator, and good morning, everyone. This is Nick <unk> on for Lucas.

Topology Tikkun joined today with our hosted event on the metal side.

But guys congrats on the progress here I know this is.

Clearly affirmative what has long been your mission so congratulations.

Thank you. Thank you.

My first question was just you noted that the capital cost I believe it was 50 to $125 per ton.

Two capturing just given given it's a pretty wide range can you talk about what could get you to the low end or the high end.

Yes, I can take a stab at that and then that someone on the team correct me when I get it wrong, but the.

The biggest factor and the total capex cost will be the pace at which the ash is carbonated.

<unk> for example, if it takes only one week for the.

As to reach the full carbonation at 12%.

I expect the number of carbo lists that that the process that quantitative ash to be half of what it would be if it took.

Two or three or four weeks to carbonate that same quantity of ash. So thats really the biggest factor is probably time to carbonate.

And I can tell you having seen lab results in person.

Where we were accommodating ash and using a.

Solution that astra's culminated in less than 10 minutes and so obviously air capture is a much different process than a solution in the lab.

But hey, we are hopeful that the answer on Capex will be lower because we will find ways to pump more.

Air through the Ash.

To then require less capex, but that is really and I can tell you. We're now running our first machine I think there are pictures of it on our website and on Cognetics Web site in a month I think on December 12, as our Investor day, we're going to know a lot more than about about what the capex needed.

To capture all the carbon is.

And you will just will iterate until we get it right.

Okay, Greg Thanks for that that's really helpful.

Maybe just a follow up when would you expect to receive the notice of qualification.

For the carbonated materials methodology that piece of it and then secondly, Matt.

<unk>.

As it relates to <unk> 45, Q that would likely be at 2025 or maybe a 2026 event. When would you expect to receive an update on whether you qualify for that.

Okay.

Hey. This is this is not used them so taking the private registry piece first.

The next step in that process has submitted a PDD of project design document.

For approval and then subsequent listing on the registry.

Typically involves a bit of back and forth. It describes our project and how it attaches to the existing methodologies. We've identified that may be applicable for our project.

We would expect a couple of rounds of comments, but we think at this point in time, we have line of sight too.

Being registered and listed on <unk> in the first quarter of next year.

Hopefully towards the earlier side of that but it'll take a couple of months, but we're hopeful no longer than that after that after that is done is when we can really attempt to start monetizing.

The credits on the private side, so that would be the first real opportunity to recognize some revenue around this.

On the 45 Q side that's that.

That'll be a little bit later it requires a an audit of a year's worth of.

Capture data.

I think conservatively I wouldn't model this until 2026, but as we know there is a three year look back that would allow us to.

Utilize our capture.

From 'twenty four 'twenty five 'twenty six as well even 'twenty three if we're able to start getting something going in the next month or two this year there.

There is the potential for irate qualification in 2025, if things checkout, but I think we refer you to our risk factors in the deck.

Otherwise that highlight some of the.

Aspects of what would be involved in qualification there.

Okay great.

That's all really helpful.

All the detail.

There are a lot of questions. So I'll jump back in the queue, but congratulations again and best of luck.

You bet. Thank you.

Our next question will come from the line of Chase White with Compass point research.

Good morning, Thanks for taking my question.

So.

In terms of and obviously I think it's.

It's pretty clear this is somewhat up in the air but I'm just trying to understand kind of the timeline to full deployment at both plants.

And what the cadence of spend would look like leading up to that.

And.

Ultimately what could impact those timeframes in terms of actual deployment.

Yeah, So Jason I would link what Greg responded to the prior question, where there is a starting point so.

We're going to use the data that comes out of this initial phase carbo is tested scrubber S.

And the amount of time it takes to reach what we.

We review is similar outcome is as what we saw in the laboratories simulating scrubber asses environment.

And we May iterate.

Second time, or third time, or a fourth time to try to perfect that process as the data.

Becomes supportive of of the thesis.

Would we would expect capital to follow.

And the more constructive.

The more constructive the data is if it matches a week to carbonation at 12% then we would probably think about accelerating capital and deploying sooner.

If we don't see where we'd like it may take more iterations, but importantly.

There are a couple of things I would not expect the cost of the Carnival list to rise from what we shared in fact, the first carbonate as we shared in the slides.

Less than $100000 first Carlos was around 70000, and we've already made modifications in the field, where we think it could approach.

A number that's less than that between 60000 and so.

Cost savings with the subsequent iterations.

Trying to maximize the exposure to the ash and the carbonation and is fast period of time as possible with some of the things we will look to to drive the answer to your question.

Scrub rash.

Likely sees an entire rollout over the course of 'twenty four.

So assuming the data supports what we think it will which is which is deploying capital the payback and returns on that are better than just about anything else. We can put our money into right now and so we're quite excited about ramping ascribe ration and testing and the opportunity to ramp up their degree.

But I would think about our kind of a 12 months.

So 15 months sort of process, where we hope to be at a full run rate.

During 2035.

Got it that's helpful.

So that we don't we don't expect like equipment delays.

This stuff is mostly off the shelf, we can assemble them.

Pretty rapidly.

Yes.

And sorry about this is that suddenly you order our order something and you get it six months or a year later.

So it's just going to be data driven.

Got it that's helpful.

And then kind of changing gears, a little bit I mean, how should we think about the benefits associated with it and also the opex associated with the frontier agreement.

Yes, I can start so we have we have not had the mining uptime that we aspire to.

Which is at the same time, we've known the frontier team for.

A couple of years.

Irrespective their their work.

So I think we are.

We have entered into an agreement that essentially outsources, the management and uptime of the Datacenters for frontier.

And then the first.

Month of operations, they have shown a market improvement over our over the air.

Status quo prior to them.

We're working on our behalf and I think it is essentially is going to allow us to.

Hopefully enter the top quartile for uptime versus our industry peers, and I think I can say, we should that should I would expect that to happen over the next three months I am sure Ireland is.

I would agree with that.

And he's incentivize to do so yes, the frontier deal as a as rewards for adding uptime metrics that includes both cash and stock.

So curious I would just add that we spent significant capital. This year all of which was funded with no no sort of incremental capex required down the road.

We did that to upgrade the efficiency of the fleet.

And as we got through the summer, we just we werent.

Hitting with the stride, we expected in terms of uptime on the miners and so Ireland, new spreadsheet at our island in the frontier team represented a a we'll call it a $5 million to $10 million revenue pie over the next 12 months at a consistent ash price was today versus.

<unk>.

A team of people to do the same thing technology.

Technology stack experts.

With firmware.

We're another expertise and so for US it was a in our view a no brainer mathematically to bring in the frontier team and we've already seen the fruits of that start to start to play out and so we're quite excited about that.

Okay.

Meaningfully improving our revenue generation.

Got it thanks guys.

Yes.

Our next question will come from the line of Kevin Dede with H C. Wainwright.

Good morning, guys, Kevin D D.

Okay Alright.

<unk>.

For thinking outside of the bitcoin mining box on the carbon capture plan.

I guess.

Kind of curious about your your go sort of no go.

Susan tree as it is now you're rolling out your first big real life test.

And.

I understand you would like to go I understand Matts comments, you can't see a better option and using your capex, but I'd just like to hear your take.

The variable is.

The inputs that you get from this test and how you rationalize those inputs and making your deployment decision.

Yeah, Hey, Kevin Thanks for your interest and for the complex. So let me just start with.

Just a bit of a history lesson on the plants.

Part of.

Why does the opportunities here.

We have these legacy plants that are worth hundreds of millions of dollars and so that's very much part of the process. So I appreciate the complement but I think what makes us different is bitcoin miner is we yes. We also have 40000 rapidly depreciating, but quite a mining machines, but we have options around.

Power and now around carbon capture and so we have this first cover with his first device that we have constructed this event.

While its our first big field test.

Yes from my perspective, we've shown a lot of discipline before coming out to the market and explaining what we're doing.

And now we're only doing it after a really extensive testing.

Lab testing with I can just tell you bucket after bucket five after a bucket after bucket of our ash.

We're shifting this stuff out to a lab in California, and they have simulated conditions that will emulate what we have in Pennsylvania, and its not great weather in Pennsylvania. So.

This is <unk>.

We are past the point, where we say well hey, we will see what what amount of carbon.

The ash <unk>.

Can capture.

We know what's going on.

The amount is going to capture the only question is the pace.

That captures it.

Because this chemistry.

When we describe the process too.

That our geologists chemists.

While of course, your ash captures carbon use landstar is a part of the process.

It's not a it's not a giant mystery.

And so chemical certainty that carbon is going to bind.

With this process.

<unk> permanently and geologically remove from the air.

The only question we have is how long does it take and then how long does it take under certain temperature conditions under certain wind conditions.

We need to study that it can be airflow that the carnival that creates.

And by the way, even as im thinking and sitting here.

Who knows if we end up sticking.

EBIT point of mining machines inside of a Carver led to help help that are full along.

We are going to make this airflow through this ash and it is going to capture the carbon it's just a matter of iterating around it.

And I don't know Hey, we are motivated and we have a bunch of creative reminded people.

And I think we have all the ingredients for a great project.

But hey than sitting next to our lawyers they hate it but it's not done we've got to do the work we have to test it but I can tell you how the story ends.

And it ends with this ash capturing all those carbon.

The timeline is the only question and we're going to know a lot.

By the end of today, when we know more tomorrow.

And we will have.

<unk>.

And now it's sort of a analyst and Investor Day December 12.

My bet is we will put out to move before then.

But I think just given the data that we have from the tests.

I wont understand it if we don't have a fairly rapid <unk>.

Carbon capture just with with our current setup.

And then I think the answer.

I will still say well, how do we make it faster and make it better how do we make the process cheaper how to make the design of these things.

Cheaper, but I think were already really capital efficient.

Because the Big project cost was well spent $4 million are spent decades ago to build a plant that was the big expense and thats the tough to get part of the process.

<unk>.

Cobre lift this part is they're relatively easy park.

And we're just iterating around it so I know I Didnt Youre looking for a day that's in an answer that's in days.

And we can't give you that yet but.

I was looking for that.

Appreciated the way you respond to the question Greg I just wanted to hear about your thinking.

Yes.

I appreciate that.

I think my my.

You'll know it's over when we have one that's when it's over.

Yes.

Winning is only temporary Greg it's a fight every day.

I will tell you I don't think you want to put your miners in one of these carbo lifts I mean, I could see piping, maybe some immersion heat over to it that would make sense, but I think Dustin machines, just don't don't mix well.

Top comments come and check it out in person and then we'd love to get your engineering, you're right yeah.

Well I think you have farmers sharp reminds than mine on it can.

Could you give us an update on that potential third facility. The 25 megawatt one you guys have alluded to in the past.

Yes.

Kevin we tried to be thoughtful about addressing this we have.

<unk> done extensive diligence.

And have had numerous discussions with third party site.

<unk> and potential partners and.

If we wanted to pull the trigger on one of those today we could.

And but the reality is.

We are data driven allocators of capital.

Very much process oriented.

While we while we do we are excited about the prospects of a third site with this inventory of 10 or $15 million of datacenter equipment, we have.

<unk> already paid for.

We are weighing that constantly against.

Minor efficiency upgrades at our current sites, where you could add an extra hash or two.

In place.

Pubs with are low and we believe going much lower cost of power and so those are to be compared against.

A secular growth story with no having event and the carbon capture opportunity that we just discussed and so what what I think Matt used in and Greg I'm sure. It is.

Over the next six to nine months.

No having in carbon faster, we can test and start to deploy capital potentially if it's data driven and makes sense.

Early 'twenty four and start to.

Potentially sell these private carbon credits in the private markets.

Our values well in excess of what you can put money to work in a big one mind right now and so what I would I would just point out we're going to do the right thing with capital, we're going to be transparent about it and so we look forward to the data we will have hopefully at the analyst day to help make that back which was impressive clearer, but it's about creating value.

Not putting a dogmatic.

What a big corner minor should be ahead of creating value and exploiting these assets to their thoughts.

Thanks, Matt can you just rationalize that commentary with your four <unk> target.

The 3000 high spec miners mentioned in the press this morning.

Yeah. So those those those miners were actually the tail end of the deliveries of already previously announced July purchases and.

And the expanded Kenan hosting agreement. So we've made no incremental minor purchases since July all those deliveries happen.

In August as planned or at the latest early September but mostly by the end of our <unk>.

So the.

The press release needed to include the third quarter deliveries. That's all we were citing were previously announced monitor delivers.

As for the Forex ash against.

But again for the four exit hash you can impute from the monthly coins that we have are significant.

Organic opportunity to increase and grow our our actual effective hatch rate by improving operations and so we can pick up for a $5 600 Petter hash here over the next three months.

I'm pretty short term with with frontier and we look forward, we look forward to doing that and we then we will systematically deploy capital like I described.

Carbon capture returns and payback.

Unaffected by the having it'll be replacing and upgrading miners in place that's <unk> Panther or it will be.

The third site, we're going to do whatever makes sense.

Create value.

The the Capex guidelines that you've outlined.

Would that include.

I guess vehicles for transportation of Ash or do you feel like you're well set there.

Yes. So we thankfully we are I believe we're experts at moving materials, including Ash onsite at our plants. We do it every day, we have those cost embedded in our fixed and variable opex assumptions in our slides embedded in the EBITDA kind of the run rate EBITDA illustration we.

Good.

The capital expenditures are for two things primarily that we're expecting for carbon the 50 to $100 for das.

It's primarily for the equipment for the <unk>.

In the final form they take assuming they are effective and then it would be the kind of flex labor in addition to the baseline.

Fixed and variable operating expenses, we've we've forecasted embedded in that illustration.

I think when we started we feel like we've been.

Conservative in what we've put out we don't want to Miss.

But based on what we know now it's still early and so that our best our best forecast.

Well congrats again gents.

Very very interesting.

Thanks for entertaining my questions.

Thanks, Thanks, Kevin.

As a reminder, that is star one one to ask a question.

Our next question will come from the line of Josh Ziegler with Cantor Fitzgerald.

Yes, hi, guys. Thanks for taking my questions. Congrats on the launch of this new initiative on Super interesting and unique among the big my money.

Most of my questions have already been addressed but I wanted to touch on a couple of things first is there a political risk associated with the changing administration that could impact the IRA and how youre thinking about tax credits in the future.

Yes.

And then sort of political climate, there is always that risk but.

That's the law of the land and it has a long tail to it and it would take a.

Really meaningful.

Yes.

Sort of landslide type political change in order to.

Does that impact us so it's certainly not out of the question, but not expected at this point.

Okay understood I think our view.

The intent of the IRA.

As to which is bipartisan at this point.

As to incentivize companies like us to come up with projects like this.

To capture carbon and do other environmentally protective things, but I think our estimate is.

What more than $400 billion of <unk>.

Tax credits are earmarked for carbon capture.

And.

This project certainly fits with the intent of what they are trying to do so I would say.

And I wouldn't spend a lot of time worrying about hey are we going to see a new administration.

Just as a take out this whole thing away, but it's possible not probable.

Okay. That's really helpful color I appreciate that and then for investors on the line can you help us better understand the fees and royalties aspect here.

What's going into that bucket.

And how do you expect it to fluctuate depending on the total tax credits and.

And renewable credits.

So.

We've we've studied the specifically.

Five registries will talk about the private markets initially.

Each registry if you were to sell a credit once Lucerne a registry there is a specific.

Fee or a commission whatever you Wanna call. It that's sort of a gross deduct we've accounted for that in our illustration in our in our slide deck.

And then you can always transact off of the registry, but bye.

By all accounts.

Having your process.

Validated and put on our registry is.

Meaningful value uplift for.

For receiving value for the work Youre doing to sequester carbon.

And so we've tried to appropriately modeled the fees and commissions as a gross deduct from the income stream.

And then.

Thereafter, we have.

Some agreements in place and appropriately deducted.

10%.

From the private market receipts and 5% from the 45 Q qualifications based on agreements in place today.

Great.

Helpful well, congrats again on the launch here I'm really looking forward to seeing how this plays out thanks for taking my question guys.

Thanks, Josh I appreciate users.

As a reminder, that is star one one to ask a question.

Our next question comes from the line of Lucas pipes with B Riley's Securities.

Yes.

Thank you operator.

Nick again here.

Apologies, if I missed it Matt you referenced paybacks and returns.

I'm not seeing anything better elsewhere is there project IRR you would cite for.

Capture initiatives, maybe inclusive and exclusive of the 45 Q piece.

Yes, I think what we what I would what I would do is I'd like to not front run the data from scrub rash.

I think the.

The payback an IRR if you just think about the single single car Bullock.

And you were to scale that at Scrubber asked for instance, we know much ash, we make it <unk>.

If the lab results were to extend to that Ash you can calculate how much carbon you could capture and then based on the time to capture whether its a week like in a lab or potentially it's two weeks.

That would determine how many of these cabos structures are placed for instance, a scrubber as in order to capture optimally.

The carbon available to be captured with the scrubber at ash that Capex is kind of a base that range of Capex is the basis on which we're running the payback assuming first private market, which we expect and hope to be available to us in earnest in <unk> 'twenty 'twenty four.

And then Richard run rate and towards 85 that payback, if you think about the scrubber at ash.

As to your question sort of we'll call. It 40 to 50000 tons of carbon potentially annually.

Supply by that.

Private carbon range that we provided in slides relative to the capex, which would be half of the approximate total capex for the projects that we've estimated.

I think you can start to get to a place where the payback again it doesn't suffer from a halving in four or five months.

Got.

It's a secular growth opportunity and if you put the money to work.

It's because you're getting traction with bureau in the first quarter of 'twenty four it's because the data is demonstrating.

<unk> carbon capture in the.

And the testing its <unk> you can.

Coordinate allocating capital with selling of credits and that makes for a faster payback potentially because youre actually getting cash in as youre deploying capital and scaling up.

So I would just point there or timing.

There is still some uncertainty around the.

Brian how many carbos are needed as Greg described but we're we think that payback.

Relative to.

Are there other places we can put our money today is really compelling.

Fair enough.

Okay.

And maybe I would point out today that I would just add one more thing which is that.

We've maybe we call ourselves the orphan of the bitcoin mining space, because we trade at a fraction of the multiple on every metric that every other pick one minor dose publicly.

I think what we would point you to is the.

Private market and.

And kind of energy transition and other types of businesses.

But don't suffer from the kind of a bitcoin mining having concerns that have prevailed in market.

We're really excited about a totally differentiated income stream potential.

Good.

Potentially double our cash flow over the next 12 to 18 months.

That's pretty exciting and it's totally idiosyncratic stronghold, which we're quite excited about.

Okay. Thanks for that Matt maybe just one follow up there can you just remind us how youre thinking about debt pay down based on current structures are sweeps in place and how this could impact that.

Sure so we.

We've placed.

Once we have a single creditor.

The credit agreements publicly for cash above that seven $5 million level Theres a sweep it works too to kind of mechanically pay that down over time, we do not have mandatory amortization starting until well after the having in July of 'twenty four and beyond.

We've got a really good relationship with with that creditor and.

And I would point out maybe the interest rate is.

LIBOR sorry so.

So for a plus 100 basis points.

We think we think we will have opportunities and we hope to have opportunities over the next 12 months with success and value creation from what we're announcing today to meaningfully improve our cost of capital relative to that.

Well that's good to hear.

Q and the team's continued best of luck. Thanks again.

Yes, and just to correct myself, it's silver plus 10% NASA proposal 11 forgetting.

At this time. This concludes our question and answer session I would now like to turn the call back over to Mr. Byrd for his closing remarks.

Alright, Hey, Dan.

Thank you very much for your insightful questions hopefully.

Any investors or interested parties that are listening out there.

They have processed what we've said in terms of the.

A presentation and help clarify with the Q&A here.

We're going to do our best to communicate it really well over the next.

Few months just to.

Quickly and fully disclose information as we get it.

But thanks for listening and we're excited about.

Our prospects here.

Bye bye.

Thank you for joining us today for strongholds earnings call you may now disconnect.

Okay.

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Okay.

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Okay.