Argo Blockchain plc Q1 FY2024 earnings call

Key Points

• Three priorities: financial discipline (deleveraging), operational excellence, growth and strategic partnerships.
• Macro environment: Bitcoin halving reduced block subsidy, spot ETFs impacted price, hash rate fluctuations, focus on clean energy transition.
• Q1 specifics: Sold Mirabel facility for $6.1 million, reduced debt by over $12 million, consolidated fleet in Quebec, decommissioned older machines, focused on cash flow generation with $3.7 million from operations.

In Q1 2024, Argo Blockchain generated $16.8 million in revenue from bitcoin mining, along with $0.6 million in power credits from economic curtailment in Texas. They mined 319 bitcoin, with a mining margin percentage of 38% for the quarter, up from 34% in Q4 2023. At the end of Q1, cash in hand stood at $12.4 million, an increase from $7.4 million at the end of 2023. The Mirabel facility was sold for $6.1 million, contributing to debt reduction and strengthening the balance sheet.

Forward-Looking

• Focus on growth opportunities, strategic partnerships, renewable energy transition.
• Aim to optimize operational efficiency, balance debt obligations while seeking growth.
• Leverage size to target sites less appealing to larger miners and explore sustainable growth projects.

Risks

• Hash price volatility post-halving.
• Energy cost fluctuations, especially during summer months.
• Market uncertainties affecting mining economics.

Q: Can you elaborate on the Galaxy relationship, their plans for the Helios site, and how you expect mining to progress through the hot summer months, including the potential for curtailing? Additionally, are we given the opportunity to overclock? And if so, have you taken advantage of it?

A: The Helios facility can curtail during high power prices. During summer, economic curtailment will be practiced. We can overclock rigs and will do so when favorable.

Q: Will Argo invest into infrastructure again, or only focus on machines?

A: Currently have hosted and owned machines, and will evaluate opportunities in hosted space and infrastructure investment on a case-by-case basis.

Q: What can you say about the growth opportunities you are seeking out for Argo? Any details on the size, type, timing?

A: Cannot get into details now, but smaller sites with unique power cost/availability could fit, leveraging size advantage.

Q: How do you plan to return to growth while balancing debt obligations?

A: Strong focus on costs, non-mining operating expenses at ~$1 million per month. Aim to optimize efficiency, leverage partnerships, and focus on fiscal responsibility.

Q: Can you speak to power prices for the second quarter?

A: Second quarter power prices volatile, especially with summer heat. Monitor trends, use economic curtailment, and optimize fleet efficiency.

Q: Does Argo have any plans to branch into AI data centers?

A: Explored possibility but current strategy centered on bitcoin mining operations.

Q: We have seen mining economics weaken following the halving event. How is management approaching the capital allocation strategy of balancing expense management with growing, upgrading the fleet? Is there any near-term path of a shift towards growth in the future?

A: Fleet is flexible, can adjust power consumption. Growth strategy considers hash price, rig availability, energy costs. Shifting to growth mindset, targeting sites less appealing to larger miners.

Q: How does Argo plan to manage its debt, and what are the prospects for refinancing?

A: Managed Galaxy debt, paid down $23 million over 12 months. At March 31, Galaxy debt ~$12.8 million, cash over $12 million. Focus on paying down debt and strengthening balance sheet.

Q: What are your plans for increasing efficiency and reducing the recent downtime at several bitcoin mining facilities?

A: Relocation to Baie-Comeau consolidated infrastructure. Minimal downtime impact. Operations team works to maintain uptime, with 5% increase in daily bitcoin production in March vs February.

Q: Can you give an update on where hash rate currently stands across all facilities? Additionally, assuming hash prices normalize post-halving, what strategies can you implement to lower your direct and all-in cost per BTC mined to mitigate losses?

A: Hash rate capacity at Baie-Comeau ~300 petahash, Helios ~2.4 exahash. Strategies include optimizing fleet efficiency, leveraging economic curtailment, and considering strategic equipment/site acquisitions.

Q: What was the thought process around selling the Mirabel facility?

A: Sold for $6.1 million, better than developing a new facility. Consolidated operations to Baie-Comeau, reduced overhead/expenses, strengthened financial position, and reduced interest expense.