For Argo Blockchain (LSE: ARB, Nasdaq: ARBKF), 2021 was a remarkable year. Revenue was up 291% to $100 million from $25m in 2020. The dramatic rise in the price of Bitcoin as well as China’s ban on Bitcoin mining certainly contributed to the jump in Argo’s revenue and was reflected in net income too, up from just under $2m in 2020 to $42m in 2021. The overall mining margin for 2021 came in at 83%, which is 12% higher than its peers.
Headwinds for 2022
Whether Argo can achieve anything close to that for 2022 is another matter. Even though Q1 2022 revenue was 9% more than in the same period in 2021 at $19.5m – thanks to a growth in hash rate – Argo Blockchain also reported a net income of $2.1m. A big drop compared to the same period in 2021 where net income was $25m. Argo Blockchain’s mining margin for the period was down to 76%. The share price is currently hovering around 51p, down 80% from its February 2021 peak of 284p and 40% YTD.
CEO Peter Wall, in a recent earnings call, also put this down to higher global hash rate and associated increases in network difficulty. Wall also stated that in Q1 2022, rather than grow the hash rate, the focus was to execute the plans for Helios, the new Texas-based mining facility. As well as lower Bitcoin prices, the drop in income was partly due to depreciation of mining equipment which came in at just under $7m for the quarter (total for FY21: $15m).
Increasing debt costs
Two new loan agreements with New York Digital Investment Group (NYDIG) needed for continuing the build out of Helios Phase 1 could put pressure on income too. In March 2022, Argo signed loan agreements to borrow $26.7m at an interest rate of 8%, secured against aspects of Helios’ electrical infrastructure. And this month, Argo signed additional loan agreements to borrow up to $70.6m at an interest rate of 12%, secured against Helios’ installed Bitcoin mining machines.
Helios update
Helios launched officially at the beginning of May and although it is still in Phase 1 of the buildout, Bitcoin mining has already started. In terms of timelines, the installation of the emersion equipment will be completed by the end of June. The deal with Core Scientific to swap machines will be completed by the end of July which means that Argo will no longer have machines hosted at third parties, and the recent supply agreement with Intel for their new Blockscale ASIC chips should be up and running by late Q3 or early Q4. This agreement with Intel should be a key differentiator because it allows Argo Blockchain to build custom-designed mining machines specifically to Argo’s specifications. As well as this, the Blockscale ASIC chips are built for use in immersion-cooling technology.
Argo Blockchain secures energy agreement with ERCOT
Some good news is that even though there have been reports that ERCOT, the company that operates the Texas electrical grid, is slowing the pace of grid connections for new Bitcoin miners, Wall has confirmed that their interconnection agreement is in hand – 800MW of capacity in total with the project currently using 200MW of power with 600MW to be added over the next few years. As a result, Wall does not anticipate any negative impacts of adjustments made by ERCOT. It also helps that location-wise Argo is at an advantage because there are no local loads near the facility.
Nevertheless, Argo still needs $50m of additional capital to complete Phase 1 and the board has confirmed that they plan to do this through debt and selling a portion of their monthly Bitcoin production.