Argo Blockchain LSE:ARB, the London-based Bitcoin miner published its interim half year results yesterday evening (24th August) reporting revenues of GBP26.7m, down 14% from the corresponding period in 2021.
EBITDA was down 28% to GBP17.1m, leading to a pre-tax loss of GBP36.9m, compared to a pre-tax profit of GBP10.7m in 2021.
Mining margin – the financial reward a miner or group of miners get for solving a blockchain computation (on top of the reward of Bitcoins) – was 71%, down from 81% in 1H21 and Argo managed to mine a total of 939 Bitcoin, or Bitcoin Equivalent (BTC), a 6% increase over BTC mined in 1H21. The total number of BTC held at the end of 2Q22 was 1,953, a 54% increase from 1,268BTC held on 30th June 2021.
Digital Currency Fall
Argo blamed a number of issues for fall in revenues and swing to loss, including the general increase in electricity prices cause by the war in Ukraine – Bitcoin mining consumes vast amounts of energy – and “network issues.”
But most notably the company cited the overall collapse of digital currency prices.
Bitcoin, along with other imitator cryptocurrencies, have had a torrid year. In US Dollar terms, BTC has ranged between USD68,990 and USD17,601, offering year-to-date returns of -54.3% and one-year returns of -55.3%, but is a very volatile asset, as the GBP-equivalent chart shows. There are 19.13 million Bitcoins in circulation, according to CoinDesk.
The fall and rise, and fall again of Bitcoin valuation has affected Argo Blockchain. However, this has not put off investors in the company. Van Eck Associates Corporation, the investment manager, increased its holdings in Argo Blockchain by 93.9% in 1Q22, according to a Securities and Exchange Commission filing, taking its ownership of Argo up to 0.78%, worth around USD3.6m. Van Eck was not the only investment manager loading up on Argo – First Trust Advisors, Gilson Capital and Scotia Capital also increased their holdings in the Bitcoin miner.
Argo Blockchain in a stronger financial position
Peter Wall, chief executive of Argo Blockchain acknowledged in an investor presentation following the close of the NASDAQ market yesterday that the company had strengthened its financial position.
Funding came in from New York Digital Investment Group (NYDIG), a Bitcoin broker and fintech company from the US, part of Stone Ridge Asset Management in New York, which provided USD26.7m (GBP20.2m) towards the purchase of electrical infrastructure equipment for Argo Blockchain’s new 800MW Helios facility in Dickens County, Texas which commenced mining operations on 5th May. 100 MW of capacity came online for Helios in 2Q22, with another 200MW scheduled for 3Q22, according to the company
NYDIG also provided financing of USD70.6m secured on some of the company’s Bitmain S19J Pro machines at Helios. Argo Blockchain also reduced its exposure to GBP5.5m on a BTC-backed loan with Galaxy Digital, said Wall.
Increase in hashrate
The company was excited to report that it had increased its hashrate capacity by 38% from 1.6 EH/s at the end of 2021 to 2.2 EH/s at the end of July 2022.
Hashrate is a measure of the computational power per second used when mining. More simply, it is the speed of mining. It is measured in units of hash/second, meaning how many calculations per second can be performed.
Machines with a high hash power are highly efficient and can process a lot of data in a single second. In the case of Bitcoin, the hashrate indicates the number of times hash values are calculated for Proof of Work (PoW) every second. 1 EH/s is 1,000,000,000,000,000,000 (one quintillion) hashes per second, so Argo Blockchain is now mining a lot faster than it did this time last year.
Wall said: “In response to current market conditions and to reduce near-term capital intensity, the group is updating its year end guidance for hashrate capacity. The group expects to achieve 3.2 EH/s of total hashrate capacity by the end of 2022 and to increase capacity in 1Q23 to 4.1 EH/s.”
New toys
The company is investing heavily. It energised its Helios project in 2Q22 and executed an agreement with ePIC Blockchain Technologies to purchase custom mining machines for use with Intel’s Blockscale ASIC chip.
Argo Blockchain also completed a swap agreement with Core Scientific for approximately 10,000 S19J Pro machines, which Wall explained completes the strategic pivot to a self-hosted business model in which Argo owns and operates its own machines and infrastructure.
Wall said: “The delivery and installation of the approximately 20,000 S19J Pro machines from Bitmain continues to progress on schedule, and we still expect to have all of these machines installed by October 2022. The revision to our hashrate guidance reflects our current expectations for delivery and deployment of the custom machines we are developing with ePIC that utilize the Intel Blockscale ASIC chips.”
“We have worked closely with ePIC and Intel to modify the machine design to increase total mining efficiency, which has delayed our expected deployment schedule. Further, we are preserving our optionality by reducing our overall capital spending on these machines as market conditions remain volatile. We remain confident in the performance of the custom machines and are excited to deploy them starting in Q1 2023,” Wall concluded
Mixed broker opinions
Analyst, Compass Point recently reduced its target price from USD25 to USD12, they were followed by HC Wainwright lowering its target of USD16 to USD14 but keeping a ‘Buy’ rating. Barclays also recently dropped its target price of USD15 to USD7, rating the stock ‘Overweight’. And in July Canaccord Genuity reduced its target price to USD13 from USD16, maintaining a ‘Buy’ rating.Argo Blockchain has a per hour capacity of 1,605 with more than 24,000 mining machines operating in the US and Canada. The company claims 100% carbon neutrality, partially achieved through carbon credits. The company was operating at a per hour capacity of 0.76 when it commenced operations in December 2018 – at a time when 1BTC was equivalent to USD3,687. It hopes to have a per hour capacity of 3,700 when Helios comes fully-online. One Bitcoin was worth GBP18,369 this morning.
The company’s shares opened trading in London today at 39.22p and has ranged between 28.44p and 175p over 52-weeks. The company has offered a year-to-date return of -58.1% and a one-year return on -70.6% giving the company a market capitalisation of GBP195.9m.
