Argo Blockchain plc — Form 6-K Summary
Reporting period: Six months ended 30 June 2022; interim results announced 24 August 2022. The interim financial statements are unaudited and prepared under IAS 34. Argo operates cryptocurrency-mining and digital-asset investment businesses, with principal mining operations in Canada and Texas.
Financial and Operating Metrics
| Metric | H1 2022 | Comparable period | Change |
|---|---|---|---|
| Bitcoin and Bitcoin Equivalent mined | 939 BTC | H1 2021: approximately 886 BTC | +6% |
| Revenue | £26.7 million | £31.1 million | -14% |
| Adjusted EBITDA | £17.1 million | £24.0 million | -28% |
| Mining margin | 71% | 81% | -10 percentage points |
| Loss before tax | £36.9 million | Profit of £10.7 million | Material deterioration |
| Loss after tax | £30.5 million | Profit of £7.2 million | Material deterioration |
| Operating cash flow | £24.6 million | £2.4 million | Increase |
| Cash used in investing activities | £84.5 million | £50.2 million | Higher investment |
| Cash generated from financing activities | £54.6 million | £61.8 million | Decrease |
| Cash and cash equivalents at period end | £9.2 million | £16.0 million at 30 June 2021 | Lower |
| Digital assets on balance sheet | £28.1 million | £80.8 million at 31 December 2021 | Lower |
Revenue and margins declined primarily because of lower Bitcoin prices and higher global hashrate and network difficulty. The £42.4 million fair-value reduction in digital currencies was the principal contributor to the gross loss and pre-tax loss. The tax credit was £6.4 million, compared with a £3.5 million tax expense in H1 2021.
Total assets were £303.7 million at 30 June 2022, compared with £287.7 million at 31 December 2021. Total equity declined to £165.2 million from £201.8 million. Loans, borrowings and bonds totaled approximately £117.6 million, excluding lease liabilities, versus approximately £53.7 million at year-end 2021. The filing reports £39.9 million of non-current loans and borrowings, £32.9 million of issued bond debt, and £44.7 million of current liabilities classified as loans and borrowings.
Material Changes and Developments
- Phase 1 of the Helios mining facility in Texas was energized and began mining on 5 May 2022.
- Hashrate capacity increased from 1.6 EH/s at 31 December 2021 to 2.2 EH/s at the end of July 2022, a 38% increase.
- Argo obtained £20.2 million of NYDIG financing secured by Helios electrical infrastructure and arranged up to a further £56.3 million secured by certain Bitmain S19J Pro machines.
- Argo completed a machine-swap agreement with Core Scientific for approximately 10,000 S19J Pro machines. Management states that the transaction completed its transition to a fully self-hosted model, with Argo owning and operating 100% of its machines and no third-party hosting arrangements.
- Capital expenditure and equipment prepayments were significant: investing cash outflows included £49.2 million for tangible fixed assets and £35.4 million for mining-equipment prepayments. The period-end receivables balance included £82.6 million of equipment prepayments.
- Argo issued 8.1 million ordinary shares to settle contingent consideration relating to the DPN LLC acquisition.
- Digital assets reported in the balance sheet fell to £28.1 million from £80.8 million at 31 December 2021. The notes state that 1,178 BTC were pledged as collateral for a loan at period end and that the balance-sheet digital assets comprised 1,742 BTC; the headline operating disclosure separately reports 1,953 BTC held at 30 June 2022.
Guidance, Outlook, Risks and Unusual Items
- Argo reduced its year-end 2022 hashrate-capacity guidance to 3.2 EH/s and expects capacity to reach 4.1 EH/s in Q1 2023.
- Deployment of custom machines developed with ePIC Blockchain Technologies and Intel Blockscale ASIC chips was delayed by design modifications and volatile market conditions. Deployment is now expected to begin in Q1 2023, compared with earlier expectations for 2022.
- Management expects approximately 20,000 Bitmain S19J Pro machines to be installed by October 2022.
- After the period end, Argo reduced its exposure to the Galaxy Digital BTC-backed loan to £5.5 million. Bitcoin sales and derivatives hedging were used to fund operating expenses, capital expenditure and debt reduction. In Q2, Bitcoin was sold at an average realized price of approximately $28,500, with hedge gains exceeding $1,500 per Bitcoin.
- Management is evaluating a long-term fixed-price power purchase agreement for Helios to reduce electricity-price exposure and improve participation in ERCOT demand-response programs.
- Key risks include Bitcoin-price volatility, increasing network difficulty, cryptocurrency-market drawdowns, rising interest rates, debt-service requirements, execution and delivery risk for mining machines, and the capital intensity of Helios expansion. The filing also identifies macroeconomic pressure from inflation, the war in Ukraine and higher interest rates.
- Argo removed 460 PH/s of non-operational capacity after a post-period fleet review, primarily relating to older S17 and T17 machines. The company stated that these machines had generated aggregate return on investment exceeding 260%, despite higher failure rates.
- The company reported maintaining climate-positive status through renewable-energy credits and verified emissions reductions. Texas operations were also curtailed during a July 2022 ERCOT conservation alert.
Investor Verification Checklist
- Reconcile the reported 1,953 BTC held in the financial highlights with the notes’ 1,742 BTC balance-sheet figure and identify the treatment of collateralized or otherwise classified assets.
- Verify the outstanding principal, maturities, interest rates, collateral and covenants of NYDIG, Galaxy Digital, bond and equipment-financing obligations.
- Assess liquidity after considering only £9.2 million of reported cash, substantial equipment prepayments, current debt obligations and continued Helios capital requirements.
- Track whether the 3.2 EH/s year-end 2022 and 4.1 EH/s Q1 2023 targets are achieved, including the timing of Bitmain and ePIC/Intel machine deployments.
- Monitor Bitcoin prices, network difficulty, mining margins and the value of digital assets, which materially affect revenue, profitability and collateral coverage.
- Confirm the economic impact of the Core Scientific machine swap, the termination of the hosting arrangement and the operating costs of the fully self-hosted model.