Argo Blockchain plc — FY2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under IFRS and presented in pounds sterling (£), unless otherwise stated.
Business context
Argo mines Bitcoin and other cryptocurrencies, primarily through third-party mining pools. Its strategy is shifting from hosted operations toward owning and operating mining facilities, supported by investment in mining hardware and facilities. At year-end, the company reported approximately 24,000 mining machines and 1,605 petahash per second of capacity; it operated two owned Canadian facilities and used four hosted facilities in Canada and the United States. The company was developing Helios, a planned 200 MW Texas facility.
Key financial and operating metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | £74.2 million | £19.0 million |
| Gross profit / gross margin | £53.6 million / 72% | £3.9 million / 21% |
| Operating profit | £42.8 million | £1.6 million |
| Net income | £30.8 million | £1.4 million |
| Basic / diluted EPS | 7.7p / 7.4p | 0.5p / 0.4p |
| EBITDA (non-IFRS) | Approximately £52.9 million | £7.6 million |
| Bitcoin and Bitcoin Equivalents mined | 2,045 | 2,465 |
| Bitcoin and Bitcoin Equivalents held, as reported in operating metrics | 2,595 | 216 |
- Revenue increased 291%, mainly due to mining capacity rising from approximately 645 PH/s to 1,605 PH/s and higher Bitcoin prices. Management cited average Bitcoin prices of about $54,804 in Q4 2021 versus $20,815 in Q4 2020. Higher Zcash prices also contributed.
- Despite higher revenue, mined Bitcoin and equivalents declined year over year, reflecting the prior Bitcoin reward halving and other mining conditions.
- The company’s non-IFRS Bitcoin mining margin was 84%, versus 41% in 2020. Average direct cost per Bitcoin or equivalent mined was £5,407, versus £4,548; average total cost was £10,849, versus £6,100. The company cautions these non-IFRS measures exclude important costs and should not replace IFRS measures.
- Year-end total assets were £287.7 million, equity £201.8 million, and cash and cash equivalents £11.8 million. Current assets included £80.8 million of mined digital assets and £47.4 million of mining-equipment prepayments.
- Net cash used in operating activities was £27.8 million, compared with £2.5 million generated in 2020; the outflow largely reflected an £80.3 million increase in digital assets. Investing cash outflow was £137.6 million and financing cash inflow was £175.1 million.
- Reported net debt was £42.3 million, based on borrowings and lease liabilities less cash. Management’s alternative net funds measure, which also counts £80.8 million of digital assets, was £65.4 million.
- Year-end liabilities included $35 million outstanding under a Bitcoin-collateralized Galaxy loan and $40 million face value of 8.75% senior notes due 2026. The notes’ reported carrying value was £26.9 million. The company also assumed mortgages in its Quebec facility acquisition.
- FY2021 capital expenditures were reported as £160.3 million. The filing says spending was directed principally to mining machines and development of Helios; it expects significantly higher capital expenditure as it expands owned facilities.
Material changes and significant items
- Revenue, gross margin and net income rose substantially from 2020, while operating cash flow turned negative as Argo retained more mined cryptocurrency and invested in expansion.
- Mining equipment and facility investment expanded sharply. The company acquired two Quebec facilities and Texas land for Helios, and shifted toward owning facilities rather than relying solely on hosting providers.
- Argo raised capital through 2021 share issuances, its September U.S. IPO, Galaxy borrowing and a November issue of $40 million face value of senior notes. IPO net proceeds were approximately $114.8 million; the notes offering generated approximately $27 million net proceeds, according to the filing.
- Digital assets are measured at fair value, with mined assets classified as inventory and other holdings generally classified as intangible assets. Fair-value changes affected reported earnings and other comprehensive income. The auditor identified cryptocurrency revenue, digital-asset accounting and acquisitions as critical audit matters.
- Argo acquired a 24.65% interest in Pluto Digital PLC, accounted for as an associate. Its share of the associate’s loss was £1.2 million; associated other comprehensive income included £6.6 million.
Outlook, management commentary and risks
Management expected Helios to begin mining operations in May 2022, with Phase 1 intended to support 100 MW and Phase 2 a further 100 MW. It estimated facility development costs of $50 million and $30 million for the two phases, respectively, excluding mining machines. Management estimated net electricity costs at Helios could be below $0.02/kWh after demand-response benefits; this is an expectation, not a realized result. A post-year-end update said construction remained on schedule for completion in the first half of 2022, and the company later ordered transformers intended to provide additional power capacity in 2023.
The directors stated that available funds and Bitcoin holdings supported the going-concern basis and obligations for at least one year from approval of the financial statements. They modeled a significant Bitcoin-price decline and said mining could remain profitable, but this depends on assumptions and market conditions. The company reported no material pending legal proceedings and said operations were continuing normally amid COVID-19, while noting possible supply-chain effects.
- Market and operating exposure: Revenue, cash generation and asset values depend heavily on cryptocurrency prices, mining rewards, network difficulty and transaction fees. Bitcoin reward halving is expected again in 2024.
- Expansion and power: Helios faces construction, permitting, equipment, financing, power availability and power-price risks. Electricity represented 50% of direct costs and 16% of cryptocurrency mining revenue in 2021; management estimated a 10% power-cost change would change gross profit by 2%.
- Technology and concentration: Mining hardware can become obsolete or fail; the Antminer 17 series had a reported 38% failure rate. Argo also depends on mining pools, hosting providers, custodians and trading counterparties.
- Regulation and security: The filing highlights evolving cryptocurrency, energy, securities, money-transmission, tax and environmental rules, as well as cybersecurity, custody and irreversible-transaction risks. The potential transition of networks, including Ethereum, from proof-of-work to proof-of-stake could impair mining investments.
- Liquidity and financing: The Galaxy loan is collateralized by Bitcoin and payable on demand under the terms described. The company’s ability to fund growth may depend on selling digital assets or obtaining additional debt or equity financing.
- Reporting controls: Management concluded disclosure controls were effective. The independent auditor did not express an opinion on internal control over financial reporting, and Argo was an emerging growth company exempt from auditor attestation requirements.
Most important facts to verify
- Reconcile the operating-metrics figure of 2,595 Bitcoin and Bitcoin Equivalents held, valued at approximately £88.8 million, with the financial-statement disclosure of 2,441 Bitcoin valued at £80.8 million plus £5.3 million of other digital assets.
- Confirm the exact year-end debt balances, classifications, collateral terms and repayment triggers for Galaxy borrowing, the 2026 notes and assumed Quebec mortgages.
- Track actual Helios completion, energization, operating capacity, mining-machine deployment and realized power costs against management’s timetable and estimates.
- Assess liquidity and cash conversion independently of digital-asset holdings, including operating cash flow, equipment prepayments and future capital commitments.
- Review the accounting judgments and audit disclosures for cryptocurrency revenue, digital-asset valuation and classification, and contingent consideration for the Texas asset acquisition.