Argo Blockchain Plc current report, Q4 FY2021

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Business Context and Reporting Period

Argo Blockchain plc, a cryptocurrency mining company listed on the London Stock Exchange and Nasdaq, reported results for the quarter and nine months ended September 30, 2021, in a Form 6-K filed November 2, 2021. The company describes its mining operations as powered by clean energy.

Key Financial and Operating Metrics

  • Q3 2021 revenue: $26.0 million (£19.3 million).
  • Q3 2021 profit after tax: $17.3 million (£12.9 million).
  • Q3 2021 EBITDA: $28.2 million (£21.0 million).
  • Q3 2021 gross profit: $31.2 million, representing a 120% gross margin. The margin exceeded 100% primarily because of favorable changes in the fair value of digital currencies.
  • Q3 2021 mining profit: $21.5 million, with an 85% Bitcoin and Bitcoin Equivalent Mining Margin.
  • Q3 2021 direct mining cost: $6,293 per Bitcoin mined.
  • Q3 2021 Bitcoin and Bitcoin Equivalent mined: 597, bringing holdings to 1,836 at September 30, 2021.
  • Q3 2021 operating profit: $25.8 million; profit before tax was $24.6 million.
  • Q3 2021 income tax expense: $7.2 million.
  • Nine-month 2021 revenue: $67.9 million (£50.4 million).
  • Nine-month 2021 profit after tax: $27.1 million (£20.1 million).
  • Nine-month 2021 EBITDA: $49.8 million (£36.9 million).
  • Nine-month Bitcoin and Bitcoin Equivalent mined: 1,480.
  • Hashrate: 1.075 exahash at the end of Q3 2021.
  • Cash flow, debt and liquidity: The filing text does not provide clear cash flow, cash balance, debt, liquidity or available borrowing figures.

Material Changes and Strategic Developments

  • Argo reported record quarterly revenue, net income and EBITDA, although the filing does not provide a clear prior comparable-period income statement for quantifying year-over-year changes.
  • The company broke ground in July 2021 on the Helios cryptocurrency mining facility in Dickens County, Texas. The renewable energy-focused facility is planned at 200 megawatts and has access to up to 800 megawatts of electrical power.
  • On September 30, 2021, Argo agreed to purchase 20,000 Bitmain Antminer S19J Pro machines. Deliveries are expected to begin in Q2 2022, with projected total hashrate capacity of approximately 3.7 exahash.
  • Argo completed its American depositary receipt listing on Nasdaq on September 23, 2021, adding to its London Stock Exchange listing.
  • Q3 gross profit and EBITDA exceeded revenue because of favorable digital-currency fair-value changes, rather than solely from operating revenue generation.

Guidance, Outlook, Risks and Unusual Items

  • Management stated that the company is positioned to continue scaling as it develops the Helios facility.
  • Expected machine deliveries and future hashrate are subject to component shortages, delivery delays and other execution risks.
  • Disruptions to the existing mining fleet could reduce future hashrate and production.
  • Results are highly sensitive to Bitcoin and other digital-asset prices, digital-currency fair-value movements, mining difficulty, energy costs and equipment availability.
  • The filing cautions that Bitcoin and Bitcoin Equivalent Mining Margin and EBITDA are non-IFRS measures. Mining margin excludes equipment depreciation and certain digital-asset effects, while EBITDA excludes interest, taxes, depreciation and amortization.
  • The filing contains forward-looking statements regarding the Texas facility, mining program, machine deliveries and future hashrate. Actual results may differ materially from these expectations.
  • A $1.0 million loss on sale of investment and $273,000 of interest expense were recorded in Q3 2021.

Investor Verification Points

  1. Verify current cash, debt, liquidity and funding requirements for the Helios facility and 20,000-machine purchase, which are not clearly disclosed in this filing text.
  2. Assess the extent to which Q3 profitability depended on unrealized digital-currency fair-value gains rather than recurring mining operations.
  3. Confirm the timing, financing and completion status of Helios construction and the expected Q2 2022 equipment deliveries.
  4. Compare actual subsequent hashrate, Bitcoin production and mining costs with the projected 3.7 exahash capacity.
  5. Review the company’s SEC and FCA risk-factor disclosures regarding cryptocurrency prices, mining difficulty, energy supply, equipment shortages and regulatory developments.