Argo Blockchain plc — Form 6-K Summary
Business context and reporting period
Argo Blockchain plc, a dual-listed cryptocurrency mining company, filed its audited 2022 full-year results for the year ended 31 December 2022 on 28 April 2023. The Group operates mining facilities in Quebec, Canada, and hosts approximately 23,619 Bitmain S19J Pro machines at the Helios facility in Texas under an agreement with Galaxy Digital.
Financial and operating metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | £47.4 million | £74.2 million |
| BTC or BTC Equivalent mined | 2,156 | 2,054 approximately |
| Adjusted EBITDA | £1.0 million | £55.0 million |
| Mining margin | 54% | 84% |
| Net loss after tax | £194.2 million | £30.8 million profit |
| Cash and cash equivalents at year-end | £16.7 million | £11.8 million |
| Net debt | £46.3 million | £42.3 million |
| BTC held at year-end | 141 BTC equivalents | 2,441 BTC |
Operating cash flow was negative £70.7 million, compared with negative £27.8 million in 2021. Net cash generated from financing activities was £68.1 million, while investing activities generated £5.5 million, primarily reflecting proceeds from digital-asset sales and disposals. Capital expenditure, net of disposals, was approximately £5.4 million.
The reported loss included substantial non-recurring or valuation-related items, including a £43.6 million digital-asset fair-value loss, £45.1 million of tangible-asset impairments, a £44.8 million loss on the sale of a subsidiary and a £18.8 million loss on disposal of fixed assets. Interest expense was £18.3 million.
Material changes versus the prior comparable period
- Revenue declined 36%, primarily because of lower Bitcoin prices and increased global network hashrate and difficulty.
- Adjusted EBITDA fell from £55.0 million to £1.0 million, and the mining margin declined from 84% to 54%.
- Bitcoin production increased 5% despite adverse market conditions, while hashrate capacity increased 55% from 1.6 EH/s at the end of 2021 to 2.5 EH/s at the end of 2022.
- Cash increased to £16.7 million, but the Group remained highly dependent on external financing and cryptocurrency-market conditions.
- On 29 December 2022, Argo sold the Helios facility to Galaxy for approximately £53 million and entered into a new approximately £28 million Galaxy asset-backed loan. The transactions reduced total indebtedness by approximately £33 million and enabled continued mining at Helios through a two-year hosting agreement.
- Leadership changed after year-end: Peter Wall resigned as CEO and Interim Chairman, Seif El-Bakly became Interim CEO, Matthew Shaw became Chairman, and Jim MacCallum became CFO effective 5 April 2023.
Q1 2023 update and outlook
- Preliminary, unaudited Q1 2023 production was 491 BTC or BTC equivalents, equal to approximately 5.5 BTC per day and 8% below Q4 2022 production.
- Q1 2023 revenue was approximately £9 million, with a mining margin of approximately 45% to 50%, compared with approximately 35% in Q4 2022.
- Average direct cost per Bitcoin mined was approximately £10,000, and all-in Helios power and hosting costs were approximately $0.05 to $0.055 per kilowatt-hour.
- Management intends to prioritize operating efficiency, excess-capacity utilization and financial discipline at the Quebec facilities, which have access to approximately 99% renewable hydroelectric power.
- Argo expects delivery of 2,870 ePIC BlockMiner machines beginning in early Q3 2023. The machines are expected to add approximately 300 PH/s of capacity and be deployed in Quebec.
Risks, contingencies and unusual items
The directors adopted the going-concern basis but stated that material uncertainties may cast significant doubt on the Group’s ability to continue as a going concern. The Group had debt-service obligations of approximately £22 million through 30 June 2024 and remained exposed to significant volatility in Bitcoin prices, hashprice, network difficulty, electricity prices, foreign exchange and interest rates. Management’s forecast extended to 30 June 2024 and incorporated expectations regarding the April 2024 Bitcoin halving.
The auditors referred to these material uncertainties in their report. Potential mitigating actions include equity issuance, disposal of non-core assets, continued Bitcoin sales and cost controls. The filing does not provide a formal 2023 revenue or profitability forecast.
Material contingencies include the variable-cost Galaxy hosting agreement, contractual payments for BlockMiner equipment, and a class action lawsuit filed in January 2023 in the Eastern District of New York. Argo denies the allegations and has not accrued a liability because the amount cannot be estimated.
Important facts for investors to verify
- Whether Argo can meet approximately £22 million of debt-service obligations through 30 June 2024 without additional equity, asset sales or refinancing.
- The terms, costs, collateral requirements and covenant compliance of the Galaxy loan and hosting agreement.
- Actual Bitcoin production, hashprice, electricity costs and mining margins relative to the Q1 2023 preliminary figures.
- Delivery, financing and deployment of the 2,870 BlockMiner machines and the expected 300 PH/s capacity increase.
- The current status and potential financial exposure of the Murphy v. Argo Blockchain class action.
- The sensitivity of asset carrying values and future profitability to Bitcoin prices, network difficulty, power prices and impairment assumptions.
- The effect of the 18,698 outstanding options and warrants on potential dilution; the filing states that exercisable instruments represented approximately 61% of enlarged share capital at 31 December 2022.