Argo Blockchain plc — Form 6-K Summary
Business Context and Reporting Period
Argo Blockchain plc filed this Form 6-K for December 2022, reporting transformational strategic transactions with Galaxy Digital Holdings, Ltd. The agreements were expected to close on 28 December 2022. Argo operates cryptocurrency-mining facilities in Texas and Quebec and is listed on the LSE and Nasdaq.
Key Financial and Operating Metrics
- Helios sale: An Argo subsidiary agreed to sell its Helios facility and related Texas assets to Galaxy for $65 million (£54 million), subject to customary post-closing adjustments.
- New financing: Galaxy agreed to provide a $35 million (£29 million) asset-backed loan with an initial 36-month term.
- Debt reduction: Argo stated that the transactions would reduce total indebtedness by approximately $41 million (£34 million).
- Debt repayment: Sale proceeds and part of the new borrowing were to repay approximately $84 million owed to NYDIG ABL, approximately $1 million owed to North Mill Commercial Finance, and related prepayment interest and fees.
- Liquidity: Approximately $6 million (£5 million) was expected to be released to Argo from a NYDIG-controlled collateral account after repayment.
- Mining capacity: Argo retains ownership of its mining machines, including 23,619 Bitmain S19J Pro machines at Helios, representing approximately 2.36 EH/s. Total company hash-rate capacity was described as approximately 2.5 EH/s.
- Canadian operations: Quebec facilities had approximately 140 PH/s of capacity and 20 MW of combined power capacity, supplied by hydroelectricity.
- Results and margins: The filing does not provide revenue, profit, cash-flow, margin, or detailed balance-sheet results. Argo stated that it would not report third-quarter 2022 earnings at this time.
Material Changes Versus the Prior Comparable Period
- Argo is transitioning from owning and operating the Helios facility to retaining its mining equipment while having Galaxy host the machines under a two-year hosting agreement.
- The transaction is intended to simplify Argo’s operating structure, reduce debt, improve liquidity, and lower expected capital and operating expenditure requirements.
- Argo plans to refocus on optimizing its two Quebec data centers. The Canadian assets remain subject to certain collateral arrangements under the new loan.
- Nasdaq trading in Argo’s ADSs and unsecured notes had been suspended on 27 December 2022 and was expected to resume on 28 December 2022.
Outlook, Risks, Contingencies, and Unusual Items
- Under the hosting agreement, Argo’s Helios machines are expected to remain operational for two years. Argo will pay Galaxy a hosting fee and access electricity at Galaxy’s fixed-price power-purchase-agreement rate.
- The new loan is secured by the 23,619 Helios machines and certain machines at Argo’s Canadian data centers. Argo and subsidiaries provide unsecured guarantees and additional collateral as specified in the agreements.
- Argo intends to work with Galaxy on a curtailment strategy and Texas demand-response programs, which could affect operating utilization.
- Completion and benefits of the transaction remain subject to closing and customary post-closing adjustments. The filing does not provide a clear final closing statement.
- Management warned that Argo may not realize the expected transaction benefits, may be unable to obtain additional financing, or may lack sufficient working capital to fund operations for the next twelve months.
- The cryptocurrency-mining business remains exposed to the ongoing bear market, Bitcoin prices, mining difficulty, power costs, machine performance, counterparty performance, and financing availability.
Important Facts for Investors to Verify
- Confirm that the Helios sale and Galaxy financing closed on the stated terms and verify final post-closing adjustments.
- Reconcile the reported $41 million reduction in total indebtedness with the repayment of NYDIG and North Mill obligations, fees, collateral releases, and the new Galaxy loan.
- Review the Galaxy loan’s interest rate, covenants, maturity, security package, guarantee terms, and default provisions, which are not detailed in the filing text.
- Assess the economics of the two-year hosting arrangement, including hosting fees, electricity pricing, curtailment rights, and responsibility for maintenance and downtime.
- Obtain the delayed third-quarter 2022 financial results and verify revenue, profitability, cash flow, liquidity, and working-capital requirements.
- Monitor Argo’s Quebec operating performance and determine how much Canadian equipment and other assets are encumbered by the new financing.