Argo Blockchain plc — Form 6-K Summary
Reporting period: August 2022 operational update, filed September 9, 2022. Argo is a dual-listed cryptocurrency mining company with its principal mining facility at Helios in Texas.
Key Financial and Operating Metrics
- Bitcoin mined: 235 BTC or Bitcoin Equivalents in August, compared with 219 BTC in July.
- Mining revenue: £4.39 million ($5.23 million) in August, versus £3.89 million ($4.73 million) in July.
- Bitcoin and Bitcoin Equivalent Mining Margin: 20% in August, down from 37% in July.
- Mining profit: £0.882 million ($1.052 million) in August, compared with £1.458 million ($1.773 million) in July.
- Reported gross profit/(loss): August £(4.471) million, compared with July £3.643 million. Reported gross margin was negative 110% in August versus 94% in July.
- Bitcoin holdings: 1,098 BTC as of August 31, including 244 BTC Equivalents.
- Hashrate: 2.5 EH/s at the end of August, with installation of Bitmain S19J Pro machines expected to increase capacity to 3.2 EH/s by October 2022.
- Cash flow, debt and liquidity: The filing text does not provide clear cash flow, debt, cash balance or liquidity figures.
Material Changes Versus July 2022
- BTC production increased approximately 7%, from 219 BTC to 235 BTC, primarily due to higher hashrate capacity at Helios.
- Revenue increased approximately 13%, from £3.89 million to £4.39 million.
- Mining margin declined from 37% to 20% because of an 11% decrease in Bitcoin’s price and higher electricity costs.
- Reported gross results swung from a £3.643 million profit in July to a £4.471 million loss in August. The August result included a £2.944 million loss from changes in the fair value of digital currencies and a £0.765 million realized loss on their sale.
Hosting Agreement, Outlook and Risks
- Argo entered into a strategic hosting agreement with an undisclosed third party to host and operate third-party mining machines at Helios.
- Argo has committed to provide up to 32 MW of power capacity, sufficient for more than 10,000 mining machines.
- Argo will receive 25% of the net profits generated from Bitcoin mined by the hosted machines.
- Helios electricity is purchased at spot power prices. West Texas spot power averaged nearly $0.09 per kWh in August, almost three times the average August price in prior years.
- Natural gas prices were 204% above the average August price for 2018–2021, contributing to elevated power costs. Management expects electricity prices to decline as temperatures cool and is evaluating a long-term fixed-price power purchase agreement.
- Management characterized recent natural gas and electricity price pressures as temporary, but the filing cautions that cryptocurrency prices, power costs, market conditions, operating execution and other factors could materially affect results.
- The company uses derivatives to manage Bitcoin holdings and mitigate risk exposure.
- The Bitcoin and Bitcoin Equivalent Mining Margin is a non-IFRS measure that excludes mining equipment depreciation, digital-currency valuation changes and realized gains or losses; it should not be viewed as a substitute for IFRS gross margin.
Facts Investors Should Verify
- Completion and timing of the S19J Pro installation and achievement of the targeted 3.2 EH/s capacity.
- Commercial terms, counterparty identity and operating economics of the 32 MW hosting agreement.
- Impact of spot electricity prices and any progress toward a fixed-price power purchase agreement.
- Bitcoin prices, network difficulty, mining production and the valuation of Argo’s digital-asset holdings.
- Cash, debt, liquidity and subsequent financing requirements, which are not disclosed in this filing.
- The reconciliation between reported IFRS gross results and the non-IFRS mining margin, including depreciation and digital-currency valuation effects.