Argo Blockchain plc: Interim 2023 Results
Filing: Form 6-K filed 29 August 2023, containing unaudited interim results for the six months ended 30 June 2023. Argo is a cryptocurrency-mining company listed on the London Stock Exchange and Nasdaq, with mining operations in Quebec and Texas.
Financial and Operating Metrics
| Metric | H1 2023 | H1 2022 | Change |
|---|---|---|---|
| Revenue | $24.0 million | $34.6 million | Down 31% |
| Mining margin | $10.2 million; 42% | $24.4 million; 71% | Margin declined |
| Gross margin | $(1.4) million; (6%) | $(44.7) million; (129%) | Improved |
| Operating loss | $(11.8) million | $(47.8) million | Improved |
| Loss before tax | $(18.6) million | $(47.9) million | Improved |
| Net loss | $(16.2) million | $(39.6) million | Improved |
| Adjusted EBITDA | $2.3 million | $17.8 million | Down 87% |
| Bitcoin and Bitcoin Equivalent mined | 947 | 936 | Up 1% |
| Cash at period end | $9.1 million | $11.2 million | Down from year-end cash of $20.1 million |
| Debt balance | $75 million | $143 million | Down $68 million year over year |
The press-release highlights state a H1 net loss of $18.8 million, whereas the condensed consolidated income statement reports a net loss of $16.2 million. The filing does not clearly explain this discrepancy; investors should verify the correct figure.
Operating cash flow was $(0.5) million, compared with $31.9 million of operating cash flow in H1 2022. Investing cash flow was $(0.3) million, compared with $(109.7) million, and financing cash flow was $(7.8) million, compared with $70.8 million. Cash decreased by $8.6 million during the period, before a $2.3 million negative foreign-exchange effect.
Material Changes Versus the Prior Comparable Period
- Revenue declined primarily because of lower Bitcoin prices, higher global hashrate and increased network difficulty.
- Bitcoin production increased 1% despite global hashrate increasing 78% from 30 June 2022 to 30 June 2023.
- Adjusted EBITDA fell substantially because of lower revenue and mining economics, although Q2 2023 generated positive Adjusted EBITDA of $1.0 million.
- Non-mining operating costs and expenses declined 21% in Q2 versus Q1 2023. Management reported a 68% reduction in the Q1 run rate compared with H2 2022.
- Mining margin improved from 33% in H2 2022 to 42% in H1 2023, supported by a fixed-price power purchase agreement at Helios and $1.1 million of power credits generated in Q2.
- Total equity declined from positive $13.7 million at 31 December 2022 to negative $2.2 million at 30 June 2023.
- Capital expenditure fell sharply to $1.3 million from $63.9 million in H1 2022, when Argo was investing heavily in mining infrastructure.
Debt, Liquidity and Capital Actions
- Debt was reduced by approximately $4 million during Q2 to $75 million at 30 June 2023, compared with $143 million at 30 June 2022.
- Debt included a $37.9 million unsecured bond bearing 8.75% interest and maturing 30 November 2026, plus loans and mortgages secured against company assets.
- In July 2023, Argo issued 57.5 million ordinary shares and raised $7.5 million of gross proceeds, or approximately $7 million net proceeds according to the notes.
- Approximately $1.8 million of the July proceeds was used to repay debt, reducing debt to approximately $72 million at the end of July 2023.
- The company is evaluating sales of non-core assets, including investments, excess inventory and real estate, to reduce debt and support liquidity.
Guidance, Outlook, Risks and Unusual Items
- Hashrate capacity increased to 2.6 EH/s following deployment of 1,242 BlockMiner machines in Quebec. Argo expects to deploy a further 1,628 machines, increasing capacity to approximately 2.8 EH/s by the end of Q4 2023.
- Management expects power credits from economic curtailment at Helios to be more significant in Q3 2023, partly because of continued heat-related conditions in Texas.
- The company intends to focus on balance-sheet strengthening, financial discipline, operational efficiency and strategic partnerships for the remainder of 2023.
- The going-concern assessment identifies material uncertainties, including approximately $17.8 million of debt-service obligations through 31 August 2024 and exposure to Bitcoin prices, power prices and hashprice.
- The Board adopted the going-concern basis but stated that the debt obligations and volatile cryptocurrency environment could cast significant doubt on the company’s ability to continue as a going concern.
- Argo is subject to the Murphy v. Argo Blockchain plc class-action lawsuit filed in January 2023. Management disputes the allegations and is defending the action. The filing does not provide a quantified potential loss.
- The company’s hosting agreement with Galaxy creates variable commitments based on power usage; the filing states that total contract-life commitments cannot be determined reliably.
- The Helios facility and related Texas real property were sold to Galaxy for $65 million in December 2022, and existing asset-backed loans were refinanced with a new $35 million, three-year Galaxy loan. The transactions reduced indebtedness by $41 million.
Investor Verification Checklist
- Reconcile the inconsistent net-loss figures of $16.2 million in the financial statements and $18.8 million in the highlights.
- Verify the July share-placement proceeds, including the difference between $7.5 million gross and approximately $7 million net proceeds.
- Assess liquidity against the disclosed $17.8 million of debt-service obligations through 31 August 2024.
- Monitor Bitcoin price, network difficulty, global hashrate, hashprice and electricity costs, which materially affect profitability.
- Confirm the timing and economics of the remaining BlockMiner deployment and the expected increase to 2.8 EH/s.
- Review the Galaxy hosting agreement, variable power commitments, security arrangements and debt-amortization schedule.
- Evaluate the potential impact of the class-action lawsuit and any future non-core-asset disposals.