Argo Blockchain Plc current report, Q4 FY2022

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Argo Blockchain plc — Form 6-K Summary

Reporting period: October 2022; filed October 7, 2022. The filing reports strategic actions intended to strengthen Argo’s balance sheet and provide working capital for at least the next 12 months, assuming completion of the proposed transactions.

Business Context

Argo is a dual-listed cryptocurrency mining company operating principally through its flagship Helios facility in Dickens County, Texas. The company also operates through offices in the United States, Canada, and the United Kingdom and participates in Web3, DeFi, and GameFi projects through Argo Labs.

Financial and Operational Metrics

  • Planned sale of 3,400 new Bitmain S19J Pro mining machines for cash proceeds of approximately £6.0 million ($6.8 million).
  • The machines represent approximately 340 PH/s of hashing capacity. After the sale, Argo expects total hashing capacity of approximately 2.9 EH/s by the end of October 2022.
  • Proposed subscription for approximately 87 million ordinary shares at £0.276 per share, generating gross proceeds of approximately £24 million ($27 million).
  • The proposed subscription would give the strategic investor approximately 15.46% of Argo’s enlarged issued share capital.
  • The proposed amendment to the NYDIG equipment financing agreement would release approximately £5.0 million ($5.7 million) of restricted cash and reduce debt-service payments by modifying the amortization schedule.
  • The filing does not provide current-period revenue, net profit or loss, operating cash flow, free cash flow, gross margin, net margin, total debt, or total liquidity balances.

Material Changes Versus the Prior Comparable Period

  • Argo stated that profitability and free cash flow generation had declined because of higher natural gas and electricity prices, lower Bitcoin prices since March 2022, and increased mining difficulty.
  • The company curtailed Helios operations during periods of high power prices and secured a more favorable short-term power purchase agreement with a new electricity provider.
  • The company entered into a non-binding letter of intent with NYDIG to restructure existing equipment financing. Future payments would be linked to network mining profitability, in exchange for an expanded collateral package.
  • Argo agreed to sell a portion of its mining equipment but retain an economic relationship through a hosting services agreement with profit sharing.
  • The proposed equity financing would strengthen the balance sheet and may fund working capital, general corporate purposes, and continued Helios construction.

Guidance, Outlook, Risks and Unusual Items

  • Argo expects the NYDIG financing amendment to close within the next few weeks and the proposed subscription to close within 30 days, but both arrangements remain subject to definitive agreements, due diligence, and customary conditions.
  • The company expects the machine sale, financing amendment, and subscription, together with cost reductions, to provide sufficient working capital for at least 12 months from October 7, 2022.
  • Argo is seeking a long-term, low-collateral, fixed-price power purchase agreement and continues to review expenditures for further cost reductions.
  • If the proposed transactions or other financing are not completed, Argo stated that it could become cash-flow negative in the near term and may need to curtail or cease operations.
  • The proposed investor would have the right to nominate two non-executive directors, one replacing an existing director; the resulting board would have seven directors.
  • Key risks include cryptocurrency price volatility, mining difficulty, electricity and natural gas prices, execution and financing risk, restricted liquidity, collateral requirements, and the possibility that non-binding letters of intent will not result in completed transactions.
  • The next regular monthly operational update was scheduled for October 11, 2022.

Important Facts for Investors to Verify

  1. Whether the NYDIG financing amendment was executed and whether approximately £5.0 million of restricted cash was released.
  2. Whether the sale of 3,400 Bitmain machines closed and whether the £6.0 million proceeds were received.
  3. Whether the approximately £24 million subscription closed, including the final issue price, share count, dilution, and investor ownership.
  4. Argo’s subsequent cash balance, debt-service obligations, liquidity runway, and free cash flow.
  5. Actual hashing capacity and operating performance after the equipment sale and any Helios power curtailments.
  6. Whether Argo secured a long-term fixed-price power purchase agreement and how power costs affected mining margins.