Argo Blockchain plc

Good afternoon, ladies and gentlemen, and welcome to the Argo Blockchain PLC Q1 2022 results investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged. They can be submitted at any time using the Q&A tab. Just type your questions in and press send. The company may not be in a position to answer every question it receives during today's meeting. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. And as usual, I'm sure the company would appreciate your participation. And I'd now like to hand over to CEO Peter Wall. Good afternoon.

Thank you, Mark. Thanks, everyone, for joining us this afternoon or this morning, depending on where you're located. I'm Peter. I'm the CEO of Argo Blockchain. With me today also is Alex Appleton, who's our CFO. And Alex is in the UK. And Tom Devine is with us as well. He has his camera off. He'll come on for the Q&A section at the end. Tom's our head of investor relations. So we're going to walk through our Q1 Q2. Ernie's presentation. This slide will look familiar to you. It's our normal legal disclaimer. I'm not gonna go through it, but it covers the usual language about forward-looking statements. All right, so our opening slide is our classic Argo at a glance slide. Again, familiar to many of you who have tuned in to our presentations over the years. Not much has changed on this slide since our presentation last, I guess it was a few weeks ago, our 2021 year-end call. Our contracted hash rate is 3.6 exahash. That includes 1.6 exahash of our current capacity, along with another 2 exahash from our Bitmain order. As we, I think, as everyone hopefully knows, we've already started installing this 2 exahash of machines from the Bitmain order at Helios, and we are expected to complete that process by the end of October. Installation is going well. Team on the ground is doing a great job. So the 3.6 exahash translates into about 44,000 mining machines, and that's about 24,000 of our current fleet, and then another 20,000 from the Bitmain order that I was just talking about. I think, again, as everyone knows at Argo, we're very focused on sustainability on ASG. We were the first Bitcoin miner to be 100% carbon neutral last year and are continuing that this year. Our Bitmain hodl at the end of the year was just under 2,700 Bitcoin and Bitcoin equivalent. And 10% of that is allocated to Argo Labs for non-mining activities. That is our innovation arm. As we discussed on the last earnings call, we're now more comfortable with using a portion of our monthly mining Bitcoin to fund our operating expenses and continued growth. So we'll talk about that a little bit later as well. And lastly, our money margin for Q1 was 76% amongst the highest of all our peers and a really good number considering market conditions for the first quarter. All right, slide number four is kind of a snapshot of our 2021, our 20, geez, I keep saying that, our Q1 2022 results. We generated a revenue of 19.5 million, just under 15 million pounds. That's a 9% increase over our revenue from the first quarter of 2021. Our adjusted EBITDA, which excludes non-cash items like share-based payments and unrealized change in the value of our HODL was 19.1 million US or 14.5 million pounds. Our net income came in at 2.1 million US or 1.6 million pounds. And we mined 470 Bitcoin, which is a 21% increase over the same period last year. I also mentioned earlier our money margin for the quarter was 76%. That translates into a direct cost per Bitcoin mined of just under $10,000, $9,779 to be exact, or 7,448 pounds. This mining margin is a drop from the 84% mining margin that we saw for the full year of 2021. And that's primarily due to a higher global hash rate and the associated increase in difficulty. And that's not surprising. We knew that if the price of Bitcoin didn't come up and network difficulty continued to rise, that mining margins would likely come down a little bit for the first quarter of this year. At the end of the quarter, we held 2700 Bitcoin and Bitcoin equivalents on the nose, on the balance sheet. uh just a quick note you know in terms of transparency i want to acknowledge these results are not the best we've ever had we always knew that q1 was going to be a bit of a slog we knew that we'd see some sluggish performance as our hash rate stayed flat at 1.6 exahash while we were building helios the focus for q1 was to get helios online we've done that I'm very proud of our operations team for doing as well as we've done with a 76% margin for the quarter amongst the highest of our peers, as I said. And obviously, I'm super proud that we launched Helios two weeks ago. All right, onto a few more points for Q1 2022. Again, our focus, rather than growing our hash rate, was executing our plans for Helios. Along those lines, I've said many times, looking forward, you need three things to be a successful miner. You need access to power, you need access to rates, you need access to capital. We're very well set with access to power at Helios. Our interconnection agreement there is 800 megawatts of capacity. I know that there's been reports out, people have been talking about ERCOT slowing the pace of grid connections for new Bitcoin mining facilities in Texas. ERCOT, who are the folks who manage the grid in Texas. We have our interconnection agreement in hand for the full 800 megawatts, so we don't anticipate any negative impacts from adjustments that ERCOT is making. Our specific location as well is a particular advantage for us because we are very far from major centers and there is almost no local load where we're based. So we're really confident in our access to that 800 megawatts. With respect to RIGS, again, power, RIGS, capital, with respect to RIGS, we signed a supply agreement with Intel to purchase their new block scale ASIC chips this year. We'll be deploying those into custom-made mining machines at Helios during the second half of this year. On the capital side, we also strengthened our access to capital by establishing a financing relationship with NYDIG, and that came in two different forms. One was in February. We borrowed approximately $27 million for a loan secured by electrical infrastructure that's deployed at Helios. These are things like high voltage, low voltage transformers, etc., And then just a few weeks ago, we signed an additional agreement. This happened after our earnings call. We said we were continuing to explore debt. And then we announced, yes, here's a debt deal. And that was an additional agreement with NYDIG to borrow 71 million U.S. And that is secured by some of the money machines at Helios. I'll go into a little bit more detail on these loans on this loan later on. We also signed an agreement with Core Scientific, our hosting provider, in the first quarter of this year to do a machine swap. We have about 10,000 S19s that were located at some of Core's facilities. And rather than spend the money and the effort and the time to unplug these machines and ship them to Helios, which would have resulted in downtime, Core is sending us brand new machines, brand new S19J Pros, and we're swapping out the machines that we have. that we already have at core so as we install these new machines in batches between may june may june july core will take ownership of our s19s that are located in their facility and we've already done the first of those swaps along the way so it's an elegant solution it avoids major operational risk and it benefits both us and courts it's truly a win-win So once that machine swap deal is complete at the end of July, we'll be operating all of our machines and we'll no longer have any machines hosted at third parties. We also officially launched Argo Labs this quarter. I'll talk through a slide on Argo Labs a little bit later on in some of the projects that they're working on. And finally, we strengthened our board of directors with the appointment of Raghav Chopra. Formerly a portfolio manager at a large asset management firm in the US, since left that firm to start his own digital assets fund. And this has allowed him to come and join our board. So we're very excited to have him. He's added a ton of value already. All right. Moving on to our Helios update. So definitely the most exciting thing that's happened for the company in 2022 so far is that we've officially opened Helios. We had an event, I guess it was two weeks ago now. We energized the facility on May 5th and we actually started mining Bitcoin that day. So here's kind of one of our latest photos. You can see the substation that we've built that's connecting to the Cottonwood substation in the foreground and in the background is the facility. 125,000 square feet with the air coolers coming out on the side. In that picture, if you look carefully, you can see a tent on the left side down the building where there's – that was where we had our opening event – our part of the opening event, the food for the opening event on May 5th.

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All right, moving along. A little bit more about our grand opening. So we had about 300 folks in attendance, including most of our Argo team. About 150 to 200 people were from the local community, came out to show their support. It was great. We also had U.S. Congressman Ronny Jackson there to say a few words. This is the first mining facility in his district. He was happy to be there, happy to learn about the space and learn about our business. We also had Bill Flores, who's the vice chairman of the ERCOT board of directors, obviously a good ally to have. He came and gave some remarks. ERCOT, as I've said, is excited about the opportunity for Bitcoin mining to play a role in stabilizing the grid in West Texas. So we're happy to have Bill come. we had a bunch of other people there last week we put out a video recap of the day so if you haven't had a chance it's up on youtube um check it out um we're also gonna have a few other videos coming out in the next few weeks about uh about some of the backstory of helios and some of the the um kind of you know the the trials and tribulations of uh of setting up a large facility um in the uh in the Texas High Plains. But all said, it was a fantastic day and the team has done an incredible job. No one in Diggins County can believe that we built the facility as fast as we can. In fact, no one in the space can believe that we put it up as quickly as we can. So we're getting a lot of congratulations, which feels good because we obviously, it was a big, big moment for us and a big part of our vision for the future. All right, so a couple more pictures. On the left, you can see the crowd that came out. As I said, a ton of locals had a lot of partners there as well. A lot of people have helped Argo along the way, and we wanted to make sure that they were recognized and had a chance to touch and feel what we're building, and it was awesome to have them there. And on the right, you can see our immersion facility. Perry Hote, our CTO, has done an incredible job of coming up with um you know the design and the system for immersion um roughly speaking you know you can see those tanks those large silver tanks double decker um those hold the fluid which cool the machines the machines sit in those tanks um and then the fluid is pumped you know you see the large pumps and hoses the hoses that come out and then the larger piping below, the fluid goes into those and it goes out into those air coolers that you see outside. Essentially those air coolers are like a giant car radiator and they cool the fluid. And then once the fluid is cooled, they come back in. The black boxes, which you see on the front of those racks are PDUs, power distribution units. And those manage the electricity that flows into each mining machine. So those are important part of any mining facility. We had ours custom built. You can see they're branded Argo. And so it's really, truly a custom facility from top to bottom. And again, you know, this is a new space. This is new technology. And we are at the absolute forefront of it. And Perry and our team are doing an incredible job and really feel a sense of ownership over this design, over this facility. And that's what we want. You know, we're good at mining. We're good at running facilities. And we've done every time we've set out to do something on a technological level, we've achieved it. And it's hard. You know, it's not easy. That's a question I get all the time. How easy is it to do immersion mining? Why aren't more people doing it? A lot of people aren't doing it because it's challenging. But our team can do it because they're really good. So I'm very proud of the work the team has done. All right, moving on to kind of the look ahead of Helios phase one. Again, we show this slide during our last earnings presentation a few weeks ago. It shows the basic kind of work streams moving forward. We've already started installing machines at Helios. Let's pass over the construction, because we're done that. The key little dot there is the energization dot. That's happened start of May, so we can check that one off. Then we've got demand response registration and installation of immersion equipment. The demand response is done. We're registered for that. The installation of immersion equipment is happening. It's still going on to the end of June, building out ahead of what we already have. done so far. Then this core swap machines, which are also Bitmain machines, and then the Bitmain orders, those are being installed as we speak, as we said, to the end of July and then the end of August. And then lastly, the Intel machines, we're in that design testing phase right now for those. And then the deployment of those will be in the second half of this year. We're targeting kind of very late Q3, early Q4. All right. Slide number 10, total hash rate capacity. Again, show this slide. Last presentation at the end of Q1 had 1.6 exahash of mining capacity. We've started installing machines at Helios and are expecting to increase our hash rate to 2.2 exahash by the end of Q2. We also expect to start deploying the Intel machines, as I just said, during Q4. So that will take us to approximately 5.5 exahash by the end of the year. um all right slide 11 is um kind of looking forward to 2023 and 2024 um and just kind of want to talk through this slide again just to emphasize the incredible runway that we have for growth at helios so phase one 200 megawatts of power beyond that we have an additional 600 megawatts that we can develop over the next few years Our supply agreement with Intel is a key differentiator for us here. So not only are we going to be deploying these chips, which are more cost effective than buying stock machines, but we're able to custom design these machines to run specifically in our immersion system at Helios. So won't have to rely on off the shelf machines, but able to put our own form factor and our own software, et cetera, into the machines. And that will really allow us to take advantage of the immersion benefits. So all of this adds up to essentially a pretty significant amount of growth into 2024, and that's targeting roughly 20x a hash, north of 20x a hash by 2024. And that obviously includes the full development of the 600 megawatts. so even though we're still at phase one um we are we've already taken some of the key steps to kind of build out the next phase um earlier this year we announced four additional transformers that will take us up to that 800 megawatts of power these are long lead items um you know you can't you can't get a massive um transformer overnight so those take nine ten months so we've got those coming in the first half of next year all right slide number 12 is our financing our growth. So in our presentation a couple weeks ago, we showed the slide and said we'd need roughly 125 million of additional capital to complete phase one. Also said, as I mentioned, that we'd be looking at primarily at raising debt and selling Bitcoin to fund this capital. In early May, we announced the first or we announced the next debt deal, a $71 million financing deal with NYDIG. We'll get into the details of that slide of that deal on the next slide. But additionally, essentially, we need 50 million of capital remaining to and we expect to finance this with a combination of additional debt and by selling a portion of our monthly Bitcoin production. So we were at 125. minus 70, 71, need roughly 50 million of additional capital to fully build out phase one. And that includes infrastructure, machines, everything, the whole kit and caboodle. All right, our machine financing agreement with NYDIG. So, you know, feedback from shareholders large and small is they, given where we're at right now, non-dilutive growth, non-dilutive capital is our best factor for growth, our best way for us to grow. So that's what we've done with this latest machine financing agreement with NYDIG. We have built a relationship with them Going back to earlier this year, obviously they've been in the space for a while. We signed an agreement with them to borrow $27 million for building out parts of Helios, and that was secured by some of that electrical infrastructure at Helios. So then we built upon that relationship with NYDIG and now have this $71 million financing agreement. The borrowings from this deal, I think as people, if they read the R&S and they saw the deal, they'll be funded in tranches over the next few months as we take delivery of the S19J Pros that are coming into the facility. The interest rate is 12% on this loan. To the average consumer, obviously that's very high. If you come from a traditional finance background or if you're mortgaging your house, you're like, wow, that's a big number. But this is actually a very competitive rate for machine financing. When Alex and I started talking about machine financing with people, Not that long ago, 18 months ago. You know, 24 months ago, rates were 24, 25, 27%. They've been in the high teens for most of the last 12 months. So getting down, you know, to 12% is a good number. But obviously, you know, we want that number as low as possible moving forward. And we are seeing the trend in the industry in general is to move toward lower and lower interest rates. um so as i said these these machines are secured against the uh the s19j pros all right argo labs So Sebastien and the team at Argo Labs have been doing a great job. We started Argo Labs last year and launched it to the market in the first quarter of this year. So, I mean, in a way, we've been doing Argo Labs since we first came together as a company. We've always been talking about other parts of the ecosystem, at least in an informal way. We had made a few deployments of capital over the years, but now we have officially this thing called Argo Labs. And I think, as everyone knows, the focus is on mining activities, participating in the disruptive sectors of the broader blockchain and Web3 ecosystem. So far, we've allocated about 10% of our total digital assets to Argo Labs. You can see in the pie chart here, breakdown. of some of those holdings. Polkadot we first invested in back in 2019 has done very well for us, makes up a large portion of our Argo Labs holdings. And then we also have exposure to Ethereum, Solana, Cosmos, Near. and others. And aside from those specific tokens, the team is also looking at and deploying capital into early stage projects in the areas of GameFi, NFTs and DeFi. But it truly is a diversified approach. We're also generating revenue through yield generation by running nodes, staking and participating in DeFi liquidity pairs and others. Overall, generally, as I've said many times before, the goal for Argo Labs is to take a portion of our Bitcoin holdings and generate additional uplift from those holdings that simply outperforms just holding Bitcoin. Um, obviously, you know, last week, um, in the, in the, you know, web three space and in the, um, non Bitcoin space, well in the Bitcoin space too, but, but last week was a particularly, um, you know, intense week, um, with the collapse of the UST and, and, and, and Luna world, uh, the Terra ecosystem. We are, we're not super heavily invested in the Terra ecosystem. We did have some UST. Um, we were participating in yield generation on the anchor protocol. None of these amounts were material. We were able to sell our UST positions at 93 cents, which looking back was a very good move given where last time I checked, I think it was trading at 12 cents. So overall on a net basis in the Terra ecosystem, we nearly broke even on our positions after taking into consideration the yield that we generated through our holdings there. um you know we did pretty well all things considered um with what happened all right so that's my portion of the presentation i'm going to hand it over to alex uh he's going to go into some some more detail on our financial performance

Thanks, Peter. Hi, everyone. Just wanted to echo what Peter said about seeing the facility firsthand. It's the first time that I've seen the facility a couple of weeks ago, and really hats off to the ops teams and the techs team for, you know, we've invested, you know, a great deal of money there, and we're about to see the rewards from that investment. So a really exciting time to be part of that build-out and part of that facility. To go into the figures, So as Peter said earlier, the first three months of this year, whilst we haven't been investing in new machines on the ground, we knew that this would be a bit of a difficult time. Having said that, our mining margin is still at 76%. Again, we always aim to be in tier A and that is well within tier A of our fellow miners. Our cost per Bitcoin was just below $10,000 per Bitcoin. or just under £8,000. So still very, very competitive and still very, very profitable. In terms of what we are now starting to present to the market, we have made a decision to present an adjusted EBITDA, as Peter said. This excludes the share-based payment charge and also the change in fair value of digital currency. And what we think that really gives the shareholders a view of how the company is performing, taking some of the elements that we don't necessarily control out of the equation. So we're taking out those charges which go through or gains indeed that are seen in our profit and loss account so that people can see how we're actually performing as a business. And obviously, as we look at that adjusted EBITDA, It was very, very pleasing and a great figure in the high 90s there. So, you know, the business is well positioned as we stand today. And as we build out Helios, that will continue to grow. And we will see the impact of the lower power costs that we're able to get, you know, Texas site and how that impacts our cost per Bitcoin as we have machines mining in the immersion facility. So moving down the P&L, we can see that there's a couple of impacts here, particularly from foreign exchange. So the pound weakening against both the US dollar and the Canadian dollar has adversely actually helped our income statement. And we've also had a revaluation of the contingent consideration. So this was the monies that we paid for, sorry, the shares that we paid for DPN. They changed in value and hence we had a gain in the face of the P&L for those. We've seen interest expense increase as we've moved towards away from the equity and we've lent into debt. So we've seen an increase, as we would expect, in our interest expense, well within our coverage ratios and our internal coverage ratios and targets that we have still very comfortably covered off there. So that is our P&L. Again, given the challenges that we've seen in the first quarter and the challenges we knew we would face, really pleasing to see that we have a net income and a very healthy EBITDA and mining profit percentages and results. So moving on to the balance sheet. We can see that the balance sheet we've increased, particularly our property plants and equipment. And we've also increased some of our trade and other receivables. The items that are flowing into trade and other receivables are significantly the machine prepayments that we put down for Bitmain. And we've also we made in the first quarter, we made our first payment towards the Intel machine. So we put $10 million prepayment down for those as well. We've seen digital assets move as we've moved away from the pure debt and equity strategy to a debt and selling Bitcoin strategy. We've seen our digital assets reduce as we sold those off to meet our operating costs and expenses. On the liability side, we've seen the debt increases, as Peter has talked about earlier, in terms of NYDIG. Again, very much within our internal targets for debt to EBITDA, both forward-looking and backward-looking. And we're in a very comfortable position with that. Our weighted average cost of capital is still below 10%. So we're very happy with that. And as Peter said, the 12% on the face of it appears high, but as Peter said, only six or seven months ago, I think we were offered, it was in the high teens. So You know, we're really seeing those rates come down alongside infrastructure rates are much more in line with traditional sector as well. Really pleasing to see how the debt market is maturing and how we've got optionality there to continue our build out. And as Peter said, you know, we presented a couple of weeks ago, you know, the requirement for 125. We've already secured, you know, 70 million of that, leaving us with 50 million to be spread between debt and also selling of Bitcoin in the near future to get us to the end of that 200 megawatts phase one. Thank you, Peter. Pass it back to you.

right thanks alex um so again you know a classic slide that you've seen from us um three key differentiators one massive runway of power 800 megawatts in texas this i can't emphasize right now how important that access to power is and how important hedios is for us we are continually hearing reports having phone calls with people in the space And infrastructure is hard to get right now. And infrastructure at scale is hard to get right now. Everyone thought that machines were going to be the issue with the supply chain, with chip shortage. Machines are not the issue right now. Access to power at scale is an issue right now for a lot of miners. So the fact that we're doing it and executing on a Texas is a huge advantage for us. And the fact that we have an incredible team, both on the construction side and on the operation side in Texas is another huge advantage for us. So we're very excited about that. Secondly, our relationship with Intel and our supply group that we have with them and the fact that we're building out our own custom machines for immersion is a huge advantage or will be a huge advantage for us in the second half of this year. And then lastly, I think it's important that we as a company continue to emphasize our climate friendliness and our emphasis on ESG. That's a big part of who we are. It's a big part of what brought a lot of people into the company or turned a lot of people's attention to the company. you know a couple years ago or even last year uh and it's something we're going to continue to emphasize and that's you know why we're setting up in in texas where there's wind um and uh we're going to continue to to be leaders in that part of the space um all right so we're going to open it up now for questions i think tom devine is going to come on and he will be our our q a moderator no problem at all and just before tom comes in may i remind ladies and gentlemen to continue to submit your questions using the q a

On the right-hand corner of your screen, but just while the company take a few moments to review the questions submitted already, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, will be accessible via your Investimate company dashboard. Tom, if I may, if I could hand back to you, and just if I could ask you to read out the questions and give a response, obviously, where it's appropriate. Thank you.

Great. Thanks, Mark. Peter, our first question today comes from Ramsey Ellisall at Barclays. Can you help us understand your margin expectations for the remainder of the year? To what extent will the launch of the Helios facility offset network margin pressures?

Yeah, it's a good question. Thanks, Ramsey. So, listen, I think our... Our overall margin is always determined by a number of factors, price of Bitcoin, power costs, and mining difficulty. We have expected this year that mining difficulty would continue to rise throughout the year. Bitcoin price is going to be Bitcoin price. We are bullish long term, but in the short term, as we saw over the last few weeks, Bitcoin can be volatile. So in terms of margin expectations, it's not just our power costs that are going to determine what our overall margin is. That being said, Our power costs at Texas are expected to be lower than our operations in Quebec. That's why we set up in Texas, because we can take advantage of lower power costs, CLR, all of the advantages for being in that competitive Texas grid is why we're there. so we think we're in a good place there we have more control over our operations um but ultimately um you know it's not just the price of power that's going to have an impact on our margins so i don't want to be overly bullish and say that you know we're going to have an incredible money margin at helios right now i think the margins would be good i think they'll be better than you know where uh better than quebec But I don't think, to use your word, I don't think it's going to offset necessarily because we don't know where the price of Bitcoin is going to be. We know that difficulty is going to continue to rise because lots of people have invested in machines and infrastructure and more power is going to come on, more machines are going to come on. But ultimately, you know, the goal is to always be in that upper tier of efficiency and being in Texas will get us into that upper tier of efficiency or is getting us into the upper tier of efficiency, especially with, you know, having an immersion facility.

Thanks, Peter. Next question is for Alex. And we've received this a few times. We've said that we'll be focusing on raising capital through debt and by selling Bitcoin. How much debt are we willing to take on?

It's a good question, particularly given our strategy going forward and one we've given a great deal of thought to internally. So we've had discussions at board level in terms of what level of debt, particularly, as I say, against forward-looking EBITDA, but also against backward-looking EBITDA. And as a company, many of you have followed us for a while. You know that we take a very prudent approach. And those targets internally, we've not released the market, but again, are very prudent. We wouldn't want to be exposed. And part of what our strategy is around debt is matching the length of the debt against the assets to which we are financing those against. So if you look at our machine debt, our machine debt is financed over a period of two years. Our infrastructure debt is over a period of four years. So we're always taking a very prudent view on the length of the debt that we have exposed against the assets that it's also being financed against. So when we think about debt for the rest of the build out, what we will do is we'll continue with that approach. And we also hope that when we look at the rest of the build out, we'll be able to take on financing, which we'll be able to, as we build out the rest of Helos in a more modular fashion, potentially, we will be able to shorten the lifespan of the debt against the assets to which it's financing. So if you think about how we've built out Helios to date, we have used equity. It's been long lead items and we've had a lot of investment for a long period of time. Whereas we expect to bring that down and have that over a much shorter period of time going forward. And again, as I said earlier, in terms of interest cover and looking at those sort of ratios, our weighted average cost of capital is still in the single digits. We would expect that to also be the case going forward as we see the maturation of the debt markets and the ability for us to have debt against those items. So that's how we're thinking about it. It's a very prudent approach within bounds of both forward-looking and backward-looking EBITDA levels.

Great. And a follow up question to that, you know, this comes from Darren of Tahi at Roth. Do you feel like you have ample financing options to complete phase one of Helios? And you just talked about debt, but how much of the strategy involves selling of Bitcoin on a monthly basis? Maybe you can go into that a little in a little more detail.

Yeah, so absolutely. Yes, we do feel that we have a number of different options available to us. We have machines which are unencumbered, which will be delivered in the second half of Q3. And so we have machines there that we would be able to obtain financing against. There is still some infrastructure which we could obtain finance against as well. And we have really good relationships. So we have relationships with, you know, first of all, we've got current relationships with NYTIC and Galaxy are some of the biggest lenders in the crypto space at the moment. And then we also have relationships with other, you know, more traditional sector banks, et cetera, which we're also exploring. So at the moment, we have seen a tightening of the market. That is absolutely true. But what that has meant really is that newer entrants to the market are finding it much more difficult to find debt, whereas those who've got a proven track record, as we have, are able to provide the due diligence requirements that are necessary, etc. So we are finding that ourselves, we have options and we have optionality in terms of the debt markets. In terms of selling Bitcoin, again, we have strategy around selling our Bitcoin and when it's obviously a good time, when it's a bad time. And we look at that and we can pull back and accelerate that as needs be. We're in a very healthy position at the moment in terms of our hodl, how much of our hodl is, you know, unencumbered or is collateralized against loan, et cetera. And we're very comfortable with our position today. So in terms of filling that gap for the 50, you know, the 50 million that we've talked about to build out the rest of phase one, we're well positioned. And of course, every day we mine more and more Bitcoin. And so that position is, you know, improves with every day that passes. Okay.

Great. Thanks, Alex. Peter, our next question comes from Joe Voffey at Canaccord. Congrats on energizing Helios. It might be early, but have you begun using immersion there yet? And if yes, have you upped clock speeds? And any other comments on what you have learned there since energizing? Hey, Joe, thanks for the question.

So yeah, Helios is entirely an immersion facility. So if we were If we're mining at all at Helios, we are using immersion. So yes, we have started using immersion. Have we upped clock speeds yet? We are ramping up operations, making sure everything's working properly. We've done some overclocking testing, but we are not overclocking at scale yet. We want to make sure that everything's awesome and working properly. So once we have more kind of data on... everything, what the overclocking systems, how that's functioning, we will update the market. In terms of other comments on what we've learned since energizing, the one thing I think I've learned is that How you build a team on the ground for operations is really important. And we've done an incredible job of building a team on the ground. Our facility manager, their lane has a culture of collaboration and teamwork and ownership. So we're working with new technology. We're opening this new facility. the team on the ground already feels a sense of ownership of that space. And that's incredible that that's happened in that short of time. Um, so, you know, the HR folks that built that team, the tech culture that, that Perry and his team have built and, and kind of, you know, um, brought to them because you obviously have a big moment like we had on May 5th, where we energize and everyone's been working really hard. And then, you know, Perry doesn't live in, in Dickens County. He goes back to Ottawa and he's managing everything remotely and John, is also not there and so you're kind of handing it over to your local staff and and and now they're running the show obviously perry's managing things remotely and is and can do a lot from far away but the sense of ownership that the team has on the ground is amazing uh and i'm that's the one thing that i'm most thrilled about especially when you're working with new technology because there are bumps you know things do happen and you're always troubleshooting um And I mean, you guys all, everyone uses technology these days. You know, there's always things to fix and to optimize. And so the team on the ground is doing an amazing job. And so ultimately, that's why we're going to be successful. I mean, If you'd come, Joe, to our opening event, my message was, yes, we need these three things, machines, power, and capital, but ultimately we need people. This is a people business, and we're only going to be as good as the team that we have. One of the advantages I think that we have as a team is we truly have an amazing team. That's, I guess, the one thing that I've learned.

Thanks, Peter. Our next question coming from the live Q&A is from Thanasis S. As Helios is immersion cooled, can you explain the procedure for receiving the mining rigs to converting them to immersion cooled setups? How long on average does that take from arrival in Helios to installment?

All right, thanks, Danasis. And hey, how's it going? You always come and ask good questions, so thanks for asking another one. So the process for receiving minors and putting them in immersion is a little more complicated than if you're just getting them normally and putting them on the shelf, but it's not that complicated. We have a shipping and receiving area. Machines come in on pallets. We store them. And then when they're ready to be installed, we take them, we unbox them, prep them. We prep them by taking off the fans. And then we actually have a team called the Dunk Team, D-U-N-K, the Dunk Team. And they Part of that culture that we've already have, you know, at Helios, they then take them and dunk them into the fluid. And then once an entire system is ready, so the whole facility is broken down into four megawatt pods. And so you can do the math. There's 200 megawatts. So once each system is filled with miners, then we power on that pod, that four megawatt system. So it's a fairly, you know, the team has already developed the process and the system, but essentially that's how it works. And then obviously once we have our own custom minor, we won't need to remove the fans because we won't need fans on an immersion minor. They will come without fans.

Great. Thanks, Peter. Our next question is, What is the criteria for Argo Labs involvement in crypto projects?

All right. So this is Sebastian and his team are constantly evaluating projects. Some of the criteria that they look at are the token utility. How useful is that particular token? The track record of the team that is building out the project, the tokenomics of the project, the overall quality of the blockchain and the network that it's built on. You know, is it scalable, speed, decentralization, et cetera. And then the community around the project. And that's a key piece. You know, how active is the community around the project? How engaged are they? Et cetera, et cetera. But in terms of those early stage projects that they're looking at, those are kind of the basic criteria that they're considering. And most of the time, they have direct contact pretty much all of the time with the team. So there's a conversation with the team and Even going back to Polkadot, when we originally invested in Polkadot, we had a conversation with a couple of the guys from the Polkadot team multiple times back in 2019. That's still the process now. We don't just deploy into projects that we don't know the team.

Great. Thanks. Our next question comes from John S. in the chat. It was previously forecast that hash rate would be at 1.7 exahash by the end of the first quarter, but the actual hash rate was 1.6 exahash, which is where we are now. What's the reason for this reduction and when will the shortfall be resolved?

Yeah, thanks, John. Good question. So the difference is back in 2021, we put in two orders for machines. One of those orders was with a company called Minerva. And it was for that difference, 100 petahash. It was 800 machines from Minerva. you know, other people put in larger orders. Um, we thought we would put a small order in a test order. Those machines were supposed to come, you know, last summer, um, July, June, July, uh, they got pushed back. They got pushed back. Um, And ultimately Minerva was unable to deliver on those machines. And so we requested and received a full refund from them. And so we've taken those funds and are deploying them into other mining machines, but that's the difference. And so the shortfall is in terms of when it will be resolved, it's gonna be resolved as we bring the other machines online, the Bitmain machines that we've ordered, et cetera, et cetera. But it wasn't a huge amount and we feel like, It was, you know, when you're looking at new machines from new companies, and Minerva is a good example, they had good specs, they had good price. So we thought it was worth putting a small order with them to test. It didn't work out. We got the refund. So, you know, No harm, no foul, ultimately. But that's ultimately why we want to be able to have, again, more control over our own rig production. And that's why this relationship with Intel is so important.

Thanks. Our next question is for Alex, and this comes from the live chat as well. With the continued maturation of debt markets, why has the second NYDIG loan been done at a significantly higher rate, 12% per year, versus the first NYDIG loan done at only 8.25% per year?

It's a good question. And it shows that people really are reading our RNSs, which is nice, nice to see. The simple answer is that it's on different items. So when the debt market is looking at assets that they will collateralize loans against, they look at how easily, you know, if there was worse come scenario, how easily are they able to then sell on those assets in order to make back the money that they've lent out? Now, the infrastructure is, you know, transformers, medium power transformers, et cetera, et cetera. So those are assets which are easily transferable to another technology, you know, another sector, et cetera. And therefore, the risk around those assets is much less. And therefore, the interest that we have to pay around those assets is much less. When you look at Bitcoin mining machines, Bitcoin mining machines have one use and one purpose. And therefore, the risk around them is they would have to be sold to basically another Bitcoin miner or the debtor would have to take on those machines themselves. And therefore, it attracts a higher interest rate. So that's the simple answer is that payoff between risk and reward and the risk and the interest rate there. So the second loan was against the machines, which have a higher risk attached to them than the infrastructure, which was at a lower rate.

Thanks, Alex. Peter, our next question is from Shigar S. from the live Q&A. What is your main focus after the Helios facility?

Thanks, Shigar, for the question. So our focus really for 2022 is to complete a build out of phase one of Helios. That's the initial 200 megawatts. Then we've got, as I said, the next 600 megawatts. And that's what we're calling phase two. And, you know, that's. We've got that interconnection agreement. We've got some of the long lead items ordered. So the focus for us in 2023 and into the first part of 2024 is that additional 600 megawatt capacity. Above and beyond that, in terms of phase three for the company, we haven't put out publicly what, you know, what our what our thinking is for phase three. We are working behind the scenes to to to to think, you know, the next step, because we always want to be a few years ahead. So when we're ready to to announce that, we will. But for now, really, the focus is on Helios phase one and then Helios phase two. Obviously, we are big believers in not just Bitcoin mining and cryptocurrency mining, but in the space in general. That's why we have Argo Labs as a foothold into the world of Web 3.0. But we're ambitious, Shigar. We want to continue to grow as a company, not just as a miner. So we're thinking big picture long term, but haven't announced that vision yet to the market.

Our next question, Peter, is from Chris Brenler at DA Davidson. Does the Intel rig design require significant CapEx or R&D expense?

So thanks, Chris, for the question. So the design itself does not require significant CapEx. or R&D expense in terms of the design and testing, et cetera, et cetera. But as with other rigs, it's the order themselves that are CapEx intensive. Mostly it's the chips that is the biggest expense. Then the rest of the machines is a fraction of that. Overall, the total cost on a per terahash basis, we anticipate being significantly less than buying off-the-shelf miners. But it's not like we're dumping, you know, a ton of cash into R&D, which is, I think, kind of what you're getting at there, Chris.

Thanks, Peter. And to follow up on the subject of Intel, from Suthan Sukumar at Stifel, can you give an update on the Intel-based rig design and development process? Are you still confident about having those rigs ready to deploy by the end of the year?

Yeah, sure. The process is going well. when we're ready to announce exactly the update on the specs and all of that, and obviously some of it is outside of our control because we're working with Intel and they have their own processes of disclosure. But when we are ready to give the full update on specs and costs, we'll be excited to do that and happy to share that. To answer your second question in terms of having these regrigs ready to be deployed by the end of the year, the expectation is yes, we will have those to be ready to be deployed by the end of the year, and we'll update the market as we go in terms of the steps along the way.

Great. Our next question from the live chat, we've gotten this a few times, both from John S. and Shigar S. When will the board get a full-time chairman?

Yeah, it's a good question. We've been, or a fair question, I should say. We've been working on strengthening the board, as I talked about in the presentation. You know, we just have most recently added Regov. We also added two board members last summer, Maria Perella and Sarah Gao. I'm really happy with where the board is at. They're very engaged, very involved. adding a ton of value. So that's great. The board itself is continuing to work on the chairman question, the chairman process, and working to strengthen the board. We do recognize that and we want a chairman. So when we are, again, ready to update the market on who that will be, we'll make that announcement. But that process is ongoing.

Great. Alex, one question for you just came in from the live chat from Jew L. Does your cost of Bitcoin that you talked about, so the mining margin, include all overhead of operating costs, amortization, depreciation, etc.? ?

No, it simply includes the power cost. So once you plug the machine in, the overriding, the only real cost line that matters is the power cost, or if you're hosting it, then the hosting cost. That is what these machines need. I mean, in terms of, if you look at our facility, for example, the Helios facility, in terms of techs and people on the ground, there's very few people on the ground. You're talking less than 30. And so actually the on cost, if you like, of plugging in another miner is very, very, very, very insignificant. So when we look at the cost of mining and the production cost per Bitcoin, we are simply looking at the power cost that goes into that machine.

Great. Another question. This one comes from. John Peterson at Jefferies. When the price of Bitcoin recovers to peak levels, would you continue to sell Bitcoin to fund growth or will you go back to a HODL strategy?

Alex, you want to take that one or you want me to take it? Yeah, that's fine. Yes. I think at the moment, our strategy is as we've described, and it is to look at debt and also at selling Bitcoin. Obviously, if Bitcoin recovers significantly, our share price recovers significantly, that would be something that we would look at, but that's not the is to continue to sell Bitcoin and focus on debt markets, not equity at the moment.

And I'll just add a little bit to this, John. I think it's a good question. If you look at the history of the company, if this is the continuum, this is selling Bitcoin, this is never selling Bitcoin. We've been to both extremes and now we're in the middle and we're pretty comfortable in the middle. I actually think that it's the right place to be. I think... You know, HODL is great to have. It's a great piece to have on the balance sheet. It's something you can do a lot with, whether you deploy some of it into Argo Labs, whether you're using some of it, you know, to borrow against, whether it's just appreciating like those are that's fine. But ultimately, at the end of the day, you know, we still live in a fiat dominated world and you're going to need fiat for for operations. You know, if you ever do a dividend, et cetera, like you want to have a war chest of fiat as well as a war chest of Bitcoin. So I'm quite happy with where we are in the middle. And it might fluctuate a little bit this way or that way, but I don't think we'll ever go back to either extreme.

Thanks, Peter. Our next question comes from Anthony Power at Compass Mining. With 29 listed companies currently in North America, do you see this number getting bigger or do you see any M&A activity or consolidation? At what point do you believe the big energy companies ramp up their interest and investment in this space? Are there any opportunities to partner?

Yeah, so I think two questions in there, Anthony. Good questions. Yeah, it's hard to believe 29 listed companies. It's happened pretty quickly. I remember when there was like five of us. So do I see M&A activity, you know, and particularly with kind of the market we're in right now? I think there's always people out there evaluating deals. I would say as a whole, as a space, there will likely probably be some M&A activity in the second half of this year, given where the market is and some consolidation. I mean, it's a lot of listed companies. In terms of energy companies ramp up their investment and interest, I think that's happening, but I think they move slowly. And I think They it's, it's still probably a couple of years away, but I know that they are looking at it. They've got skunk works happening. There's there's projects happening, but in terms of really ramping up, um, I, I think it's, we're probably into the next, you know, full cycle before we, we see that happen in a big way. Uh, and in terms of opportunities to partner. Yeah, look, I think you're seeing people get closer to rigs and people get closer to power. We're getting closer to rigs with the relationship with Intel, getting closer to chips with the relationship to Intel. I think that's going to start to happen on the power side. We're fortunate that we're in a Texas market where we can really get low cost power using the grid. That's not the case for everywhere in North America. You do have to have relationships with utilities or power generators. But ultimately, this space is heading in that direction for sure.

All right, Peter, we're coming up on the top of the hour, but we've got two last just quick questions for you. The first one from the live chat from Kevin D. With the core machine swap, is it a machine for machine swap or is it based on total terahash?

Yeah, thanks, Kevin. It's total TerraHash. Pretty much when you're always doing machines, it's based on TerraHash.

Great. And then our last question, Peter, also from the live chat. This is from both Paul C. and Kevin R. Given the shortage of power that other companies are facing, is there an opportunity for us to host third-party rigs at Helios?

I think in the, in the short term, uh, would be challenging for us given our commitments to ourselves, you know, with our fit main machines coming in and with plans for Intel in the second half of this year, the Intel rate in the second half of this year, looking into 2023, 2024, um, it's something that we, we were always thinking about, you know, is there an opportunity for us to diversify revenue a little bit and have some hosting relationships? Um, so I would say unlikely for 2022, uh, maybe for 2023.

That's great, Tom. Thank you very much indeed for managing that Q&A. And obviously, just given the considerable attendance you've got on today's call, it's not possible to take everybody's question. But thank you to everybody that did submit questions. And we'll make those available to the company post today's call as well. Peter, I'm shortly going to redirect investors as usual to give you their thoughts, their expectations and their feedback. But before doing so, I wondered if I may just ask you for a few closing comments and then I'll conclude the meeting.

Great. All right. Thank you, Mark. Uh, well, thanks everyone for, for attending. Um, it seems like we're doing these more and more frequently, which is, you know, part of our commitment to, to transparency as, as well as our commitment to, you know, now that we're NASDAQ listed, uh, we're doing, you know, earnings, um, not something we need to do as a UK kind of, you know, a headquartered, uh, primarily listed company, but we're, we're happy to be doing these earnings calls. Um, and, uh, In terms of where we're at, I'm incredibly pleased with the work that the team has done to get Helios up and off the ground and excited about the second half of this year. I think, you know, it'd be nice if the price of Bitcoin could help us along a little bit. But ultimately for us, it's really about, you know, head down, executing, under-promising, over-delivering. And I think if we do that, we're going to be successful in the long term.

That's great. Peter, Alex, Tom, thank you very much indeed for updating investors this afternoon or this morning in your case, Peter. Could I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of Argo Blockchain PLC, we'd like to thank you for attending today's presentation and may I wish you all a very

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