Argo Blockchain plc

Good afternoon and welcome to the Argo Blockchain PLC investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time via the Q&A tab situated on the top right-hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted to date and will publish those responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to the management team from Argo Blockchain PLC. Tom, good afternoon, sir.

Thanks, Lily. Before we begin, I'd like to remind everyone that today's presentation and remarks may contain forward-looking statements. Please see our Form 20F filed with the Securities and Exchange Commission for our full risk disclosures. With us today for our discussion of Q4 and full year 2023 results are Thomas Chippas, Argo's chief executive officer, and Jim McCallum, Argo's chief financial officer. And now I'll turn it over to Thomas for some introductory remarks.

Thanks, Tom. And thank you to everyone for joining us today. I'm excited to be speaking with you. It certainly has been a busy few months since I started, and I'm eager to fill you in on what we've been working on. This is my first earnings call since joining Argo back in November. And as I'm sure everyone is aware, we just went through the fourth Bitcoin halving at the end of last week. It's an exciting time to be in the Bitcoin mining space. During 2023 and so far in 2024, we at Argo have had three priorities that guide us on a daily basis. We focus on financial discipline and deleveraging, operational excellence, and growth and strategic partnerships for the sustainable future of this company. By concentrating on these goals, I believe that we put ourselves in a strong position going into the halving, and I'm excited to continue with the great work that the team is doing. A few comments on the macro environment. It goes without saying that the most significant event of late for miners was last week's halving. Block rewards were reduced from 6.25 to 3.125 Bitcoin, and we saw substantially higher fees being paid in the blocks initially produced post-halving. Although fees have retreated from those initial post halving peaks, they were generally outperforming previous years post halving environments until today's retreat in hash price. This halving is different to previous halving events in several ways. The change in the number of new Bitcoin entering circulation is reduced by half as compared to the previous halving event per normal. But with 94% of the Bitcoin supply already released, one could interpret this reduction as likely less impactful on supply than previous halving events. The presence of the Bitcoin ETFs is driving demand that appears to be supporting Bitcoin prices. Moreover, such new demand is coming at a time when the new supply is reduced. Hash price, which spiked right after halving, showed resilience for most of this week as we got through the first post-halving week. It remains to be seen whether or not there will be sustained changes in total network cash rate now that we are through the first difficulty adjustment post-halving. In short, there are countervailing factors at play, and how, taken together, they impact miners remains to be seen. We continue to observe all of this as the market evolves, and with the benefit of more information over the coming weeks, I expect we will offer additional commentary on our Q1 2024 earnings call. Now let's turn to our key highlights for the full year of 2023. Argo mined 1760 Bitcoin during the year, and we generated more than $50 million of revenue. 2023 revenue was down by 14% from 2022, primarily due to the significant increase in global hash rate and associated increase in network difficulty. A compelling aspect of our operations at Helios is the ability of the facility to curtail operations during periods of high power prices. For most of 2023 at Helios, we procured electricity through a fixed price power purchase agreement, meaning that the price of power was fixed at a set price. However, when the market price of electricity is high enough, it makes economic sense to shut down operations and sell that electricity on the open market. This is called economic curtailment. and we generated $7.2 million of power credits during the year, which directly reduced our cost of mining. This curtailment helped us achieve a mining margin of 43%, with an average direct cost per Bitcoin mined of $16,363. Our average all-in power and hosting costs across all three sites for 2023 was just under $0.05 per kilowatt hour. Our adjusted EBITDA was $8.3 million, which is a tremendous improvement from 2022, which was negative $47 million. As I mentioned on the previous slide, we had a strong focus on financial discipline, both in terms of reducing debt and maximizing cash. During the year, we reduced our Galaxy debt by $12 million, and we ended the year with $7.4 million of cash on hand. We also had some significant balance sheet events occur in Q1 2024 that I wish to mention. In January, we opportunistically entered the equity markets and raised nearly $10 million through a share placing with institutional investors. Additionally, we streamlined our Quebec operations by selling our Mirabelle facility for $6.1 million. We'll take a look on the next slide and talk a bit more about our debt reduction in detail. Debt reduction has been a focus for us since we sold Helios and restructured our debt at the end of 2022. As a reminder, following the Helios sale, we had $79 million of debt outstanding, including $35 million of secured debt owed to Galaxy and $40 million of unsecured notes or baby bonds. During the year, we paid down $12 million of Galaxy debt through monthly amortization payments, as well as with cash generated through non-core asset sales and our July equity rates. In the first quarter of 2024, we paid down an additional $12 million of debt through our January equity raise and with cash generated from the sale of the Mirabelle facility. The Mirabelle sale was a great transaction for Argo for a number of reasons. First, we were able to realize an attractive exit on that asset with a $6.1 million sale price, which was used to repay debt. Secondly, we consolidated our Quebec fleet at Bay Como, allowing us to streamline our operations and achieve annualized cost savings of $700,000. Now, let me turn it over to Jim for a deeper dive into our financial results for the fourth quarter and the full year. Over to you, Jim.

Thanks, Tom. During the fourth quarter, we mined 443 Bitcoin, which was a 20% increase over the prior quarter. This was largely driven by lower levels of economic curtailment in the fourth quarter, as weather in Texas was fairly moderate compared to the heat waves we saw in Q3. This also increased our direct costs and reduced our mining margin percentage when compared to Q3. Our revenue in Q4 was also significantly higher than the third quarter, primarily due to the higher price of Bitcoin. Our realized Bitcoin price in Q4 was approximately $36,500, which was 30% higher than the roughly $28,100 Bitcoin price that we realized in Q3. As Tom mentioned in his remarks, we continue to focus on financial discipline. In the fourth quarter, we reduced our non-mining operating expenses by 12%, to 3.1 million. We also recorded a non-recurring expense of $2 million for the quarter, which included a legal settlement, some other legal costs and transaction expenses. We generated adjusted EBITDA of 3.6 million in the fourth quarter, which continues our pattern of growing adjusted EBITDA sequentially each quarter during 2023. At the end of the year, we had 7.4 million of cash in hand We executed two significant transactions in the first quarter of 2024, which has bolstered our cash position in addition to reducing our debt. We raised 9.9 million of gross proceeds through an equity raise in January, of which we used a portion of that to pay down our Galaxy debt. We also sold our Mirabelle facility in March for 6.1 million. We used all of the net proceeds from that transaction to reduce our Galaxy debt down to less than 13 million at the end of March 31st, with a total debt balance of 54 million. Now let's look at a comparison between 2022 and 2023. In 2023, we mined 1,760 Bitcoin, which was an 18% decrease from our production in 2022. The primary driver for this was a large increase in network difficulty. On average, network difficulty in 2023 was 71% higher than in 2022. And the network difficulty at the end of 2023 was more than double the network difficulty at the beginning of the year. Our revenue in 2023 of 50.6 million was 14% lower than our revenue in 2022, driven primarily by the lower Bitcoin production. Mining profit for 2023 was 43%, which is lower than the 54% we achieved in 2022. The primary driver for this decrease is the increased difficulty level and the lower Bitcoin production. Our non-mining operating expenses for 2023 were nearly 60% lower than 2022. This resulted from the sale of our Helios facility and is also a testament to the team who scrutinized every line item and found ways to reduce our operating costs. Our adjusted EBITDA for 2023 was 8.3 million, a significant improvement over the prior year. Now let's take a look at our cash generation for the fourth quarter, as well as the first quarter of 2024. This slide shows our cash from September 30th, 2023 to March 31st, 2024. As we've been saying throughout the year, we've had a strong focus on cashflow generation and strengthening the balance sheet. In Q4, our cashflow from operations, including working capital changes was 7.1 million. We use 5 million of cash for debt reduction. We paid 2.6 million of interest expense during the period. At the end of the year, we had 7.4 million of cash on hand. As we've mentioned earlier in the first quarter of 2024, we also benefited from the equity raise and the sale of our Mirabelle facility. Through these two transactions, we were able to pay down an incremental $9 million of debt over and above the monthly amortization payments to Galaxy. Due to the pay down of debt, we have reduced our interest payments by nearly $1 million compared to the fourth quarter. In summary, during the first quarter of 2024, we improved our cash position by $5 million to over $12 million, while simultaneously paying down our debt by over $12 million. With that, I'll turn it back over to Tom.

Thanks, Jim. In Quebec, we've streamed by consolidating our fleet at our Bay Como facility post the sale of Mirabel. I want to take this opportunity to recognize the Herculean efforts of our Quebec operations team. They were able to relocate the Mirabel miners to Bay Como in a matter of days with minimal impact to our operations. As part of the fleet consolidation, we took the opportunity to decommission and sell some older generation machines, which reduced our total hash rate capacity from 2.8 exahash to 2.7. We still have the majority of our fleet, roughly 2.4 exahash of total hash rate capacity located at Helios in Texas. As we think about strategic growth, we're focused on working with energy generators to utilize Bitcoin mining's inherent flexibility. We talked about economic curtailment in Texas, but that's just one example of how Bitcoin mining can integrate with power grids. Demand response is a critical component of transitioning to the power grid of the future. And we believe that Bitcoin miners can play an important role in that transition. We're having discussions focused on ways to integrate our operations with those of energy companies. And we look forward to updating everyone on those discussions in due course. With that, back to Lily and Tom for any questions.

Thomas, Jim, thank you very much for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the Q&A tab situated on the top right-hand corner of your screen. Just while the company take a few moments to review those questions submitted today, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via our investor dashboard. As you can see, we've received a number of questions throughout today's presentation. Can I please ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end.

Thanks, Lily. Our first question for Tom is from Bill Papanastasio from Stifel, as well as Lac S from the Q&A chat. Can you speak to the current appetite for a fleet upgrade and the growth strategy in the post-having environment?

Thanks, Tom. Look, Argo has a strong fleet. It's important to remember that that these rigs do not operate with the toggle switch, but instead with the dimmer switch, allowing us to vary the amount of power consumed through over- or underclocking. We are, of course, aware of the capabilities of newer generation machines. As we think about opportunities for growth, we will look at hash price, the availability of rigs, and the nature of any opportunities energy cost to determine the right approach on machines. We also look to use our size as an advantage and target sites and opportunities, the scale of which might not be appealing to substantially larger miners, but are to Argo. Look, knowing that everyone is likely familiar with Argo's history, shifting the company back to a growth mindset is new for this year, and the team is digging in on several opportunities. Back to you, Tom.

Thanks, Thomas. Next question comes from Joe Flynn at Compass Point. as well as Chris H. from the Q&A chat. And this one's for Jim. From a capital allocation standpoint, can you walk us through your ongoing strategy to pay down the remaining 54 million of debt following the sale of the Quebec data center?

Thanks, Joe and Chris, for the question. Yeah, we think we've done a pretty good job in the last 18 months paying down our debt. We currently have cash on hand of $12 million, and our Galaxy debt is a similar balance to this. We enter the halving in strong financial position, and obviously we continue to focus on our debt reduction and strengthening the balance sheet.

Thanks, Jim. Our next question comes from Kevin Deedy at HC Wainwright for Thomas. Can you give an update on where hash rate currently is in Quebec after the sale of Mirabel?

For sure. So post the sale of Mirabel, as I noted, we very quickly moved the Mirabel fleet to Baycomo. So now up and running at Baycomo is approximately 300 petahash.

Thanks, Thomas. Next question for Jim. This comes from Jason B. in the chat. Does the Q1 31,000 direct cost per Bitcoin include depreciation?

Yeah, good question, Jason. Yeah, this figure only includes our power and hosting costs paid at Helios and our Quebec sites. It does not include any depreciation. Thank you.

Thanks, Jim. Another one for you from Bill Papanastasio at Stifel. Can you please provide some color as to how expense management is progressing in Q1 and Q2?

Yeah, thanks Bill. Yeah, we continue to focus on costs. We feel that most of the heavy lifting has been successfully completed here. Our run rate for non-mining OPEX has trended to approximately a million dollars per month over the last few quarters. And we believe that's a reasonable outlook for the balance of the year.

Great, thanks. Next question for Thomas. This comes from Shigar S in the chat. Could you give an update on the shareholder lawsuit?

I can. Thanks, Shigar, for the question. On the shareholder suit, we filed a motion to dismiss a few months ago, and we're awaiting a ruling from the judge on that motion. Once there's an update, I would expect we'll send out an R&S to make everyone aware.

Thanks, Thomas. Next question was pre-submitted ahead of the earnings call. Will Argo invest into infrastructure again or only focus on investing in machines?

Sure. So today, obviously, we have both hosted and self-operated machines, Helios and Big Como. As the market evolves, we think there will be opportunities where it makes sense to be hosted and some where it makes sense to own everything vertically. So we'll continue to evaluate those decisions on an individual basis.

Thanks, Thomas. Another pre-submitted question. Does Argo have any plans to branch into AI or HPC data centers?

Sure. So look, we most definitely understand the demand for AI and HPC processing in the market. But from our perspective, that is a substantially different business than operating a Bitcoin mining facility. We've certainly looked at it, but it's not an area where we're currently focused.

Great. Thanks, Thomas. Here's another question that was pre submitted. We got this a couple of times and we seem to get this every quarter. This is for Jim. Are there any plans to start paying a dividend?

No, we do not have any current plans to start paying a dividend. At the moment, any excess cash that we generate is being used to pay down debt and also to invest in future growth for the company. So yeah, no plans at this point to pay a dividend. Thank you.

Great. Thanks, Jim. Next question from Jeff R. in the chat. For Tom, how do you think about M&A in the post-having environment?

Thank you, Jeff. Look, the market may present opportunities for inorganic growth. We're evaluating many projects and would certainly consider opportunities that make sense and ultimately create value for shareholders.

Thanks, Tom. Next question from the chat. What was the thought process around selling the Mirabel facilities?

Sure. So the sale of Mirabel achieved a great sales price, as we mentioned, $6.1 million. That works out to $1.2 million per megawatt, which is much more than the development costs for facilities anywhere in North America. The opportunity to consolidate our operations to Bay Como and achieve some cost-saving synergies were obviously a driver. And ultimately, being able to do this with minimal impact to our hash rate or revenue generation from consolidating the machines also made it an appealing option for us.

Great. Thanks. Next question. Can you talk a little bit more about the power price you achieved in Texas?

Sure, I'll take that. So as we noted in the presentation, our power costs across all sites for 2023 was just under $0.05 per kilowatt hour. And in Texas, we benefited from $7.2 million in economic curtailment revenue from demand response programs. That obviously played a very important part in driving down our net electricity costs for the year.

Great. Thanks, Thomas. Lily, back to you.

Thomas, Jim, thank you for answering all these questions you carry from investors. And of course, the company can review all questions submitted today and will publish those responses on the InvestorMeet company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Thomas, could I please just ask you for a few closing comments?

Certainly, Lily. Thank you. Thanks, everyone, for joining us today. It's an exciting time in mining space, as I said, and certainly very exciting time for Argo. We look forward to speaking with everyone in a few weeks to discuss our Q1 results in more detail. Thank you for your time today.

Thomas, Jim, thanks for updating investors today. Can I please ask investors not to close this session as you'll now be automatically redirected 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 and 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 good afternoon to you all.