Stronghold Digital Mining, Inc.

Good afternoon and welcome to the Stronghold Digital Mining conference call for the third quarter ending September 30th, 2021. My name is Valerie and I'll be your operator this afternoon. Before this call, Stronghold issued its results for the third quarter 2021 in a press release, which is available in the investor section of the company's website at www.strongholdingmining.com. You can find the link to the investor section at the top of the homepage. Joining us on today's call are Stronghold's co-chairman and CEO, Greg Beard, CFO Ricardo Laraday, and Companies Outside Investor Relations Advisor Jeff Graham with Gateway Investment Relations. Following their remarks, we will open the call for questions. And now I'd like to turn the call over to Mr. Graham for some introductory comments.

Thank you.

Before management begins their formal remarks, our discussion may contain forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about strongholds' beliefs, expectations, and future performance, are forward-looking statements. Forward-looking statements can be identified by use of the words such as anticipate, intend, believe, estimate, plan, seek, project, expect, may, will, would, could, or should, and the negative of these terms, or other comparable terminology. Examples of forward-looking statements include statements relating to our expectations regarding future growth, future revenue and earnings increases, EBITDA margins, cash flow projections and annual growth rates, our growth plans and opportunities, including our strategies for future acquisitions and power, potential minor targets, estimated returns on future acquisitions, and our assumptions underlying these expectations. Forward-looking statements in this discussion are not a guarantee of performance, and you should not place undue reliance on such statements. We have based these forward-looking statements largely on our expectations and projections about future events. Forward-looking statements are subject to many uncertainties and other variable circumstances, including but not limited to risks and uncertainties identified under the caption Risk Factors in our S-1 and Strongholds Quarterly Reports on Form 10-Q. These factors could cause our actual results and experience to differ materially from any forward-looking statement. Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements included in this presentation are made only as of the date hereof. We do not undertake and specifically disclaim any obligation to update any such statements or to publicly announce the results of any revisions to any of these statements to reflect future updates or developments, except as specifically stated or to the extent required by law. You may get Stronghold Securities and Exchange Commission filings for free by visiting the SEC website at www.sec.gov or Stronghold's investor relations website at ir.strongholddigitalmining.com. I would like to remind everyone that this call is being recorded and will be made available for replay via a link available in the investor relations section of Stronghold's website. Now, I would like to turn over the call to Stronghold's co-chairman and CEO, Greg Beard. Sir, please proceed.

Thank you, Jeff. Good evening, everyone. And thank you for joining us on our inaugural earnings call following our successful IPO in October. I would like to welcome our new shareholders and analysts. We appreciate your support. I'm going to quickly walk through an update on our operations and recent activity. After that, because this is our first call since going public, I want to provide some background and highlights about our business. And then I'll turn it over to Ricardo to discuss our results in more detail. before opening up for Q&A. In the last few months, we have made significant progress executing our strategy of being a low-cost, vertically integrated, environmentally beneficial Bitcoin miner. On October 22nd, we closed our IPO, generating net proceeds of roughly $132 million, and began trading on the NASDAQ. And we are deploying the capital we have raised in attractive investments. Despite global supply chain difficulties that are impacting the Bitcoin mining space as well as numerous other industries, we are actively receiving commercial quantities of miners under our agreements with Minerva and Northern Data, and we are happy with the performance of the units we have received to date. We have already received nearly 4,000 miners associated with the Northern Data JV, and we are scaling the operation to fully implement the JV. With respect to Minerva, we have 240 MV7 miners plugged in currently and expect to have over 500 plugged in by the end of this week. We had expected all 15,000 Minerva miners to be received late this year or early next year, and this is still the case. However, to mitigate the potential delays in miner deliveries broadly, we have begun buying miners in the open market, with over 2,500 purchased to date with a hash rate capacity of over 200 petahash to be delivered and installed before year-end. We were able to procure these miners at attractive terms due to our extensive industry relationships. These purchases will allow us to take advantage of the current market opportunity, and they demonstrate our ability to move quickly and creatively. and they also demonstrate the benefit of owning our own power generation and infrastructure. Power and miner-ready outlets are not constraints for us. In addition to the miners' purchase for immediate delivery, we entered into two agreements with Bitmain to purchase 12,000 S19J Pro miners and 1,800 S19XP miners. To date, we have installed or purchased a total of approximately 45,000 miners with hash rate capacity of approximately 4.4 exahash. And we believe we are on track to hit our goal of ending 2022 with approximately 80,000 miners and total hash rate capacity of at least 8 exahash. We are also continuing to make progress on expanding our power generation capacity. Earlier this month, we closed on the acquisition of our second reclamation and power facility, Panther Creek, which roughly doubled our power generation capacity with an additional 80 megawatts. We planned to begin installing miners at the facility in December, so under two months from close to minor installation. A lot went into making this possible. First, we began ordering the equipment to develop our data center before we executed the definitive agreements. We completed substantial reliability upgrades between sign and close, which we expect will allow the plant to run at a full load on a constant basis going forward. And also before closing, we began the plant modifications and data center build out to allow us to deliver power directly to our miners. We have developed an expertise in retrofitting power generation assets for Bitcoin mining. And the current project of Panther Creek highlights our ability to move fast and execute. Beyond Panther Creek, we are actively evaluating opportunities to further increase our power generation capacity, including another reclamation and power facility in Pennsylvania that we have under non-binding LOI to acquire. We have also purchased most of the equipment needed to modify our next acquired power asset for Bitcoin mining so that we can execute as fast or faster than we did for Panther Creek. We also... We have also already ordered equipment beyond what we need for the first three assets. In addition to minor purchases and power generation asset acquisitions, we have made other important strides since the beginning of the third quarter in building out our business. We have manufactured 33 megawatts of our proprietary strong box modular data centers, and we expect to have completed approximately 125 megawatts by the end of the first quarter of 2022. We hired 39 employees since the beginning of the third quarter to support our data center operations, reclamation operations, and corporate efforts, in addition to 39 employees associated with the Panther Creek acquisition. We also signed an office lease in Pittsburgh that will support up to 25 people and strengthens our presence in Pennsylvania. We are still in a build-out phase. but we believe we have established a strong foundation and are executing on our ambitious growth plans. As I alluded to, because this is our first earnings call since going public, I'd like to give an overview of our business for those of you who may not be as familiar. Stronghold is a Bitcoin mining company that we believe is differentiated from its peers for four critically important reasons. First, and most importantly, is that we are vertically integrated and environmentally beneficial. We play an active role in cleaning up one of the most environmentally neglected regions of the country by remediating some of the nearly 1,000 toxic coal refuse piles throughout Pennsylvania to fuel our power generation assets. This not only cleans up the environment, but it also provides us with among the lowest net power costs in the industry. Additionally, by owning our own power generation, we believe we will position ourselves well for market volatility and retain operational control to take advantage of arbitrage opportunities on the power grid. I'll cover these points in greater detail in a few minutes. The second differentiating point is our aggressive growth track record and expansion plan. Since stronghold formation in March of this year, we've acquired two reclamation and power facilities and purchased approximately 4.4 exahash of miners. We successfully completed two private placements, two equipment financings, and an IPO to support our growth. Our successes to date provide us with confidence to achieve our target to end 2022 with hash rate capacity of eight exahash of mining. One thing that gives us confidence in our growth strategy is our third differentiating point, our accomplished management team. We've assembled a talented team with an established track record of creating value for investors and operating complex assets. I was the head of natural resources of private equity at Apollo for 10 years and on the firm's management committee. Before that, I was a managing director at the private equity energy-focused firm called Riverstone, and I started my career at Goldman Sachs. Bill Spence, my co-chairman, is a pioneer in waste coal reclamation with 40 years of experience in the industry. Ricardo Laude, our CFO, worked with me at Apollo for many years and was then head of financial risk management at Anheuser-Busch Invest. The team we've assembled is highly capable with significant experience in engineering, power operations, and investing in financial analysis. which we think is critical for a successful vertically integrated Bitcoin miner. We aim to have one of the deepest, most analytical teams in the Bitcoin mining space and continue to attract top talent. Additionally, this team is highly aligned with shareholders as our insider ownership exceeds 50%. Finally, we believe that the support that we enjoy from the financial markets is a key differentiating factor. We were the first Bitcoin miner to go public through a traditional underwritten IPO. And I'm thrilled that some of the world's largest institutional investors have decided to join us on our journey. We believe that this critical access to capital separates us from much of the industry and supports our aggressive growth plans. Now, I would like to take a few minutes to expand on the role that we play in improving our environment. Some of our peers utilize renewable power. which we believe is a positive step, but it is more a passive approach of simply not doing more harm at best. At Stronghold, we aim to be better than environmentally neutral as our operations actively improve the environment in the areas we operate. Our two current reclamation facilities, Scrub Grass and Panther Creek, are coal refuse to energy facilities, both located in Pennsylvania. Coal refuse is the toxic waste byproduct created by legacy coal mining operations. Up until the 1970s, when coal was mined, the high-quality coal was used for power and steel, and the lower-quality coal and other material, the refuse, was left in expansive piles across the state, really more like mountains. There are hundreds of millions to billions of tons of coal refuse across thousands of acres in Pennsylvania. The piles represent the largest source of water pollution in the state, and many are literally on fire as we speak, producing toxic emissions that harm the local communities. Through our operations, we removed the coal refuse and combust it in our specialized purpose-built facilities that use circulating fluidized bed technology. Our process removes nearly all NOx, sulfur dioxide, particulate, and mercury emissions. with the byproduct being beneficial use ash, which is a certified liming agent and can be used to mediate the land where the refuse piles existed. Our operations will ultimately transform these toxic piles into usable land, once again, allowing ecosystems to return and benefiting the local communities. As a matter of fact, in the third quarter, we removed more than 100,000 tons of toxic coal refuse from our ecosystem and replaced it with 65,000 tons of beneficial use ash to facilitate the remediation of this plant. Not only does owning our own power generation assets allow us to improve the environment, but it is also critical to maintaining superior profitability through cycles and provide valuable arbitrage opportunities. When we install Bitcoin miners, we power them through stronghold-owned power assets, which gives us operational control and some of the lowest electricity costs in the industry. And electricity is far and away the largest direct cost associated with mining. As investors, we care a lot about cost because we are always thinking about downside protection. While we are bullish about Bitcoin and Bitcoin mining, We appreciate the risk profile and expect significant volatility along the way. But we also expect that network hash rate will continue to increase. With our power generation assets, we think that our cost to mine Bitcoin would be under $3,000 per Bitcoin once our operations are scaled and assuming a network hash rate of 150 exahash. We believe this is about one-third of the industry average. So if network hash rate triples, we think our cost would still be less than $10,000 per Bitcoin. But for many of our peers, we would expect their cost to approach $30,000 per Bitcoin. The impact becomes more and more pronounced as network hash rate increases and prices fluctuate. We built this business to be durable. through market volatility and market downturns without giving away upside. And we believe our vertical integration and resulting low cost profile gives us a distinct advantage in terms of long-term margin preservation and ability to acquire miners. In addition to facilitating industry-leading costs, vertical integration also gives us the ability to sell power to the grid. While Bitcoin mining is generally the most profitable use of our power, power prices are volatile. So when grid prices are more attractive than mining revenue, we are able to take advantage of the situation and create incremental value for shareholders. I hope that this provides a valuable background on Stronghold and what separates us from most of the rest of the industry. At this point, we'll shift the focus to third quarter results and our outlook for the next several months. To do that, I'll turn the call over to our CFO, Ricardo Laude, before providing my closing remarks.

Thank you, Greg, and good evening, everyone. I will review our third quarter results relatively briefly, keeping in mind our third quarter numbers do not reflect the significant minor deliveries we're actively receiving and expect to receive over the next several months. At the end of the third quarter, we had about 3,000 minors employed with total hash rate capacity of roughly 185 by TETA hash. From the end of the quarter through November 29th, we received nearly 3,000 additional miners with total hash rate capacity of approximately 285 petahashes, more than doubling our hash rate capacity in less than two months. These miners include 240 Minerva MG7 miners, and we expect to have over 500 by the end of the week. Our current miners also include nearly 4,000 miners associated with our Northern Data Agreements. We're in consistent contact with Minerva and Northern Data and expect to receive the balance of the miners under these agreements over the next few months. To date, the company has ordered or installed approximately 45,000 miners with total hash rate capacity of approximately 4.4 exahash. We were roughly breakeven on an adjusted EBITDA basis for the quarter, with close to $10,000 on roughly $6 million of revenue. Both form of our ICO, the fancy Greek acquisition closing, and deposits on announced miner purchases Our cash balance on September 30th was approximately $104 million, so we have sufficient liquidity to continue to execute on our growth targets. We expect to have total hash rate capacity of at least 8x the hash by the end of 2022, which implies a mining power load of approximately 285 megawatts. As we're arranging our mining operations, we're also scaling our power generation capacity to maintain our vertical integration. Following the Panther Peak acquisition earlier this month, We have 165 megawatts of power generation capacity and are constantly evaluating other opportunities to increase our power generation capacity on attractive terms, including continued due diligence on a third coal, refuse declamation, and power facility that we have under a non-binding LOI. That completes my financial summary. Now, I'll turn the call over to Greg for closing remarks.

Thank you, Ricardo, and thank you, everyone, for taking the time to dial in. We are excited about our entry into the public markets and look forward to continuing to grow the value of our business and improve the communities in which we operate. With that, we can now take your questions. Operator?

Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star then 1 when you touch down telephone. Again, if you would like to ask a question, please press star then 1. One moment for our first question. Our first question comes from Lucas Pipes of D Riley Securities. Your line is open.

Hey, good afternoon, everybody. Hey, Lucas. Congrats on the listing. Also great to see the positive operating cash flow and solid results through Q3. Just a few quick questions. First, I wanted to make sure that I understand the 2,500 open market order properly. There's a lot of buzz in the industry about difficulty in getting miners. So would it be possible to share some context on kind of how you were able to obtain these additional miners? And then is this something that you think is repeatable over the next weeks, months, et cetera, as you continue to grow out the Bitcoin mining business?

Yeah. Hey, Lucas, thanks. This is Greg. So we know that we're judged by the deployment of hash rate into our model. I think we know there have been questions around the delivery schedule for Minerva and maybe even for main miners as well. We think the best way to mitigate the risk of delays in any delivery schedule is by buying miners in the open market. That's what we've been doing. We have deep relationships with vendors, brokers, board members. Companies that bought miners, they can't plug them in for six months, they might want to sell them. Even this week, we have reached, not definitive terms, but reached an oral agreement on another, say, 3,000 miners that are sitting in North America that are for sale. And we're able to get these for around $80 a terahash. So the math and the logic behind paying $80 a terahash for deliveries, say, within 10 days, is that about every machine makes about $10 a terahash per month. And so, you know, paying $80 a day is actually a better deal than paying $60 for a delivery next June. And then it also eliminates the market perception risk that these things won't be delivered at all. So... I think we're going to start to share a lot more of our data around what we've ordered, what we've paid, what is currently plugged in versus on a pallet, how much power we have available. I think that will give the market a lot of comfort as to what our growth expectations are and how they're being realized on a daily basis. So I think you're right, getting access to miners, I think you would not want to, I would say the restrictions on growth in this market is one around power, and we have that fully available to us, I would describe it as plug-ready power by December 18th on two plants, which is, that's a lot of power. We make our own strong boxes, we make our own mobile data centers, that's another bottleneck that we've removed. And so really our only bottleneck is just to assure the market that we can get access to these miners and we can do it without overpaying. So I think just some of the stats that we put together to share with you around what we're expecting still by the end of the year is conservatively about 12,000 miners by the end of the year and as many as 15,000 miners if that additional order of 3,000 comes to fruition. And that represents between one exahash and almost 1.3 exahash by the end of the year. Now, by the end of the first quarter, we're still expecting a really massive ramp, which we're still expecting to execute on. But by the end of the first quarter, we should have between 30,000 and 36,000 miners delivered and plugged in representing between 2.7 and 3.3 exahash. Just to put it in perspective, we've been at this about, it'll be about a year by the end of the first quarter. I think those that know us know our ability to execute. We bought a couple of power plants and are now making ourselves as large as some of the biggest miners in the world inside of a year. And so, you know, I'm happy to have our, you know, to be asked to prove it on the growth rate, you know, which we're going to have to obviously do. But I would say, hey, we are opportunistic. We know what the restrictions and bottlenecks are, and we're getting around them. In spite of, you know, so the market rumors and delays in supply chain and all the things that are impacting, you know, not just this space but the world, So I think that's what we really want to communicate is that, yeah, we have aggressive plans, and we have more than one way to achieve that growth.

Greg, this is super helpful and really appreciate the detail on end-of-year and NFP1 hash rate. On the minor delivery, you mentioned Minerva, and in the release you say your shipments are ramping up. towards the 15,000, would it be possible to provide some color as to what you're hearing from your supplier in terms of how quickly that cadence is expected to pick up? And then, kind of secondly, has the supplier provided guidance as to what bottlenecks it is currently facing and how they're going to be overcome?

Sure. So, you know, I don't want to, you know, be on my call to make representations on behalf of Minerva. I'll tell you what they have told us, and we believe them, is that their constraint comes largely from having an assembly center that has been part of an industrial park that has experienced power curtailments, which, hey, that's concerning. In spite of that, they're still shipping minors to us and hopefully others, and they're now starting to show up. And they're working, you know, as expected on the spec that we paid for. In fact, today I posted on, you know, I'm aware that there are rumors out there saying, hey, is Minerva, you know, are they going to be able to deliver at all? Does this company really even exist? So for that reason, I posted on LinkedIn, you know, pictures of one of our strong boxes full of Minerva miners, They have been delivered and are running. And we'll be doubling that quantity by the end of the week, this week actually. And so they're coming. So the curtailment of power impacted one facility. We talk to Minerva every day. We are aware of the other facilities that they are trying to move their assembly operations to and believe that they will be successful in ramping up assembly outside of mainland China to be able to produce, uh, you know, I would say industrial quantities of these machines. Um, I can tell you that I don't think they've done it yet. So I think right now we're still, we're, it's still, uh, you know, dribs and drabs out of that one facility. Um, but, uh, you know, because we have, you know, we're not passive in this effort. Um, We're actively trying to both understand and push and help Minerva with that assembly issue. I think the critical component of the miner is the chip, and I would be much more concerned if they didn't have the supplies of parts to assemble these things. So we believe that they do, and the most critical component of that is the chip. We believe they have those already in their possession. and I can tell you that they're working as a customer. They're working on the spec that we paid for in industrial quantities. So it's a pretty bad fraud if they're actually shipping miners. I've been made aware of what some folks are saying about Minerva. Again, not representing them, and it's certainly not issue-free. but we do believe that we're going to get all 15,000 miners in the first quarter of next year. For that to happen, they still need to figure out their assembly issues, but having helped them and worked with them, I think they're going to do it. Also, just from your modeling standpoint and ours, we're presuming that we get only 1,500 of these miners by the end of this year, Um, so this is not like we're assuming that we're going to get, you know, 15,000 and our, our growth is going to be, you know, limited by Minerva. They are a, a small part of the picture this year. And overall, you know, I think they're going to be a relatively small part of our, our story. Um, you know, they're a part of it. I think we, we got what we feel like a, a good deal on those machines, but obviously them being late, that hurts us. So, um, It's not a position that we want to be in where we are reliant on a single producer of these things. I'm not even sure what your question was, but that was what Nick said.

No, that was very helpful. So kind of for modeling purposes, $1,500 for the end of this year, that's a reasonable amount. And I think in your response to your prior question, you said kind of conservatively 12,000. Presumably that would include those 1,500. And then if the oral agreement is converted into a firm order, that would get 15,000. Again, then Minerva would be just 10% of your end-of-year target.

Just to be sure, the 12,000 includes the oil agreement on the 3,000 miners, which is pretty much done. But the 12,000 would include this.

Got it. Got it. Okay. And then, Greg, did I hear that right? By the end of Q1, you would expect full delivery of the Minerva orders. Has that been Kind of what's been communicated.

That's what we're expecting.

All right. Well, really appreciate all the additional color. Continue best of luck, and I'll turn it over for now. Thank you. You bet.

Thank you. Our next question comes from Mike Rondell of Northland. Here it is. Your line is open.

Yeah, guys. Thank you. A couple questions. I think the 1800s, of bit main miners, uh, that was a new order is, is, are those expected to be on a delivery schedule? Like the 12,000, I think the 12,000 were split between two Q 22 and three Q 22. Is, is that sort of still a good rough guideline? And then on the 1800 kind of roughly, when do you expect those?

Yeah. So the point you're making on the 1,800 Bitmain, or are you talking about, sorry, which order are you talking about specifically?

Yeah, the 1,800 Bitmain order that's bottom of page one on the press release.

Oh, that one is the 3Q and 4Q of next year.

Okay.

That's not part of the market purchases that we did just now. That's in addition to those, the 2,500s.

In addition, okay. And is the 12,000-bit main, are those still sort of thought to be 2Q, 3Q of 22? Yes.

And that's outside the current purchases that we just did.

Got it. And the 3,000, the oral agreement that you're close to, when do you think that would be finalized?

I mean, it's still... I don't want to commit to this publicly. Let's just say hopefully in the next few days.

We'll AK that if it happens.

Yeah.

Got it. Got it. Maybe just lastly, on Minerva, is there a city in China where the power was out there? And the other question I've kind of been asked, Is Minerva manufacturing all those miners, or are they sourcing them from another source?

So I think it's been pretty well publicized about the power curtailments, but I think we're not going to comment beyond that. And then I can tell you that the miners that we receive were put together and assembled in a facility that had been used to assemble other miners, so it's not a first-time experience for Minerva. But they are, you know, the test miners that we received, you know, we had them obviously taken apart and evaluated with favorable results. And, you know, these are labeled Minerva miners and are not similar to any other miner in the market.

Got it. Okay. Thanks, guys.

Sure. No problem.

Thank you. Our next question comes from Chris Brundler of DA Davidson. Your line is open.

Hi. Thanks, Stephanie. Thanks for the question. Congratulations, Greg and team, on your first quarter out of the gate. Just wanted to ask on the power plants, the Panther Creek, how much of the non-recurring maintenance costs fell into this quarter and I imagine that was not a high number, but is there an expectation for what that would be in the fourth quarter?

Yeah, it's mostly on the fourth quarter.

Is it rough sizing?

We're going to say in the low single digits in millions.

Okay, great. And then on the third facility, the non-binding, can you just remind us what the timeline pathway is there and sort of steps to get there?

Yeah, so I think the important thing to note, I would expect to have definitive agreements in the first half of 2022. The ownership structure of that facility is a little bit more complicated, so it takes a little longer. But I think as we pointed out, all of the equipment needed to modify that plant or a similar plant has already been ordered. And so we can have a very fast turnaround from the – definitive document stage to turning it into a data center. And Panther Creek, it was a couple of months for that process, and we'd expect a similar answer on the next acquisition.

Sounds good. Okay. The real question is, you know, just given all the activity in capital raising and thirst for power we're seeing just now that Bitcoin mining is becoming very popular, is there a risk that someone comes in and swoops that away from you, or does your waste coal expertise make that unlikely?

You know, hey, we're experts in this space. I would not expect someone to come in and take it away from us, but hey, anything's possible. But I wouldn't say we have, you know, we're obviously in dialogue with additional potential targets, both in, you know, waste coal reclamation as well as other sources and other geographies. So I think obviously buying power assets is probably the easy part for us. And I think there's no doubt that the acquisition cost for the first couple of facilities is probably viewed as abnormally low at this point. But we'll end up, we do want to stay with the vertical integration model. We think that is far superior to being on PPAs for this power. So I think you'd expect us to continue to buy.

Okay. I've seen a lot of activity in this space, but I haven't seen anyone else trying to do waste coal. Are you guys aware of anyone else trying to copy this strategy?

You know, I'd say a couple of the guys that own these facilities call us with the hopes that we will teach them how to do it, but we haven't been that nice to those guys quite yet. I wouldn't expect to see a... to see a lot of competition that would impact us in a material way in waste coal.

Okay, great. Last question is just competition in general increasing. Most likely you're going to see a much higher hash rate by this time next year. How do you guys think about the balance between ordering those brand-new, super-efficient XPs or trying to get hash rate on now when you know it's not going to be as efficient as those new bit mains that you're ordering for next fall?

Yeah, I would say, you know what, we're hopeful that over time, the investors, the marketplace will recognize that this is probably going to be viewed as a power arbitrage business in five years, and that I would be surprised if most of the market, most of the Bitcoin mining market is going to end up being owned by power facilities that have an extremely low cost of power. With regard to the new generation of machines that is coming out and what they cost, That's just simply a math question. So I think we're always motivated by return on invested capital and return on equity. And so it may be that the latest and greatest machine with the highest hash rate comes at a price that makes it less economic, considering our low power cost, than buying a last generation machine. So I think we can show you that math. because that's the math that we do whenever we make any purchase.

Sounds good. I agree. Thanks so much. Sure.

Thank you. Our next question comes from Juliano Bologna of Compass Point. Your line is open.

First of all, congratulations on completing a successful IPO and raising a significant amount of equity capital. I'd like to start off a little more on the miner side. It looks like from the press release, as some of the questions before me implied, the 1800 S19 order is incremental, and then there's also the order for the additional 200 pay-to-hash that come from the other 2,500 miners that you guys are purchasing in the open market. I put that number somewhat around incremental orders of about 452 pay-to-hash per second based on the pay-to-hash per second capacity. Is there any sense of how much pay-to-hash capacity would come from that oral agreement that you guys have or that oral discussion that you guys are having about the 3,000 miners have what the average – terahertz per miner is for that potential transaction.

Not to be too hung up on that agreement for the 3,000 miners. I mean, we're constantly, as we purchase, and you'll see on the subsequent events, the dates on when we purchase these machines, we're actively talking to several folks. So I would not just keep focusing on one specific and talking about an oil agreement. We do have that, but we're constantly monitoring the market for these. And you know, whenever there's zips, I mean, it's easier, easier to transact and some people transact on them. So just don't get too much too focused on, on the 3000 machines specifically that we just mentioned. I mean, we, we, we would find a portion or even more of that, uh, still in the open market for us, but that's an addition.

Yeah. These are, these are most machines that we're buying at this point are going to be, you know, 100 terahash machines or, or greater.

That's great. Thank you. Then switch to a slightly different topic. You guys have roughly 33 megawatts of the strongboxes built, and what you're saying about your target for the end of the first quarter is to get to 125. By my math, that implies that you guys are going to be building these at about a rate of about 23 megawatts per quarter. Is that sustainable for the end of 22? Because based on my math, that would imply that you guys would get slightly above 300 if you ran at 23 megawatts per month. So I'm just curious from a rollout perspective if that's kind of a good trajectory from a rollout perspective.

Yeah, I think we should probably just do a better job at describing what our capacity is. But if there's a bottleneck on the strong boxes, it's the PDUs. But we have orders for enough to fulfill our capacity that should be arriving in time. to fulfill the expectation of that build-out. But I think apart from that, we have every other component that we need. It's just a matter of the labor to assemble.

That's great. That makes a lot of sense. The other thing I'd be curious about to kind of pick your brain about is you guys have orders for end miners and deploy a total of 45,000 miners. The disclosure during the IPO process was, I'm going to butcher exactly which one goes where, but 17,000 miners at one of the power plants and 20,000 at the other. So it puts it roughly 37,000. So you have about 8,000 incremental miners. If that came to kind of the math, that wouldn't consume anywhere near the 165 megawatts of power generated at both Panther Creek and Scrubgrass together. If there were delays... In acquiring a third power plant, could you deploy the 45,000 miners at the two existing power plants? Because you should have enough power generation capacity to actually power those miners. I'm curious if you could retool that and push more miners onto those two power plants.

Yes, we can.

That's great. I appreciate that. I'll jump back in the queue. Thanks for answering my questions. Sure.

Thank you. Again, if you'd like to ask a question, please press star then one. Our next question comes from Jacob Roberts of Tudor Pickering Holt. Your line is open.

Good afternoon, guys.

Good afternoon.

So I was wondering if you could maybe walk us through the major decision factors on the acquisition of the power facilities. And really what I'm trying to understand is what might make something the gold standard and maybe even the range of prices that you're seeing in the market at the moment.

Yeah, that's a great question. Sort of an unexpected layup for us to answer. Number one, what we're doing, these plants that we own make the environment cleaner and better in the regions where we operate. So we're cleaning up a legacy problem that's a result of more than 100 years of coal mining. That's a benefit. Because we are the byproduct of this activity, is power in addition to beneficial use ash, our generation cost is an industry low for Bitcoin miners. So I think today our generation cost is around $1.18 a megawatt. You probably know that that's probably pretty close to a third of what the market's paying. And I think going back to the question around global hash rate increasing, the power costs are going to become even more of a focus for the industry as margins erode with increasing hash rate. So for us, the gold standard is low acquisition cost coupled with a cheap generation cost, when that's sort of the holy grail. So normally, if you want to have a very low cost to generate power, you're going to pay a dear price to acquire that asset. But waste coal, because it's really a waste coal reclamation, power is a byproduct, and it's a tough business to run. And we're doing something other than merely generating power. That's the big advantage that we have and why we think we have a very attractive set of assets. The other thing to point out is... we don't really care about the broader implications of the power market. And I think, as you know, in PJM, natural gas dictates the price of power. And so, hey, it's going to be a cold, tough winter in the Northeast, probably. Power prices are expected to be high. And if you're running a gas plant, your feedstock is also going to be expensive. So your margins might not be really any better. But because our feedstock is not gas, Our costs are not – our feedstock is mostly free or it's really related to the cost of excavation and trucking. So we might be hit in a small way for incremental trucking or excavation costs related to diesel, but we're not going to see exponentially higher costs because our feedstock is not related to the price of natural gas. And most markets don't have that benefit. As far as Bitcoin mining goes, just to further highlight the optionality around owning your own power assets, if your power is on a PPA, and let's say you've agreed to buy 100 megawatts of power from one of the big producers, if your miners are delayed and they don't show up for some reason, you are still on the hook to pay for your 100 megawatts of power. This is not like a pay-as-you-go outlet for these massive industrial-scale PPAs. If and when our miners are delayed, we don't suffer in that way. We can merely say, hey, we'll still sell power into the grid, and power prices in PGM today are really attractive. I think we've been averaging more than $50 a megawatt hour, not including the RECs, for our power in recent times. Obviously, mining for Bitcoin is a much better proposition than that, but these assets do have value, and there is a tremendous amount of optionality around owning your own power asset, because if power prices go through the roof, we can shut the data center down and deliver that power to the grid at that high price. And I think there will come a time when that happens more and more. Does that answer your question?

No, yeah, that's really helpful. I appreciate it. Maybe as a quick follow-on there, in terms of the cost, is there a material difference in BTU content across the coal sources that could drive a variance over a given quarter or over a given year, so to speak?

So I think you have to think about the complication of running one of these facilities is that we'll be pulling waste from as many as five different locations at any one time. And that waste is kind of sorted by quality and BTU content, moisture content. And so it's kind of organized both at these sites that we're reclaiming as well as on-site at the plants to make sure that what's fed into the boiler is a mix that will effectively be reclaimed and burned as well as give us an ash that is usable. So this is not a situation where you can just sort of show up, pick up this waste coal and truck it to the site, put it in the fluidized bed and hope for the best. You have to actually, if there is a process to it, that's important.

Okay, perfect. And I guess I'll be the cold question guy today. In terms of the waste coal tax credit, I believe there is a state limit in Pennsylvania for all operators participating in the scheme, and then there's some additional limits on the percentage that can go to a single facility. Can you maybe frame where the overall industry is relative to that threshold, and is it something we should be thinking about in the medium term?

Hey, why don't we – we're not – We know exactly what you're talking about, but I don't want to give you a wrong number on a recorded earnings call, so why don't we follow up with you directly? But I think that's for the best. We don't expect any issues or challenges to that waste goals tax credit. I can answer in that way, but we'll give you specifics around what the industry limit is and what the plant limit is directly to you.

Got it. Understood. I appreciate the time, guys.

Sure.

Thank you. Our next question comes from Lucas Pipes of B. Raleigh.

Thank you very much for taking my follow-up question. The 470 petahash, first congrats to ramp up to that level. That's significant. I wondered if you have a good indication here at this point on what the on-time is of that capacity. Obviously, the industry is currently guiding to capacity, but currently less so to actually coin production. So I wondered if you could maybe provide some comments on how that capacity might convert into coin production in December and into January. Thank you.

Yeah, sure. That's a great question. And obviously, hey, we have Statistics by the day, by the minute on what our hash rates are practically by minor, but I think we're not quite ready to share those yet, but I think expect a detailed uptime performance probably by brand, by location for the first quarter of next year. We agree that these metrics are important. We fully intend to to have an uptime that's pretty close to capacity. But at this point, I think we're not ready to share that data yet.

I'll tell you that the machines, when they arrive, they've been all plugged in within hours. And we're very keen on whenever they arrive, we want to plug them in. So we don't have any machines that we have capacity for that are not hashing as we need. But we will be very detailed and as we show this performance going forward.

Got it. Got it. Thank you. Thank you for that. And then, sorry to go back to the Minerva question, but if I heard you right, you commented on potential relocation or expansion of manufacturing capacity at the supplier. Is this North America? And if so, you mentioned They have the components. They really need to just find the facility to assemble them. Is North America a good home? And if so, can all the components reach North America in a time of supply chain issues? I understand it's, again, a supplier question, but would really appreciate your comments on that.

Yeah, you know, I think I don't want to comment further on Minerva. I think I can say, hey, we're actively working with them. We know that they're researching facilities around the world, and that do include North America, so I'll say that. But hopefully Minerva will have material updates that will give us and others more comfort in the coming weeks. That's a hope. But I think it's better for them to respond to that type of question than for us.

Got it. Okay, well, really appreciate you taking the follow-up question, and again, best of luck. Thanks so much.

Thank you.

Thank you. I'm sure no further questions at this time. I would like to turn the call back over to Mr. Greg Beard for any closing remarks.

Thank you, Operator. I really want to thank the investors, the analysts, for doing the work to understand our story. We feel like we have made a tremendous amount of progress this year, But this is still a story for the coming quarters. And we recognize that, you know, execution on our plan has still yet to be proven, but we're focused on it every day and plan on delivering on the expectation. So we look forward to talking to you all very soon. Have a great night.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.