Stronghold Digital Mining, Inc.

Good morning, and welcome to Stronghold Digital Mining's conference call for the third quarter ended September 30th, 2023. My name is Liz, and I will be your operator this morning. Before this call, Stronghold issued its results for the third quarter 2023 and announced a new business initiative in a press release, which is available in the Investors section of the company's website at www.strongholddigitalmining.com. You can find the link in the Investors section at the top of the homepage. Joining us on today's call are Strongholds Chairman and CEO, Greg Beard, and CFO, Matt Smith. Following their remarks, we will open the call for questions. Before we begin, Alex Kupton from Gateway Group will make a brief introductory statement. Mr. Kupton, please proceed.

Great. Thank you, operator. Good morning, everyone, and welcome. Today's slide presentation, along with our earnings release and financial disclosures, were posted to our website earlier today. and can be accessed on our website at www.strongholddigitalmining.com. Some statements we're making today may be considered forward-looking statements under securities law and involve a number of risks and uncertainties. As a result, we caution you that there are a number of factors, many of which are beyond our control, which could cause actual results and events to differ materially from those described in the forward-looking statements. For more detailed risks, uncertainties, and assumptions, Relating to our forward-looking statements, please see the disclosures in our earnings release and public filings made with the Securities and Exchange Commission. We disclaim any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law. We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and the reconciliation tables to applicable GAAP measures in our earnings release carefully as you consider these metrics. we expect to file our quarterly report on Form 10-Q on or prior to November 14, 2023 with the Securities and Exchange Commission, which sets forth detailed disclosures and descriptions of our business, as well as uncertainties and other variable circumstances, including but not limited to risks and uncertainties identified under the caption risk factors in our previously filed annual report on Form 10-K, filed on April 3, 2023, and our subsequently filed quarterly report on Form 10-Q. You may access Strongholds Securities Exchange Commission filing for free by visiting the SEC website at www.sec.gov or Strongholds 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 Strongholds website. Now, I would like to turn the call over to Strongholds Chairman and CEO, Greg Mute. Greg?

Good morning, everyone. And thank you for joining us in our announcement of our Carbon Capture Initiative and our third quarter 2023 results. We will be referencing an associated slide presentation throughout the call that is available through the webcast and on the Investor Relations section of our corporate website. We're also live today, so forgive any fumbles as we get through it, but we are really excited about what we're presenting today. So hopefully that will come out in the slides and in the Q&A. So let's start on slide three. As a reminder to everyone joining us today, Stronghold is the only environmentally beneficial and vertically integrated public Bitcoin miner. We own and operate two mining waste-to-power facilities in Pennsylvania, Scrubgrass and Panther Creek, with aggregate power capacity of 165 megawatts. Through our process, we have removed nearly 1.7 million tons of toxic mining waste from the environment since the beginning of 2022. Today, we have over 40,000 Bitcoin miners and continue to seek opportunities to expand our capacity by deploying 25 megawatts of owned end-to-end data center equipment. Moving to slide four, we are a Bitcoin miner and remain committed to Bitcoin mining. As a vertically integrated Bitcoin miner, we have a unique, substantial asset base with significant potential for complementary revenue streams. We have talked a lot about our Ash by a product in the past year and have spent significant time testing it. I'm excited to tell you that this has created a potentially transformational opportunity. Our Ash can capture carbon dioxide directly out of the atmosphere. and we are forming a highly complementary business, Stronghold Carbon Capture, around this discovery. Slide five. We're going to use the majority of this call to explain how our reclamation process results in potential to capture a significant amount of carbon directly from ambient air, the scale of this opportunity, and also how we might be able to monetize it in the new carbon market. Slide six. Over the last few years, carbon markets have grown and developed. Both private markets and the federal government have established significant initiatives for those who capture carbon and or reduce carbon emissions. The private market consists of registries that validate certain projects, and upon validation, credits from those projects can be sold to buyers looking to offset their emissions. The Inflation Reduction Act expanded IRS Section 45Q tax credits, which can pay up to $180 per ton of carbon captured by qualifying direct air capture projects, also known as DEC. While it is not entirely clear if our project qualifies today, we are evaluating opportunities for qualification and believe our project is consistent with the intent of the IRA. Moving to slide seven, we have studied our ash extensively, and over the past several months, we learned it can capture carbon. While we are in the early stages of the project and developing a better understanding of variables such as weather, construction, ash placement, we believe that we ultimately have the potential to capture about 100,000 tons of carbon from ambient air annually using the ash produced by our facilities. Assuming that we qualify for 45Q tax credits and we are able to sell voluntary carbon credits This could drive up to $30 million of incremental annual EBITDA and reduce our net cost of power to as low as $16 per megawatt hour. And importantly, while carbon capture is perceived to have significant technology risk, we believe that our project has relatively low technology risk because our process is just a combination of accepted chemistry and airflow. Moving to slide eight. I'd like to review our mining to waste to power process, as this process is responsible for the production of our ash byproduct that can capture carbon. We own two reclamation facilities that utilize circulating fluidized beds to convert mining waste into electricity. So what does that mean? It means that our primary source of fuel for these facilities is mining waste. which is sourced from the reclamation of some of the 840 mining waste piles littered across Pennsylvania. These large mountains of waste pollute the land, water, and air, and sometimes spontaneously combust. Our unique purpose-built CFB power generation process takes this toxic waste from the environment, combines it with limestone to neutralize sulfur dioxide, and creates electricity. The primary purpose is reclamation and the primary product is electricity. A calcium rich ash is the byproduct. Most of this ash is returned to mining waste piles to facilitate the reclamation and revegetation to the previously unusable land. Moving to slide nine. For those who think they were burning waste coal and pumping CO2 into the atmosphere, I want to highlight findings of recent third-party studies. Earlier this year, both Lehigh University and TRC Environmental published studies examining the environmental impact of mining waste piles and the mining waste-powered industry. Both studies concluded that our process is carbon negative. meaning we reduce net greenhouse gas emissions by over 50% compared to expected emissions from mining waste had it not been removed from the environment. I'm not going to cover the mining waste crisis in Pennsylvania on the call today, but I encourage you to take a look at the appendix for a comprehensive overview. It includes a description of over 5,000 miles of contaminated waterways that extend to the Chesapeake Bay, the Ohio River, and more. Dozens of burning waste piles and hundreds of millions of tons of waste that are impacting some of the most economically disadvantaged counties in Pennsylvania. These studies underscore that not only do our plants reduce the harm associated with waterways, burning piles, and land pollution, but they're also carbon negative. Moving to slide 10. After extensive third-party testing of our scrub grass ash by our partners, Carbonetic, over the last four months, which we conducted under conditions intended to replicate scrub grass weather conditions, we have determined that our ash can capture carbon at a capacity of up to 12% by starting weight of the ash. Our ash can capture carbon because it contains reactive calcium oxide, which bonds with carbon dioxide to form calcium carbonate. In other words, the ash pulls the carbon dioxide out of the air, creating a permanent, geologically stable solid. We have worked with construction design and engineering partners to develop direct air capture technology. The technology uses the stack effect to drive air through the ash to facilitate and expedite this carbonation process. We are excited to announce that our first direct air capture unit has been deployed at Scrubgrass, and while we anticipate iterating around design and process to maximize carbon capture and minimize costs, testing is currently underway. We expect field results within the next month in advance of our investor day that's coming up this December. Moving to slide 11, scrubgrass and Panther Creek facilities can produce 800,000 to 900,000 metric tons of ash per year when operating at base load capacity, which equates to approximately 100,000 tons of carbon captured at 12 percent capture capacity. For reference, this is the same as eliminating the emissions from almost 22,000 cars. and it would take over 4.5 million mature trees to capture this much carbon. Last Friday, we deployed our first carbon capture unit at Scrubgrass. Our partner, Carbonetic, has branded these proprietary patent-pending units as carboless. Very importantly, we have exclusivity with Carbonetic. We're the only group allowed to use this patent-pending technology and intellectual property in connection with mining-to-waste power CFB facilities. The equipment cost for our first carbolith was less than $100,000. Compared to other DAC projects in the U.S., we believe that ours has best-in-class capital efficiency, currently estimated at $50 to $125 per ton of annual carbon capture capacity. recall that Stronghold owns two specialized CFB plants with an estimated replacement cost in excess of $400 million. Historical investments in these facilities provide the foundation for this modest incremental investment that we believe is required to capture carbon. In September, we engaged an environmental consulting firm called Carbonomics to advise on carbon capture verification documentation, and listing our project on a registry to monetize carbon removals in the private markets. We are pursuing a listing on the Puro Registry, which is owned by NASDAQ, and we're pleased to discover multiple existing methodologies that could be applicable to our project. Using a previously approved methodology can reduce lead time for generating high-value carbon credits from years to months. We have already submitted a concept paper to PURO, received supportive feedback, and plan to submit formal project design documentation with the goal of having the project listed in Q1 2024. We anticipate monetization efforts to follow shortly thereafter. Moving to slide 12. Here we lay out our status quo ash removal operations and the new process incorporating carbon capture. We typically remove ash from our facilities and transport it back to the mining waste piles where it is packed in the ground to neutralize the acidity of the site and revegetate the land. The current process allows for little carbonation given the ash's limited exposure to air. Our carbon capture project will simply be a new step added into the existing process. After the ash is produced by the plant, We will methodically distribute it among the carbo lifts to drive air flow through the ash, facilitating the absorption of carbon. Post-carbonation, the ash will follow our current process and be transported back to the mining waste sites. We are also evaluating opportunities to sell our newly carbonated ash into new markets, such as green cement, to generate additional value from the process. Moving to slide 13. If our carbon capture process becomes fully operational as planned, it would be one of the largest announced direct air capture projects in the world, and it could be the largest operational U.S. direct air capture project in 2024. This slide also illustrates the two potential income streams resulting from this carbon capture opportunity. with the first being the sale of carbon credits into the private markets and the second being receipt of 45Q tax credits. Both represent tremendous value potential for Stronghold. Initially, as we were to qualify for 45Q tax credits under the IRS, we planned to sell into the private carbon credit markets with the average index price for pure carbon removal credits in 2023 has ranged from approximately $130 to $190 per ton of carbon. This range implies $13 to $19 million in annual proceeds, assuming 100,000 tons of carbon captured annually. Qualification for $180 per ton 45Q tax credits would imply $18 million in additional annual proceeds at 100,000 tons of carbon removed annually. While it is not entirely clear that we will be able to qualify for 45Q tax credits, it is important to note that 45Q has a three-year look back. So even if we don't qualify for a number of years, carbon capture before qualification could be eligible. I'll now turn the call over to Matt Smith to discuss the financial impact of stronghold carbon capture.