Argo Blockchain PLC (ARBK) 2022 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Argo Blocking plc Q1 2020 results investor presentation. (Operator Instructions) The company may not be in a position to answer every question received during today's meeting. How the company review all questions submitted today published responses are where it's appropriate to do so. Before we begin, we'd like to submit the following poll. And as usual, 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 U.K. And Tom Divine is with us as well. He has his camera off, we'll come on for the Q&A session at the end. Tom's our Head of Investor Relations.

So we're going to walk through our Q1, Q2 -- sorry, our Q1 2022 earnings presentation. This slide will look familiar to you. It's our normal legal disclaimer. We're not going to go through it, but it's come as 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 into 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 hashrate is 3.6x Exahash that includes 1.6 half 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 expecting to complete that process by the end of October, installation's 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 mining 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 #4, is kind of a snapshot of our 2021 -- I keep saying that, our Q1 2022 results. We generated a revenue of $19.5 million, just under GBP 15 million. That's a 9% increase over our revenue from the first quarter of 2021. Our adjusted EBITDA, which excludes noncash items like share-based payments and unrealized change in the value of our HODL was USD 19.1 million or GBP 14.5 million. Our net income came in at USD 2.1 million or GBP 1.6 million. 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 higher global hashrate and the associated increase of difficulty. And that's not surprising. We knew that if the price of Bitcoin didn't come up and network difficulty continue to rise, that money margins would likely come down a little bit for the first quarter of this year.

At the end of the quarter, we held 2,700 Bitcoin and icon equivalents on the balance sheet. Just a quick note, 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 slug. We knew that we'd see some sluggish performance as our hashrate 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 the 76% margin for the quarter, amongst the highest of our peers, as I said. Then obviously, I'm super proud that we launched Helios 2 weeks ago.

All right. On to a few more points for Q1 2022. Again, our focus rather than growing our hashrate was executing on our plans for Helios. Along those lines, I've said many times, looking forward, you need 3 things to be a successful miner. You need access to power, you need access to raise, 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 is 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 interconnect 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 Blockscale 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 2 different forms: one was in February, we borrowed approximately $27 million for loans secured by electrical infrastructure that's deployed at Helios. These are things like high voltage, low voltage transformers, et cetera. 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 USD 71 million, 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 of 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 news S19J Pro, and we're swapping out the machines that we have that we already have at Core. So as we install these new machines and batches between 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 Core. 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 will no longer have any machines hosted at third parties.

We also officially launched Argo Labs this quarter. I'll talk through a slide on our labs a little bit later on and 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 U.S. Since left that firm, started 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 has 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 2 weeks ago now. We energized the facility on May 5, and we've actually started -- 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 from the side. In that picture, if you look carefully, you can see a tent on the left side down the building where there's a -- that was where we had our opening event, our part of the open unit, the food for the open event on May 5.

All right. Moving along, 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 and it was great. We also had U.S. Congressman, Ronny Jackson there and 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, checkout. We're also going to have a few other videos coming out in the next few weeks about some of the back story of Helios and some of the kind of the trials and tribulations of setting up a large facility in the Texas High Plains. But all said, it was a fantastic day, and the team has done an incredible job. No one in Dickens County can believe that we've built the facility as fast as we can. In fact, no one in this 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 is a 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 Hothi, CTO, has done an incredible job of coming up with the design and the system for immersion. Roughly speaking, you can see those tanks, those large silver tanks, double decker, those hold the fluid, which cool the machines, machines sit in those tanks, and then fluid is pumped. You see the large pumps and houses, 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 cool, they come back in. The black boxes, which you see on the front of those racks or PDUs, power distribution units and those manage the electricity that flows into each mining machines. So those are an important part of any mining facility. We had our -- our is custom built. You can see they're branded Argo. And so it's really truly a custom facility from top to bottom. And again, this is a new space. This is a 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 or this facility. And that's what we want. We're good at mining. We're good at running facilities. And we've done -- every time we've set up to do something on a technological level, we've achieved it.

And it's hard. It's not easy. People -- 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. And -- 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 I. Again, we showed this slide during our last earnings presentation a few weeks ago, 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've done that. The key little dot there is the energization thought 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. Those are -- the demand response is done, we're registered for that. The installation of immersion equipment is happening, is 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 would be in the second half of this year, we're targeting very late Q3, early Q4.

All right. Slide #10, total hashrate capacity. Again, showed this slide last presentation at the end of Q1, had 1.6x Exahash of mining capacity. We've started installing machines at Helios and are expecting to increase our hashrate to 2.2 Exahash by the end of Q2. We also start -- 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.

All right. Slide 11 is kind of looking forward to 2023 and 2024. And just kind of want to talk through the slide again, just to emphasize the incredible runway that we have for growth at Helios. So Phase 1, 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 we 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 this adds up to essentially a pretty significant amount of growth into 2024, and that's targeting roughly 20 Exahash, north of 20 Exahash by 2024. And that obviously includes the full development of the 600 megawatts. So even though we're still at Phase 1, we've already taken some of the key steps to kind of build out the next phase. Earlier this year, we announced 4 additional transformers that will take us up to that 800 megawatts of power. These are long lead items. You can't get a massive transformer overnight. So those take 9, 10 months. So we've got those coming in the first half of next year.

All right. Slide #12 is our -- financing our growth. So in our presentation a couple of weeks ago. We showed the slide and said we need roughly $125 million of additional capital to complete Phase 1. I 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 -- 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 million, minus $70 million, $71 million need roughly $50 million of additional capital to fully build out Phase I. And that includes infrastructure machines, everything, the whole kit and caboodle.

All right. our machine financing agreement with NYDIG. So feedback from shareholders, large and small, is the -- given where we're at right now, nondilutive 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 finance 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 RNS 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 be 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, 24 months ago, rates were 24%, 25%, 27% on -- they've been in the high teens for most of the last 12 months. So getting down to 12% is a good number. But obviously, we want that number as low as possible moving forward. And we are seeing the trend in the industry in general is to move towards lower and lower interest rates. So as I said, these machines are secured against 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. And 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 non-mining activities, participating in the disruptive sectors of the broader blockchain and Web 3 ecosystem.

So far, we've allocated about 10% of our total digital assets to Argo Labs. You can see in the pie chart here, a breakdown of some of those holdings. Poke it out, we first invested in back in 2019, has done very well for us. It 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 putting 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 payers 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.

Obviously, last week in the Web 3 space in the non-Bitcoin space, well, in the Bitcoin space too, but, but last week was a particularly intense week with the collapse of the UST and Luna world, Terra ecosystem. We are -- we're not super heavily invested in the Terra ecosystem. We did have some UST. 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 $0.93, which looking back was a very good move giving last time I checked, I think it was trading at $0.12. So overall, on a net basis, in the Terra ecosystem, we nearly broke even on our positions after taking into consideration to generate that we -- the yield that we generated through our through our holdings there. So we did pretty well all things considered with what happened.

All right. So that's my portion of the presentation. I'm going to hand it over to Alex. He's going to go into some more detail on our financial performance.

Thanks, Peter. Hi, everyone. I just wanted to echo what Peter said about seeing the facility first time. 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 tech team. We've invested a great deal of money there, and we're now -- we're about to see the rewards from that investment. So a really exciting time to be out of that build-out and part of that facility.

To go into the figures, so as Peter said earlier, the first 3 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 TRA and that is well within TRA of our fellow miners. Our cost per Bitcoin was just below $10,000 per Bitcoin or just over GBP 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 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 is 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 are seen, 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 is in the high 90s there.

So 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 at tax aside and how that impacts our cost per Bitcoin as we have machines mining in the immersion facility.

So moving down the P&L, we could see that there's a couple of impacts here, particularly from foreign exchange. So the pound weakening against both the U.S. dollar and the Canadian dollar adverse 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 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 move towards away from the equity and we've lent into debt. So we see that increase as we would expect in our interest expense well within asset 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 on a very healthy EBITDA or 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 equipments, 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 machines. 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 solve those off to meet our operating costs and expenses.

On the liability side, we've seen the debt increases, as Peter talked to 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 is -- looks -- appears high. But as Peter said, over the only 6 or 7 months ago, I think, it was in the high teens. So we're really seeing those rates come down alongside infrastructure rates are much more in line with traditional sector as well. So 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, we presented a couple of weeks ago the requirement for $125 million. We've already secured $70 million of that, leaving us with $50 million to spread between debt and also selling off Bitcoin in the near future to get us to the end of that 200 megawatt Phase 1.

Thank you, Peter. Pass it back to you.

All right. Thanks, Alex. So again, a classic slide that you've seen from us, 3 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 Helios is for us. We are continually hearing reports, having phone calls with people in the space and the 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 Texas is a huge advantage for us. And the fact that we have an incredible team, both on the construction side and on the operations side in Texas is another huge advantage for us. So we're very excited about that.

Secondly, our relationship with Intel and our supply 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 a couple of years ago or even last year, and it's something we're going to continue to emphasize. And that's why we're setting up in Texas where there's wind. And we're going to continue to be leaders in that part of the space.

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 Q&A moderator.

No problem at all. (Operator Instructions) I'd like to remind you the recording of this presentation, along with a copy of the slides and the public Q&A will be accessible via [Investor] company dashboard, if I may, 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.

Great. Thanks, Mark. Peter, our first question today comes from Ramsey El-Assal 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?

Yes, it's a good question. Thanks, Ramsey. So listen, I think 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. It's -- 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 of our operations. But ultimately, 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 we're going to have incredible mining margin at Helios right now. I think the margins will be good. I think they'll be better than where -- better than Quebec. But I don't think it 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 the 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, the goal is to always be in that upper tier of efficiency. And being in Texas will get us into that upper-tier efficiency or is getting us into the upper tier of efficiency, especially with having an immersion facility.

Thanks, Peter. Next question is for Alex and we've received this a few times. We 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 to the market, but again, are very prudent.

We wouldn't want to be exposed. And part of what our strategy is around that 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 2 years. Our infrastructure debt is over a period of 4 years. So we're always taking a very prudent view on the length of the debt that we have exposed against the assets that has also been 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 buildout, we'll be able to take on financing, which we'll be able to as we build out the rest of Helios in a more modular fashion potentially, we will be able to shorten the lifespan of the debt against the assets to which is financing.

So if you think about how we 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 that against those items. So that's how we're thinking about it. It's a very prudent approach within a balance of both forward-looking and backward-looking EBITDA levels.

Great. And a follow-up question to that. This comes from Darren Aftahi at ROTH. Do you feel like you have ample financing options to complete Phase I 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 in a little more detail.

Yes. So absolutely, yes. We do feel that we have a number of different options available to us. We have machines which are unencumbered, which are -- will be delivered in the second half of Q3. And so we have machines there that we will be able to take financing against. There is still some infrastructure which we can obtain finance against as well. And we have really good relationships. So we have relationships with -- first of all, we've got current relationships with NYDIG and Galaxy are some of the biggest lenders in the crypto space at the moment. And then we also have relationships with other 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 more newer entrants to the market, 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, et cetera. So we are financing ourselves. We have options, and we have optionality in terms of the debt markets.

In terms of selling Bitcoin, again, we have a strategy around selling off Bitcoin when is -- when it's obviously a good time, when it is time. And we look at that and we can pull back and accelerate that as it needs be. We're in a very healthy position at the moment in terms of our HODL, how much of our HODL is unencumbered or is collateralized against loan, et cetera, and we're very comfortable with our position today. So in terms of filling that gap the GBP 50 million that we've talked about to build out the rest of Phase 1, we're well positioned. And of course, every day, we mine more and more Bitcoin and so that position is -- improves with every day that passes.

Okay. Great. Thanks, Alex. Peter, our next question comes from Joe Vafi 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.

Joe, thanks for the question. So Yes, Helios is entirely an immersion facility. So if we're mining at all at Helios, we are using immersion. So yes, we have started using immersion. Have we upped the clock speeds yet? We are ramping up operations, making sure everything is working properly. We've done some overclocking testing, but we are not overclocking at scale yet. We want to make sure that everything is 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 the 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. So the HR folks that built that team, the tech culture that Perry and his team have built and then kind of brought to them. Because you obviously have a big moment like we had on May 5, where we energize and everyone has been working really hard.

And then Perry doesn't live in Dickens County. He goes back to Ottawa and he's managing everything remotely and Jean is also not there. And so you're kind of handing it over to your local staff and now they're running the show. Obviously, Perry's managing things remotely and can do a lot from far away. But the sense of ownership that the team has on the ground is amazing.

And that's the one thing that I'm most thrilled about, especially when you're working with new technology because there are bumps, things do happen, and you're always troubleshooting. 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 come -- go to our opening event. I mean my message was, yes, we need these 3 things, machines, power and capital, but ultimately, we need people. And this is a people business, and we're only going to be as good as the team that we have. And one of the advantages, I think, that we have as a team is we truly have an amazing team. So 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. You always come and ask a good question. So thanks for asking another one. So the process for receiving miners 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 shipping receiving area, machines coming on pallets, we store them and then when they're ready to be installed, we take them, we unbox them, prep them. We press them by taking off the fans. And then we have actually have a team called the dunk team, the D-U-N-K, the dunk team, and they part of that culture that we've already have 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 4-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 pad, that 4-megawatt system.

So it's a fairly -- 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 miner, we won't need to remove the fans because we won't need fans on an immersion miner. They will come without fans.

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

All right. So this is -- Sebastien 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. Is it scalable speed, decentralization, et cetera. And then the community around the project. And that's a key piece. 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 the time with the team. So there's a conversation with the team and even going back to Polkadot, like 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 a 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 hashrate would be at 1.7 Exahash by the end of the first quarter, but the actual hashrate rate was 1.6% Exahash, which is where we are now. Why -- what's the reason for this reduction? And when will the shortfall be resolved?

Yes. Thanks, John. Good question. So the difference is back in 2021, we put in 2 orders for machines. One of those orders was with a company called Minerva. And it was for that different 100 petahash, it's 800 machines for Minerva. Other people put in larger orders, we thought we would put a small order and test order that those machines were supposed to come last summer, July -- June, July. They got pushed back. 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 going to 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 -- when you're looking at new machines from new companies, Minerva is a good example, they had good specs, they had a 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 no harm no few 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.

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 down at only 8.25% per year?

It's a good question, and it shows that people really are reading our (inaudible), 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 if there was worst-come scenario, how easily are they able to then sell on those assets in order to make about the money that they've lent out.

Now the infrastructure is, as Peter said earlier, high-power transformers, medium-power transformers, et cetera, et cetera. So those are assets which are easily transferable to another technology, 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 machines, Bitcoin 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 the 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.

Peter, our next question is from [Schegar S] from the live Q&A. What is your main focus after the Helios facility?

Thanks, Schegar for the question. So our focus really for 2022 is to complete a build-out of Phase 1 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 II. And 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 III for the company, we haven't put out publicly what our thinking is for Phase III, we are working behind the scenes to think the next step because we always want to be a few years ahead. So when we're ready to announce that, we will. But for now, really the focus is on Helios Phase I and then Helios Phase II. 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, Schegar. 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.

Great. Our next question, Peter, is from Chris Brendler at D.A. 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 a ton of cash into R&D, which is, I think, kind of what you're getting that 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?

Yes, sure. The process is going well. I -- when we are 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 get the full update on spec and costs, we'll be excited to do that and happy to share that.

To answer your second question, in terms of having these regs 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 Schegar S. When will the Board get a full-time Chairman?

Yes, 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. We just most recently added Raghav. We also added 2 board members last summer, Maria Perrella and Sarah Gow. 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, determine process and working to strengthen the Board. We do recognize 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, a question for you just came in from the live chat from [Drew L.] Does your cost of Bitcoin that you talked about, so the mining margin include all overhead of operating costs, amortization, depreciation, et cetera?

No, it simply includes the power cost. So the -- 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 into the miner, is 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 Jon Petersen 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, do you want to take that one or do you want me to take it?

Yes, 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 selling Bitcoin. Obviously, if Bitcoin can recover significantly, our share price recovers significantly, that would be something that we would look at, but that would not be -- that's not the near-term goal, and that's certainly the short-term strategy. So yes, it 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, Jon, I think it's a good question. If you look at the history of the company, we've -- 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 it's the right place to be. I think HODL is great to have. It's a great piece to have in 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 to borrow against, whether it's just appreciating. Those are -- that's fine. But ultimately, at the end of the day, we still live in a fiat-dominated world, and you're going to need fiat for operations. 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. 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?

Yes. So 2 questions in there, Anthony. Good questions. Yes, it's hard to believe 29 listed companies. It's happened pretty quickly. I remember when there was like 5 of us. So do I see M&A activity, 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 moved slowly.

So -- and I think they -- it's still probably a couple of years away, but I know that they are looking at it. They've got skunkworks happening. There's projects happening. But in terms of really ramping up, I think it's -- we're probably into the next full cycle before we see that happen in a big way. And in terms of opportunities to partner, yes, 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 close in the 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.

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.

Yes. Thanks, Kevin. It's total terahash. Pretty much when you're always doing machines, it's based on terahash.

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 the other companies are facing, is there an opportunity for us to host third-party rigs at Helios.

I think in the short term, it would be challenging for us given our commitments to ourselves with our Bitmain machines coming in and with plans for Intel in the second half of this year, the Intel rig in the second half of this year. We've been looking into 2023, 2024. It's something that we're always thinking about. Is there an opportunity for us to diversify revenue a little bit and have some hosting relationships. So I would say unlikely for 2022, maybe for 2023.

That's great, Tom, thank you very much for 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 that submit questions and we'll make those available to the company post today's call as well. Peter, I'm sure you're going to direct investors as usual, to give you their thoughts, their expectations and their feedback. But before doing so, I want it, if I may, just ask you for a few closing comments, and then I'll conclude the meeting.

Great. All right. Thank you, Mark. Well, thanks everyone, for attending. It seems like we're doing these more and more frequently, which is part of our commitment to transparency as well as our commitment to now that we're NASDAQ listed, we're doing earnings. Not something we need to do as a U.K. kind of headquartered primarily listed company, but we're happy to be doing these earnings calls.

And 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 it would be nice that the price of Bitcoin could help us along a little bit. But ultimately, for us, it's really about head down executing under promising over-delivery. 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, this morning in your case speaker. Could I please ask investors not to close the session as we're 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 it'll be greatly valued by the company. On behalf of the management team of Argo Blockchain plc, would like to thank you for attending today's presentation, and we wish you all a very good day.