Argo Blockchain PLC (ARBK) 2022 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Argo Blockchain Interim Results Investor Presentation. (Operator Instructions) The company may not be in a position to answer every question due to the attendance on today's call. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. And as usual, I'm sure the company would appreciate your participation.

And now I'd like to hand over to CEO, Peter Wall. Good afternoon.

Thank you, Mark. Welcome, everyone, to our H1 Q2 earnings presentation. As Mark said, I'm Peter, I'm the CEO of Argo Blockchain. With me today is Alex Appleton, our CFO; and Tom Divine, our Vice President of Investor Relations.

All right. So let's jump into it. Normal legal disclaimer page, I'm not going to read through it, but just bring your attention to the fact that it contains our normal legal disclaimers for forward-looking statements.

All right. This slide looks familiar to those of you that know the company well. I'm going to go through it fairly quickly. As everyone knows, we have -- again, if you know the company well, we have 2 mining facilities in Quebec and our flagship facility Helios is in the Texas Panhandle in Dickens County. Our current contracted mining capacity is 3.2 exahash. That includes about 2.2 exahash of currently installed machines and another 1 exahash of machines that will be installed by the end of October.

Our current active mining power is about 60 megawatts across the 3 facilities. Mining margin for the first 6 months of 2022 was 71%, continues to be the highest amongst our peers down from 81% but from the first half of 2021, still a very good margin. I'm proud of the team for continuing to have really good efficiencies even as the price of Bitcoin has fell during the first half of the year. And the money margin of 71% translates into an average cost per Bitcoin of roughly $10,000. And again, that's for the first half of the year.

At Argo, we're focused on sustainability. Last week, we released our sustainability report for the calendar year 2021. We continue to be carbon neutral by using completely renewable power in Quebec and by offsetting our Scope 2 and 3 emissions from other mining locations. Our fall sustainability report -- or sorry, our full sustainability report is on our website. I encourage everyone to check it out. It is a downloadable PDF.

Our HODL at the end of July was 1,295 Bitcoin, we sold a significant amount of Bitcoin during the second quarter and in July, I'll speak about it in a few more slides and kind of get into the reasons why. This roughly 1,300 Bitcoin at Bitcoin equivalents includes 227 Bitcoin equivalents that are managed by Argo Labs and that represents about 17% of our digital asset holdings. And again, I'll have another update on Argo Labs a bit later in the presentation. All right. So that's Argo at a glance.

Now for the Q2 2022 highlights. Obviously, the most important milestone for us this year and for Q2 was the energization of Helios and the commencement of our mining activities in May. It was a really big moment for the company. Once we have brought -- once we brought Helios online, it's been off to the races in terms of boosting our hashrate. We ended the quarter with about 2.2 exahash, which is a 38% increase from the first quarter.

Other highlights for the quarter is we obtained up to $71 million of machine financing from NYDIG, which has enabled us to continue to build out Helios and install machines. We also executed an agreement with ePIC to work with them on designing and manufacturing custom mining machines using the Intel Blockscale ASIC chips which we're very excited about. And lastly, we held our Annual General Meeting in June, where shareholders approved all of our proposed resolutions. So for those of you -- shareholders that are on the call, thank you for voting if you were able to take part in the AGM.

All right. A little bit more about our financial performance during the second quarter. We mined 469 Bitcoin. That's essentially flat from the prior quarter. For the first half of the year we mined 939 Bitcoin, a 6% increase over the same period last year. This reflects the growth in hashrate, offset obviously by higher network difficulty. We generated revenue of USD 14.4 million or GBP 11.8 million in Q2. This is a 20% decrease over our revenue from the first quarter of this year. Again, primary driver was the decrease in the price of Bitcoin, which fell from an average price in Q1 of about 42,000 to 33,000 in this quarter, which was about a 20% decrease as well.

The global hashrate also continued to decline in Q2 as miners had put more and more machines on the network that they ordered last year during the bull market. And so network difficulty was up about 11% higher than in Q1. All of this meant that our adjusted EBITDA for Q2 was $3.2 million or GBP 2.6 million. This was down from $14.5 million of adjusted EBITDA in the first quarter.

Again, two main drivers for that. One is we had higher operating costs at Helios than we anticipated, largely due to higher power prices. The power prices are driven by macroeconomic factors, including the war in Iraq -- sorry, the war in Ukraine, which has driven up the price of natural gas. Texas has a lot of renewable power on its grid, but it also has a lot of natural gas power generation. And so the overall cost of power in Texas is affected by the price of natural gas, and we've been feeling the impact of that in our power cost at Helios.

The second factor was higher G&A and operating expenses in the quarter, and this is due to a couple of different things. One, the impairment of intangible assets, which is about 30% of our G&A costs, and Alex will go into that in detail a little bit later on. Also, the depreciation of the Helios facility.

And then lastly, increased insurance costs. Specifically, our D&O insurance premium increased after we listed on NASDAQ. We upgraded our policy because we're in the U.S., and that's something you need to do. Cost of doing business in the U.S. And this is kind of unfortunate, but it is an important investment when it comes to retaining the kind of directors that we want at Argo. And again, Alex is going to go into more detail a little bit further on in our -- in a few future slides.

So for the quarter, we had a net loss of $38 million, which is driven mostly by the $38 million negative change in fair market value of our Bitcoin holdings. Under our accounting treatment, we mark-to-market the value of our holdings based on the current price of Bitcoin. This is not unique to us, pretty much all the miners in the space that have Bitcoin on the balance sheets have had to write down the value of their Bitcoin holdings. At the end of the quarter, we held 1,953 Bitcoin and Bitcoin equivalents on the balance sheet.

So obviously, with the drawdown on the price of Bitcoin during the year and especially in the second quarter, our revenue and our earnings took a hit. We've had two issues on the cost side with the higher cost at Helios, which we believe are temporary as we ramp up operations. And overall, despite the kind of difficult macro environment, I'm happy with our financial performance given the decline in the price of Bitcoin, we front-load a lot of expenses as we continued to grow the business. The team is doing a great job. And the main thing is that we continue to add hashrate and continue to grow hashrate and are in control of our own destiny at Helios.

All right. Moving on to treasury management. So throughout 2022, we've adjusted our HODL strategy and become more comfortable with selling Bitcoin. This is nothing new. This is something we've done over the course of the company's history. It's one of the levers we can pull on when needed. And obviously, we love holding Bitcoin. We believe Bitcoin is an appreciating asset, but it's also a liquid asset that, again, it's something that we can tap into when needed.

So during the second quarter, we sold 1,167 Bitcoin. One thing to note about these sales is that we've been quite happy with our use of derivatives to generate an uplift on our realized Bitcoin sales proceeds. So in Q2, we realized incremental $1,500 per Bitcoin sold through the use of derivatives, and this generated approximately $2 million of additional proceeds.

Derivatives is not something entirely new to us. We've been using them since Q4 of 2021 to help mitigate price volatility. In June, we took another step further. We hired a full-time derivatives trader to help us build out our treasury and our risk management strategy going forward. And to my knowledge, we are the first among miners to do this. And I think it shows that we are kind of leaning into our efforts to strengthen our treasury management.

So we used the proceeds of our Bitcoin sales to fund our operating expenses, to pay for capital expenditures and most significantly to deleverage the company and reduce the balance of our Bitcoin-backed loan. As Bitcoin prices continued to slide in Q2, the company made the strategic decision to derisk the liability of the Bitcoin-backed loan and reduced our exposure.

We didn't want to get into a position where we had to liquidate our Bitcoin at very low prices. So through a combination of derivatives and deleveraging we have significantly reduced our exposure on the Bitcoin-backed loan, and we now have only $6.7 million outstanding on the loan -- we now only have $6.7 million outstanding on the loan as of July 31.

All right. Sorry, I'm just going to let my voice recover for a moment. It's early here, but it's not that early. It's not like we're in British Columbia and do the 5:00 a.m. this is 8:00 a.m. where it should be fine. All right. Helios update. This is a photograph that we took last week at the site. You can see a beautiful day in Texas. Air coolers, all 50 air coolers are now in. On the left-hand side, you can see the office that is almost done. It will be a good spot for the team to have meetings and to do administrative work. And you can see farmers' fields at a distance. They've got some integration there because there's lots of green. And the site is really coming along and looking fantastic.

In terms of other updates from Helios. So as I mentioned, one of the first slides, we're making good progress on the installation of the approximately 20,000 Bitmain S19J Pros that we purchased last year. The ops team has been just hammering away, has the process of installation down to a science. They're installing hundreds of machines a day. If you haven't seen any of the update videos we put out recently, take a look at our YouTube channel. We have a couple of videos up from Helios, including one that highlights the dunk team that's putting the machines into the immersion tanks.

In July, the dunk team hit a daily record of 960 machines installed in 1 day, which is fantastic, hats off to them. It's remarkable what they've done, given that we've really built that team from scratch just starting in January. In July, we also completed our machine swap agreement with Core Scientific. We are now 100% operating our own machines, no longer have any machines hosted with third parties. It's a big milestone for us, culmination of the strategic pivot we made in early 2021 when we decided to acquire the 2 data centers in Quebec.

As I've said many times before, we believe that by owning and operating our own infrastructure, we have more control over the machines, ultimately can achieve better performance. We also think there's a strong economic argument to run your own facilities. As power costs fluctuate, much better to have control. We've seen recently with the hosted facilities a host calling up hostees and saying, hey, we've had to add some extra power costs on because our power costs have gone up. When you're running your own facility, you don't have that kind of -- you don't get those kind of phone calls.

Certainly, in Quebec, our facilities after taking ownership, we've seen great results as well as in the last 6 months or in the last few months of operations at Helios in terms of performance. We've been very happy with the performance. As I mentioned in the prior slide, we are seeing higher costs than we anticipated at Helios driven by the impact of higher natural gas prices on electricity prices and higher power prices in general around the world. Just kind of going to give a bit of background on that and kind of where we're at and how that's come about and what we're looking at moving forward.

So we energized Helios in May. Power prices were elevated. The summer had essentially already begun. It didn't make sense for us to lock in a fixed PPA agreement at those higher prices, a PPA being a power purchase agreement. So we decided to sign an index PPA where we pay spot prices and wait until a few months later into the fall when it gets cooler, when we expect a fixed price PPA would be able to be founded at better prices.

Since we are exposed to higher power prices during the summer peak period of high demand, we are essentially very focused right now on the power market. We can curtail operations when power prices spiking generally in the afternoon hours, not always. We've got a great system. The operations and technology team has set up a system when prices are very high, we can curtail almost immediately.

Additionally, we are also participating in what is called the 4 Coincident Peak program through ERCOT, who manages the grid. This results also in some curtailment during peak periods on specific days. It's some short-term pain for long-term gain because it will ultimately lower our power costs for next year. So it's going to take us a little while. I mean the kind of big picture is we're still bullish on the Texas power market but it will take us some while to season into the market, and that's really what's happening this summer.

One more piece on power in Texas. In July, we shut down our mining operations on a couple of different occasions in response to a voluntary conservation alert from ERCOT. ERCOT again, who manages the grid, they sent out a note asking power users across the state to reduce their electricity usage. We were -- voluntarily complied and saw this as an opportunity to demonstrate to state regulators, to the general public that Bitcoin miners can help stabilize the grid and get power back during times of peak demand.

From what we understand, miners generally as a group complied as well in Texas and curtailed and gave over 1,000 megawatts or 1 gigawatt of power back to the grid. It's a lot of power, about -- it's over 1% of kind of the average or the maximum capacity of generation in Texas. And what it meant is during that particular time of high demand, ERCOT was able to keep the grid balanced and avoid any issues.

All right. Moving on. So this slide will look familiar again to folks who have been -- who've seen some of our recent presentations. We've been using it to illustrate kind of the various work streams that are taking place throughout the year. As I mentioned, the Bitmain machine installation is taking place in batches, will continue through the end of October. This order is already 100% paid for. We've had no issues with delivery from Bitmain. I'm feeling very confident in meeting this time line for installation.

On the custom mining machines using the Intel ASIC chips, we have an update on how that's been progressing. We've been working closely with Intel. We've been working very closely with ePIC. And we are now redesigning the machines slightly in order to boost their efficiency. And this redesign has extended the design process. It will also delay the deployment of the machines until Q1 of 2023. We've also decided to scale back the number of chips we're ordering from Intel, which reduces our overall hashrate guidance, and I'm going to jump ahead to the next slide to get a little more detail.

I'm not sure what's happening to my voice today, but it's been good for the last few days, and I'm not sure. I've already had the rona so I don't think it's that. So hashrate capacity. We have, as I said in the last slide, we've revised our hashrate guidance to reflect new expectations around the Intel-based machines. Again, this is a slide that we've been showing throughout the year as kind of mapping out our growth of hashrate. So let me just kind of walk through the history of it and then kind of walk through how we're looking at the next couple of quarters.

So at the end of Q2, we had 2.2 exahash of capacity. This includes the retirement of the 17 series, which we announced earlier this year, which was about 460 petahash of capacity. As I said, we're continuing the installation of the Bitmain S19J Pros. Those are the 20,000 machines that we put in last year as well as the 10,000 that have come from Core, so 30,000 of the S19J Pros, and that is an extra 1 exahash coming from those machines by the end of October and that takes us to 3.2 exahash of this year. Again, those machines completely paid for, no issues, and the team is hammering along fantastic.

What that represents is a doubling of our hashrate capacity in 2022 on the Intel rigs. Given the kind of market conditions, decline in the price of Bitcoin, we've decided to scale back the Intel ASIC machine order by about 50%. So we originally had 1 point exahash coming from the Intel machines. We're reducing that to about 900 petahash. We expect that to come online in Q1 of 2023. That is a realistic conservative date. We still are excited about these machines.

We still believe that it was the right move to partner with ePIC and to get these rigs from Intel. Again, they are custom made to our specifications, designed to run in immersion. And one of the benefits to that relationship with both Intel and ePIC is that there was a lot more optionality and more ability to adjust our capital spending based on market conditions. This is a different type of relationship than when you buy from Bitmain where you pay a huge deposit upfront in advance and that it gets very tricky if you change your mind or you don't have the capital, the optionality to the Intel and ePIC rigs is a real asset here.

And so given that Bitcoin prices have come down significantly, we feel like it's prudent to scale back some of our capital expenditures, preserve optionality and move more into our 2020 smart growth model, not overextend ourselves, reduce risk. Those of you that weren't around in 2020, I talked a lot about smart growth. And essentially, that's an approach where we balance ambitious growth plans with also being conservative and kind of reacting to market conditions. So we're in a down market right now. And we need to be smart about capital preservation and about growing intelligently about reducing risk, about not overextending ourselves.

So after incorporating this adjustment to our forecast, our new hashrate guidance is 3.2 exahash by the end of the year with hashrate increasing to 4.1 by the end of Q1 2023. This does not include any uplift from overclocking. So we haven't been overclocking through the summer. We do expect to be able to overclock as temperatures come down. Overclocking is something that does -- is affected by temperature and by environment. It's been really hot in Texas, very difficult to overclock in the summer. So again, these are conservative numbers because of no overclocking for that 3.2 exahash.

In terms of capital needed, we need to raise an additional $25 million to $35 million to achieve the incremental hashrate of 4.1 exahash. So we had said earlier in Q1 that we needed to raise $50 million to get to 5 exahash. We've reduced our capital requirements in line with our reduction to hashrate guidance. In terms of capital opportunities, we're in active discussions with various providers. We are confident in our ability to raise the capital on good terms. It's one of the benefits of being now around for 4.5 years, which is a lifetime in this space. We have a good track record, lots of folks want to talk to us.

And there's some really interesting opportunities that are out there that are sort of nontraditional for lack of a better term. Not going to get into the details. We are obviously very aware that there's lots of strong feelings about dilution. We want to make sure that shareholders are taken care of, particularly given where the market is at right now. But we are confident that we can raise that $25 million to $35 million to achieve the hashrate of 4.1 exahash without taking on any significant debt that is going to not be putting us in a good place. So that's our update to hashrate capacity.

Looking into 2023, what does our runway for growth look like in short. Lots of room for growth because of both Helios and of the relationship with Intel. Helios Phase 1 is ramping up throughout this year. We expect to be using the full 20 megawatts of power by late this year, early next year. Beyond that, we have an additional 600 megawatts of capacity that we can develop over the next few years. And that's a fantastic runway. And there's not a lot of folks that have that much capacity in their pipeline for power.

In terms of our supply agreement with Intel, that's another key differentiator for us. We've been able to custom design those machines to run in immersion, don't have to rely on off-the-shelf machines and again, very -- able to get very granular with the machines. So we feel like these 2 factors combine to give us a really fantastic runway for growth of up to 20 exahash by the end of 2024. And yes, that is our hash -- our runway for growth.

Argo Labs, a quick update on Argo Labs. As folks who have heard about Argo Labs know it's focused on non-mining activities, kind of the innovation wing of the company. Argo Labs, quick summary are participating in disruptive sectors of the broader blockchain and Web3 ecosystems. One of the kind of new updates for Argo Labs is there's a new initiative where they are providing advisory and consulting services to projects within the blockchain space. This allows the company -- it allows Argo Labs to meet the founders, discovered new innovations that are leading to better diversification, all while generating revenue for Argo. Some of the services that Argo Labs is providing include token economics, token economic design, market analysis and infrastructure support.

All right. In terms of what we have deployed resources into, you can see in the pie chart on the right, kind of the breakdown of all of the various projects or some of the various projects that Argo Labs is deployed into. I want to point one out in particular just to give you kind of a sense of what Argo Labs is doing. One of them is called Astra. It's a decentralized compliance layer that sits between DeFi apps and users and verifies KYC, AML compliance. It's obviously something that needs to happen, this kind of compliance layer for DeFi to scale and to achieve more adoption. And because it reduces, ultimately, counterparty risk and enables regulatory compliance, we believe it's something that is really going to catch on. Those are key hurdles for meaningful institutional adoption.

So the Argo Labs team has met with the Astra management team multiple times, been impressed by their background and their expertise. We participated in the project seed round earlier this year. And the Astra team is now raising a Series A fundraising round at a much higher valuation than when we originally came in. So that's exciting for us. It's -- this kind of thing shows that this is the type of project that we're pursuing. All right. So that is Argo Labs.

And I'm now going to turn it over to Alex to go into some more details on our financial performance for the quarter and for the half year.

Thank you, Peter. So overall, Peter has touched upon this already. We suffered from the fallen Bitcoin like many of our peers. So on that change in value, when we look back to December, Bitcoin was in the mid-40s, I think slightly higher than that around about $47,000 mark. And as at the end of June, it was much closer to $20,000. So of course, as we revalue our Bitcoin holdings we had a loss on the change in fair value of digital currencies, which you can see both the gross profit line there.

In terms of profit and mining margin, 71% is still very strong. I'll come on to how that stands against our peers but that was a really pleasing result for us. As we look further down the P&L, we look at our operating expense and our administrative expenses. So for the first half of the year, they're around about GBP 10 million. And as Peter touched upon earlier, there are some significant one-off costs, if you like, particularly when comparing to previous periods the impairment of the intangible assets. And really, when we're talking about intangible assets, the bulk of that is the Argo Labs holdings, which Peter just demonstrated on the previous slides.

We impair those assets, but they are counted as intangible assets. The movement in that value goes through the administrative expenses, whereas the movement in any Bitcoin value goes above the gross profit line, this goes through administrative expenses. And that was about 30% or GBP 3 million worth of impairments. So obviously, that was a significant portion of that administrative expenses increase. Peter also mentioned that the Helios facility coming online. So as he said, coming online at the beginning of May. We start to reshape it. Reshaped it for over 25 years.

And then also the insurance that Peter has mentioned, D&O insurance. We want belts and braces. We want the Rolls-Royce, if you like, in insurance policies in order to be able to attract and retain directive as we've moved across the pond and operating in the more litigious environment. It's very important that we have protection there for the directors and the kind of directors that we want to attract and the board that we want to attract and keep is looking at this and does look at that policy. That's part of their due diligence is looking through that D&O policy and ensuring it does cover them should the worst case happen.

We've also got insurance on the building, the Helios facility building itself. And we've seen pictures of the building. It's a huge building. There's a lot of miners in it. And also, that is a very costly expense as well. However, in terms of other G&A costs out of the main cost within there is people, wage and salaries by most businesses. You've seen over the past, particularly beginning of this year, end of last year, we've really strengthened the team. We've got a significant C-suite now. We have a very strong executive team underneath them. And what that's going to mean is that going forward, we will not have significant hires. There's no gaps at the moment in terms of those 2 teams.

And so therefore, as we build out the exahash, as we build out Helios facility, we do not expect the G&A cost to increase significantly, and therefore, the mining profits that come from that increase are almost going to fall straight down to the bottom line. So it's a really pleasing place to be in. We've got that foundation in place, ready and poised to then take advantage of the increase in exahash and the profits that, that will generate.

On to share-based payments. So again, just as a reminder, this is the charge that goes through the P&L for the share options and warrants that are out there. Foreign exchange, so foreign exchange you'll see in a number of places, particularly if you've gone through the RNS in any detail. As the dollar -- or as the pound has weakened against the dollar, we have a gain in the income statement. This is an accounting gain. I actually saw there was a question that went through there in terms of how does this -- how does exchange impact us and what is the cost of that. This is an accounting transaction. So because we mine Bitcoin, which we can sell in either U.S. dollars, British pounds, Canadian dollars, et cetera. In terms of actual exchange cost, we don't suffer any significant exchange cost. So we're well placed from that point of view.

Moving further down the P&L, we've got the interest expenses. So I'll come on to our debt profile when we move on to the balance sheet. But in terms of our weighted average cost of capital, we're still below 10%, which is a really pleasing place to be in. I mean given 12, 14, 15 months ago, when we first took on and we were looking at debt in order to help accelerate our growth, the sort of interest rates that we were able to gain on both machine financing, it was the high teens that were offered. So that's come down significantly. And even the Bitcoin-backed loan, which today stands well below 10% was above that 10% mark. So overall, our weighted average cost of capital is well in line with peers, if not better. So we're very pleased with where that stands.

Those are the -- and then moving down to the income tax. You can see the income tax credit there. So when we calculated our tax charge at the end of last year, and most of that tax came from our Canadian entity, our trading entity. We were going through a process with the Canadian revenue authority there to understand exactly how there we were going to treat our losses. The guidance that we were given by them at that point was we wouldn't be able to offset previous losses. Having finalized our tax return at the end of June, we are able to offset those. So that is where our tax return has come in. And that has meant that we significantly reduced the tax charge from the previous -- from the 31 December position. So that's really pleasing. And in addition to that, we've spread that cost over a period of time as well into the future.

So moving on to how we line out with our peers. So again, as Peter said, we've talked about this before. We want to be in Tier A of miners. We want to be in the highest tier so that we are protected from the downturns and the softening of Bitcoin price. And how do we do that? Well there's 2 ways really, there is the inputs and the input really to Bitcoin mining is power and power cost and Peter touched upon this already. Our long-term goal still stands to at least achieve that into that band of $0.02 to $0.03 per kilowatt hour, if not lower. So that is where we will stand in the longer term.

And then also on the other side, in terms of the output of the machines, immersion cooling is going to be able to mean that each of our units were going to be able to push harder. And as we get into the cooler times of the year, we're going to be able to push those machines harder, and we'll see that come through into that mining profit and that mining margin. So we continue to be operating very effectively when compared to our peers.

In terms of our balance sheet, I think the first thing really to mention is how we've -- despite the significant headwinds that we've had this year, our rigorous approach to cash flow and treasury management has meant that we've been cash neutral. So we're well placed there. In terms of our digital assets, you can see that we revalue those, as we've talked about. Moving down, we've got fixed assets. Those are the -- mainly the Helios facility and obviously the machines that go on Helios facility and they transferred from assets under construction to assets in use and it starts to depreciate those now.

In terms of our debt profile, we've talked about this before, at one point, our Galaxy loan was USD 50 million. We reduced it to -- as at the end of June, it was around about USD 22 million. It's now under USD 7 million. And I haven't likened this to -- we've used an overdraft, if you like, to build a house. And because you cannot get -- you can't use your machines as collateral and so you actually have them in your possession, you can't use the infrastructure until you have it built. As financing, we've used a stock of the Bitcoin-backed loan to help fund these things which we have to pay in advance.

And then as we've got them on the ground and we've refinanced, we've releveraged, we changed that debt profile so that the profit generating unit, the machines themselves, the debt is matched against profit generating units themselves to the infrastructure. We've got finance on -- a little bit of finance, there's a little bit potentially more there, that Peter has talked about, potentially more machine financing. So in terms of reaching that $25 million, $35 million required to get to our target, we're well placed and we're in advanced discussions.

A lot been asked about the debt market. Debt is still available. It's still out there. As we've said, we have lot of discussions. I think if I was a new entrant to the market, it would be difficult, but we have that history, we've been through these bear markets. We survived these bear markets. We've got a history of repaying debt. We've got a history of being profitable. We've got a history of being in Tier A. So we're well placed to be able to access the debt market still.

Back to you, Peter.

All right. Thank you, Alex. All right. So that brings us to the end of our formal presentation. You probably heard enough of us nattering on, particularly me with my squeaky voice today. And so we're going to move ahead now to questions. And Tom Divine has been gathering questions from some analysts that are on the call as well as from the chat function here through the Investor Meet platform. I'm going to hand it over to Tom, and he's going to fire some questions out.

Thanks, Peter. Our first question comes from Darren Aftahi at ROTH Capital Partners. Why are you doing a redesign on the ePIC Intel machines?

Yes, it's a good question, Darren. Ultimately, there's -- the main reason is we had designed the machines in the first half of this year for a particular type of market environment that we were in, now -- where a hashrate was kind of the most important thing. And hashrate is always important, but efficiency is also super important. So we've had the opportunity to talk to the guys at ePIC and to make the machines more efficient to put them kind of even closer to the S19 XP, kind of up from where they were previously.

And ultimately, that means that the machines are going to kind of act like -- well, if I can use a car analogy, Darren, if you think about the F1 car, they do one thing really well. They drive really fast. And the ASICs are essentially F1s. They're out there on the track, blasting away, solving these problems. But they're generally designed to go not -- there's not a large amount of flex in terms of how fast they can go. The way we're redesigning these machines is that they can go very fast and they can also be very efficient. So there's a huge range that they're able to operate within.

And we think that's going to be really important, particularly with the (inaudible) coming up in 2024. So we decided to kind of push back the delivery on these a little bit, a couple of extra months in order to make sure that we have that flexibility, that we have that range for those machines and that they're able to be particularly in kind of the market conditions that we're in, they're able to be really efficient or if things rip, then we can really push them really hard. So they can be made super overclocked or super under-clocked as opposed to operate within a smaller band. Yes. So that's why we're tweaking them a bit.

Great. Our next question is from Joe Vafi at Canaccord. Could you give us an idea of where you'll end the year in terms of exahash versus power that exahash requires? And if you have additional energized capacity, do you have any views on using that power?

Yes. So 3.2 exahash, Joe, is roughly going to take us to about 120 megawatts of power. Quebec, we're mostly running the Z11s. There's some S17s there, very few S19s. So that 3.2 exahash of Bitcoin mining is primarily all in Texas, and that's roughly translates to about 120 megawatts. And then when we've got the next roughly 1 exahash that's coming in, in Q1 for the Intel rigs, that's another chunk of megawatts there.

So if you think about it, we've got some flex, some power. We are looking for ways to be opportunistic with that capacity. As you know in this space, you need rigs, you need power, you need capital. We've got lots of power. We can monetize that. So we're not going to get into any details, but we're exploring opportunities to monetize that power. And we'll put an update out to the market as soon as we have any announcements.

Great. Our next question comes from Jon Peterson at Jefferies. With power costs coming back down, when do you think a PPA will be locked in for Helios? And will that PPA include the ability to sell power back to the grid?

Yes. So that's the whole intention, Jon, with the PPAs to be able to participate in the ancillary programs from ERCOT and that includes demand response and controlled load response and to be able to essentially be an energy trader with your power. We've obviously had higher energy prices than were anticipated particularly in the spring, kind of April, May, when we were kind of looking to lock in a fixed price PPA and those have continued throughout the summer. So we're expecting, again, those to come back down in the next couple of months to lock in a PPA and then kind of be able to move from there and participate in all those ancillary services that the ERCOT grid has to offer.

Great. Our next question is for Alex, and this comes from Kevin Dede at H.C. Wainwright. Is there a write-down expected on the 17 series that we retired or are they fully depreciated?

Kevin. So the 17 series, we installed those in the second half of 2019 and early 2020. So some of those machines will still have a net book value. So they will still be a write-down, but it's relatively small given how long they've been installed, indeed, some of them are full -- already fully depreciated. So it's certainly not significant.

Great. Next question comes from Ramsey at Barclays. Were you all incentivized by ERCOT to turn off operations this summer? And can you provide any additional color there?

Yes. Thanks, Ramsey. So we were not able to participate in the ERCOT ancillary services because we don't have the fixed price PPA yet. You really need that in order to participate. We are registered in the ancillary services. We're doing testing right now with ERCOT, but we're not going to participate until we have a fixed price PPA.

Great. Our next question is also for Alex from Bill at Stifel. The company has made significant prepayments for both the S19J Pros and the Intel Blockscale chips. Are you able to confirm how much is remaining? Is it the $2.2 million as per the notes on the trade payables?

Unfortunately, it's not the $2.2 million. I wish. So Bill, in terms of where we stand today, we've fully paid for the Bitmain machines. We still have a portion to pay for the committed Intel chips, but the prepayments that are on the balance sheet at the end of June in terms of the Intel and ePIC (inaudible) significant portion of what we have to pay. I can't really go into exact details on that. But what I can say is Bitmain is fully paid as of today, and we have a little bit more to pay for Intel and ePIC.

Our next question now submitted in the chat comes from Jason B. He's asking for some clarification about the timing of the Intel and ePIC machines. Peter, can you go into that a little bit?

Sure. So we expect the ePIC and Intel machines to be delivered and start deployment in Q1 of 2023. Jason, I think that there -- we have been saying for a while, Q4, we decided to be conservative and say Q1, the goal is particularly to make sure that we're realistic as to when those are going to be running. It's possible that some might arrive in Q4, we're hopeful. But the expectation we're setting out for the market is for Q1 of 2023, to have those machines delivered and installed.

Great. We have another question from Darren at ROTH Capital Partners. Is the lower year-end exahash guidance more a function of the delay in ePIC deployments or preservation of capital?

Thanks, Darren. So it's really both. It's a preservation of capital as we lower the number of chips from Intel but it's also due to this redesign, which has kind of associated with it, some supply chain bottlenecks that are a concern that we want to make sure that we work through and kind of give ourselves enough time to handle. So essentially, it's both.

Great. Next question from Chris Brendler at D.A. Davidson. Given your location in a pretty wind-heavy part of the state, what are your thoughts on doing some behind-the-meter arrangements in the future?

Yes. Listen, it's something we've looked at, Chris. It's a good question. It's -- the key is to find a partner that is willing to do the right type of PPA for you or with you and those don't always materialize on the timing that you need. So it's something that's on our -- it's on the list. But ultimately, it's really about finding the right counterparty. And for the meantime, being in the grid in Texas is pretty good as long as you have that fixed price PPA, you're able to participate effectively in the ancillary services.

Great. Another question that we got in the chat from Shigar S. Has there been any impact to Argo from the Celsius bankruptcy?

So no, no impact for us. We haven't really had a relationship with Celsius since over -- I think it's been 12 months since we resolved the issue that we had with them. And yes, so ultimately, it had no impact. Obviously, our -- yes, we've been following the story closely, but just as interested observers.

Our next question from the chat from Mike W. Do we have an ideal price target for the PPA that we'll look to sign in the fall?

We don't really, Mike. Obviously, the lowest number as possible. You sign a PPA at a certain number and then you kind of whittled that price down using the ancillary services. So we'll see what the market is like in the next month or two. And I can tell you those conversations are ongoing. It's not something that we're even waiting for. It's an ongoing conversation. But I can't say that we have a price target with PPA. Again, we're targeting that to $0.025 price long term in Texas. And that's something we still believe is achievable once we get that fixed-price PPA.

Great. Our next question in the chat comes from John S. The Helios outdoor photo in the presentation seems to show about 25% of air coolers still remain to be installed. Is this indicative that Argo is slowing down on the infrastructure build-out?

Good question, John. Good observation. No. So all air coolers have been installed at Helios that we need. If you think about an air cooler, each of the air coolers runs a 4-megawatt pod, so there's 50 of them. You can count them and that's 200 megawatts. We do have some additional capacity for -- but you're right, about another 25% of the building. But the plan was always to have that as the extra space, white space, storage space, et cetera. In the future, again, that's expandable space potentially for us. But for now, it's all systems go on getting that infrastructure to 200 megawatts. And we're almost there in terms of having all the tanks and the pipes and the installation gear now that all the air coolers are in.

Great. Next question in the chat comes from John C. When will you be appointing a full-time Chairman?

Thanks, John. So this is something that has been -- we've been looking for, for about a year. We have strengthened the Board of Directors in the last 12 months. I feel really good about our Board and about our governance process. We actually have a board meeting today. We have a board that's very engaged, very smart, provides a lot of value, very diverse and experienced.

So in terms of time frame for the Chairman, it's something that we are actively looking for, but we want to make sure it's the right Chairman. We kind of need a rock star in order to take us to the next level. And other than -- yes, so I can't give you an exact timing, but we'd like to ideally find a Chairman in the next short to medium term.

The next question in the chat comes from John S. What are the future plans for Canadian operating centers?

Thank you, John. So in short, we're happy with the profitability and the operations in Canada. We like the geographic diversity. The price of power is good and steady in Quebec. The climate is good. We've built a repair center at our Mirabel facility that helps to maintain our fleet of machines. We're also putting in a global operations control center in Quebec, which is going to control, kind of keep a look at our hashrate as a company across the board.

So the plan is just to keep hammering them away -- hammering kind of away with them. The Baie Comeau facility in particular, is really well built, really solid. The machines there are definitely coming into their -- end of their life span. So we're looking at kind of opportunities for the next phase of machines to go in there. And yes, in general, we're happy with them.

Great. The next question in the chat comes from Leli M. Can you talk about what is happening with Pluto.

Yes. So Pluto Digital is obviously an investment that we made going back to about 1.5 years now. We're in regular contact with the Pluto team. I speak to them on a very regular basis, at least multiple times a month. They recently launched the NFT minting or the NFT minting for the Resurgence game, which is a project that they're doing with Maze Theory, the gaming company has recently launched. They're leaning into the play-to-earn side of things. We support that. So they're plugging away in a down market, and we're happy with the work that they're doing.

Perfect. The next question out of the chat comes from Matt T. Do we expect all or most of our machine orders to come through or to be the ePIC/Intel machines? Or will we balance that with other machine orders?

Yes, it's a good question. I think we're going to be opportunistic, Matt. We'll see how the ePIC machines, Intel machines perform at scale. We've got roughly 6,000 of them -- 6,500 of them coming in the next couple of quarters. If those are performing really well, then we'll lean into them. And we obviously like that relationship with both ePIC and Intel. But some -- there's some Bitmain machines that are really solid and there's some deals to be had with those as well. And MicroBT makes good machines. I mean we've always been willing to play the field when it comes to buying rigs. But again, our primary focus is getting those ePIC rigs built the way we want them and then scale with them if it's appropriate.

Great. Another question that we've gotten from a couple of different folks in the chat as well as some pre-submitted questions, including from Connor S. Can you talk a little bit more about the plans at Helios beyond the initial 200 megawatts? And how do you think about that incremental 600 megawatts?

Yes. So the 600 megawatts, which has been approved for the interconnection agreement is a real asset for us. I think that in 2023, we can lean into it if market conditions allow. We do have the orders in for the long-lead items needed for that 600 megawatts, and that's -- that includes -- or that mostly is the large transformers, which are about 125 megawatts each, and they take about a year to make. So those are coming late Q1, Q2.

In terms of planning, we haven't released any plans for the other 600 megawatts, but we do have internal kind of planning that's going on for that 600 megawatts. We think that it's a pretty unique asset, that power there. So I'm not going to get into more details than that, but we're still very bullish on the Helios side.

Thanks. And that's a good segue into our next question from the chat from Jared S. What are the long-term value drivers for Argo? You just mentioned that you think this runway for growth with the 600 megawatts is a good -- a strong asset that we have. What else are the long-term value drivers?

Yes. And I alluded this to this, Jared, in the presentation. Well, I kind of spelled it out in the presentation. I think one, we've got this 600 megawatts, which you need rigs, power capital. That's an enormous amount of power that we have that we can lean into. Obviously, you need the capital to build it out, and we're continuing to work to make sure that we have the relationships with capital providers to find the right partners to help fund our growth because this is a capital-intensive business. We have this relationship with Intel and a commitment to being an innovative miner. And that's been -- we've shown that through setting up our immersion system, which we built from scratch ourselves. I don't think there's anyone else in the space that has done that maybe other than Riot.

And then we've got, I think, our ESG bona fides, our commitment to renewables. Again, we're leaders in this space in ESG and sustainability. And that matters to people. When we're having conversations with people, when we're recruiting people to work for us, it's been a crazy hot summer in lots of parts of the world. And we think that, again, being kind of a forward-looking carbon-neutral companies is ultimately going to be a key asset for us and a key differentiator for us.

And then on the last piece, I would say, a focus on being efficient. Our mining margins for the first half of this year have been best in the business. The reason we're tweaking the machines from -- with the Intel chips is to make sure that we're focused on being efficient into the future and kind of growing intelligently, not just buying machines for the sake of adding the hashrate. We got -- it has to be the right type of hashrate. So I would say those are the key kind of long-term value drivers for us.

That's great, Tom. Thank you very much indeed for hosting today's questions. And also thank you to everybody that submitted their questions during today's presentation.

Peter, I'm surely going to redirect investors to provide you with their feedback, which as usual, I know is very important to you. But before doing so, I wondered if I may, just ask you for a few closing comments before I redirect investors for that feedback.

Sure. Thank you, Mark. Thanks, everyone. Thanks for coming out for our H1/Q2 update. Obviously, it's been an interesting year so far. 2021 was an interesting year. This year is different and interesting in a different way. We continue to believe in this space. We continue to believe in this company, and we thank you for your engagement. And I think we saw some great engagement today. And we're cautiously optimistic for the second half of this year. And I feel like we've got the right team and the right place to continue to grow in the right way.

That's great. Peter, Alex, Tom, thank you very much indeed for your time this afternoon. Ladies and gentlemen, please can I ask you not to close this session so we'll now automatically redirect you for the opportunity to provide your feedback and so the management team can better understand your views and expectations. This will only take a few moments to complete but I'm sure will be greatly valued by the company. On behalf of the management team of Argo Blockchain plc, I would like to thank you for attending today's presentation and may I wish you all a very pleasant afternoon.