Bitfarms Ltd (BITF) 2023 Q4 法說會逐字稿

Good morning, and welcome to the Bitfarms Fourth Quarter and Full Year 2023 conference call, (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Tracy Krumme, Senior Vice President, Head of Investor Relations at Bitfarms. Please go ahead.

Thank you. Good morning, everyone, and welcome to the farms Fourth Quarter and Year End 2023 conference call. With me on the call today is Geoff Morphy, President and Chief Executive Officer; Jeff Lucas, Chief Financial Officer; and Ben Gagnon, Chief Mining Officer.

Before we begin, please note that this call is being webcast with an accompanying presentation. Today's press release and our presentation can be accessed at our website bitfarms.com under the Investors section.

Turning to slide 2, I'll remind everyone that certain forward-looking statements will be made during the call and that future results could differ from those implied in the statements. Forward-looking information is based on certain assumptions and is subject to risks and uncertainties, and I invite you to also consult Bitfarms MD&A for a complete list of those.

Please note that references will be made to certain measures not recognized under IFRS and therefore may not be comparable to similar measures presented by other companies. We invite listeners to refer to today's press release and our MD&A for definitions of the aforementioned non IFRS measures and the reconciliations to IFRS measures. Please note that all financial references are denominated in USD unless otherwise noted.

Turning to Slide 3. It is now my pleasure to turn the call over to Geoff Morphy. Jeff Please go ahead.

Thank you, Tracy, and thank you, everyone, for joining us today. I am happy to present and discuss with you our Q4 and full year results at such an exciting time in the industry. Multiple converging catalysts are leading to a very bullish sentiment, which is selling the bitcoin price soaring and the market cap of bitcoin to over $1.3 trillion.

The favorable industry tailwinds include an improving regulatory and macro backdrop, the recent Bitcoin ETF approvals by the SEC, which are leading to rapid retail and institutional adoption, the upcoming halving, which Ben will speak to more in a minute. The positive impact of bitcoin supply constraints with current daily demand exceeding 5 to 10 times the daily supply of newly mined coins and this prospect of a lower global interest rate environment, which has historically been very favorable to the bitcoin sector over the last two months.

These catalysts have caused a surge in investment interest and investment in publicly traded bitcoin miners and Bitcoin ETFs. The ETFs have charted unprecedented growth with net inflows exceeding $8 billion. This is not just an anomaly but a paradigm shift for the industry, partially as a result of this insatiable demand.

Earlier this week, Bitcoin achieved a new all-time high price, which is exceptional as this is the first time, Bitcoin has attained a new all-time high, leading into a habit. With this demand supply backdrop, 2024 looks to be a banner year for Bitfarms.

Turning to slide 4, I wanted to start off today's call with a quick reminder of what Bitcoin is why we mine it and how bit farms does it better. Bitcoin is a simple idea flawlessly, executed and code and organically adopted by people around the world at massive scale. This powerful technology is empowering individuals, entrepreneurs, corporations and even countries and governments to participate in the world most opened Cerence secure financial system on the planet.

As shown in the chart on the left, Bitcoins ongoing adoption and organic growth has made it the best performing financial asset of last year and over the last decade, outperforming the S&P 500, NASDAQ 100, MSCI World Index, and gold, in our opinion. And according to others, Bitcoin is the hardest monetary asset on the planet. It forms a vertically integrated global bitcoin mining company that provides investors with high-quality exposure to Bitcoin to our publicly traded shares.

We are [marketizing] and making available to investors exposure to some of the world's best built, best operated and lowest cost bitcoin mining operations and the operating cash flows they generate what makes us a leveraged investment play is that every single day since Bitfarms was founded in 2017, we have produced bitcoin at materially lower cost than what people institutions and ETFs can purchase it for in the open market, we have earned over [$24,000] bitcoin since inception.

I am thrilled to report that in 2023, that Farms has the best-performing stock on the Toronto Stock Exchange and the eighth best-performing stock on NASDAQ a moment ago, I commented that our shares represent a high beta exposure to Bitcoin as the chart on the right illustrates in 2023. That farms outperformed bitcoin by 286% and outperformed the mining industry represented by the Valkyrie Bitcoin Miners ETF by 95% that Farm's annual share price return of 592% compares to Bitcoins annual price appreciation of 155%, which is a beta of approximately three times.

So how do we outperform bitcoin in 2023. Let's turn to Slide 5. In 2023, we acted with strong discipline to dramatically transform our balance sheet by growing the company's Hash Rate 44%, improving our energy efficiency by 12.5%, thereby reducing our operating cost per Terra cash paying down 85% of our debt, increasing our Bitcoin and treasury by 99%, ending the year with $118 million in liquidity and in November, announcing our transformative fleet upgrade with a contract to purchase up to [$63,888].

The main T21 miners. These powerful new miners, combined with our new farms under development, are a game changer and put Bitfarms on track to triple our hash rate to 21 extra cash by year end 2024 and improve energy efficiency up to 34% to 23 watts Proterra ash. Not only does this represent the greatest growth in our six year history. But importantly, our integrated strategic growth plan will drive what we believe will be the biggest relative improvement in energy efficiency in our industry this year.

Turning to slide 6, I would like to elaborate on the impact of our transformative and accretive fleet upgrade program.

While speaking to our financial discipline and cost-focused approach this month in Quebec, we will begin to upgrade our fleet, starting with replacement of approximately [11,000] M31S. and M31S plus miners with the first batch of new T-21 meters. As a testimonial to our highly efficient operating structure, it is important to note that while these M31S miners are least efficient and oldest miners, they were purchased around the time of the last having in 2020 and 2020 they are still profitable due to our low cost energy and high operating efficiencies.

During these four years, these group of miners have paid for themselves over five times, demonstrating solid ROI returns on a unit basis, upgrading the M31S to the new T21 miners will deliver a two times improvement in energy efficiency, driving a 50% reduction in our operating cost per trash. They will also generate a nearly threefold increase in hash rate and mining revenue. All other things remaining constant to relatively improve -- the relative improvements from upgrading these M31S miners will more than offset the impact of the upcoming having on a per unit basis.

Turning to slide 7, approximately 68% of our T21 on order will be installed in our existing farms with the lion's share going to our Quebec farms by utilizing our existing infrastructure, the upgrade is effectively a plug-and-play operation significantly reducing CapEx requirements, risks and complexity. This low risk and low cost growth strategy provides immediate and tangible benefits to bed farms and our investors with the first minor set to be upgraded this month. We are pleased to report that our transformative fleet upgrade is well underway on time and on budget.

Turning to slide 8, I'll touch upon our progress in Paraguay, where most of our new site development is happening and where we will plan to deploy over 26,000 new miners this year. In Paraguay, we have two new farms under development and on track for energization this year. The first miners at our Pasco pay facility are scheduled to go online this month with more miners coming online in April. Paraguay is an important area of growth for us.

Our two farms under development will generate many value added corporate benefits, including favorable fixed power contracts at $0.039 per kilowatt hour before that, our contracts with E&A that are not subject to inflation, no requirements for power curtailment, providing up to 100% uptime, 100% renewable energy, fast development, construction and deployment times exceptionally low cost for construction and skilled labor.

And lastly, first mover advantage, securing big farms with a meaningful amount of electricity allocated to the cryptocurrency sector putting us on track to be the largest miner in Paraguay by year end. My recent visit reinforced the merits of our decision to invest further in this country. There is abundant and low priced hydropower, a skilled labor pool, supportive cryptocurrency and Bitcoin mining from the public and most importantly from the primary electricity utility E&A.

E&A understand how bitcoin mining functions as a digital electricity line for exporting their excess hydropower to a global marketplace. By signing power contracts with Bitfarms, they are able to monetize and make better use of their existing infrastructure assets. Additionally, they are able to use revenues from bitcoin miners to finance the rebuilding and expansion of a significant portion of their domestic power infrastructure, which will bring benefits for generations to come and aligns the interest of big farms, E&A and Paraguay.

Turning to slide 9, with minor upgrades underway and the near completion of the initial phase of development of Pasco pay. We are on track and on schedule to deliver 12 extra cash by the end of June 2024. Importantly, with Bitcoin price and spot miner prices rising. The [$28,000] minor option that we purchased in November is in the money exercising this option is a key element towards achieving 17 extra cash per second and through this exercise, we plan to take delivery of T21 miners in the third and fourth quarters of this year in line with the construction schedule at adequacy.

While these carefully constructed plans, increase our hash rate to 17 extra hash per second. We are targeting more than a threefold growth this year to 21 extra hash per second should market conditions continue to be favorable. We are actively considering additional farm expansions, new developments, acquisitions and a further and further minor redeployments to achieve this 21 exahash target by the end of 2024. With numerous actionable opportunities in our pipeline, we are well prepared to seize upon accretive growth opportunities to fill the remaining for excess cash this year.

Turning to slide 10, let's take a look at our pro forma portfolio based on the plans that I just discussed. After having successfully deployed [$63,888] T21 miners through the transformative fleet upgrade plan and a new farm developments at Postle paying a lawsuit, we will have completely rebalanced our portfolio, both geographically and economically.

The expected result is one higher operating efficiencies with 79% of our miners operating at 22 watts, Proterra hash and no miners operating above 30 watts per hash, two a competitive blend of low cost electricity with high uptime, three achieving greater geo diversification with no single country contributing more than 50% of our hash rate and revenue and for benefit from stable hydro power rates, which represent about 85% of our portfolio.

If you take away nothing else from this update, our transformative fleet upgrade is unique, both in terms of its scope and its ability to drive meaningful improvements across three key performance indicators, hash rate, energy efficiency and our direct cost to mine, also known as hash cost. These improvements will take place across all existing farms and farms under construction, ensuring we are ready for the having and the widely anticipated subsequent bull market.

I will now turn the call over to Ben Gagnon, our Chief Operating Officer, to talk about our operating and financial metrics and the various assumptions post Harvey.

Thanks. Just really happy to be here with all of you today for this will be my third halving event and the company's second for many investors listening in on today's call, it is likely going to be their first. Accordingly, I think it's important to spend a few minutes discussing the having mining economics and how we think about them put simply having events as originally envisioned by the claims creator and how they have functioned historically or catalyst for creating greater economic value.

On the mining side, the 50% reduction in the block reward results and fewer Bitcoins mined, which ceteris paribus incentivizes miners to cut costs concurrently. This also means that the daily supply of new Bitcoins that would otherwise be liquidated to pay operating expenses is also cut in half restricting supply relative to demand and in turn driving prices higher.

Turning to Slide 12. Historically, each having Epoch follows a similar pattern. One at Bitcoin prices rising faster than network hash rate can grow in the 3 to 18 months following having resulting in quickly expanding mining revenue and margins, incentivizing further network growth being on the right side of the cycle is crucial for miners to optimize returns and is a key part of our 2024 growth strategy. Despite each cycle producing 50% fewer Bitcoins in revenue than the cycle before it due to rising DTC prices.

The economics value of all mining revenue in dollar terms increases dramatically with every have an Epoch resulting in a materially larger industry with more economic activity despite the reduction in DTC terms. Notably, this cycle is marked by three very unique features not seen in previous hearings, the China mining ban in 2021, the emergence of ETFs in January and the fact that bitcoin has just hit a new time new all-time high leading into the housing.

This has never happened before and it was only [450] new Bitcoins expected to be mined per day after that, having relative to current ETF demand of up to [$10,000] bitcoin today, meaning that this next cycle will be unprecedented in terms of its scale, but this is all revenue. And outside of hedging activities, miners has very limited control over revenue. However, we do have full control over our costs, which is why EBIT farms, we take a cash cost first approach to mining.

Turning to slide 13, energy efficiency is meaningless without also considering electricity costs. That's why we look at the blended figure, cash cost, calculating cash cost is easy and can be done by simply multiplying energy efficiency with energy price over 24 hours. This will calculate the direct energy cost to operate per unit of compute per day in dollar terms.

As we execute on our upgrade and deployment plans for our 2024, we expect to improve efficiency, 11% from 35 Watts per Terahash today to 31 Watts per Terahash by the end of Q1, 29% to 25 Watts per Terahash by the end of Q2 and 34% to 23 Watts per Terahash by year end, driving our hash cost down by similar amounts.

Importantly, as Jeff mentioned earlier, we believe these will be the most significant improvements across energy efficiency and hash costs in our industry this year, when comparing that to the most efficient miner on the market and hash 21.

You can see that our anticipated hash costs will be lower than in hash 21, operating at $0.06 by the end of Q2 and virtually on par with an hash 21 operating at $0.05 by year end, making our hedge cost highly competitive when compared to the sensitivity table for hash price post having it is hard to imagine a scenario where our hash costs would operate at a loss. On the contrary, it is very easy to see how our low hash cost relative to price scenarios positions us to capture the upside of rising Bitcoin prices with quickly expanding mining margins.

In summary, the upcoming having is not something to be afraid of our growth plan in 2024 is positioned to make us a leader in low-cost production that at every stage in the deployment plan result in anticipated direct costs and produce a Bitcoin well below current prices and with a relative growth that is anticipated to outpace the network, rapidly increasing our market share and revenues all else remaining constant.

With that, I will now hand the call over to Jeff Lucas for the financial review.

Thank you, Ben. This is indeed one of the most exciting times in our company's history as we aggressively pursue our growth plans and made great strides towards 12 extra hedge per second in the second quarter and our 21 hash The second target by year end more than a tripling of our hash rate.

Turning now to slide 15, fourth quarter total revenue was $46 million, up 34% over the third quarter and up 71% over the prior year. The quarter-over-quarter comparison reflects 30% higher average decline price and 5% more bitcoin earned during the quarter. In the fourth quarter, we earned $1,236 bitcoin compared to $1,172 in the third quarter.

Our hash rate, which does not yet include the impact of our upgrade program with 6.5% higher sequentially, offsetting an increase in average network difficulty of 9% to 19% over the third quarter 2023 fourth quarter gross mining profit was $23 million and 52% of mining revenues compared to $13 million or 38% of mining revenue in the third quarter. The gross margin partly reflects investment in advancing our growth to 21.5 hash per second and other costs reflective of a larger product production operation as well as non-recurring expenses.

G&a expenses for the quarter were [$13.4 million] compared to $8.4 million in the third quarter. This includes $4 million of non-cash compensation versus $2 million in the previous quarter. The increase also includes higher incentive compensation payments associated with the achievement of annual performance targets, non-capitalizable professional services that are associated with corporate development to advance our growth initiatives for the second half of 2024 and 2025 in other recurring and nonrecurring expenses.

For the fourth quarter, our operating loss was $13 million, including non-cash depreciation expense of $22 million in comparison to a third quarter operating loss of [$19 million] also included depreciation expense of $22 million. Our net loss for the fourth quarter was $57 million, or $0.19 per basic and fully diluted share compared to a net loss for the third quarter of $17 million, or $0.06 per basic and fully diluted share included in net loss and net financial expenses of $45 million.

That includes a $38 million non-cash charge for the revaluation of financial liability for warrants issued earlier financing. For a background about these warrants during the preparation of our annual financial statements. We reassessed the application of IFRS accounting standards when the accounting of private placement financing is closed in the first six months of 2021, almost three years ago.

In consultation with our corporate counsel and accounts to determine that the warrants associated with the financing should be treated as a financial liability rather than as equity. Accordingly, the financial statements for 2022 were restated to reflect this accounting. It's important to bear in mind that these are non-cash adjustments do not have any impact on our reported adjusted EBITDA for information details can be found in our 2023 financial statements and MD&A, which were filed today.

Turning our attention now to per bitcoin production costs and profitability in the fourth quarter from direct cost of production per bitcoin, which is the all electricity cost to mine bitcoin was $16,200, down from the $16,900 per bitcoin in the third quarter of 2023. The approximate 4% lower cost per bitcoin primarily reflects a reduction in the overall cost of electricity from [4.5] per kilowatt hour to [4.2] per kilowatt hour.

This in turn was driven by a six month contract with Argentina's power producer entered into November that lowered electricity costs at [2.1] per kilowatt hour, the lowest in our network. This gave Argentina a direct mining cost of less than $7,700 per bitcoin with Argentina representing about 20% of our overall big claim production benefit, their corporate electricity rate and the direct cost of production will be even greater in the first quarter of 2024, as will have led have had a lower rate in effect for the full quarter.

Our direct costs in February 2022 includes a 15% value added tax in Canadian energy costs. As a result, the legislation enacted last year. We firmly believe that we are exempt from this incremental tax and are pursuing a revenue ruling with the Canadian and Quebec tax authorities to formalize our exempt debt with Canada representing about two thirds of our productive capacity.

Our corporate electricity rate during the quarter without this tax would have been [3.7] per kilowatt-hour in comparison to our reported rate of [4.2] per kilowatt hour. And our direct cost of BTC. would have been approximately $14,600, [$1600] lower than that reported.

Now on to adjusted EBITDA on Slide 16. Adjusted EBITDA for the fourth quarter effectively doubled over the third quarter to $14 million for a 30% adjusted EBITDA margin in comparison to 9% in the previous quarter. The adjusted EBITDA equates to cash profitability per bitcoin in the fourth quarter of $11,200 more than double the [$5400] profitability per bitcoin in the third quarter.

I'd like now to take a minute here to discuss how our adjusted EBITDA reporting is different than that of our peers. As a Canadian company, we follow International Financial Reporting Standards, otherwise known as IFRS under IFRS. We do not mark-to-market our Bitcoin holdings. And accordingly, we do not reflect the unrealized gains and losses from our Bitcoin holdings in our income statement in our profitability.

Similarly, we do not include these unrealized gains and losses in our adjusted EBITDA. Adjusted EBITDA for us is purely a consistently a measure of the cash profitability of our operations and does not reflect the change in value of our assets and liabilities. It's a very straightforward and transparent calculation. It's simply on our cash profit of $11,200 for each of the $1,236 bitcoin earned.

That's roughly [$200,000] of profits generated at our bulk subsidiary. That said, it is that straightforward, we believe, by the way that exclusion of balance sheet changes in adjusted EBITDA including a Bitcoin Treasury is a truer measure of financial performance and a cash-generating capability of our operating activities.

Turning now to Slide 17 and our liquidity. At December 31, we held cash of $84 million and Bitcoin valued at $34 million for total liquidity of $118 million. This compares to $47 million of cash and $56 million of liquidity at September 30. During the fourth quarter of 2023 of the $1,236 bitcoin earned, we sold $1,135 to generate $42 million of proceeds to fund our operating and debt service requirements.

In the fourth quarter of 23, we raised a total of $52 million in net proceeds from financing activities, $41 million through a private placement completed in November and an additional $11 million in December from the exercise of warrants related to the private placement. These funds were specifically earmarked for our growth initiatives and our fleet upgrade plans.

During the quarter, we paid down $6 million in debt, leaving us with the remaining balance of $4 million at December 31. In the current quarter, we paid down the remaining balance, and I am very pleased to say in February, we met our stated target of having no debt and our balance sheet in advance of having.

Lastly, I want to speak of the accretive nature of our mining upgrade program for 36,000 minus purchase. We announced November represents a very accretive application of our invested capital for an incremental capital deployment of about $100 million. We plan to increase our hash rate and 6.5 hash to 12.5 hash. This represents a marginal cost about $18,000 per [pet a hash].

I'll note that a common these valuation metrics and public minus is enterprise value of a [pet a hash]. While this metric can vary more miners, the average for our sector overall is about $66,000 for [pet a hash] by extension of its industry metric. We are redeploying a we are deploying about $100 million of capital to create $300 million of incremental shareholder value.

Looking ahead, we expect to achieve a similar return on invested capital with a purchase option for [$28,000] additional T21 minus.

With that, I'll now hand the call over to Geoff for concluding remarks.

Thank you, Jeff. Let's turn to Slide 18. In summary, farms is a prominent player in the bitcoin mining sector, offering investors high quality leverage exposure to Bitcoin by our advanced operational capabilities and mining infrastructure with an industry-leading yield per exit. Hash defined distinguishes itself through exceptional margin margin performance, demonstrating operational efficiency and profitability in a highly competitive industry.

And we are well prepared to navigate the upcoming Bitcoin. Having this preparation is underpinned by our robust balance sheet and strong liquidity, which are crucial for sustaining growth and capitalizing on new opportunities in this volatile market led by a strong leadership team with a proven track record of driving profitable growth.

Our expertise and strategic vision have been instrumental in our success over the past six years, including a previous having event. Furthermore, the firm's commitment to ESG reflects our dedication to sustainable and responsible mining practices. It's gratifying that our largest projects now under development will draw power from the typhoon dam, the third largest hydropower facility in the world.

Overall, our strategic positioning, operational excellence and commitment to sustainability position us for continued growth and success in 2024 and beyond with that, I'll turn the call over to the operator to begin the question and answer session.

We will now begin the question and answer session. (Operator Instructions)

Bill Pepanastasiou, Stifel.

Yes, good morning, everyone. Thank you for taking my questions. I just wanted to dial in on the salaries expense line on. Obviously it's increased this quarter. But from my understanding, you know, a large portion of this headcount is obviously coming from Latin America, where expansion plans are happening in Paraguay Al, can you speak to the cost of labor in the region and how should we be forecasting this expense line item going forward?

Good morning. Bill, let's move that over to Jeff Lucas, our CFO, to take that question. Thank you.

Sure. Good morning. A couple of comments in mind here. Actually one of the benefits of being in Latin America, is that the compensation costs relative to North America, again that it's lower, but we are in the expansion in those and expect to get a bit of an increase here as we're building out our team and our professional staff down there as well, not overly material.

I think going forward here, I think what's more important to understand that in the quarter that just ended, we actually had about $2.1 million of compensation associated with achieving goals and targets that were set actually in 2023, much of which realized actually in the fourth quarter here. So I think what's important here is that we actually showed cash compensation around $5.1 million in the quarter that just ended for normalizes going forward should be more like around $3.1 million, reflecting merit increases that we have in place for this year versus in the fourth quarter and also the build-out of our organization overall.

Great, thank you. And then how's the team on as a team are positioning and how is the decision-making changing given the spot price appreciation and transaction fees moving higher in the market on hard to forecast incremental market opportunities following that hasn't happened.

So a few things there. Then why don't you jump in and talk about the transaction fees and sort of how we account for those and how we plan for them.

Sure. And take that question. We take a conservative approach when it comes to modeling transaction fees and potential revenue, which is why we take if I look at our hash cost first, by positioning ourselves on that lower end of the operating cost curve. We basically make ourselves in a position where regardless of what happens with mining revenues or transaction fees, we're going to be in a position that's going to be profitable for modeling purposes, we look at a cash cost of $0.06 per tariff, and that's something that we've had in place for have for about 18 months now in our models.

As we are at around [$67,000] now and where that having happened tomorrow, we'd be at roughly $5.6 per share as of right about on the money for where we anticipated us to be. As we're looking forward, we're going to continue to evaluate where house price is where mining prices are, and we can look at opportunities in that framework. But certainly we're always open to accretive opportunities for us to increase our our footprint and increase our hash rate is in cost-effective ways.

Is that sufficient for your question or was there a little more to it?

Yes. I mean, maybe you can just provide a little bit more color just in terms of how you think market opportunities on looking at potential M&A in this space following the having just given the -- better than a favorable market outlook?

happy to do that. Well, I think core, I've been asked a similar question, I think quarterly for the last [1.5] and my answer really hasn't changed. And we are excited about continuing to grow that farms. We're in it for the long term. We have a corporate development team that specializes in looking for organic and inorganic opportunities for us. We have quite a system for evaluating these opportunities. We are out there and looking for good assets, good people and opportunities to grow, whether that's in the United States, whether it's in Canada, whether it's in Latin America or elsewhere, we believe that finding surplus, low-cost electricity, preferably renewable is the long-term benefit to the company.

So if somebody else has developed something that makes sense to us and we can get it at the right price and strategically, then we're happy to layer it in hand. Frankly, we're looking at we've looked at a number of opportunities, but we remain disciplined. We do not want to overpay. There's there's probably opportunities very much. So in the United States right now and some of the demand response areas, they are attractive, but it has to fit within our our resume.

It needs to be at the right cost and it needs to that strategic value. So we continue to look to having everybody says there's going to be consolidation we expect it probably will be to we have our eyes wide open and this company this time around in the four-year epoch is so much stronger and more able to react to these type of good opportunities than we were four years ago. So this is an exciting time, not just for our growth this year. But the opportunities that might present themselves.

Yes. Okay. Great. Appreciate the color. That's all the questions now.

Thanks. Bill.

Kevin Dede, H.C. Wainwright.

Morning, gentlemen, and thanks for having me on the call, I appreciate the presentation ban on hash cost. I think it's only you and Harry that look at things that way. So I appreciated you peel the onion back there on that. And Jeff, would you mind talking a little about Argentina?

I think Mr. Lucas mentioned a $2.1 cost there on a six month contract, are you sort of scratch your head and thinking about executing on taking your 54 megawatts to 200 there and maybe add your perception of what you've seen of the government drastic change in government in Argentina and how that might it lead to one way or the other?

Thanks, Kevin. And lots of good content there. So Argentina, Argentina has turned out to be quite an opportunity for us like that $2.1 a contract and that we fixed for six months in November, which represents the summertime in Argentina was certainly a [coup] for us and really illustrates the exciting potential for Argentina in terms of low cost, they have all this shut in natural gas and and to be able to monetize it because it's not really able to push it into a pipeline, an incentive to other countries. It's they don't have an LNG port. So it's there.

And we've now got a government there, the Malaysian government that is pro-business that wants to reduce government bureaucracy and really transform the country. And it's exactly what it's really, frankly, needed there. It's been played with high inflation for a lot of years and it needs this type of corrective action.

So about a year ago, we made the strategic decision had to take our real core took place and stop it at one warehouse lease for the time being, we've got that 210 megawatt contract there. And we think that things are starting to settle out in Argentina and give us the confidence that we might be able to invest again. So there's application and frankly, there's other locations in Argentina, too, that are very attractive and might actually offer a lower cost solution than what we have in real quarter of real quarter is one that we've developed that we've got a substation that's able to basically supply at least one more warehouse.

We've got the government approvals that could allow us for one more warehouse. So that's some of the dry powder we have. But as stewards of capital, we need to be prudent. And when we went through that government changed, we just didn't know. So we decided to take our foot off the pedal relax we found alternative opportunities in Paraguay that are completely green door and building that out. But certainly Argentina represents a very attractive opportunity, especially at these prices for later this year.

Next year and beyond.

So very exciting.

Can you talk a little bit about about your commentary regarding Paraguay. I understood your comments too. I guess imply that you aren't are not subject to curtailment restrictions. And I'm wondering -- how you think about that longer term and any recourse you might have in dealing with, E&A, should they decide that they're going to need that power that they've allocated to you?

Okay. Well, E&A, we've got a very open dialogue on the go with. And our first contract for the 10 megawatt facility was with a private company on a private franchise called Clipsal. And there is some curtailment there because of infrastructure issues and and we get an adjustment to our power rate there with E&A, though we have more robust contracts are bigger. We've located very close to their high-voltage substations and they have carefully allocated megawatts to the crypto mining sector.

They haven't overdone it they haven't put it and put themselves into a position where they're going to be short on power. They've been very conservative. So the E&A contracts are not subject to current curtailment unless there's an emergency situation. But these guys have these two large hydro power projects, including the type two dam that is producing a lot of power and Paraguay gets a significant amount of that power and a significant of that power then gets sold back to Brazil or at least sold to Brazil on a wholesale basis because they have no place to put up.

I have never heard of E&A are not having enough power, but they have had infrastructure constraints which they are solving through upgrading their high-voltage lines. High-power high-voltage corridors or substations. And the one in passive pay and Visa Rica is strong. It's been there for a few years and there's abundant power there. The one any glass who is a recently constructed its 1.2 gigawatts. They've got 500 KV high-voltage lines leading into it, and we don't expect it's also closer to that type of dam.

So electrons have shorter distance to go, but we just don't expect the curtailment to be there unless there's really these emergency conditions, which are would be highly unusual. So it's one of the things we very much like about Paraguay as being the enabled operator are minus 24/7 around the clock and there's heat there.

And we figured and since we've operated there for a couple of years. We know how to deal with that heat. So I expect that to the excess cash that we'll be adding this year in Paraguay especially with the T21 and hydros are we're going to get a lot of active ongoing production coming out of that country where it sits. It's a solid place to do business.

Just a couple of detail. Infrastructure questions. One, Passave pay 70 megawatts. I understand that you have all the heavy duty equipment, the substations. I'm just wondering if you have anything running there. What's actually on site now?

I can add to this, but then wanted to Chief of Mining, wanted to answer this question.

Sure. Thanks. I'll take that question. Kevin. And right now what we have is you've got basically three buildings which are up, and we are deploying our first micro BT hydro miners. So those hydro miners are going to be online this month and next month with Visa with these buildings and the T21, we are going to be deploying T21 in April. So a little bit of a phased deployment for first miners coming online this month, they're going to be the microbial hydros. And next month we are going to be the T21.

So then are any of the hydros running now, what's sort of your immediate takeaway and how do you see operating the operating requirements there versus air-cooled? I'm wondering there's been a lot of chatter in the industry about using Immersion to defray operating costs. And I'm wondering if you've had any touch on that. Was this deployment so far?

Sure. We don't have any microbial hydro is up and running it in Paraguay right now, but we do have quite a bit of experience with emerging. Personally, I founded a emerging technology company back in 2018 where it was doing immersion with 3M, US manufacturing for us for Bitcoin mining purposes.

No. Realistically, when you look at Immersion versus air-cooled, I'm sure there are some benefits from using immersion from an efficiency perspective, but the capital expense required to set up that infrastructure versus the air-cooled infrastructure really we just feel is unjustified and the micro beauty hydro units are pretty different.

And the way that the design does those hydro units makes it a lot more analogous to how we operate our air-cooled facilities we have mine owners that are physically sitting in some sort of a server rack that can be pulled in can be plugged back and they can be hot swap. And when you're doing immersion technology, you've got to deal with all this fluid. You've got to deal with cleaning the miners detailing the miners.

Every single time you interact with a miner is quite laborious process. With the hydro miners, we expect them to be operating relatively similar way that we operate our air-cooled miners. The only thing that's really different is how that he just pulled out of the miner itself, which from everything that we've seen so far in the tests and the tours of the hydro sites that we've seen, it's done in a very, very clean, efficient and stable manner.

Our last question for me, what's on say and what's contracted for [eagleassume], Jeff, it's I understand you have the site, not clear if you've got transformers lined up and give us your take on meeting your timeline objectives there?

Sure. The time line there is we will have production by the end of the year full production there at the end of the year, we secured the land in January, which you needed the physical address to be able to start the other studies. So there's a environmental and electrical study on the go with E&A. Right now, we have hired a third party company to which is an EPC contract to construct the connect at the end a substation, which is right across the road from us.

So that's specked out. That's that's underway. There's a approximately seven months line of sight from when they will get that done seven, eight months. There is that the time line for transformers and cabling is about seven months. It's pretty much the exactly the same as what we went through at the pass of Paysafe. So we expect that those orders will be going in now so that we can get the important connection points, the primary connection points in place later this year, probably fourth quarter. And we've already had the scheduling done with the T21 for going into there. So things are coming together nicely.

It's Kevin. the site is quite exceptional. As I mentioned, it's right across the street from the and a substation, which is brand new and we will do underground cable. It will lead the substation that will go under the road and basically rate into the field where we are now, which is nice high ground, it's not subject to de-water. It's nice and firm and solid. We've got to have enough land to fully develop the 100 megawatt power purchase agreement there and in fact, a bit more. So it really is a superior site.

Thank you very much.

Gentlemen, appreciate it, and I'll turn over the floor.

Josh Sigler, Cantor Fitzgerald.

Hey, Tim, this is Will Carlson on for Josh. First question do you have any foresight into it? Additional PTA opportunities are in Paraguay?

Good morning, Will, yes, we do. As I mentioned earlier, they've taken a very conservative approach to bringing in Bitcoin and crypto mining in the country. They've allocated megawatts, a somewhat high voltage. Some have met at medium voltage sort of in the order of about 650 megawatts in total because they do not want to run out of power in a country, they wanted to go slow, but they also want to do it in a meaningful way so that the sector has can go into production there and generate revenues for the company.

But I do not expect any new power purchase agreements there to be. Let over the next couple of years, maybe just a year, it's tough to say for sure. But for the time being, they are wanting to make sure that the power purchase agreements they've signed will actually be developed. We are well on our way with ours. There are some others that are well underway. There's others that are going little more slowly. I expect that if in the short term we are at a pickup contract. It probably will not be a new contract, but one that's already been existing.

There will be an existing contract that we might be able to open to buy or joint venture or do something with the that's already out there. But I think as as we as a company and as a sector continue to develop there, I think and they will get more confidence.

I think the government and the people will get more confidence that what we can bring to the whole country, it really is a partnership, and it's still fairly early stages of that partnership. So I think there's more there. But for the time being, we're just going to focus on developing our 170 megawatts that we already have that we've already acquired that we already have in place, and we'll go from there.

Thanks. Really appreciate that cover. And the second question, you guys have done a phenomenal job on your international expansion by all measures. I'm just curious, how are you guys thinking about future expansion opportunities within the United States?

Well, as I commented earlier and on earlier quarterly calls to we think there's areas in the United States that represent really need strategic opportunities to us. We do as we said in the script, we do want a balanced portfolio and the United States is an area that we are lower than we'd like to be there. We continue to look for good opportunities there.

We're looking at a couple of right now, but it's early stage we'd looked at we looked at them many, many opportunities over the last year, year-and-a-half and for whatever reason, they just they haven't come together, but the share might be different. And we will continue to look, we look with a very open mind and open eyes to trying to do something very interesting. Hopefully something will materialize.

Thanks for the color.

Lucas Pipes, B. Riley.

Hi. This is actually a Fedor Shabalin in asking questions on behalf of Lucas Pipes. Congratulations on paying down debt arms. And my first one, maybe for Ben, as it's more technical, I want to talk more a little bit about outperformance of T21. So you said many utilities, if they are outperformed the manufacturer's specifications in both normal and high energy mode. Can you talk more a little bit, how are you were hash rate readings and what about power consumption? And I mean, how economical is to run them on? I mean, higher than many stated characteristics?

Yeah, great question. I'm happy to answer it. So we have our first 12, T21 miners, and we've been in our test. We've been seen in the normal energy mode performance anywhere between 193 to 195 Tera hash per miner at the same exact energy efficiency that is specified by the manufacturer of that 19 watts per tera hash level.

In a high energy mode most of our miners are operating between 235 and 238, but we've seen minus go up to 241, and that's actually better than the energy efficiency mode that was promised by segment. So that's just under the 22 watts per tera hash that they advertised.

If you go back and you take a look at that hash cost table that I showed you, you can see that at 22 watts per tera hash efficiency, especially with our really low cost of power around $0.04 is incredibly attractive and incredibly profitable. And so by squeezing more units, more hashing out of the units effectively, what we should get is a it cheaper, minor, both in terms of absolute cost because it's less than that. It's a lower price than S21.

And we also get a significantly lower effective cost per care house that we purchase. So when we bought these miners at [$14] a tera hash step at the [190] spec. But when we operate them at the [233] or this kind of [235] range, that number goes down significantly below 14 down into I think around [1,130, 1,140], if my memory watts per tera hash. So we get a lot more out of the miners. They generate greater levels of profitability and faster paybacks.

I appreciate all the color, Ben, on that very interesting and exciting news. And my second one, maybe about the cadence of additional capital raised in 2024, two to funding your stated goals and made may be a potential M&A opportunities. Are you how are you going to raise funds for this? If it's the case? Thank you.

Over to you, Jeff Lucas.

Great. Thank you. Good morning, Fedor. So a couple of comments here. First of all, our liquidity still continues to be very strong, comparable to the level that we reported in December. And this is actually after having made substantial payments for the 36,000 miners are part of the upgrade that we announced in November 2018.

So when you think about the numbers overall, that liquidity level that we had in mind as we're going forward here, we're bringing the operations in line, particularly done in Paraguay here, the business overall has the capability really to be generating about $7 billion of cash flow above operating expenses per month. And bear in mind the fact that we've actually paid down our debt in February for except for lease obligations, which are small. It brings additional $2 million as part of that $7 million here. So we're in pretty good shape overall here.

We do have further expenditures involved here in the CapEx side as we're continuing to build out of what Zoom passive pay and what's happening back home here, and that's roughly around maybe the $40 million level. And then we have a continued no payments on the 36,000 miners. And if we were to exercise the option come into play as well.

So generally, in a cash position, we're pretty good. But all that being said, we are considering intently giving attention to additional potential raises in the marketplace. And I do really want to underscore here that any capital raise that we do. We always do with an eye towards what is going to be the accretive element that's going to benefit our shareholders. And the example I gave here on my script here, where we're spending about $95 million on the 36,000 miners here yielding about $350 million of incremental value to our shareholders. That is a key element and a key metric that we look at as we consider whatever fundraising we'll be doing going forward.

Appreciate all the color here, Jeff and my the last one to squeeze in a high-level one on we know we already talked about M&A opportunities and industry consolidation potential for housing. But in your opinion, at current at the current economics and the economical environment, can BTC pricing on less efficient miners that were still efficient And don't you think it could be it could be less M&A output housing if these conditions persist? Thank you.

I think you're right, originally with the having coming up, we thought probably 20%, 25%, maybe even 30% of the network hash rate would come off from the less efficient miners. That's what's happened in the past. But this time with the ETFs that demand the price going up to an all-time high effectively like five weeks ahead of having these are different market conditions that are prevailing right now.

This we are in a transitionary market, a paradigm shift, as I said in my script and things at this point are different this time. And as a result, I think it's probably going to give a it's a longer lifespan to some of those less efficient miners, it's going to make some of the miners that maybe have been struggling because of older machines, not getting the same type of margins.

Maybe not the same type of access to capital. It allow them to continue to carry on as opposed to either going out of business or seeking a somebody larger can come and upgrade their operations. So I think you're right there. It may not have the same level of M&A activity and consolidation as we probably thought even a few months ago.

I appreciate all the color and details around here. Thank you very much, guys, and continued Best of luck. Thank you.

Thank you.

Thank you.

And we have a follow-up from Kevin Dede from H.C. Wainwright. Please go ahead.

Well, thanks for staying on, gentlemen. Appreciate it. Ben, you showed a shot of the T21 racked up and location, Quebec, but what wasn't clear was whether or not you're intending to run them in 3 Phase or 2 Phase if you use the same PDUs that you were using for the M30s and what kind of CapEx requirement or any change you'd need to make in those legacy facilities?

Yes, great question. One of the advantages of the T21 is kind of the robust design of it. And that includes a pretty powerful power supply unit that operates at three-Phase. So in order to support that, we are upgrading all of our PDU.s to smart PDUs that supply the power and three-phase. So if you look back on that photo, which you can see, as you can see, the PDU that's above the T21 looks pretty different than the PDU. That's below the upgrade process. There's an incredibly simple.

Basically the panel goes right up to the rack. And then you've got a one plug from the PDU directly into the panel and the breaker there, we don't even need to change the cable. We just need to change the PDU that's plugged into the cable. So that plug-and-play nature of the PDU upgrade makes it really, really cost effective and really, really quick that is the only infrastructure upgrade that we need to make it that basically every single site that we operate out of and Jeff Lucas could probably speak better to the CapEx costs associated with that.

Actually, the CapEx costs associated with business come through is pretty modest, particularly very modest relative will it involve the demand themselves.

Thank you.

I think just to punch, just to Kevin, just to punctuate a little more what the what we're saying there Keep in mind, 68% of these T21 are going into existing facilities in a plug-and-play installation. And when Ben said it was pretty straightforward.

Yes, we are upgrading the racks modestly, but we're ready to go. It really is it is straightforward and certainly less complex buildout with substantial gains than building new infrastructure. So this when we said this is going to be the fastest, most dramatic increase expansion in our company history. It's true and this is why, and unfortunately, it's so cost effective and frankly, simple in comparison due to building new facilities. We have our hands well with the two big installations in Paraguay that are going to take the other miners. But this is going to be a big year for us and it And fortunately, most of it's a fairly straightforward. So I just wanted to add that.

Thanks, Geoff. Thank you very much, gentlemen. Appreciate you. Following up with me.

Thank you.

Thank you, Kevin.

This concludes our question and answer session. I would like to turn the conference back over to Geoff Morphy, CEO. for any closing remarks.

Thank you all for attending today's conference call, and we look forward to updating you with our monthly reports, other developments and on our Q1 2024 conference call in May.

Thank you for attending.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.