Bitfarms Ltd (BITF) 2024 Q1 法說會逐字稿

Greetings. Welcome to the Bitfarms first quarter 2024 financial results conference call. (Operator Instructions) Please note this conference is being recorded.

I will now turn the conference over to your host, Tracy Krumme, you may begin.

Thank you. Good morning, everyone, and welcome to Bitfarms first quarter 2024 conference call. With me on the call today is Nico Bonta, interim Chief Executive Officer; Jeff Lucas, Chief Financial Officer; and Ben Gagnon on Chief Lending 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 consult Bitfarms MD&A for a complete list.

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.

I would also like to add that we will be attending the following upcoming equity conferences, The B. Riley Securities Institutional Investor Conference in Beverly Hills, California on May 22 and May 23, and the Northland Growth Conference, which is virtual on June 25. If anyone is interested in meeting with us on those dates, please reach out to me or sales representative from those firms.

And now it is my pleasure to turn the call over to Nico Bonta, Vice Chairman, Co-Founder, and interim CEO. Nico, please go ahead.

Thank you, Tracy, and thank you, everyone, for joining us today. For those of you who might not know me. I founded the company along with Board Director, Emiliano Grodzki in 2017 and have served as Chairman of the Board since. As you will recall on March 25, we announced a CEO transition, whereby Geoff Morphy would remain CEO until we concluded our executive search.

However, his departure has now been expedited to a legal claim against the company brought by Geoff on Friday, May 10. This also caused us to reschedule our earnings calls in order to provide time to incorporate the acquired subsequent events into our filings. Geoff claimed, included damages for breach of contract from this mission and aggregated and ability of damages in the amount of $27 million. The company believes the claims are without merit and intends to defend itself vigorously. As a result, Geoff termination was accelerated, and I stepped as interim CEO until the conclusion of our CEO search, which we expect to occur in the next several weeks.

Importantly, I would like to emphasize my confidence in the strong leadership team we have built. The significant opportunities ahead of us and the dedication of our employees to meet our growth targets this year. We expect minimal disruption from the CEO transition. Our 2024 growth plans will not be impacted. We are moving full steam and ahead and expect to achieve our previously stated guidance of 12 exahash in Q2 and 21 exahash in Q4.

Now turning to slide 4. I am pleased to turn the call over to Ben, our Chief Mining Officer, who will discuss our Q1 results update on our growth plan and exciting outlooks for the year ahead.

Thanks, Nico. Turning to slide 5. Since we announced our transformative fleet upgrade in November and additional minor purchases in March, investor interest has increased.

Before we dive into our Q1 results, I would like to take a minute to provide a brief company overview for any newcomers. Bitfarms is a vertically integrated global bitcoin mining company that provides investors with high-quality exposure to Bitcoin. We measure our success on three key performance indicators, hash rate, energy efficiency, and direct cost to mine known as hash costs.

This year, Bitfarms is poised to deliver the greatest hash rate growth and cost improvement in our history with industry leading benchmarks. We expect to reach 21 exahash, nearly tripling our current hash rate and nearly doubling our operating capacity this year. With the development of our new passive pace site, we now have 12 farms spread across North and South America with an additional farm in development in Paraguay. We will continue to opportunistically evaluate new geographies, new markets and new opportunities.

In Q1 2024 our revenue and margins continue to improve as Bitcoin prices moved upwards. Total revenue of $50 million increased 67% year over year and 9% over Q4, and our adjusted EBITDA increased 50% $21 million first Q4 last year. In addition, due to our success recouping our Canadian VAT, we will soon receive a $24 million cash refund that will be used to fund our growth.

Turning to slide 6. We are on track to achieve our 2024 guidance, 21 exahash, a 223% increase and 21 watt per terrahash, a 40% improvement while growing our operational infrastructure by nearly 80% to 428 megawatts. We are front-loading the majority of energy efficiency improvements and growth in the first half of this year with 70% of our new miners being allocated to upgrade our existing mining farms. This will ensure the fastest improvement in fleet-wide energy efficiency by replacing the least efficient miners first. The remaining 30% of miners will be energized and new locations, primarily in Paraguay.

With lessons learned from the past. Having over the last few years, we deliberately deleveraged our balance sheet and followed a strategy, emphasizing low cost vertically integrated operations. Now with no debt, a rapidly increasing hash rate, improving energy efficiency, and cost reductions on a per unit basis, we are aggressively entering this new era to capture as much upside as possible while maximizing returns and driving long-term value for shareholders.

Turning to slide 7. Our growth this year is a major inflection point for the company and represents a golden opportunity for current and prospective investors. The strategic timing of this inflection point should not be overlooked.

So why are we growing so aggressively, Right now? In 2023, we analyzed over six years of purchase history for every miner, evaluating the following the price we paid, the time we plug them in, how much revenue is generated, the costs and profit, what the payback was, and the cost effectiveness of each purchase. What we found is that the most important factor for determining a good minor investment is timing as. Timing ultimately determined costs.

The miners we purchased in the months leading into and out of the last half and in 2020 were incredibly cost effective and paid themselves back between five and eight times over delivering by far the best returns on investments. Emboldened by the data, we launched our transformative fleet upgrade strategically timed with the cycles in mind.

First, we secured low cost and stable power of 170 megawatts in a region where we can build out quickly deploying the remaining miners expeditiously and predictably.

Second, we created a plan to quickly and cost-effectively upgrade every single one of our existing farms by upgrading our older and less-efficient miners.

Third, in November 2023, with Bitcoin around $37,000 and having just months away, we jumped on an announcement by Mid-Maine regarding a new series of more powerful and more productive miners. We secured some of the lowest prices seen in years and negotiated a minor option on industry first, we moved quickly and launched our fleet upgrade plan. And in March followed up with even more minor purchases, purchasing nearly an additional 24,000 of the best performing machines on the market with competitive pricing.

Lastly, in January 2024, we purchased land for Yguazu Paraguay Farm. This land is strategically located across the road from our recently constructed and a substation, which is fed by a 500 kilovolt line directly from the Itaipu hydro dam and has additional acreage to accommodate further expansion.

In summary, this transformative plan speaks to our discipline by first securing megawatts with a plan for every minor purchase in our strategically timed investments by purchasing miners at attractive prices.

Turning to slide 8. By executing on our growth plan, we are well positioned to gain market share and we believe our planned growth towards a year end portfolio represents the best opportunity on market. By the end of 2024, we will have increased our hash rate 223% from 6.5 to 21 exahash to increase our energy capacity nearly 80% from 240 megawatts to 428 megawatts.

Three improved our energy efficiency, 40% from 35 to 21 watts per terrahash or increase the total miners deployed by 48% and five increased our total funds under management by 18%. Combined, we believe these figures make up the most meaningful and concrete growth plan announced among the publicly traded miners.

As a result, we will close the year with a geographically well-balanced portfolio of nearly 100,000 highly efficient and competitive miners, purchased at some of the lowest cost seen in years, operated at 13 farms spread across North and South America and primarily powered with consistent and sustainably low-cost hydropower.

Turning to slide 9. Based on our 2024 growth, we will be improving and expanding faster than the bitcoin network as demonstrated by these two sensitivity tables. On the left, we show our growth relative to the network cash rate by growing faster than the network, we will capture market share and increase the number of Bitcoins earned per day.

Our 223% hash rate growth to 21 exahash will be a significant revenue driver and spread our G&A over a larger number of Bitcoins. On the right, we show how our improvement in energy efficiency are also expected to be faster than network growth. This combined with our largely stable and competitive energy rates driven by approximately 80% surplus hydropower should result in increasingly lower direct energy cost per bitcoin mined over the year.

It is important to note that these results are determined by our continued improvement across key performance indicators of hash rate and energy efficiency relative to network hash rates. They are not reliant on Bitcoin pricing. As the widely anticipated bull market takes off in 2024, these improvements will ensure we are well positioned to capture upside with quickly expanding mining margins. This is how we plan to outperform the industry this year.

Turning to slide 10. In Quebec, we are executing our transformative fleet upgrade, generating a low risk and stable growth pathway. Quebec both competitive rates on hydropower and cost effective growth as we upgrade our state-of-the-art-facilities with our new T21 miners.

We have already completed two farm upgrades, generating a remarkable 51% improvement in energy efficiency and illustrating the transformative impact of our fleet upgrade. With three more farm upgrades underway, our total hash rate and energy efficiency in Quebec will improve dramatically throughout Q2.

Additionally, we have begun testing recycled heat from hydro mining technology with the deployment of 153s plus miners. We are incredibly excited about the potential of this technology for heat recapture and reuse. The province of Quebec has tremendous demands for residential, commercial, and industrial heat. And we believe the hydro miners are potentially the best technology available to expand our business in the province, drive down costs, and help achieve the province climate goals by recycling our primary waste product heat.

Turning to slide 11. Argentina remains a low-cost jurisdiction with significant expansion possibilities. In September, we will be deploying up to 6,400 new T21 miners that will improve our site energy efficiency from 32 watts per terrahash to 23 watts per terrahash, while increasing the site hash rate by approximately 850 petahash.

Turning to slide 12. Now let's turn our attention to Washington. Currently are only site in the US with no curtailment and incredibly high uptimes. It is also one of our most productive sites. We are currently expanding and doing site modifications to accommodate additional T21 miners to be deployed in October this year. This deployment will improve site efficiency, approximately 27% from 30 watts per terrahash to 22 watts per terrahash and increased total hash rate approximately 46% to 910 petahash. Notably, the US represents the smallest region in our portfolio and we are actively looking at numerous opportunities to increase our exposure in the US in both 2024 and 2025.

Turning to slide 13. Let's talk about our expansion in Paraguay, which represents the largest growth in our plan this year. With megawatt expansion of 170 megawatts and 9.2 exahash growth from our two new farms. We have already installed thousands of miners in Paso Pe and are finalizing work on the substation. When complete Paso Pe will add over 3 exahash and 70 megawatts to our portfolio, growing our megawatts under management, 29% to 310.

Construction at our third site in Paraguay Yguazu who is well underway and on track to be energized in Q4, contributing approximately 5 exahash and 100 megawatts with energy efficiency of 20 watts per terrahash in 2024.

Paraguay's economic and political landscapes makes it highly attractive. The majority of its political leaders and senior leadership of [OnDeck], the state-owned power distribution company recognize the tremendous economic benefits, Bitcoin mining operations bring and are very supportive of legal, Bitcoin mining ventures.

Numerous senators and public officials signed letters and commented publicly about the positive outcomes of bitcoin mining. These include increased employment opportunities, capital spending, higher revenues from energy sales for legal, Bitcoin mining operations, and increased electrical infrastructure investments.

Importantly, Paraguay boasts a massive surplus of energy relative to local demand. Over 50% of its power is exported to neighboring countries for a fraction of the price, legal Bitcoin mining operations pay. Bitcoin mining represents a meaningful conduit to sell excess renewable energy to a global marketplace and drive significant economic growth. In turn, we benefit from access to low-cost, reliable, sustainable green power with almost no curtailments, a skilled and cost-effective labor pool, expedited construction schedules in a business-friendly environment supportive of our industry.

Building upon our success in Paraguay, we recently signed an agreement with the state-owned utility OnDeck, doubling the energy capacity of our e-commerce site with an additional 100 megawatts in 2025. Growing Yguazu to 200 megawatts increases our 2025 megawatts under management, 23% from 428 megawatts to 528 megawatts. Importantly, this expansion takes advantage of our existing construction plan, amortizing costs over a greater amount of infrastructure, and driving down overall cost per megawatt.

Changes to construction plans and equipment orders are already in progress, and we are currently analyzing potential deployment plans. To contextualize the impact of this, assuming a similar minor model and the same 20 watts per terrahash warehouse efficiency already planned for Yguazu to this additional 100 megawatts could support an additional 5 exacash in 2025.

Turning to slide 14. I'll now hand the call over to Jeff Lucas to talk about our financial performance.

Thanks you, Ben. Turning now to slide 15. This is a great time for the industry, and we've been preparing for the post having world with a strategic growth plan and accretive financing strategy and a debt-free balance sheet. With our funds from operations along with a substantial tax refund and the judicious use of our ATM financing facility, we are well positioned to grow capacity from 240 megawatts to 420 megawatts this year and hit our year end 21 exahash per second targets.

Here are a few first quarter highlights, large in comparison to the fourth quarter of 2023. Revenue of $50 million was up 9% over the fourth quarter and up 67% year over year. Quarter over quarter comparison reflects a 44% higher average bitcoin price, offset by 24% fewer bitcoin earned during the first quarter. We earn 943 bitcoin in the quarter compared to 1,236 bitcoin in the prior quarter, primarily the result of an increase in average network difficulty of 21%.

Mining revenue was $49 million compared to $45 million in the prior quarter. Gross mining profit was $29 million or 59% of mining revenue compared to $23 million or 52% of mining revenue in the fourth quarter. General and administrative, or G&A expense was $13.2 million, including $3.1 million of non-cash compensation expense and approximately $1.6 million of nonrecurring severance charges associated with the management change announced in March.

Net of these items, cash G&A expense in the first quarter was $8.5 million, down 11% from the previous quarter. Our operating loss of $24 million in comparison to a $13 million loss in the fourth quarter. The first quarter operating loss included a $39 million depreciation expense in comparison to $22 million in the prior quarter. First quarter depreciation expense included $18.5 million of accelerated depreciation expense associated with the older mine has replaced by the new T21 mines in Quebec.

Under the upgrade program, the existing mine is being depreciated on an accelerated basis over the remainder of their expected operating life. As such, a higher level of depreciation expense is expected over the remaining quarters of 2024 at a new miners have brought online.

In the first quarter, we recorded a $9 million non-cash gain for the revaluation of financial liability for warrants issued in earlier financing compared to a $38 million non-cash charge for the revaluation of this financial liability in the fourth quarter. Under IFRS, we are required to recognize a liability for these warrants, even though they cannot be settled for cash. First quarter net loss was $6 million or a loss of $0.02 per share in comparison to a net loss in the fourth quarter of 2023 of $57.2 million or a loss per share of $0.19.

Now let's turn our attention to operating performance and per Bitcoin metrics. Our corporate cost of electricity during the quarter was $0.041 per kilowatt-hour, substantially unchanged from the prior quarter. Due to Canadian tax legislation proposed in February of 2022, our direct content production since that date has included a 15% value added tax or VAT on Canadian energy costs.

While this continued to impact our direct costs of the first quarter, I'm delighted to report that we succeeded in obtaining approval from the Canadian tax authority against the VAT regulations. Going forward, we will be able to recover that and not have to reflect the tax on electricity costs. This is a significant reduction in our operating costs where we not have included VAT in our first quarter electricity rate, our corporate cost electricity would have been $0.037 per kilowatt-hour.

Furthermore, this VAT recovery will entitle us to a $24 million refund for the tax amounts paid in February 2022, which will be applied towards funding our 2024 growth initiatives. In the first quarter, our direct cost of production, but bitcoin with $20,500. Overall, excluding the Canadian VAT our corporate direct costs would have been $18,400, $2100 lower than our actual corporate direct costs.

Turning now to slide 16. Adjusted EBITDA increased to $21 million, up 50% from the fourth quarter. This equates to cash profitability per bitcoin of $22,700 or about that will be $11,200 per bitcoin in the fourth quarter. Adjusted EBITDA margin increased to 42% from 30% in the previous quarter.

I want to point out that our adjusted EBITDA is a very straightforward measure, comprise simply double our cash profit per bitcoin tangent over decline might put the profit earned on revolver subsidiary. An IFRS. filer. We do not mark to market our Bitcoin holdings and we do not include this and a balance sheet valuation changes in our adjusted EBITDA. Adjusted EBITDA for us is purely a measure of the cash profitability of our mining operations and the modest profit contribution of our Volta Electric subsidiary.

Turning to slide 17. In March 31, we held cash of $66 million in Bitcoin, valued at $58 million for total liquidity of $124 million. This compares to $118 million of total liquidity at December 31. On March 11, we commenced our ATM program and raised $38 million in net proceeds during the quarter, which are earmarked to fund the growth initiatives in our fleet upgrade.

In addition, we received $1.7 million of net proceeds from the sale leaseback of our Garlock facility. From March 31 to May 14, we raised an additional $83 million under the ATM program in further fund our growth. During the quarter, we paid off the remaining equipment financing debt, leaving us debt free at March 31.

I'll point out, however, that we show a $1.6 million of long-term debt on our March 31 balance sheet to reflect the IFRS accounting associated with the Garlock sale leaseback. Importantly, I want to underscore that we have sufficient liquidity to pay for all the miners needed to reach 21 exahash for second this year.

Turning now to slide 18. Before we open the call for questions, I'd like to summarize here. We are dramatically altering our operating profile via our ongoing upgrade and expansion plan. Recent minor upgrades are already delivering major efficiency gains in further gains throughout the year should contribute to post having margin improvements. Driving growth and improving our portfolio, we are on track to achieve 21 exahash per second in 21 watts per terrahash efficiency in 2024.

With an industry leading bitcoin mined directly hash Bitfarms distinguishes itself through exceptional margin performance, demonstrating operational efficiency, and profitability in a highly competitive industry. This preparation is underpinned by a robust balance sheet and strong liquidity, which are crucial for sustaining growth and capitalizing on new opportunities.

With a strong leadership team with a proven track record of driving profitable growth, our operational excellence and strategic vision have been instrumental in our success over the past six years, including two having events. Furthermore, steadfast 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 Itapu dam, the third largest hydropower facility in the world.

Overall, we are very well positioned for continued growth and success in 2024 and beyond.

With that, I'd like to turn the call back to the operator to open this call for questions.

(Operator Instructions) Lucas Pipes, B. Riley Securities.

Thank you very much, Operator. Good morning, everyone.

Good morning, Lucas.

Jeff, you just mentioned there in your remarks that, kind of all the minor costs are kind of covered vis-a-vis the liquidity you have. So in that context, how should we think about use of the ATM over the balance of this year? Do you still expect to have and raise capital for infrastructure or other reasons. Just curious how you think about that. Thank you very much.

Sure. Yeah, let me and be glad to address your question here. First of all, we have been active with the ATM asset since March 31. And the liquidity that we have today is higher than what we reported on March 31. And a point to keep in mind here, as you pointed out, both Ben and I during the call, we are receiving a tax refund, which we expect to have by the end of June for roughly USD24 million.

So that addresses in large part, both the requirements that we have are miners as well as on the IT infrastructure that we have going forward. All that being said, we are looking to continue to judiciously use the ATM going forward. And I would conjecture, you know, to be candid over the balance of the year here, we could see ourselves using at $50 million a little north of that. But again, we're being very careful in terms of how we manage our ATM here going forward.

When they ask and want to share with you is that when we sit here with our projections here, including our anticipated use of the ATM here going forward, one thing that we have not reflected in the numbers here that we are projecting here. We have excess cash flow from operations on a monthly basis, anywhere from about $6 million to $10 million over the next several months.

Now, of course, that's dictated in large part in terms of what happens with the price of BTC. So while we have that in our pocket, we'll obviously avail ourselves of that particular to aesthetics outlet program. And but that aside, we are so we have not factored into some of the numbers I just mentioned here with the plans for the ATM.

You know, if I can take advantage of this. Lucas, one other comment here in terms of the benefit to the ATM to us here. So when you think about what we're doing here in terms of our growth, in over every hash rate that we're adding here is costing us between $21 million to $23 million, all in adequate infrastructure miners, some logistical costs associated with getting those miners up and running at the various locations. In Canada and also South America as well here.

You look at valuations from mining companies here. And generally you're seeing in the range about $45 million for exahash. So in our mind here, while we are being very careful and very thoughtful with the ATM. We are certainly husbanding our money very carefully here in our funds here. We do indeed see the use of it, certainly validating the accretive nature of what we're doing here.

Thank you. Thank you very much for those comments. On the power cost side, you're adding capacity power cost. And I wondered if you could kind of walk us through -- the impact as maybe your mix changes a bit? Thank you very much.

Ben, do you want to speak to that or do I could just talk about some of the economic impact we anticipate going forward?

Sure. I can speak to that. Really at a high level, Lucas, the cost that Jeff just put out there for Q1 was about $0.041. The contracts that we have for additional power that's under construction in Paraguay is a $0.039 contract, which is fixed with no annual inflation adjustment mechanisms in that for the coming years. And when you add VAT on top of that, that comes out to, I think, just approximately about [4.2]. So the average cost for our power with what we had last quarter. And just looking at where the all-in cost for power is empirically, I mean doesn't really meaningfully change the average price for power across our portfolio just gives us a much greater amount of power in our portfolio for about the same costs.

Got it. Got it. Okay. No, that's very helpful. I appreciate all the color and continued best of luck. Thank you.

Thank you.

Thank you, Lucas.

Joe Flynn, Compass Point.

Hi, guys. Thanks for the question I had a question regarding you guys mentioned potential expansion opportunities in the US. Ultimately, if you could provide more color on what that potential deal pipeline looks like and be kind of curious to get your perspective on that PDM for power for with in-demand HPC is ultimately do you think between minded moving more internationally? Thanks.

Thanks Joe. We are looking at multiple deals right now. And we have a global view on power and getting cost-effective megawatts at scale in various jurisdictions where the economics are compelling. We think the US has a lot of very good opportunities and for 2024 and 2025 expansion. And we are evaluating those right now, I think the good thing and the kind of some added benefit to our existing growth plan here is that we've got a lot of kind of built in extra capacity here with the miners that we've purchased the growth to 21 exahash basically is using a much lower configuration for those miners and they're capable of pushing through.

So if we do find additional megawatts, ideally in the United States or somewhere else with compelling economics, we'll be able to grow our hash rate using the miners. We've already have on hand that we already have the liquidity to pay for the rate at 21 exahash, getting more miners or getting more hash rate out of those miners and driving even greater hash rate growth.

So those are the kinds of things that we're looking at right now. Are there good opportunities for us to execute on maybe some additional megawatts, which would enable us to get even greater utilization out of our miners and our growth plan for this year. As we as we move forward, obviously, we'll be communicating those deals to the public, but we do have numerous different deals in our pipeline right now in the United States and otherwise.

Great, thanks. And then just on the cut bitcoin treasury management side going forward, should we expect continued kind of opening up sales of a majority of your production. And if you maybe can you comment and provide more color on just you guys as an option exposure and also how that kind of here with pick one up strongly here today.

Sure. We are actually glad to do that here. So we do anticipate some increases in our huddle. May not be all the expenses in large part because we put in place here what we've talked about in the past called that Ocado, which sort of our mind because it's the best of both worlds.

Just for clarification in terms of how we treat this year. What we normally do is we have we know when the excess cash flow from operations, we will generally sell those bitcoins. And by way of example, here, we may take 90% of that bitcoin proceeds used to fund our CapEx going forward, which of course means is less having to tap into the ATM.

We had a tenant 15% of the proceeds on a Bitcoin. We used to buy long-dated call options here. So in essence, here while the actual title itself will be increasing to a modest degree here. Our exposure to the upside of bitcoin will be that much greater by virtue of the car.

And I'll just add a couple of numbers here. That's actually worked out very well for us while we don't normally share what the actual achievement of our gains that we realized here in assets at Ocado. But in the fourth quarter of last year, we actually had a gain about $1.6 million and was up about 118% return. For the first quarter of this year, we actually had a unrealized gain about $3 million and roughly over 500% return here.

So this is actually worked out very handsomely for it again, providers would probably the cheapest source of capital out there for us is having to access the capital markets here and also still gives us the preservation of the upside or bitcoin here. Does that answer your question fully there, Joe?

It does. Appreciate all the color. That's all for me.

Josh Siegler, Cantor Fitzgerald.

Yeah, hi, guys. Good morning. One a follow up on Joe's question was just, you know, now that we're post having and in any differences in terms of deal terms becoming more attractive, you know, from peers that might be more squeezed. Just kind of curious the pace of reopening or does that change that all of the platform business?

Thanks for the question. I think for the most part, we haven't seen the full impact from having just yet having just happened, not even a month ago as of today. And it still takes miners usually a few weeks or a two months in order for those lags between kind of a changing market condition and really feeling any sort of a need to -- make any sort of changes in their operation or in their structure.

So I don't think the deals have changed at all. Over the last couple of months more or less, it's still the same hash price of $0.05 is the level that we anticipated where there would start to be some level of response from the market, whether that be slower growth or under a caution of machines or directing older miners, we did expect those kind of pressures to start happening at the 5% level. So with that hash price, basically there right now.

I don't think there's a whole lot of of change here happening at internal operations, but certainly as hash price is kind of stabilizes and we find out where we're heading here, that will be that will be a big driver, if it goes down or if it goes up, there will be some changes to the potential opportunities out there.

Yeah. Got it. Tphat makes sense. And for my follow-up, I was wondering if you could elaborate a little bit more on the cost of infrastructure build-out in Paraguay versus your other sites.

So Jeff, you want to handle that one?

Sure. Let me start off and then you can add a little more color Ben fit here. And so actually our costs, we are costs in Paraguay is generally a little more attractive, actually refining than it is in other parts of the world. And we target here to do under $350,000 per megawatt to build out here. And the rates actually that we are incurring or the cost that we're actually incurring in Paraguay are less than that and actually more around the $300,000 per megawatt range here. So to us, that's pretty good, always looking for opportunities for improvement here but it certainly falls within our guidelines and our ally in our payback projections here.

Maybe just add one quick comment there. All the developments here in Paraguay are greenfield developments. This is brand new sites that we're developing from the ground up, including the substation, all the interconnections, the actual facilities themselves and of course, building out the the mining infrastructure and the support systems in order to make all of this work. And we're doing this in a rather accelerated timeframe.

The Passave A. site is going to be done in well under a year and same thing with equal, as you cite from start to finish. So we've got very aggressive construction schedules and a very talented labor force that we're drawing from there, which helps to make sure that the deployments are very fast and we get the most out of unexpected bull run later in 2024. And it also helps to drive down the costs when things just don't take this long.

And by the way. If I can just add one additional comment here because this is actually disclosed in our financial statements. We did talk about as a subsequent event, the 100 -- the additional 100 megawatts that we're getting in Brazil and Paraguay, and that's for 2025 just to be very clear here.

In our estimate of the actual infrastructure cost to build that out, it's roughly $23 million to $25 million. To be garnered from, that is the fact that while we are looking at costs of roughly $300,000, a little north of $300,000 per megawatt for Paraguay here, the marginal cost of additional build-out of the existing locations here is actually lower.

In this case, for next year for the additional 100 we're talking, we think around $230,000 to $250,000 per megawatt.

It's great. Thanks. Appreciate the color.

Mike Grondahl, Northland Securities.

Hey, guys, thanks. Could you talk a little bit about Argentina and how high that is on your list for kind of future expansion?

Well, we are actually ramping up -- (multiple speakers)

Okay. So first of all Argentina is very attractive for us. And then we pointed out here that we've actually during the lower energy class summer months for Argentina, again, into a six month contract at $0.021 per kilowatt-hour. Now that is going to be higher for the five months to haul the winter months, which is coming up shortly. And we're anticipating higher energy costs in Argentina over the next five months or so here. But we've mentioned in the past, and we're holding to it that the average around cost of energy in Argentina is roughly $0.03 to $0.030 here.

Here we've got about 54 megawatts and now we have the opportunity, as you may recall, to go up to 210 megawatts here. We've actually -- we're looking at the carefully. We're pleased to see things sort of selling themselves out economically and politically what's going on Argentina. But we were sort of on hold for a while, although it didn't settle out because really these are the some of the other opportunities that we had available to us, including Paraguay, there was just more attractive. When you do have a risk-adjusted rate of return, which is how we look at our projects our overall.

So while we are optimistic and we see further upside with Argentina, we are moving cautiously right now is really focused on other opportunities, particularly in Paraguay. Ben you want to add that?

No, I think you handled it well, Jeff. I think that's exactly the point, we're just going to take advantage of our best opportunities right now with fairway, and we've got plenty of optionality there with Argentina as the conditions settle and we have a better outlook on the future or a more clear outlook on the future.

Got it. That's helpful. In a secondly. Can you guys kind of talk to a little bit what you're looking for in a new CEO and what gives you the confidence that you think you can have an announcement in? I think somebody said, Nicolas, maybe a few weeks --

Nicolas, because you have dried out or do you like this happened for you?

Let me step in because we may have connection issues here with Nico here. So you know what Geoff was very helpful for us in taking our company to the next level as it matured. We were very entrepreneurial, very creative company initially. He helped put in place the sort of organized way organizational and professional infrastructure. That really allows us to be a scaled organization on a global basis. You know when Geoff first came on board. We were in one country, Canada.

We are now full work. And most importantly, we are positioned to look at opportunities up and down the north and southern hemispheres. So we're very well positioned.

Now that we are well positioned and we have a scalable organization effect here. Management and the Board are very focused now on where the growth opportunities are going forward, how do we capitalize on this administrative and organizational infrastructure we have in place here, and that's how we really take advantage of it.

And there's a wealth of opportunities within mining into degree outside of mining. So we really now want to begin pursuing more aggressively here. We've got a great team with Ben and others that really play a role in identifying terrific opportunities here for us to really improve our shareholder value here. And we are now seeking a CEO, and we can really step in and help drive that process going forward.

Got it. And then one last one. Geoff, have you guys provided any updated thoughts about how big pharma kind of views the HPC AI opportunity. Just be interested to hear any updated thoughts there.

Outside the economics? I'm going to pass it on over to Ben.

Sure. I'm happy to address that. Obviously, we've taken a look at the HPC and the AI opportunities. But when you look at our business and where our core competencies are really it's in building and operating the world's best bitcoin mining infrastructure. And when you look at what bitcoin mining infrastructure is versus HPC and AI infrastructure, there really are not a whole lot of similarities other than the fact that they both have large demands for power.

For us, we have very, very competitive costs when we're building out our Bitcoin mining infrastructure in the few hundreds of thousands of dollars per megawatt. For us to do HPC or AI infrastructure really it's measured in the millions of dollars per megawatt. And those numbers vary quite widely depending on the quality and the location and everything in the data center. But you're seeing numbers anywhere. Honestly, from about $4 million to $12 million a megawatt for the infrastructure side. The higher amounts of CapEx is also similar on the computation equipment itself.

So when you're looking at the relative cost of the GPUs per megawatt and other supporting equipment relative to, let's say, Bitcoin mining equipment per megawatt. The costs are have a very similar kind of overweight component here where you're talking about tens of millions of dollars per megawatt as opposed to a few million dollars. So the costs are very different. The businesses are very different.

And I think that for investors who are looking for HPC and AI exposure. I think it's probably better from the investor's perspective for them to manage that in their portfolio directly. You know, if they want high-quality bitcoin mining infrastructure exposure, that's what we provide through our Big Pharma shares. And if they want to have that HPCAI., it's probably better to put that through a separate vehicle and just control that allocation in their portfolio directly. I think that's more what the investors and the market is searching for. So kind of a high-level response on that.

Sure know, then is that pretty aptly, Mike limited that a couple of more points here. We take great pride in being the best operators in the business, and we're convinced that we could operate a high performance computing center very, very effectively, but first of all, to be very direct and very straightforward. You know, our cost of capital, while we manage it very carefully into attractive -- if not attractive from the larger players out there and for us have to make investments to be effective and high-performance computing here, as Ben pointed out here doesn't really make the best sense for our shareholders versus doing what we actually do very well here in terms of very efficiently running mining operations here.

The third point I'd make -- I'd point out to you here is that as we explore the lowest cost structure we can get out there. We always look at power opportunities, which are a different nature and high-performance computing. We are in a position where we can take advantage of lower cost power, recognizing that there can be some curtailment or interrupt ability to it. High-performance computing cannot afford that. So for us in we do very well here. It just makes a lot more sense really for many counts, Crestwood folks more mining and not to at this juncture really get sidetracked by high-performance compute.

Good to hear your perspective and good luck the rest of '24.

Thanks, Mike.

Martin Toner, ATB Capital Markets.

Good morning. Thank you for taking my question. I think investors would benefit from a little more detail on timing of CapEx through end of 2024. Can you kind of give us a little talk through that a little bit for us and maybe include how much of the difference in exahash from now till 21 at the end of 2024 has already been paid for.

Sure. Glad to talk. So first of all, importantly, as you pointed out during part -- earlier part of the call, here we have covered actually the cost, the remaining cost that we have for the miners to get us to the 21 exahash going forward. We do have additional spending of course, that we have to do for the infrastructure here. And that actually spoke to the first question. So look at that in the beginning the call here. So to put a person there in very concrete numbers. If you take a look at our financial statements, we have a session called commitment.

And on that specific section, think what's left to pay for these minors indicates $156 million of which roughly have $40 million in the second quarter, $85 million in the third quarter, and roughly about $30 million in the fourth quarter. The good news here is that of the $40 million that we actually have in the second quarter, almost all of that has already been paid. So we're in pretty good shape here. Where we do see probably the lion's share of our payments going forward, as evidenced by that commitment schedule here is really going to be in the third quarter when we are anticipating to point out roughly that $86 million going forward.

And then also the infrastructure costs. Particularly what's going on in Brazil is really going to be felt in that quarter. So we've actually got we're anticipating roughly $15 million build-out remaining for the infrastructure. And I think most of that's actually going to be happening probably in the third quarter margins.

That's fantastic. Philosophically, and I know it depends on the nature of the infrastructure, but from start to finish, where are the costs incurred over what time period. Can we give people just like a bit of a rule of thumb or the types of mines you are building?

I'm sorry, I'm not fully understanding your question.

As I said, just like from start to finish our like it takes, let's say, start to finish, takes a year and a half with a quarter of the CapEx spent in the first half and then you have what percentage is spent and then just wondering if there's a simple rule of thumb that you guys think about that investors can use to think about what kind of expect like, what kind of CapEx you guys are likely to put out just going forward?

Sure. Maybe I can assure the go, Ben, and we take it, please.

Yeah, I think I can just trying to give like some high-level figures here. Just to help you kind of with your modeling estimates. As a rule of thumb, you should look at the miners as costing approximately 80% to 90% of the total CapEx build for a new mine. This is assuming that of course, you're buying newer miners with higher efficiency and you're not trying to look for a you know, I used to minor deal at significantly lower prices. So ballpark about 80% to 90% for the miners.

The easy way to model that would be splitting that into maybe like a 50-50 component, different miners and different manufacturers have a different cost structure and payment schedule. But one thing that's consistent with all of the minor purchase agreements is that there's usually a cost to secure the purchase in the form of a nonrefundable deposit and then there is a cost to pay out like a settlement balance payment prior to tick-up. So those costs will need to be incurred in advance.

And then when you look at the infrastructure that makes up that, 10% to 20% remaining. I would look at that as almost like a 50-50 as well as just for rule of thumb, you can look at about 50% of the costs would be associated with the substation and longer lead time items. And then about 50% of that cost is going to be associated with labor and other component pieces that are not long lead time items throughout the course of the build.

And in that way, you can kind of use those percentages as a rough rule of thumb for looking at how CapEx spreads over time. But each project and each purchase is going to have its own unique variables. So it's kind of a hard question to answer specifically.

Ben characterized it very well.

That's very good. That's great color. Thank you very much.

What type of balance sheet levels would you say is firm comfortable maintaining balance sheet levels of just amount of liquidity on the balance sheet as you guys are outlaying, some of this CapEx cycle and the more bullish, I'm assuming the more bullish you are in the company, the more undervalued, you think the company is the more you'd be willing to reduced levels of liquidity and utilize ATM. Was just wondering what type of others, are there certain levels of liquidity that you want to maintain?

Sure. So it's actually variable. And the reason is variable here is largely because as we are pursuing further opportunities, including United States. Here, we want to make sure that we have the liquidity and the funds on hand to really take advantage of those as the opportunity arises here.

So that results in this leaving a little more cash in the balance sheet than we otherwise normally would here. But I think for us to have a base level of liquidity about say roughly $30 million to $50 million that we're pretty much comfortable at $30 million or $50 million by the way, just to be clear. But, you know, I sort of look at the larger picture here. We do also think about, of course, we have a big hurdle there, not that we really want to use that here for purposes of, obviously, liquidity but it's there.

And that gives us a little more of a cushion to be a little more Hoshin conscientious, I should say in terms of how we are deploying our capital and make sure that we maximize the return of our assets, including our liquidity asset.

That's great. Thanks, Jeff. Last question for me. Sounds like the synthetic auto has is working interest in ability to increase the size?

Well, what' dictates the size of it's really two things. One is our very rigorous governance process. We have around what goes on. We have a risk committee comprised of the top five managers who are very careful, including Ben, by the way. We were very careful in terms of how we view our next steps here Secondly, any strategy that we do regarding any derivative activity we had to present to the Board for their approval to make sure they're comfortable with it as well.

So we have some pretty good controls in place here. That is indeed a guardrail over how extensive we get involved in this, if any hurdle. But most importantly from your question, Martin, what drives how much we do have that synthetic hurdle here really is based on what our CapEx and cash needs going forward here because we really want to use our cash flow from operations to fund our CapEx. It is dramatically cheaper from a cost of capital standpoint, of course, go into the statement. So I can't give you a direct answer there, but I can give you a sense.

Those are two things that sort of govern how we will look at assets that Ocado. We anticipate, by the way, increases the kind of color going forward here because you anticipate increasing our cash flow from operations here and as we're working to address our extensive capital needs that we've identified for this year here, we're going to be in a better position to really take advantage of both the competitive model in our traditional model as well.

That's great. Thanks for all the color. That's all from me.

Well, we have reached the end of the question-and-answer session, and I will now turn the call over to management for closing remarks.

We want to thank all of you for joining us on the call today. It's been an interesting one way and a very exciting time for the company going forward here. And I think we're very excited. We appreciate and value greatly, now, Nicolas, you're stepping in here at an important time for us, your guidance, your experience, the history, you have both in mining, and with the company here has been crucial in guiding us going forward here. And we encourage everybody stay touch.

We are really doing an extraordinary growth mode for us, as you know here. Just to repeat some of the key comments here, but a 223% increase and our exahash for the year extraordinary. Not only for us, but for the industry overall and a dramatic 45% improvement almost in our efficiency here. So we are very excited about what's ahead of us in really keeping an eye on long ball here.

Thank you all for joining us.

Thank you.

This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.