Argo Blockchain plc (ARBK) Q4 2021 Earnings Report, Transcript and Summary

Good afternoon and welcome to the Argo Blockchain Full Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen-only mode. [Operator instructions] The company may not be in a position to answer every question it receives in the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we would like to submit the following poll, and I'm sure if you could give that your kind attention, the company would be most grateful. Without any further do, would like to hand over to Peter Wall, CEO. Good afternoon.

Thank you, Mark. Thanks everyone for joining us. Welcome to our 2021 full year results call. As Mark said, I'm Peter, I'm the CEO of Argo Blockchain. With me today is Alex Appleton, our CFO; and Tom Divine, our head of Investor Relations -- our VP of investor relations. Tom is going to pop up a little bit later, and is curating some of the questions as they come in. So great, great to have you with us. Thank you for joining. It's been a busy morning for us so far with the results coming out. Done a little bit of media. Hopefully some of you that have followed the company closely have had a chance to see some of those interviews we've done. And if not, we'll share them on our social media soon. All right. So, let's jump into the presentation. Normal legal disclaimer off the top. The next slide for those of you that have seen a lot of our presentations before, will look familiar with a little, little bit of changes to it. Most importantly, the 2.6 Exahash. So, that is our mining capacity that is contracted and existing. We're adding the two 2.6 Exahash from Bitmain from the Bitmain order that we have. The 20,000 machines that we ordered following the IPO back in September, those are starting to be installed at Helios next month, month of May, which is just a few days away. And the plan is still in progress, and still looking good to have those installed by the end of October. So, we're confident that that to two Exahash is going to be reached by the end of October, given all of the all the pieces that we have in place currently. That Exahash of 3.6 translates to about 44,000 mining machines. That's 24,000 machines already in our current fleet and then the extra 20,000 that is coming from the Bitmain order that I was just talking about. I think everyone knows we're very focused on Argo, on sustainability, being an ESG friendly miner is a big part of our company values, a big part of our story. We were the first bitcoin miner to be 100% carbon neutral last year. We put out a climate strategy along those lines. We'll be releasing an update to that report in the very near future and a big reason we were able to achieve that carbon neutrality is being located in certain regions. First of all, in Quebec, using hydroelectric power, we're following the same strategy by setting up in West Texas, where there's an enormous amount of renewable power. 85% of the power in the West load zone where we are in West Texas is coming from renewables, primarily wind. So, that, that story continues for us and is and is a key part of who we are and what we do. On the bitcoin HODL side of things. At the end of March, our bitcoin HODL was 2,700 bitcoin in bitcoin equivalent, 10% of that is allocated to Argo Labs. As many of you know, we launched Argo Labs earlier this year. It's our in-house innovation arm, focused on non-mining activities within the broader blockchain and Web 3.0 eco -- Web 3.0 ecosystem. And I'll give a little update later in the presentation with -- about the activities of Argo Labs. Finally, our mining margin for 2021 was 84%, which is among the highest of all our peers, and is a number we're really proud of. All right. So, then on the right hand side of the slide, you see our map of our two locations where we're mining, our two regions where we're mining Texas and Quebec. The facilities in Bay Como and Mirabel, and then the new flagship facility we're opening very soon in Texas, the Helios facility. All right. I'm going to jump ahead to the next slide, which is the slide that I think everyone's been waiting for today, which is our financial highlights from – from last year. So as you can see, it was a great year for us, a transformational year for Argo. Our revenue was $100 million, or £74 million, an increase of 291% from the year before. Our EBITA was $71 million, or £53 million, up 594% from the previous year. Our net income was $42 million, or £31 million up less – up from 2 million in 2020. Our bitcoin mine for the entire year was -- 2,045 so just – just north of 2,000. And as I said before, that money margin was about 84%. At the end of the year, we held 2,585 sorry –2,595 bitcoin and bitcoin equivalents on the balance sheet, and that was at the end of the year, end of December 2021. On the chart on the right, you can see our mining margin was very strong and consistent in the eighties for the entire year. This was driven largely by the high price of bitcoin as well as us really being able to control our operating costs, very good hosting cost with our Core scientific deals that we are mining – we're mining with, or currently still our money with, but soon will not be as well as the low cost of power that we have in Quebec. The temporary drop in global hash rate that took place with the Chinese ban on bitcoin mining in mid last year also helped our performance. That was across the board for all miners, and that kept margins strong throughout the – throughout the year. So to summarize the year, 2021 was a great time to be a miner with access to low cost power, and we are very much feeling the same way about 2022. All right. To jump ahead to our key operational highlights and milestones from 2021. So I'm not going to go through them all. It was it was a busy year. A lot happened. But I'm going to point out a couple of the major highlights that took place for the year. Probably, the most important one for the year was our acquisition of the Helios project in the Texas Panhandle that happened in the first quarter. The Helios project was a shovel ready project. It gave us an incredible foundation for the growth that we have today. It was a part of our shift in strategy from being hosted at third parties like Core and GPUOne to owning and operating our own infrastructure. So that took place in the first quarter. In the second quarter, we closed the acquisition of two data centers in Quebec, one in Mirabel and one in Bay Como. We were originally hosting our machines at these facilities going back as far as 2018 in the case of Mirabel. And – that was a big part of our moving into owning and operating our own infrastructure. The third quarter saw the listing – or saw hotlist on the Nasdaq in the US, it was a huge moment for the company. It was something that we worked on toward for much of the year. It was something that a lot of shareholders and stakeholders were asking for. It's something that's obviously very common in this space for miners to be listed now on Nasdaq. And that's because it's the most important access or gives the most the best access to the US capital markets, which is obviously a very large pool of capital. As part of that listing, we raised $130 million, and some of that capital immediately went toward the 20,000 machine that made order that we are now starting to install in Helios. All right. In the fourth quarter -- we didn't stop. We also had the installation of about 530 more petahash of machines, which came from orders that we placed earlier in the first half of the year. We also made great progress on Helios. We broke ground there in the third quarter, but by the end of the fourth quarter, we had completed the main structure and the outside facade of the building. And I'll talk a little bit more about Helios a little bit later in the presentation to get some more updates. All right. Jumping ahead to some key metrics. So on this kind of -- on this page, you can see how dramatic our growth was. A lot of up into the rate from 2020 to 2021. On the hash rate side, we grew from about 0.6 exahash to 1.6 exahash. Our revenue went from 26 million, these are all figures in US$26 million to US$100 million. Our money margin also doubled up to 84%. Our EBITA went from $11 million in 2020 to $71 million in 2021. Net income from about $2 million to $42 million. And our cash and --- cash and digital assets at year end went from $9 million to $125 million at the end of December 2021. So really some important metrics and obviously, we were very pleased with the growth for the year. All right. However, it's not only about machines and only about power and only about capital. It's also about people. And as we started to own and operate our own facilities, we really needed to grow our team and bring the necessary expertise in house. Our headcount grew from around seven people. We were a very small company at the start of 2020 when I took over as CEO. Actually at the end of 2020, we were still at seven people to around 39 people at the end of 2021. As of right now, we're approaching about 100 people. We accrued all of our data center ops team members. On the senior management team, we also added several key folks to round out the original crew that, that consisted of myself, Perry, and Seb, and then Alex, who joined in 2020. And Davis Zapffe is our general counsel, runs our legal department. Justin Nolan was the co-founder of the Helios project and really the force behind getting set up in Dickens County. He found the land and set up the project after the acquisition of DPN, which was his company. Justin came on board and it's been a really key part of our business development team and is leading our efforts there. Jean Esquier works very closely with Perry Hothi, he's our VP of technology and development, and has been primarily focused on the design and the build out of the immersion system at Helios. Theo Papadakis is our VP of data center operations, comes from the world of data centers, a long career in that space, and he's built a world class data center operations team to manage our three data centers. Obviously, with a huge focus in Texas right now. And then finally, Tom Divine, who is on the call today, you'll see him pop up a little bit later. He leads our investor relations, and as well as our government relations efforts. All right. So that is 2021 in a nutshell. Obviously, this is a fast moving space. 2021 already seems like a long time ago. So for the rest of the presentation, I'm going to talk about 2022 and beyond. Obviously, there's a lot going on with us as a company, a lot going on in the space. I love this picture. This picture was taken just a couple of days ago, I think two days ago. That's the latest shot from our Helios facility. You can see the rapid development that's taken place there over the last six, seven, eight months. The dry cooler is coming up on the side are almost to the end of the line. So great -- great development. And really, that is our primary focus for the rest of this year. So let's jump ahead to the key initiatives for the year. So completion of Phase 1 of Helios is still slated to fully be baked out and finished by the end of this year. That includes filling it up completely with machines, and obviously having all the infrastructure in place ahead of time for those machines. Our construction team's done just an absolutely incredible job with the substation is complete. And that taps into the cottonwood substation, which is across the fence line. All of that being said, we expect our hash rate to grow to 5.5 Exahash by the end of this year. And that's a number that we're very proud of. Our whole, kind of, philosophy. I think people that follow the company closely know has been to really focus on growth and to make sure that we are slow and steady and focusing on quarters and years. And so today, we're happy to say that our expectation is will be 5.5 Exahash by the end of this year. And we'll get into those details a little bit more. I know there's folks asking, what does that entail? What does that not entail? But that's a really a key number for us and something that we believe is absolutely achievable by the end of this year. You know, the philosophy is really to under-promise and overdeliver as much as we can. And certainly, I think, the speed with this -- the speed with which we've built this facility has been amazing. And just even on the ground in Dickens County, people are saying, they've never seen anything like it. So it's pretty awesome what our team has done. Furthermore, we're also not just working on infrastructure, but we're also developing a custom designed mining rig which will utilize the Intel block scale AC chips. And I'll talk a little bit more about what that's going to look like on a slide coming up. All right. A couple more shots of Helios. So on the left-hand side, you can see the immersion tanks, which are on double decker racks. Shout out to the double decker busses in London. On the right-hand side, you can see a photo of our of our Helios facility staff during the recent onboarding activities, got about 40 staff there now, we have another 20 temporary labor. So we've got an incredible team. They are charging ahead, doing incredible work. We'll have some more content, some more video coming out soon, very soon about the work that's going on there, and are really excited to announce to the market when that facility is energized. That's the next big step for us there. On immersion cooling side of things. We've discussed before how Helios has been built to use our proprietary immersion cooling system that we've co-designed with a large US based global manufacturing company. Because everyone knows in Texas it gets hot, it's dusty, it's windy, it's not a great environment for mining unless you're using immersion, which allows you to protect the machines. It's more efficient at keeping the machines cool. It keeps particulate matter, dust, sand out, and all of that extends the lifespan of the machines. In addition to that, we think that we can get a significant hash rate boost out of the machines, i.e., overclock them when running them in an immersion environment compared to air cooled. So all that being said, the system that we're building in Texas, once it's fully deployed, will be one of the largest immersion cooling systems in the world. All right. In terms of machine development, we announced earlier this year a relationship with Intel, and one of our key focuses is building a custom mining rig to utilize the Intel chips that are coming out of that relationship. We're very proud. We're excited to be one of the four companies that Intel has chosen to work with us as they entered the bitcoin mining space. And having them into the space is incredibly important. It gives the bitcoin mining space more credibility to have a blue chip company like Intel coming in, but it also will benefit the industry to have a more diverse supply chain, and more options for ASICs and also to have chips available as opposed to fully baked machines. We think our custom mining rig, which is going to use these intel mining chips is going to be significantly cheaper on a cost per terahash basis than what's currently available off the shelf in the market. And this will allow us to further increase our hash rate at competitive margins. In terms of developing that machine, we have a great relationship with the third-party manufacturer. We're working very closely with them on the design of the mining machine from top to bottom, and we expect to be able to deploy these machines toward the end of the year. So along those lines this is what the look ahead for the year looks like to get us to the 200 megawatts at Helios. So you can see some of the major workstreams here that have been completed or that are in progress. We've been on time with the construction of the Helios facility, and the substation, we are working to finalize the demand response pieces with ERCOT. That's obviously a really important part to be able to take advantage of the ancillary services that ERCOT offers in Texas. The installation of the immersion equipment is going very well. That includes the dry coolers that I just mentioned that you can see on the inside of the building, as well as the tanks, and the pumps, and the piping inside the facility, obviously, all that needs to be in place before we can start putting machines to work and mining. In terms of the installation of machines, we expect to start installing machines very soon, both the Core Scientific machines as well as the Bitmain machines. So you can see those two lines here. The Core machine swap has been structured in a way to mitigate any downtime. So as we receive the new machines and install them in batches, Core will take over the hash rate from our machines located in their facilities, and that'll take place on four different particular gates. This will eliminate downtime and also having to unplug, plug the machines and ship them to Helios. So we're really pleased with that arrangement with Core. Once we complete the Core swap at the end of July, we'll be 100% self-owned and operated with no more hosting arrangements, which is another big milestone for us. In terms of energization, you see a little dot there, a little diamond does feel like a diamond because it's so important for us, it’s slated to happen very soon. Very, very soon we'll make an announcement to the market when it happens. It's, obviously, a critical event to get mining operations started at Helios. And then finally on the Intel piece, we are currently in the design testing phase for the Intel machines and we expect to deploy those machines toward the end of this year and then into 2023. So you can see the dotted line on the chart. That is when we expect to deploy the Intel machines, and then there'll be more into 2023 as well. We won't stop with just the fourth quarter. So what does all this mean in terms of our hash rate? Bringing Helios online, completing phase one will, obviously, have a significant impact on our hash rate. So right now we have 1.6 Exahash in capacity. We started Q2 there. We’ll see increase in hash rate as we start to install the 20,000 S19J Pros that we ordered from Bitmain. These rigs are going to be delivered, as I've said, many times before on this presentation and others in May -- starting in May and then through to the end of October. And then the Core machines are part of that 1.6 Exahash. So we will get an increase in Exahash from them obviously. At the end of the year, we'll see an additional uplift in hash rate as we deploy the Intel ASIC machines. That's another bump of about 1.8 Exahash. So we expect to end the year around 5.5 Exahash with most of that hash rate at Helios with the full 200 megawatts online. This does not include any uplift from the merchant. So we're trying to be conservative about our hash rate projections. Again, under-promise, overdeliver. So this is nameplate -- nameplate hash rate, not including immersion. And then remember, we still have another 20 megawatts of capacity. Our Quebec facilities, where we mine both Bitcoin and Zcash. All of our Zcash mining is taking place in Quebec. We currently do not have any mining other than Bitcoin mining slated for the Helios facility. All right. Jumping ahead to the future, we think that one of the primary benefits of our Helios facility is obviously the potential for this growth, this runway for growth. We've got an interconnection agreement for 800 megawatts of power, which means we have an additional 600 megawatts of capacity remaining once this 200 megawatts is up and going. We also have the ASIC supply agreement, which we've just been talking about, and that will provide us with a steady supply of machines. In terms of manufacturing those machines, we're working with a third party to custom manufacture those, and that, again, we are confident it will result on a cheaper cost per terahash basis than what's currently available in the market. So add all of these factors together, the power and the access to chips, and we see us getting to north of 20 Exahash by 2024. This would include the full development obviously of the additional 600 megawatts of capacity at Helios. So even though we are still only in Phase 1, the 200 megawatts we've taken steps to -- for the future phases already. We announced earlier this year that we ordered four additional transformers that will take us up to the full 800 megawatts of power. There's a long lead time on those that they will be coming in the first and second quarter of next year. So it's important we get those orders in. But we have a clear path to getting there to the full 800 megawatts built-out. All right. So that's the plan for -- machines and obviously, that's plan for power. But how are we going to pay for it? What are we doing in the capital side of things? So taking a quick look back. As everyone knows, this business is a capital intensive business. Since the beginning of 2021, we've raised nearly 300 million of external capital. Some of that has been equity, like the private placement loans that took place in early 2021 and the NASDAQ listing, but we've also issued debt like the Bitcoin backed loan, the 40 million in baby bonds, and the infrastructure loan that we've done with NYDIG. What we're seeing in the space is, is a continued maturation of debt markets, and that is where we are looking at focusing on our capital raising efforts moving forward. So that takes us to the next slide, which is how we're going to finance our growth in 2022. So in order to complete Phase 1 of Helios, which includes both a little bit more capital into infrastructure, and then machines to fully build out the 200 megawatts, we need roughly $125 million of additional capital. And as I've said many times, we have three levers which we can pull on when we're raising capital debt, equity, and selling bitcoin. Right now, we plan to raise the additional capital through a combination of debt and bitcoin. We don't anticipate issuing equity in 2022. As this debt market is maturing, we see lots of opportunities, including machine financing. We've built some really strong relationships with the leading capital providers in the space over the last three, four years, particularly over the last 12 months, strong relationships with Galaxy, with NYDIG, with other new folks who are moving into the space. They're all looking to deploy capital, and to look -- and looking to reputable miners to deploy that with. So we're in a really good position on the financing side and that's our focus. In terms of selling bitcoin, I think as most people know, in 2021, we didn't sell much bitcoin. We financed our growth with equity, and with a little bit of debt. However, going forward, we're taking a slightly different approach, and selling a portion of our monthly bitcoin production to cover our operating expenses and to help fund our growth plans. So if you think about the history of the company going back to 2019, 2020, we had to sell bitcoin to cover operating costs to help fund our growth. 2021, we didn't sell any. This year, we're taking a bit of a blended approach and doing a mix of debt, and bitcoin. All right. Moving on to ESG, obviously, as I said from the start, a key part of our story, a key part of who we are, and that's a key part of why we located our mining facilities where we have. First off, in Quebec, where the machines are running up hydroelectric power, and now in the Texas panhandle, where most of the generation capacity is coming from wind power. Last year, we put out a climate strategy, became carbon neutral. The first company in the space to do that. 2021 update is forthcoming to report on that, and the 2022 climate strategy coming out alongside that. On the S side of things, the social side of things, our focus is really to be a good corporate citizen in the communities that we're working in. So our efforts in Dickens County, we feel, are bringing economic benefits. We have a very solid relationship with the community there. During the construction phase at Helios, we created about 130 construction jobs. We have 40 full time jobs that we've created for Phase 1 of the facility. Most of the hiring has been taken -- has taken place in Dickens County. Some of it is from the neighboring region, from the Lubbock area. And we've got another 20 part time staff or temporary staff that are helping in the last push to get the facility up, up and running. We also have made a contribution back to the community to refurbish the community pool, and that's -- been closed since 2009. That project is underway, and we're working with the community to get that completed as quickly as we can. On the government side of things, we strengthened our Board of Directors with the addition of three new members. In the last 12 months, we've added Raghav Chopra, who is has a great experience background in banking and investing. Sarah Gow, who has a finance and asset management background; and Maria Perrella, who brings a wealth of experience, is a former public company CFO. So we're very grateful to have them on the board. We're a stronger company because of that. They're very active, and the Board is in a really great place. So I'm very pleased with that. All right. Finally, let me say a quick word about Argo Labs, before I turn it over to Alex. We started Argo Labs last year, although we've informally always -- those of you that know the company well, we've informally always felt like there's opportunities in the blockchain ecosystem system at large. And really, Sebastien Chalus, who's our Chief Strategy Officer, has been leading that for many years now. We've now have this codified group called Argo Labs. It's a six person team led by Seb, and they are really looking for ways for us to participate in the disruptive sectors of the blockchain, and Web 3.0 ecosystem. So just like it was a small team of us that started the mining side of things, it's a small team that's working on the innovation side, the non-mining side of things. And generally, the goal for this team is to take a portion of our bitcoin holdings, and generate additional uplift that simply outperforms holding bitcoin or that outperforms simply holding bitcoin. So, so far we've allocated them 10% of our total digital assets. That's going well. They're doing a great job so far, and we will reassess that the amount of allocation that they have on a quarter-by-quarter basis. All right. That is my slides. I'm going to hand it over to Alex for a couple for him.

Thanks, Peter. So, it's really been a great year. I know Peter's touched on a lot of these figures already, but I think it's worth going through them in a little bit more detail. Revenue is up to $100 million, £74 million. That's been driven by both the increase in the bitcoin price, which Peter's mentioned, and also our increased capacity, most of which, in this year actually came on toward the end of the year. So that additional 500 Petahash the FDA, so we'll see the full impact of that as we go into 2022, and then also, of course, with the expansion of Helios. Mining margin remained very strong. Again, Peter's already said this, among the market leading of bitcoin miners. And we intend to stay there. And that's why we're moving into what's Helios where we have access directly to that low cost of power. And so, margins you've seen from our operational updates, margins have tightened a little bit, but still well into the 70s, which is enviable across most industries. And we're going to stay at the very in that TAA of miners by having access to low cost power, and also the machines that we're building out and the immersion element of that as well. So that's meant for gross profit, very strong, very strong for the year. That's through $70 million to £50 million at 70%. In terms of operating costs and expenses, yes, they have increased. With Peter's gone through how we've strengthened the executive team, we strengthened the management team within the business. And also, as we've grown and we moved to the owned and operating model, we'll also -- we take it on more staff in terms of employee costs, et cetera. So, you have seen an increase in the general administrative expenses there. Additionally, with the dual listing, we do incur more fees, more professional fees, more consulting fees, et cetera. So you'll also see those costs going through the operating cost of expenses there as well. I'll draw your attention is about the share based payment charge that is on there, that's £2 million, or $2.6 million. That is actually, that's the charge that is taken on to the accounting adjustments. It's not actually a cash flow through the business. And that takes us down to our total operating expenses there of 10 million pounds. Still a very healthy profit, operating profit, which really proud of, which we achieve this year, £43 million there. In terms of other income and expenses, we've taken on some debt. So we have some increased interest expenses there. And then, there's some different re-evaluations, et cetera, which leads down to our net income of £30 million. So a really pleasing year and one we're really proud of. And as I say, we're well-positioned to continue on the growth phase and continue a very profitable level. The balance sheet. So this year, as Peter said, we have – we've had a number of private placements, which has really strengthened the balance sheet. So you could see the end of the year, we've got a very strong balance sheet, significantly stronger than last year in terms of our net. Our net assets are well into the $200 million – $220 million or so. And we are – what have we done with the cash that we've actually raised? So the great majority of that has gone into machines, either machines that we've installed and put on the ground, there's about £40 million worth of machines that we've installed and put on the ground and purchased. There's a lot of cash that we've used to actually put up the prepayments for the machines, mostly for the Bitmain order. So that's nearly 50 million with the bulk of that being for the Bitmain order. We've also invested obviously heavily in Helios, and that asset as well as over £70 million, has also gone into to that. Alongside that, as Peter said, we've been able to continue to HODL, and grow our digital assets which are quite significant now. And we are well-placed to move forward with our strategy of now selling some part of what we mine. And also we're – we have a number of options around debt which are very, and there's a question actually in there about the interest rates and how that's impacted as we're actually seeing interest rates come down. I remember – the first bitcoin backed loan that we had back in June of 2021, the interest rate was over 12%. We've seen that fall significantly during the year. At the year end, interest rate was 8%. And we're seeing continued downward pressure on the cost of capital. So we're very pleased with where we sat. And as we look forward, we look forward with optimism into the coming year and I'm very excited to see Helios opening in the very near future. Peter, back to you, sir.

All right. Thank you, Alex. I'm now going to invite Tom Divine, our VP of Investor Relations, to come on. Tom has been gathering questions both from before the presentation, and from during the presentation in the chat group on the side, or the Q&A section on the side. And he's going to read out some questions and then Alex and I will answer.

Yeah. Thanks, Peter. We've been getting a lot of questions from folks who are listening in, as well as some of the sell side research analysts. So I'm going to go through some of those. So our first question comes from Jason B. His question is, is immersion uplift included in the 5.5 Exahash target that we've announced for the end of 2022?

All right. Thanks, Jason. So the answer is no. Again, we're trying to make sure that we are conservative with our projections, under-promise, over deliver. So the 5.5 Exahash does not include an uplift from emerging.

Okay. Great. Thanks, Peter. Our next question comes from Darren Aftahi at Roth Capital Partners. What sort of advantage do you think the supply agreement with Intel can give you versus other miners?

Thanks for the question, Darren. In terms of the supply agreement with Intel, the advantage for us is that, we will have a better access to a stable source of chips, which in turn will mean cheaper hash rate growth, ability to customize our mining rigs. That's a really important factor when you're using immersion cooling. And I think, as you know, Darren, we like to be very granular, very much in control, very much optimize our machines and our mining. We run a very kind of custom mining shop. This is not a plug-and-play or a plug-and-pray kind of a company. So the more we can get granular with our machines and the more we can have access to chips that we can build our own custom rigs, and we can do so cheaper and we can put those into an immersion environment. And that allows us to really get the most out of our mining operations.

Great. Our next question comes from Thanassis S. Could you explain what the equipment financing agreement with NYDIG entailed? Is it for electrical equipment preorders needed for the 600 megawatts?

Sure. Alex, you want to take that one? You want me to take that one.

Yes. Absolutely. I'll take it. It's for electrical infrastructure that we have on the ground at the moment. We're really pleased with that NYDIG. NYDIG is a great partner to have in this space. And again, back to the interest rate, 8.25% is very competitive when compared with the traditional sector. So it’s a really a good deal for us. And it's something that will provide an opportunity going forward for as we build out Helios that will give us further collateral to be able to use for further debt initiatives.

Great. Our next question comes from Joe Vafi at Canaccord. Could you go into a bit more detail on the ASICs you're purchasing from Intel? I believe they are not putting full systems together. Do you have a design partner at this point?

Sure. Thanks, Joe. So those -- I'll give you a little bit of a background on how he came to work with Intel, and then a little bit about the custom mining rigs. So Intel reached out to a number of folks in the space back in around Q4 of last year and said, "Hey, we're going to be developing a mining chip. Are you all interested in working with us?", and of course, we said, "Absolutely, we'd be very interested." And they said, "Listen, we're only going to work with miners that fit that kind of a line with our values on the ESG side of things in particular." So we walked through what we're doing -- what we've been doing, and what we are doing on the ESG side of things. And they said, "That sounds great. You guys sound like a good fit." And then, through that relationship, by the way, they found that we have a very strong technology team led by our CTO, Perry. And so there's been lots of collaboration and lots of conversation with Intel about what they're doing. And there's been lots of education back and forth on both sides. So it's been a really good relationship so far, and we're excited to be working with them, in terms of what that final system is going to look like. Yes, you're right, Joe. They are not putting a full system together. They're developing chips. That's what they do. That's what they're really good at. And then, just like they sell chips to competing computer manufacturers like Dell, they're going to sell chips to certain miners that can then put them to work in their own machines. So there is an opportunity to either go with a supplier from Intel or to go with a supplier of our choice, the third party of our choice. So we haven't announced that yet what we're doing, but we will be working with the third-party to develop these custom mining rigs. And as soon as that relationship is ready to announce to the market, we will. But it's something that we're really excited about and something that we think is a key differentiator for us at this point.

Great. Thanks, Peter. Our next question was pre-submitted and it has to do with ERCOT. To what extent do the new Texas ERCOT rules for mining companies limit the power available at Helios?

Yes. It's another good question. So this is not something that we think is going to affect us. We have our interconnection agreement in place for the full 800 megawatts of capacity. We also have a really solid relationship with ERCOT. We were actually just at a meeting with them this week in Texas. We also have a relationship as a client of Priority Power. Priority Power is an industry leader in mining energy services. They manage interconnection agreements, they manage PPAs, they manage power load flexibility, they're really the key folks in Texas that you want to be working with. So because of those relationships, because we already have our pieces in place, we're not worried about any changes to ERCOT, and we encourage ERCOT to make sure that, that folks in Texas are getting the power that they need, and miners are getting the power that they need. And I think that, that's exactly what's going on. I think probably most importantly for us, we've also chosen to be in a particular region that has a very high generation capacity, but a very low local load, which means there's very little demand for power, but lots of power being made. And this makes our flexible load really important for that region, and really important for grid stability. So I think ERCOT, the first time I said to Brad Jones, who's the head of ERCOT, "Hey, we're setting up a 200 megawatt facility in Dickens County, Texas, in the West load zone." He looked at me and said, "We need load in that area. That's amazing. That's great." So I'm very pleased with where we've chosen to set up. And I don't see any issues in Texas with the grid for us.

Our next question comes from Darren Aftahi at ROTH Capital Partners. On the core machine swap, how do you mitigate downtime during that? And is that your initial way of filling Helios?

Yes. So I covered this a little bit in the presentation, Darren. The swap is structured, so that we avoid downtime. So as the machines from Core are arriving, we're installing them and then we'll be swapping out for the machines that are already at Core. Our machines are already at Core. So we're not anticipating any downtime. We've kind of taken that into consideration. That's part of why -- we've structured the deal as we have. We have a good relationship with Core. We've worked with them for many years. We're friends with those guys. But ultimately, we want to be the captains of our own ship and be able to run our own facility. So the relationship is coming to an end in an amicable way. By the end of July this year, we'll have all of those machines that are -- all of that capacity at that Core will be at our facility. And what I can tell you is that, those machines from Core have already started arriving to a significant degree in Texas. So that process is already underway. And that process will take place at the same time as the -- in parallel with the installation of the Bitmain machines that are also starting to arrive at Helios right now.

Great. Our next question is from Suthan Sukumar at Stifel. On the incremental capital needs for phase one, what will this money be spent on? Is this infrastructure or rig procurement?

Yes. It's a good question. Thanks, Suthan. So if you think about kind of our three main buckets of CapEx for the rest of this year, there's infrastructure, there's Bitmain machines, and then there's Intel machines. The infrastructure, the vast majority that is already paid for, obviously, we've built it. If you work with construction folks, you need to pay them as you're building. So that's pretty much already done and paid for. Tiny bit of infrastructure cost left, but not a whole lot. The second, on the Bitmain machines, we've paid the 20,000 machines, Bitmain order. We have paid for north of two-thirds of those. So the majority of those machines are already paid for. And then, the last piece is the Intel machines. We have a deposit with Intel. We've -- we've started that relationship, but the majority of that capital will be for machines, and the majority of the machine capital will be for the Intel side. Alex, do you want to add anything to that?

No. I think you've pretty much covered it, Peter. As you say, the majority left is machines, a significant majority of machines. As Peter said, with two thirds of the way through as we stand today, we're over two thirds of the way through the Bitmain payments and looking forward, its Intel that is the cost, main cost for them, not 1 million to 5 million.

Great. Our next question, we've gotten a few times from Kevin [indiscernible] and some others in the chat. Do you intend on looking at the option of building our own solar fields and wind farms at Helios?

Thanks for the question, Kevin. So the short answer is, yes. In the long-term, it's something that we're looking at as an option. Obviously, Texas is a great spot for both solar and for wind. That's why there's so much renewable development there. In terms of the short-term, we're really focused on this 200 megawatts using grid power. And then, the next phase is that, the remaining 600 megawatts which we have the interconnection agreement with. But obviously, as we develop as miners in this space, as the industry develops, you're seeing two key, well, really three key developments. And that is getting closer to -- rigs you're seeing now with our Intel deal. You're getting closer to power. You're going to start to see miners get closer and closer to power because that is a key, key piece of mining. And then, -- the last one getting closer to capital and you see more and more capital providers coming into the space, and as we've mentioned in this presentation on, the debt side. So, all of those things are happening, because those are the three key pieces to be a successful miner. And so obviously, generating your own power from renewables is something that, as a miner you need to be thinking about in the future.

Our next question comes from Jon Petersen. Can you talk a little bit more about your Intel mining rigs? Is all of the expansion in fourth quarter 2022 likely to come from the Intel chips? And can you give us any indication of the cost per terahash on these intel mining machines?

Thank you, Jon. Jon from Jefferies, JJ. So in short, yes, the increase in the fourth quarter of this year will be coming from Intel, as you saw in our chart. That's really where the growth in hash rate is going to be coming from -- at Helios. In terms of cost per terahash, we don't have a cost per terahash that we're able to share yet. We are very optimistic that the cost per terahash will be lower then -- then off the shelf -- off the shelf options right now. And so that's a key piece of it, as well as the ability to have control over the design of the machines and the software, etc., etc., to be able to optimize in an emerging environment.

Great. Our next submitted question from the chat is from Thanassis. Are you actively staking or earning APY in any way on your 10% HODL at Argo Labs such as Ethereum, Solana, Atom, et cetera?

Thanks, Thanassis, again. So yes, a significant portion of our HODL is in validators, and nodes is staked and is deployed in DeFi, in a way that guides us an ability to earn a good APY.

Next question is from Ramsey El-Assal at Barclays. How you -- how are you thinking about the impact of sanctions on mining in Russia, where we see the global hashrate drop if miners in Russia are crippled by sanctions?

Yes, it's a good question, Ramsey. I think the last kind of number I saw Russia was roughly 10% of global hash rate. Obviously, the recent events with BitRiver having to shut down and they're, if not the biggest, one of the biggest players in Russia will have an impact. I don't think it's going to have the same kind of impact on global hash rate the way that the mining ban in China happened or did. I think it might have a – might slow things down a little bit in terms of growth, but I don't think it will be that significant. I think the place to watch hash rate growth right now is the United States. And lots of miners, lots of publicly traded miners have put numbers out and said we're going to be at X-ex of hash by this particular date, and we'll have to see if they hit those numbers that they've put out. For us, this is the year of execution. 2021 was the year of growth. 2022 is the year of execution. So, we've been really focusing on, as I said, a couple of times in this call, under promising and over delivering and making sure that if we put a number out, we're 100% confident that we can meet it.

Our next question comes from Abey R [ph]. What impact have supply chain issues had on the business?

Yes. Thanks, Abey. Listen, global supply chains are tough around the world. Definitely, it's been a little bit more challenging to meet our deadlines, but we are still able to stay on schedule with Healios. We have someone who works full time with us right now at Argo that we’ve hired recently as part of that team of 100 that we're building out, who is working on logistics and supply chain pieces. She's an expert in that world. So that's been very helpful. And it's something we take seriously and put a lot of effort into. We saw an increase for sure in shipping costs for miners. It's approximately 50% to 100% more expensive now -- than it was two years ago to shift miners. So that's something that we need to be cognizant of when we're building out our budgets, etcetera. But while they've had an impact for sure, we feel like we've been able to weather them because of our – the efforts of our team.

Great. Our next question comes from Alan Howard at Tennyson. How are you thinking about the build-out at Helios for future phases? Will it be less expensive than Phase 1 and will it be spread out evenly over the next three years?

Hey Alan, thank you for the question. So yes, listen, we have a significant runway at Helios. As I said its 600 megawatt, it's a big chunk to fill. We are going to focus our CapEx costs there first on the infrastructure and the building and then second on the rates. In terms of the infrastructure side of things, our expectation is, yes, it will be less expensive. We've learned, as we've grown. We've also done a lot of the groundwork in Texas to make sure that we're getting – have the right relationships, the right relationships in place with the right suppliers. We've already put some of the long lead items in as I mentioned for the big transformer pieces. I know some of those pieces are already prepaid. So yes, in terms of the infrastructure side, our expectation is that, it will be less expensive than Phase 1. In terms of the rig side, again, thanks to this relationship with Intel, our cost per terahash is expected to be lower than it is -- than it will have been for the first 200 megawatts.

Our next question comes from Luke P. Are you concerned with countries and cities getting involved in mining or do you think you have a competitive advantage with your infrastructure?

Thanks, Luke. Good question. I think you're probably referring to what happened recently with the news, I think, from Fort Worth. And so overall, we're not concerned about cities and countries getting involved. In general, we see this as a positive thing. We believe in decentralization. That's the whole point of the bitcoin network. We have a clear competitive advantage with our mining experience, with our current infrastructure, with our future infrastructure. So, listen, we're excited about the space in general growing and all of the incredible momentum that the space has. Even though the equity markets have slowed down a lot, it feels to me like the crypto markets, while they're under a little bit of pressure, are really charging ahead. And I'm excited about this year and the years to come.

Our next question comes from Chris Brendler at D.A. Davidson. Can you speak more about the expanding debt financing options and the improving terms that you mentioned? We've also heard that traditional banks have become more interested in the sector. Can you give your perspective on that?

Sure. I'll start this one and then I'll hand it over to Alex. Thanks for the question, Chris. Just in terms of relationships with lenders, there's just more of them that are -- that are out there now than there was -- 12 months ago -- I mean 18 months ago, there was basically no debt financing options. Now you've got a number of very established companies. You've got new folks looking to get into the space. And as Alex said earlier, terms are getting better. So, our market conditions impacting the financing options, I'd say that lenders are going to be more selective about who they're lending to. I think if you are a new minor, you came out and you said, hey, I'm opening a 50 megawatt facility in, name your place and you went to a lender. I think without a track record, you'd have a hard time getting financing. I think miners that have track records, that have existing teams in place, that have relationships in place, I think those are the miners that are going to be able to grow. So I think scale matters and reputation matters. Relationships matter. And yes, we've heard from traditional banks, but they're dipping their toes. I think it's still -- we're not there yet, I think those relationships are still -- those are there's a big shift. They take a long time to turn, and they need a lot of effort to turn. And so they're not quite ready to get there yet. But they're on their way.

Yeah. I just echo what Peter said that, in terms of, there are a lot of new moves into the market. And what comes with that is a lot more due diligence around -- who they're planning to partner with, who they're planning to lend to. So, the track record is really important to show that we have used that. We've used that wisely. We've been very prudent without that. We think we have more room to take on more debt, and still stay within our prudent internal and EBITDAs, debt ratios, et cetera, et cetera, and all of those good things. But where we stand today, we stand in a very strong position, because we don't -- we've got on our balance sheet a significant amount of bitcoin as well. So we are not wholly reliant on debt. In fact, we could almost self mine -- and use the -- and look at using just parts of debt, et cetera. As we said, that's going to be our process going forward. So we are -- we're in really strong position to move forward on the debt market remains strong. And it's something that we -- we're looking into.

Great. We're getting close to the top of the hour, so we only have a few more questions from King F. Given the volatility of bitcoin price and the unpredictability of the crypto space in general, do you have any plans or opportunities to diversify your mining capacity into different blockchain assets?

Yes. Thanks. Thanks, King, for the question. So Argo Labs is the main point of Argo Labs is diversification. And the team there is always exploring other avenues to look at. Can't share anything at the moment exactly what they're looking at. But, yes, it's something that we're always thinking about. In terms of mining other crypto assets, as we've done in the past with ZCash, and then you go back into 2018, we mined a host of altcoins. We're always opportunistic about other crypto assets. It's hard to get them, King, at scale. Get machines at scale the way you can for bitcoin mining. Once in a while there is opportunities, again, like we had with the Z11s mining ZCash. But for the most part, our focus is on, right now, making sure that Helios is the best immersion mining facility in the world. And the machines that we're focused on right now are our bitcoin machines.

Great. Our last question from Gary C. Are there plans to diversify into hosting other miners at Helios?

So, thanks for the question, Gary. In terms of hosting other miners, for now, we plan on using the available -- power for ourselves. We're always looking at opportunities. We've had lots of conversations. When you've got a big facility coming online, people knock on your door and they say, "Hey, -- can you take some of our machines?", and we feel like with the with the margins that we have, with the team that we have, with our expertise in mining, we're really good at mining. So, so we want to use as much power as we can for ourselves. Moving into the future, is there an opportunity to potentially host some folks at Helios in the next phase? Potentially, and we're having some of those conversations. But nothing significant to report on in any way right now.

That's great. Thank you very much. And Tom, thank you very much indeed for hosting that Q&A. And Alex and Peter, for your engagement. I will shortly redirect investors to provide you with their thoughts and expectations and get their feedback. But Peter, before doing so, I wondered if I may just ask you for a few closing comments to wrap up with.

Sure. Thanks, everyone. Listen, -- one of the great things about being the CEO of this company is that there's so much shareholder engagement. I mean, I don't know how many people we had today on this call, but it's -- there's always lots of people sending us notes, engaging with us on social media, turning up to things like this. We really appreciate it. Hopefully, we were able to answer at least some of the questions that came out. And we've got some big things coming in the next few weeks and months. So we're excited about where we're at. And, I did say going back to the end of last year, quarters and years, and this thing takes time to build. And those of you that are sticking with us and that are believe in us, we really appreciate it. We really do. So, so it's a great time to be an Argonaut, I would say. And onwards and upwards.

That's great. Peter, Alex, Tom, thank you very much indeed for your time this afternoon and for updating investors. Could I please ask investors not to close this session, as will now automatically redirect you for the opportunity to provide your feedback in order the company can really better understand your thoughts and expectations. This might take a few moments to complete, but I'm sure the company will be most grateful on behalf of the team from Argo Blockchain PLC, would like to thank you very much indeed for attending today's presentation. Good morning to you, Peter, over there in the US, and good afternoon to everyone in the UK. Thank you.