Welcome to the Q1 Earnings Release Conference Call. My name is John. I'll be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Now I’ll turn the call over to Shane Downey.

Thanks John. Good morning, everyone. So good morning to the 2021 second quarter earnings call, for Hut 8 Mining Corp. I'm joined this morning by Jaime Leverton, CEO of Hut 8. We achieved and refined many reporting initiatives during my first full quarter as CFO as the digital asset industry is still very much in its infancy, IRS accounting standards do not directly address digital asset reporting. As part of ongoing management review and analysis and in consultation with our auditors, we made an accounting estimate change as well as the balance sheet classification change in Q2, both of which I will address below. Along with Jamie, and Sue and the rest of our management team, I look forward to additional engagement with our active shareholder base. With that said, I'll start it with some short disclaimer language, and then jump into a summary of our Q2 results. I'll then turn things over to Jaime and then we'll open up for some Q&A. In addition to the press release issued earlier today, you can find our financial statements and MD&A on both SEDAR and shortly on our website at hut8mining.com. Unless noted otherwise all amounts referred to are denominated in Canadian dollars. I'd like to remind you that comments made during this call may include forward-looking statements within the meaning of applicable Securities Legislation regarding the future performance of Hut 8 Mining Corp and its subsidiaries. These statements are current expectations and, as such, are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. These risks and uncertainties include but are not limited to the factors discussed in the Company's annual information form for the year ended December 31, 2020. At this time, I will walk through our financial highlights…

Thank you, Shane. So right off the top, I want to say I'm very excited about the progress we've been making at Hut 8. We were obviously incredibly busy in Q2 executing on our diversified revenue strategies, finalizing cutting-edge power agreements, leveraging key relationships to procure new hardware, expanding our market reach and continuing to be the leaders in self-mined Bitcoin held on the balance sheet. Our diversified revenue strategy matters. It helps us capture more upside in bull markets while offering some downside protection during bear markets. Hut 8 continues to strategically emphasize its hodl strategy, taking active steps to generate Canadian and U.S. dollars to help fund operating expenses and limit the selling of Bitcoin. As Shane mentioned, during the second quarter, 100% of our self-mined Bitcoin was deposited into custody. I also wanted to mention based on current network dynamics, we anticipate daily settlement once all contracted equipment and passion will equate to 20 to 25 Bitcoin per day. Of course, one of the main highlights for us this quarter was successfully becoming the first Canadian digital asset miner to list the common shares on the NASDAQ, a project that team has been heads down on who's very early in mine tenure. This achievement gives the company access to a substantially increased pool of investors, both for purposes of future capital raises and providing improved liquidity to current and future shareholders. Concurrent with this listing, Hut 8 closed a public offering on June 15th, as Shane mentioned, raising those proceeds of $115 million to provide flexibility in the face of market uncertainty for the company to continue making strategic investments and executing on meaningful and cutting-edge equipment opportunities. We were able to see them on an opportunity to pick up 1.08 exahash of equipment, and an incredibly…

Thank you. And we’ll now begin the question-and-answer session. [Operator Instructions] And our first question is from [indiscernible]

Thank you. Congratulations on your uplist. So I'm curious why 2,000 Bitcoin are loaned out given the much larger size that you self-mind. Is there a limiting factor to how much you can actually put into the market?

Great question, George, and good morning.

Good morning.

We only started embarking on this yield strategy earlier this year and it started in January with the opening of our initial yield account with Genesis. And we put a 1,000 Bitcoin into that account at that time. And then based on the success and our comfort with the execution of that program, we went on and entered into another arrangement in May with Galaxy with another 1,000 Bitcoin. And then as we talked about the remainder of our Bitcoin remained in custody. So this serves – it really served two purposes, obviously earning as the base income for a portion of the Bitcoin. We hold on our balance sheet. Well, we continue to believe we’ll take advantage of appreciation of the cost of the price of Bitcoin over time. It also diversifies the risk of where that Bitcoin be held historically, it was only held with our custodians. So we think this strategy is the right one for incremental revenue stream, as well as risk diversification of our holdings. We will continue to explore other avenues and for potentially incremental yield opportunities. But at this point, we’re still early days in this program and very much interested to see where it may evolve over time. I hope we got answer to the question, George.

That does. Thank you. So we look at and it’s nice to see your cost per coin coming down a quarter-over-quarter, can you just give us a sense of directionally where do you see that ultimate cost for coin with the new power arrangements, with the new minors, with the new difficulty adjustments, where do we ultimately get to from a cost per coin?

George, I had not been able to build a spreadsheets big enough to solve for all of the variables that go into answering that question. But if you want to build one for me, we can come back to it. There’s just so much at play, of course. And we don’t want to it’s really difficult to predict that and Shane did go into some detail about what goes into our cost per coin. It is a fully loaded cost per coin. And so I think that’s important for people to recognize all of the inputs that that go into that number for us based on IFRS accounting. Shane, I don’t know if you want to add anything.

Yes. No, I don’t think much to add in terms of how we build up the calculation itself, which has to be extremely simple, frankly, and in line with what the IFRS as Jaime just commented. And yes, I would echo the sentiment that’s the modeling and building out of specific assumptions as to where they expect price per Bitcoins of land in the future is challenging. So it’s difficult to put a specific number on it. But as Jaime has commented earlier the combination of getting stood up at a second location in Alberta, where we’ve commented on…

Third.

Excuse me, the third location in Alberta will be compelling from a power price perspective at that location for sure. Relative to our other locations and then the NVIDIA chips, I guess just generally the more efficient miners coming on board, which is – has been happening and will continue to accelerate throughout the year. And really that’s specifically the like the 3.5 to 4 megawatts of consumption that we expect from the NVIDIA chips is extremely efficient from a power perspective relative to certainly any of our basic miners today.

Got you. I certainly appreciate the difficulty.

The other thing I’ll add or just remind you of George, is we – because we’re one of the oldest publicly traded miners in this space. We’ve been around since the early 2018 actively participating in mining in this market. And we do have a diversified suite, which means a significant portion of our suite is of a previous generation. And therefore, it’s less efficient, but it is fully depreciated. And so from a margin perspective, that’s something to be aware of and to note the difference. We have fully depreciated equipment. That’s very profitably mining today. And so it does play into the cost per Bitcoin, because depreciation obviously isn’t factored into that equation.

Got you. One last question if I could with the Chinese miners leaving the market, the difficulty adjustments didn’t get adjusted right away. How much did that impact you negatively and how much does that benefit you now? Is there a way to quantify that?

Well, the majority of the difficulty adjustments resulting from that accident didn’t happen until the beginning of July. So there really isn’t much benefit. And if any shown in the – in our results for Q2 and the majority of Q2 was at that much higher global hash rate level. So the benefit of that difficulty adjustment and obviously the increased production that we saw as a result of it will be seen in our Q3 results, which will be in October.

Understand. Thanks guys.

Our pleasure. Thanks, George.

Our next question is from Kevin Dede. [H.C. Wainwright] Please go ahead.

Good morning, Kevin.

Good morning, Jaime. Hi Jaime, thank you. Thank you. Hi Shane. Shane, thanks very much for your prepared remarks, insight on the accounting and the fluidity in this environment is graciously appreciated. Maybe you could just talk a little bit about the negotiations that you had with your attorneys and accountants in sort of rearranging the P&L and balance sheet.

Yes. I mean, I happy to discuss it comment a bit further. Happily I can say nothing, none of that whatsoever had anything to do with discussion with attorneys or lawyers. The – and yes, and in terms of rearranging balance sheet, that fundamentally the change that we’ve made is to classify Bitcoin subject to lending arrangements. So that’s the is at June 30, 2000 Bitcoin that Jaime commented on earlier. That’s being classified now rather than the gains and losses associated with it flowing through the P&L, which is what happened in Q1. Any gains or losses associated with Bitcoin lending arrangement will flow through OCI. So through – excuse me, through the equity box in the balance sheet on a net of tax basis, which is the exact same treatment that gets applied to all other digital assets that are held in custody. Well, I won’t get too far into underneath that is an IFRS sort of analysis through the IFRS 9 world applies to financial assets and liabilities, which in fiat world would very much be aware any kind of loan would get classified. The digital assets fundamentally do not fall into IFRS 9. And so accordingly we’re sort of staying conceptually within IAS 38 intangible asset accounting. So that, that explains that it’s really truly an accounting classification change only, no impact on operations, no impact on cash. And when you look at the year-to-date and balance sheet that sort of noise, that’s there from a Q1 perspective and then a Q2 perspective goes away.

So, did I understand you correctly, Shane, and thinking that your full Bitcoin holdings are treated that way, not just the 2000 lent.

Correct. That’s exactly right.

Okay. Jamie congrats on Validus deal. I was wondering if we could add a little more color. I’m okay with tech things not so good with energy things. So could you help me understand how your third location will accumulate gas will ensure, my understanding its flare, ensure that it’s consistent in its quality, ensure that it’ll be consistent in its delivery. Give us some sort of idea on the number of wells that you needed to source. Congratulations on the pricing there, but any more color that you can add on, I mean, clearly, Drumheller and Medicine Hat are fine, right? Because we’ve seen them operate for years. It’s just not so clear what might happen with the new location. So any comfort you can give us on that I think would be greatly appreciated.

So I’m trying to think through the best way to answer your question, Kevin, we – the site is a new site that is built behind the fence, just meaning it’s not a grid connected site. It will be a site stood up primarily using natural gas as the energy store and will be directly connected to the turbines that ultimately produce the power. And the power is being produced specifically for our use and our use alone. The arrangement has an uptime commitment summed out of 95% uptime. And again, because we’re directly connected and the rates are well understood because they’re part of the contract and they’re fixed at $0.0274 Canadian plus or minus 10% based on an annual adjustment mechanism. So we know the costs and again the site is purpose-built specifically for our use. We’ll start with phase one being 30 to 35 megawatts, which we expect to be stood up and operational by the end of Q4 of this year. And then the reliability and performance of the site is what about is contractually obligated to perform. And they have a long history of working in these environments with respect to the amount of flare gas included in the natural gassing use that detail has not yet been disclosed as we’re working through it. So it will predominantly be forced natural gas, right. Because it is behind the fence generated power using natural gas as the source. Hope, that answers your question.

Yes, that helps tremendously. I mean, it was kind of that we’re trying to clear up a black box, right. So any light on it is great. The 30 to 35, you’ll have by the year end, we’ll get you how much of that additional 1.3 exahash that you plan on adding to your network. And then how much more power will you need to get this to the full 2.7.

So it’ll be recorded in 1.08 incremental exahash as we mentioned from MicroBT, the 80 petahash is already onsite now. And then the exahash will deliver between October and December. That’s the expected delivery of that exahash. And that exahash, we’ll use the full 30 to 35 megawatts. It’s about 35 megawatts for an exahash of compute for MicroBT using the equipment that we’ve ordered. So with what we have actively in production today, and then coming online with that 1 exahash ordered for MicroBT as well as the NVIDIA cards that are coming online, just that contracted equipment alone gets us to the 2.7 exahash.

Okay. So with – I guess, just to sort of sum up in my little brain with that new 35 megawatts, you’ll be able to support your full 2.7 target.

That’s right.

Okay. Okay. And it seems that you’ll have the 35 up by the end of the year. And then would it be fair to assume the full 2.7 could be fully deployed by the end of the March quarter? Is that a fair assumption?

That is a fair assumption. Certainly, by the grace of god and supply chain willing that is our target.

I think more by the grace of an Alberta winter, Jamie.

We love Alberta winter, Kevin. That’s how we take advantage of our free air cooling. The miners absolutely risk during Alberta winters. We love the Alberta winter.

Okay. So the – for full deployment at that site, you’ll need to supply the infrastructure down transformer or is all that – yes, is all that Validus or is that on you?

That’s – so we are working with all as a partner in building out the site and all of that infrastructure has already been ordered, all the long lead items are already ordered and then we’ve got a full work back schedule in progress.

Okay. Sounds great. Thank you for indulging me. I’ll jump back in the queue.

Anytime, Kevin.

And our next question is from [indiscernible]

Hi. Good to hear your voices, Jaime, Shane, and the other team members. I was just concentrating on the question of the previous colleague around Validus. And one to two question, now, the size is of course, $25 million. So, if I may ask the cost per watt or per kilowatt would be in addition to the overall setup of $25 million. For how long this site is going to be operating under Hut 8? Is there a lease agreement or would this site be owned by Hut 8 eventually?

So, the $25 million that you’re referring to, I believe is the amount related to the rate side out. So that’s how we have the rate that we do, which then it is an ongoing operating cost. And the agreement is an initial five-year term and then it has two five year renewal options after that. We do not own the land that the site will be on nor we own the land that any of our sites are on. The land is leased, but the infrastructure being as we just discussed with Kevin, the downstream transformers, the data center containers that infrastructure is all owned by Hut 8.

Great. So if we put a new another five year term that mean another $25 million?

No.

Is this something that can be disclosed – will be disclosed. Because again, I do see the agreement on the cost basis need to be a little bit clarified around what does it include, what it does not include? Because again, there seems to be a set of costs that need to be put, you just clarify to the previous call of that. It is part of the overall setup that Validus is going to provide eventually. On the previous call we discussed, would there be any for another set of black boxes that will be procured? I assume that as part of the setup of the site is going to be covered by the $25 million will be covered. So if we want to continue on this site, given the fact that economically given the numbers that are published thus far, Drumheller is becoming our most expensive operating site, if we assume that this is on power. So what would be the cost of continuing Validus later on, and maybe looking at more economic efficient mining sites between Drumheller Medicine Hat and the Validus on, all in Alberta?

Well, I think the best way to answer that is, we’re always having conversations about potential opportunities for future growth.

Got it. That’s a very diplomatic answer. The next question is with regard to...

Very true.

Yes. The next question is with regard to NVIDIA. If you recall in our previous call when this was announced, I think the initial timeline was July, then it was expanded to August. Now on the news today, it’s being split into two trench, August a subset and a September another subset. On the initial justification or value of the deal, it was said that there was a commitment from NVIDIA for timelines of delivery. Is the delay because of the logistical reasons of our – on our site or on NVIDIA site, if this can be explained?

It’s actually the supply chain related to the infrastructure, the power infrastructure required to support the equipment. So we did use a strategic partner Amulet Hotkey, and working with Dell to have everything assembled at an offsite location so that when they arrive to our site, they’re fully assembled and the team just needs to plug them into the appropriate data center container with the appropriate power source. So the cards arrived essentially on time, on schedule and they’ve spent the last six weeks going through the assembly process. And then as I mentioned, we’ll be delivered or in the process of being delivered over the next few weeks, obviously in phases, they get delivered to site. And then because they’re fully assembled in the chassis and they go right into production. But the delays have been on the – some of the downstream kind of infrastructure items related to the power that will support the equipment as we plug it in onsite.

That’s clear. The next question is around the hosting business. First of all, thank you for the great performance on this year on the hosting side. Quarter one, then quarter two are amazing, securing the new clients is really amazing. Would we have a target for this kind of business line to offset the overall cost associated with running the business? Because again, I could see that we are investing so far around 13 megawatts, 13 plus on this. And if I do a simple mental calculation, if we invested more than what would be the percentage that you are targeting. On one interview or media interlock, I think the number 30% of the overall power available was put as a challenge. But again, it was not put in any solid material that we can forecast on our model on the modeling for the company. So is there a targeted number for the whole hosting business?

There is not a targeted number. It is a conversation that is fluid, and it’s really fluid based on the market conditions and market dynamics. And right now, we’re comfortable with the mix we’re at right now based on the split between self mining and hosting. And of course, we’re at absolutely maximum, maximum available power capacity. And our excitement to get a new site set up and ultimately, we’ll continue to look for future expansion because it is power that’s the limiting factor. And without kind of unlimited built-out power, it’s really hard to put a number we'll continue to look for, for future expansion because it is power that's the limiting factor. And without kind of an unlimited built-out power, it's really hard to put a number on what the right mix will look like. But suffice it to say, we are diversified strategy that has fee-based revenue streams to help support our self-mining activities and allow us to huddle more Bitcoin, is critical and one that will continue to be important to us.

Great. With regard to the target capacity for H1 2022 and the current cash position available warrants and available loans given the deal accounts, because I think it came with another $20 million potential loan almost in 16% interest. Do you see a need for more cash on the business for the reminder of the year?

Well, look, it's something that it's an interesting balance, right? We haven't sold Bitcoins since early January and based on, market conditions and kind of our beliefs of where Bitcoin is in its cycle. But we have an incredibly healthy balance sheet between Bitcoin and cash. So it's before January, and certainly during the bear market, we were selling the majority of Bitcoin, we were mining. We were selling to fund operations and growth. So I think just the cyclicality and volatility associated with this market has put us in a position where we're always thinking balance sheet first, and we'll continue to do so.

That's super one final question. And again, I've thrown on this before in a previous call, the remaining – remaining 2000 Bitcoin plus on the balance. When are they going to work for us? I know that they are insisting on the balance.

I love this because when we first kind of even as a leadership team started talking about opening the initial yield account back in January, and we really struggled with how the market would react to it and would it be being favorably? And so we kind of we thought – obviously, we thought it was the right thing to do for the business and we made that move. And then, and now you kind of fast forward eight months later, and people are just looking for more and more. And so it's quite – it's been quite an evolution in sentiment around, around that strategy. And it's one we'll continue to aggressively pursue with Shane now in his chair and comfortably with a full quarter under his belt. We'll spend more time looking at that part of the business. But I absolutely, I find it fascinating that there's so much positive commentary coming about that yield program and both you and Kevin, the previous question after looking for more from us on yield. So that's great feedback, and I really appreciate it.

Again thank you Jamie personally, to Shane for being there for us, for clarifying a lot of things, for being interactive. Again, I would thank the IR team for being responsive to investor inquiries during the periods, it was a tough Bitcoin volatility period. And I think the performance of the company is evident that's [indiscernible] well under your leadership. So thank you.

Thank you so much. We really appreciate it. It was certainly a nail biter of a quarter with that volatility for sure.

And our next question is from Brad [indiscernible].

Hello. Thank you guys for your time today, I really appreciate the work that you guys have done this last quarter, of course, for all of the business that you're doing. It's kind of funny the last call or had one of my questions about the revenue sources of having this new customer that came on in May is that Celsius Network, or if you can't say, are you looking to get more customers like that for yield?

Expanding into potentially new relationships around yield?

Yeah. I mean, when you say customer, are you looking for customers that are providing hosting, or is a customer someone you're doing yield farming with?

Yes. From a true customer sentence of the word, we only have two customers, we have two hosting clients. And then the, the yield relationships that we have are with strategic partners, but I think technically we're the customer and those relationships.

Okay. I got you. And then the other part of my question really is a different subject where you're getting machines to do yield farming to pay PR expenses around the company. Have you considered at all, maybe taking it to the next level where you actually pay some of these expenses with your relationships or to your employees in yield or some other crypto?

Okay. So actually our initial intention in mining, the Ethereum network is to settle in Bitcoin and versus see it, so that one is kind of clarify there, as for paying employees in crypto and unfortunately, there isn't a mechanism to do that within current Canadian income guidelines and income tax guidelines, although I would love to be paid in Bitcoin. So one day, I hope that's something that that could become possible, but at this point there just there isn't a rational way to make that happen.

And I guess the last thing is, have you talked to Alex Minsky or Southeast network at all about either hosting, which they're doing now for mining Bitcoin or for yield farming because they do both?

No, no, we haven’t had any conversations.

Okay. Yes. Okay. Well, those are end of my questions. Thank you very much.

Anytime. Thanks so much.

And we have another question from Kevin. Please go ahead.

Sorry, Jaime, I’m back.

Hi, Kevin, did you missed us?

Of course I missed you. I especially miss you in Miami for the record.

I know that’s very true. Very true. Even special trip.

We’ll catch up. We will catch up. Okay. I apologies again for haranguing you on spot X, the third location, maybe we should call it tray.

It does not have a location name as of yet.

Spot X for tray.

We will give you.

Can you take that agreement beyond 35 and then sort of in the same win…

The initial agreement is up to a 100 and then it has – we do have the ability to go beyond that.

Okay. Then sort of the same question on Medicine Hat and Drumheller. I know the agreements are different there, but is there a chance you work with your power suppliers? I know they’re both different to increase capacity there. It’s all about power now.

Yes, no. I think, oh, I know it used to be all the equipment now. It’s all about power and we – we are at maximum, currently available capacity at both Medicine Hat and Drumheller. But as I say, one of the things about Alberta, of course, it’s incredibly energy rich. And I think there’s a lot of really exciting innovation happening in the power market. And really in particular with respect to reducing the carbon footprint associated with natural gas significantly, I know we’re having a lot of exploratory conversations about what the future of hydrogen could look like of what’s the future. Nuclear could look like, so there’s an absolute ton of really exciting innovation happening in this space. And Alberta is incredibly focused on greening up their grid as we talked about before, but the Alberta grid is about 20% renewables right now. And they’ve got very aggressive targets to continue to increase that between now and 2030, they’ve made significant investments in wind farms and solar farms around the province. So, we’re really happy that we’re in that community and we’re partnered on how we can drive innovation with us being a significant stable off-taker both for grid connected locations and for off-taker behind the fence locations, like the new one that we’re building without it. So, we really think there’s a ton of opportunity for really exciting strategic conversations and growth in this space over the next one, two, five, 10 years. It’s – I think the power of spaces is definitely one to watch where we’re new innovations consent. And mining is – were a critical part of that, right? Kevin, like we’re the most stable off-taker that is completely able to put power back to the grid when it’s needed for peak. So it’s such a natural symbiotic relationship between power producers and independent members liners. And the more we start working together and really thinking outside the box, that’s where one plus one equals five.

Well, that was the comment I was going to add. And I mean, I suppose the extension of that is, your relationships with the assortment of power suppliers through the province and whether or not you can serve a function in load balancing. It just seems to me that there is plenty of power capacity vis-à-vis demand, but I suppose that changes as you and competitors ramp up mining activities. So the next question I have….

I think it evolves. I think it evolves.

Okay. The next question, and I promise this will be my last official last one. I to echo sentiments [ph] any way that you can maximize use of assets shareholders love it. Yes, but I was hoping you might take us through the mechanics of mining Ethereum and the conversion of Bitcoin. What are the ratios you use or is there any set contract there? How should we think about that that function Ethereum price has change, mining difficulty changes there vis-à-vis Bitcoin prices.

So we actually had the detail of how those calculations are made so that anybody can look at how we’re making them in our FAQ on our websites. So, we publish the frequently asked questions associated with this NVIDIA project and the details are all there. So, I will point if you haven’t seen that, that we’re all pointing to that detail.

Thank you. Thank you. I apologize for the oversight, Jamie, thank you for the guidance and the color on power in Alberta. Appreciate that too.

No problem. Anytime. Thanks Kevin. [Operator Instructions] I have no further questions at this time.

Okay. Well, once again, we want to thank everyone so much for their time, attention and support. It’s always a pleasure to be able to connect directly with our shareholders. So again, thank you so much. And we look forward to talking again soon.

Thank you, ladies and gentlemen that concludes today’s call. Thank you for participating. And you may now disconnect.