IREN Limited (IREN) Q2 2023 Earnings Report, Transcript and Summary

Greetings. Welcome to Iris Energy Second Quarter Results Conference Call. At this time, all participants are in a listen only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Lincoln Tan. You may begin.

Thank you. Good afternoon for those of you in North America and good morning for those of you in Australia and welcome to the Iris Energy second quarter FY 2023 results presentation. My name is Lincoln Tan, Senior Manager of Investor Relations. And with me on the call today are Daniel Roberts, Co-Founder and Co-CEO; and Belinda Nucifora, CFO. Before we begin, please note, this call is being webcast live with an accompanying presentation. For those that have dialed by a phone, you can elect to ask a question by the moderator after our presentation. I would like to remind you that certain statements that we make during the conference call may constitute forward-looking statements. And Irish Energy cautions listeners that forward-looking information and statements are based on certain assumptions and risk factors that could cause actual results to differ materially from the expectations of the company. Listeners should not place undue reliance on forward-looking information or statements. Please refer to the disclaimer on Slide 2 within the accompanying presentation. Thank you. And I will now turn the call over to Dan Roberts.

Thanks Lincoln. Welcome everyone. Thanks for dialing in to our results presentation. Very pleased to be speaking with you today. So I guess, jumping right in to it. And we've just got a new technology, so I'm making sure the slides scroll correctly. So straight into the business update. Many of you would have seen our announcements on Monday, we have successfully increased our operating capacity from 2 exahash to 5.5 exahash as a result of a transaction that we made in a third party. This brings to a head, to a conclusion and outcome around the 10 exahash contract we have had on foot with Bitmain over the last 18 months or so. It was fair to say it was a good result. We're very pleased with the relationship and the partnership we have with Bitmain. That 5.5 exahash hatch will be installed progressively. It will all be shipped is our expectation in February. And then it's a matter of getting it to site, managing the 44,000 odd machines, which the 4.5 exahash represents and installing them from there. So in terms of specific guidance, on that ramp up, look, we expect to start installing machines in March and then it will take -- however long it takes, but rest assured, we're all motivated to get them installed in that full capacity in the very short term. In terms of the underlying transaction and how it came to happen. We spoke to you in December. We explained it had been a difficult year. We had a lot of challenges thrown at us. But at that point, we felt like we were in a good position, we had the infrastructure, we had the prepayments with Bitmain, we had cash, we had some operating capacity, we had a clean balance sheet as a result of wiping the debt facility. And we urge people to be patient, let us work through the options. We always had hosting there as a backstop, but we also had time. And I think we've gone through the right process which is the most important thing and the outcome has been a good one for the business. In terms of what the transaction involved, there was 6.7 exahash of remaining units to acquire under that 10 exahash contract. Against which the $67 million of prepayments, so cash we had already paid to Bitmain represented about $10 per terahash as a deposit. So really simply, we sold 2.3 of that 6.7 exahash. Got real cash in the process, directed that cash to Bitmain, that unlocked 4.4 exahash of units for ourselves, for zero cash outlay. It was a tripartite arrangement. It was all locked up in parallel. We didn't take risk on any specific counterparty. It was a three way agreement and successfully concluded pursuant to the announcement on Monday. So it's a good result, and we're very pleased to now have a substantial operating base and move forward from here. In terms of what we're looking at now and where we're going, quick update on Childress. To recap this, this is our next site in Texas. It's a 600 megawatt total capacity site. So day one on energization, we will have access to 600 megawatts of electrons. That's really important because it provides us with a growth pathway that is essentially locked in. As we've told you previously, the first 20 megawatts has been under construction in terms of the data centers, that's now nearing completion. As part of the site energization, not only have we built the full 600 megawatt substation, in addition to the AEP switchyard, we're also commissioning a 100 megawatt substation, of which, the first 20 megawatt data center will draw from. What that does is, give us an even shorter runway to the next 80 megawatts of data centers, which we've now started working on. Now to recap what this means, as we've previously articulated, we have a 160 megawatts of data centers already built and commissioned in British Columbia, into which the majority of those Bitmain machines will be plugged in over the next month or two. We then have 20 megawatts at Childress almost completed, which will round out the first 5.5 exahash. We're now working on the next 80 megawatts at Childress, utilizing that 100 megawatt substation that has been the process of being energized, which will support roughly another 2.5 exahash, assuming the same high efficiency miners that we have today in the S19j Pro’s. This is the culmination of now a couple of years of work on this site. These high voltage large scale infrastructure energy projects do take time. They take time to negotiate with the utilities connection agreements. Integration into the energy market and they also require capital. We've had to put down a substantial amount of capital to get the site to this point. But what that has allowed us to do is now scale rapidly, efficiently, and in a relatively short term just given the investment that we've made in that site. So our focus is absolutely there, as well as plugging in the 5.5 exahash over the next couple of months and continuing the momentum that we've seen at the start of 2023. That's it from me for now. I'll pass you back to Lincoln to give you a further update.

Thanks very much, Dan. This slide just steps through the illustrative economics across a range of different scenarios and Bitcoin prices at the current global hash rate. And there are really a couple of key takeaways from our perspective. Firstly, just in terms of the profitability and cash flow generation associated with the infrastructure we've built, you can really see the step up in mining profitability as we step up from 2 exahash to 5.5 exahash of operating capacity. And just to illustrate, at a $25,000 Bitcoin price, this represents an almost three times increase in mining profits with annualized mining profits stepping up from $33 million to $94 million and we expect this to really support some strong operating cash flow going forward. Secondly, in terms of how we will monetize our available infrastructure, we really believe that the economics here just validate our strategy of adopting a patient approach and fully assessing all of the available options and ultimately optimize the decision making around self-mining versus a blended self-mining and hosting model. So as we can see from the economics and the sort of the boxes shaded green, 5.5 exahash of self-mining delivers a far superior mining profit versus a blended self-mining and hosting model And again, just to illustrate a $25,000 Bitcoin price, self-mining the full 5.5 exahash without any additional cash outlay is expected to generate more than $40 million of additional mining profit on an annualized basis. Turning now to the next slide, and this is the peer comparison slide here. We thought it'd be helpful just to share some perspectives on the sector and why we view Iris Energy as a differentiated exposure. So firstly, from a scale perspective, 5.5 exahash of self-mining capacity really positions us as a leading Bitcoin miner in the space and certainly among the top five US listed Bitcoin miners by exahash. We also really wanted to highlight here the disciplined and risk focus approach that we have always taken towards capital allocation and also our balance sheet. As we're all aware, 2022 presented the sector with some very significant headwinds. And we observed many public miners raising significantly equity capital in the process, obviously, diluting shareholders along the way. And we want to reiterate here that we have not sold a single share since our IPO in 2021. And so notwithstanding these challenging market conditions, we've really fought tooth and nail to optimize the operations, optimize our funding position, optimize our liquidity and ultimately respect our use of shareholder funds, not only just to weather the bear market, but also grow our infrastructure platform significantly and get the most out of our assets. And just to touch on the balance sheet through that risk focused approach to structuring our debt we are starting this year off with a clean balance sheet, no debt, $38 million cash as of 31 January. And then the final takeaway here is in terms of efficiency, one metric we do look at is how many Bitcoin we are mining for exahash to install capacity. And over at the course of 2022, we are very pleased to have led the sector on this metric. Which we believe is a reflection of the quality of the facilities that we've built, the long term view that we take towards our investments, and importantly, the quality of the team that we have on the ground. Turning to the next slide here. Finally, just wanting to highlight again that our management team remains highly aligned and highly committed to the business. Our founders of Board and Management own about a quarter of register, and to reiterate, we have not sold a single share. We're obviously still very early on this journey. And we see huge growth opportunities to come. And we want to acknowledge that we very much appreciate the support that we've received along the way. We were the first Bitcoin mining IPO that was led by bulge bracket banks. We continue to enjoy broad sell side research coverage. We're looking to build a multi decade institutional grade infrastructure platform, and we're very much here for the long term. On that note, I'm just going to hand over now to Belinda, who's going to take us through a summary of the Q2 financial results.

Well, thank you, Lincoln. Just moving the slides forward. And whilst I do that, good morning from sunny Sydney. It's a cracking day here. Hopefully, it's as lovely in North America. So we start off looking at our bitcoin mining revenue and it's certainly been definitely an exciting and challenging year for the business in this first six months. So during Q1, we energized both our Mackenzie and Prince George sites. And as illustrated by the top chart on this side, we actually achieved a record bitcoin mining of 780 bitcoin mined during the period, and we realized an average bitcoin price of around [$21,000] (ph) resulting in bitcoin mining revenue of $16.2 million. So whilst our operating average hash rate increased by 0.2 million from 2 to 2.2 in the second quarter. The number of bitcoin mined decreased to 722 as the global hash rate increased and the implied difficulty got more difficult. Being that, the difference is 58 bitcoin lower in the quarter, and we achieved a bitcoin price of $19,000, resulting in revenue of $13.8 million. During the second quarter, as you're aware, we also decommissioned the miners associated with the non-recourse SPVs two and three on the 5 of November 2022. So move on now to look at our operating costs. So in Q1, we spent operating costs of $14.6 million, in Q2 that increased to $16.7 million. The main increase is primarily due to the electricity costs as they increase from $6.6 million to $7.4 million as we energized the Mackenzie and PG sites. And we had the growth in our average operating hash rate. When we look at the average electricity cost per bitcoin mined, this increased from $8.4 million in Q1 to $10.2 million in Q2. And this was due to the excess demand charges attributable to the average unutilized power capacity, as well as the increase in the average global hash rate during the period. Now by looking at the adjusted electricity cost per bitcoin mined, we achieved a normalized electricity cost of $9.5 million per bitcoin mined. So that's been adjusted for the excess demand charge. Site and other costs have increased from $8 million in Q1 to $9.3 million in Q2. And this is due to a full quarter of operational cost from the Mackenzie and Prince George sites in Q2. And we also built out the corporate platforms to support a 5.5 exahash business and beyond. So we'll now turn our attention to the balance sheet. As at 31st of December 2022, we had total assets of $412 million and total liabilities of $142 million. As Lincoln previously mentioned, we have a really strong cash at bank balance at the end of January. At the end of December, it was sitting at a similar number of $39 million, which excludes limited recourse finding SPVs. And as Dan mentioned in our opening slide, we've also utilized the Bitmain Mining hardware prepayment, the accounting value of that being $59 million. It's fully utilized post balance stage. And this will result in our average operating exahash increasing to 5.5 over the coming months. During Q2, we also recorded a primarily non cash impairment charge of $105 million, of which $67 million relates to the limited recourse financing SPVs. We also looked at the carrying value of our remaining minus, which at that day were approximately 2 exahash, and we've impaired those to the market value of miners. The group's goodwill of $600,000 has also been impaired, meaning there's no long requirement to test for impairment annually, and we're only required to test when there is indicators of impairment. In terms of the SPVs, a receiver has been appointed on February 3. And the last column of the balance sheet on this slide shows an adjusted balance sheet. So it reflects what the derecognition of the SPVs would look like from the group at 31 of December 2022. And as you can see, that would reduce our assets to around approximately $300 mill and our liabilities of $29 mill as that debt technically comes off from an accounting point off view of the balance sheet. So all up, a very strong balance sheet at the end of December. So we're now going to move to the Q&A session of the presentation. And I think facilitator will handle those questions.

Thank you. [Operator Instructions] Next question comes from Mike Colonnese with HCW. Please proceed.

Hi. Good morning, guys, and thank you for taking my questions. Congratulations as well on working out the Bitmain equipment contract. Great to see that, really great work there. First, can you speak to your ability to secure power contracts at the Childress site? How those conversations are going? And the potential power costs you expect to lock in as you near energization there?

Thanks, Mike. So this is where a lot of our focus is at the moment. We're just refining those arrangements, negotiating final terms. We're not looking to sign a long term PPA at this point in time. Many of you would have noticed that the market price for power in Texas has plummeted of late. I was just reading a report showing a 60% down month on month. The commodities now sub $0.03 a kilowatt hour. So it is good timing for us. In due course, we may look at longer term contractual arrangements. But we've got an initial 20 megawatts worth of capacity. It's an opportunity to hedge more on a short term basis, maybe month to month, maybe a couple at the time and really optimize that operations. And importantly, contracting experience when you're dealing with volatile and variable priced power markets. It's risk first, which won't surprise you to hear us say that. So we're going to take our time, start with some short term hedging and really mover into the process as we build confidence in it. Over time, I think getting a longer term security around that power price makes sense, but we're going to take our time and do it properly, particularly recognizing the relatively small operating capacity as a percentage of our operating portfolio in the short term.

Got it. Appreciate the color there, Dan. And you guys, obviously, have a lot of runway at Childress with regards to total power capacity. How should we think about the capital requirements to build out the site on a cost per megawatt basis? And roughly what the total time it takes to develop these incremental data centers you plan to roll out?

Yeah. Look, the largest component, I guess, first of all, stepping back, we've invested a lot of fixed cost required to get this site, get this capacity, build out a full high voltage substation for 600 megawatts, build out the first 100 megawatt medium voltage substation. We've actually ordered the second 100 megawatt transformer already as well. So we've really layered into that programming schedule to ensure that we're cutting down lead times, we're preserving optionality, and really giving ourselves the opportunity to optimize the time frame and the way in which we build out that site. In terms of capital, we haven't stopped talking to capital providers since our IPO. And yes, we haven't sold a share. We haven't taken on corporate level debt, but it doesn't stop us having conversations. We're continuing to have discussions around that, fair to say that with 5.5 exahash of operating capacity, the substantial operating cash flow that that will deliver, refer back to Lincoln's slide. That operating cash flow provides not just a source of funds, but equally a way to secure additional less dilutive types of capital as well. As we've said in the past, we're only going to do capital if it makes sense. To date, equity has not made sense. It's not to say it won't in the future. Debt hasn't made sense for us at a corporate level. That's not to say that it won't in the future. We'll go through all the options, take our time, and make sure that we work through the best result. The majority of the CapEx from here is the mining hardware itself. You can see a data point with the transaction we did with Bitmain, where I think we effectively acquired the 4.4 exahash at an average price of $15.20 at terahash. Now that's not to say that's where the pricing will be when we go to buy a new hardware or even tomorrow if we wanted to go and buy additional hardware, but it is a reference point. If you extrapolated that out, the next 80 megawatts beyond this first 20 at Childress to fill up the first 100 megawatts of medium voltage power that we're building. That's about 2.5 exahash, call it $20 a terahash. You're looking at about $50 million for the hardware, plus a small amount of the infrastructure and data center capacity on top of that. So we'll just keep working through it. First things first, is get these miners installed over the coming weeks and month or two. Really finish that energization of Childress. We'll get another $18 million back as a refundable deposit in Childress from AEP as part of that process. That's another addition of cash into -- onto our balance sheet. And then we can sit there and really work out how we optimize capital structure, growth, et cetera. And like we've always said, this market is so dynamic, we need to be flexible, we need to be nimble, we need to preserve optionality, minimize exposure to the downside, and the upside will come and we are just going to maintain that mentality go through the next few months.

Very helpful. Thank you for taking my questions.

Our next question comes from Pallav Saini with Canaccord. Please proceed.

Hey, guys. It's actually Joe Vafi here, not Pallav. Nice to see the nice progress in the business. Just wondering guys, in your BC facilities up above what you're doing there and your power capacity, is there any incremental potential from here to increase power at those facilities. It just feels like with everything up and running there that would be money well spent if possible, especially given the attractive power prices and it’s all green? And then I have a quick follow-up.

Absolutely. Look, that's important, we've been 100% renewable energy since day one, and it's our intent to stay that way. We've got a 160 megawatts commissioned in BC, as you know, Joe, we then add the 20 megawatts at Childress. We've got another 580 megawatts to go at Childress. That's not to say that we build all of that out before coming back to BC. But we have said in the past and it remains the case that we've got over a gigawatt of additional development sites globally. And the focus obviously hasn't been there over the last few months in terms of communication with the market, but we've continued to develop those sites. We believe in the long term, we understand that developing new infrastructure projects is a multi-year timeframe. We've got development projects in BC, Canada, the U.S., Asia Pacific. We've continued to keep the ball rolling on those sites, look at paying connection deposits in due course. We've got rights over land, negotiating connection conditions with the utilities. In the near term, we've got the 580 megawatts, and I think that gives a clear pathway to growth. But we're absolutely focused on developing and incubating additional sites outside of North America in addition to [indiscernible].

Sure. Thanks, Dan. And then we're looking at bitcoin spot price and I think everyone would agree that we're happy to see it moving up. But it does feel like, I would just like to get your view on ASIC spot prices and if you think there may be a window here where ASICs, given the kind of supply glut on the market of ASICs, we may have an opportunistic time between rising bitcoin price and ASIC spot prices, not reacting in sync and what that may mean for your capital strategy at some point of time in the future? Thanks, guys.

Thanks, Joe. Look, absolutely. Historically, you tend to get anywhere between one and three to four months of a window where bitcoin starts poking its head up and hardware prices don't necessarily respond in kind and there is often opportunities around that. We've been able to capitalize in the past on that when we we’re unlisted to the benefit of our shareholders. But equally, sometimes you can try and get too cute with this. And the reason I say that is, you've got a really natural investment profile for deploying more capacity in this sector, where historically, if you go back over the last four, five, six years, and look at average hardware prices, they're typically priced to deliver the buyer of that hardware on average of 124% return. And that sounds like a precise number, it is. It's an average of all the data points that we've collated. When you amortize the cost of the data center infrastructure, the electrical, the land, et cetera, you end up with somewhere between 50% and 80% year on year. So you can get a little bit too cute trying to tie an asset pricing and to a large degree, it is right way risk. If bitcoin goes up, you pay a bit more for your hardware. It's still priced such that you're still deriving what we view as an acceptable return and allocation of capital. It's not to say that you don't try and optimize around the sides to do that. But this is why the sector is really exciting for us, because you've got that natural hedge on the way down where we've seen with the last 10 exahash contract. At the time that was signed, it was a $40 price cap. I believe the market price at the time was maybe $60 give or take. Great deal. But what really worked in our favor was the fact that we had a clause that said we get the lower off market price at the time of delivery and that $40 cap. So even though bitcoin is obviously having a drawdown, we've had that natural hedge and being able to deploy capital. Hopefully, that what turns out to be the bottom of the market to acquire those assets. But again, on the way up, we're happy to pay. We're happy for all the people to make money. We'll maintain our discipline around capital allocation, but we feel pretty good about the prospect for investing additional capital in this sector.

Great. Thanks, Dan.

Our next question comes from Josh Siegler with Cantor Fitzgerald. Please proceed.

Yes. Hi, guys. Congratulations on getting the 4.4 secured. That's actually going to be my first question. I was just wondering if you could give a brief update kind of around the timing on what you expect those rates to be delivered? Are they currently in transit? And when do you expect to actually get unplugged in? Thank you.

Absolutely. Nice to see, Josh. As of this morning, I don't think any of being shipped, but I believe the first batch is not far away, and then there might be another batch next week. In any case, the more formal guidance is we expect them all to be shipped this month. So by the end of February, we then need to allow some time for them to travel up from Asia to North America. They'll land at the port. Make it through the logistics channels and ultimately get to our team on-site who will start installing them. How long that process takes? I don't want to promise anything, because we're still working through the logistics. We only made the announcement on Monday. It's a lot of machines. We're taking tens of thousands. We want to get it right. We want to make sure that we look after these assets, do it the right way, and optimize the operating environment. But equally, we're clearly, highly motivated to getting them in as soon as possible. So I think we should start seeing a ramp up beginning, hopefully, early to mid-next month. And then as to how long it takes from there to fulfill the ramp up to 5.5 exahash. I'm not sure. It might be another month or so.

Understood. That's helpful. And in the meantime, as you're getting these rigs up to speed and plugged in, how are you thinking about your current cash burn and your current cash level?

Lincoln or Belinda, would you like to handle this? Otherwise, I'm happy to. I've done a little bit talking.

Yes. Sure I can address that. So, I mean, from a cash perspective, we just disclosed at the end of January 31, $38 million cash balance. And in terms of the -- sort of, the runway [indiscernible] from an OpEx perspective, we've seen the numbers in this result, but we're sort of targeting approximately $2 million per month for site and other OpEx. So, we do the math from there. We think there's significant runway versus the current cash balance and commercially very much incentivized to plug in these new minus ASAP to start generating more operating cash flow.

Got it. Thank you very much.

Okay. Our next question comes from Chase White with Compass Point Trading and Research. Please proceed.

Thanks. [indiscernible] taking the question. So a couple of questions if I might. So first of all, I may have missed this, and I saw in the presentation you guys said Childress are expected to come online in the second calendar quarter of this year. But any color you can give on kind of when exactly you guys are anticipating? I mean, obviously, things can happen during construction, but are we thinking like early April or is it more like mid to late quarter? I'm just trying to get a good sense of how that's going to look?

Look, as you as you say, we're always cautious around this guidance chase, because we never want to underperform, and we always wanted to make sure that we deliver. We're really comfortable with Q2 and that should be looked at through the lens of us often performing ahead of schedule. So I think it's fair to assume that we're targeting more towards the start of Q2 rather than the end. But equally, we're dealing with 600 megawatts of high voltage power, there are safety things, there are technical things, a lot of its outside our control. And if it takes an extra few weeks, if it takes an extra month, for us, that's fine. Let's get it right.

Got it. That's helpful. And then in British Columbia, I mean, at what power consumption level do you expect the cost to kind of normalize on a per bitcoin basis? In other words, like how much do you have to start consuming before you've optimized your power consumption there?

Yeah. The short answer is we've got no issue now with the 5.5 exahash. So over the next about four to six weeks that issue will disappear entirely. But to answer your question, more thoroughly, I see Lincoln you are hitting off mute, if you'd like.

Yeah. Sure, Chase. So look, the excess demand charges are expected to normalize at around the 90 megawatt range. So that's, call it, roughly 2.8 exahash. So as Dan said, laser focused on getting these new miners energize ASAP.

Got it. That's very helpful. Makes sense. Appreciate it. Thank you guys.

[Operator Instructions] The next question comes from Reggie Smith with JPM. One moment. Please proceed. Reggie, your line is live.

Oh, I'm sorry. Thanks for taking the question. I guess my question is more kind of big picture. Thinking about bitcoin is obviously off its lows, hash rates still at all-time high. Companies are cleaning up their balance sheets. We have the -- having sometime next year and next spring what's next for the bitcoin mining space? What's the next story here?

That is a pretty high level question, Reggie. Whatever we say, it'll be different. If time in this sector is talk to anything. Look, I think, clearly, margins have improved since bitcoin's rally from mid-teens. Look, we're prepared for bitcoin to head back there. Right? Like, it just doesn't pay to be optimistic, plan for the worst, hope for the best. It's just our nature. But in saying that, it is looking constructive [indiscernible] is an exciting event as we know. Typically, within three to six months of that, we see another parabolic run given that supply shock. Does that happen again? Who knows. But at the end of the day, there's only $21 million of these things. They're not making more of them. And it feels like adoption suddenly going one way and even the increased regulatory scrutiny on the sector, it's hard to see that it's anything but a positive just given the abundance of different projects in these unregulated offshore casino and exchanges. I think it's going to bring an area of legitimacy to the space and bitcoin is clearly just a digital commodity and should benefit from that. In terms of the mining space, specifically, look, having some level of scale, I think, is important to be able to cover those overheads, continue to grow, etcetera. And we're pleased to now be among those top five listed miners. We think that gives us a step change to have that scale and really continue to look at growing through the cycle, but continuing to do it in a disciplined manner. In terms of energy prices, I think we've seen a little bit of heat coming out of the market for that, a bit of relief for miners that maybe weren't using a 100% renewables or didn't have fixed power prices. So that's probably helped them as well. It's hard to comment more than that. I think it's steady as it goes. People will look at adding incremental capacity. But we'll look to do that if it makes sense.

No, that makes sense. You mentioned scale and that kind of leads me to my next question. How do you guys think about mergers, acquisitions? Like, what are the conditions that it would make sense? Like, how should investors think about that? And then as a result of that, like would the synergies be primarily at the corporate level or they are energies with operations, like, how does that work? We haven't seen too many notable mergers in the space. But just curious like, what's the algebra that you guys are doing to evaluate that?

It's a funny question, Reggie, because we've heard it like, everyone's jumped up and down for the last 12 months. Oh, this is the time for sector M&A, mergers, acquisitions, and I don't know if there is just a sexy term or generates banking fees or whatever like people just love talking about it. I'm still trying to work out why it would make sense as well is to have conversations. We've talked to a lot of the other mining companies. I can see in specific circumstances where it does make sense and could lead to a win-win. There you might have one team that's got a really strong project development background, infrastructure background, another team that might be well capitalized and be able to join forces. You might have one company who is only doing hosting and recognizes that really to succeed longer term, you need to be vertically integrated and look to use M&A as a way to do that, because it is harder and longer to do that organically. But for us, having done everything we've done. We own the land. We own the infrastructure. We own our high efficient proprietary data center design. We limit the counter parties. We've got a clean balance sheet. We've got a very experienced quality management team. I think just signing up to, frankly, other problems by trying to integrate a business when we can grow organically relatively swiftly and efficiently. [indiscernible] to see how it makes sense, but I'll never rule anything out.

No, that makes sense. That was kind of how I was thinking about it as well, but I wasn't sure if I was missing like some potential synergy. I can appreciate that. Last question for me. So it sounds like you sent one final payment to Bitmain, but that that payment was actually from someone else. Have you disclosed what that amount was? I'm just trying to back into like a price for those 6.7 exahash. I know you -- it sounds like the math you gave was the $67 million divided by the 4.4 that you kept. But I'm curious what else was sent the last payment just to get a total cost. Thanks.

Yeah. We haven't disclosed that, and I'm just cautious about confidentiality in the commercial terms of that agreement, but I would not think it unreasonable to extrapolate out our effective economics across the deal and it will be within the ballpark.

Understood. Okay. Thank you.

We have no further questions from the phone lines at the moment.

Thank you. And now we'll just move to Q&A that's coming through on the webcast. One question being asked from a financial perspective, and Belinda, this one's for you. Just what's included in the other costs on the adjusted EBITDA?

Thank you, Lincoln. So in this quarter, there was a salary adjustment made. So that pretty much 90% and then some other small one-off costs in relation to transactional deals, potential debt raisings that can go ahead.

Thanks, Belinda. I'm just going to go through the questions sequentially, another question being asked is, will we consider doing further debt financing at this time? Just sort of refer us back to Daniel's comments earlier around all options being on the table, as we've consistently said, we're always talking to potential funders around capital. But as we've also said, we've never sold a share, we are large owners of the business and we want to be laser focused on risk management and only take on the right capital at the right time when it makes sense to do so. Another question coming through, just a point of clarity around the cash balance that it doesn't include the $18 million of charges refund. That's correct. So the cash balance that we quoted of $38 million in January and $39 million in December, that is exclusive of the Childress refund that we expect post energization of the site. Another question, perhaps this one is for Dan. It's around what is the minimum cash position we want to see before we commit to further CapEx around building new data centers.

It depends. Look, it's not a simple answer. We don't have a target working capital, it’s tens of millions of dollars. It really just depends on a number of factors. Do we have debt? Don't we have debt? What's our operational cash flow over that period of time? What's the commitment we're making? What's the drawdown profile and the [ESCO] (ph) of construction for that commitment. Look at risk of making kind of hand waving statements, we'll just continue to be prudent and make sure that we're managing for the downside. We're assuming the market always goes worse even if we're going vertical, because bitcoin decides to go on a run. We're always going to model out our scenarios, assuming that turns around rapidly and make sure that we've got plenty of headroom. We've proven our ability to manage the balance sheet and not just manage it, I think we've clearly demonstrated that to Lincoln's earlier comments, we will scrap and claw our way back and, like, try to optimize every dollar of funds that shareholders allow us to deploy, and we'll continue to do that. Yeah. We don't hold bitcoin on balance sheet. So we're not looking to take on that additional volatility. We'll keep an appropriate cash balance and make sure that we can write out various cycles.

Thanks, Dan. Another question coming up around what are our uptime assumptions across our sites, including Texas? Look, I guess, talking to uptime and inefficiency, that's something we take very seriously. We see we build and operate all of these data centers ourselves. We've got leading efficiency across the sector. We're always targeting for 100% uptime. If it's not a 100%, we're looking at ways to optimize. And we're going to continue doing that going forward, taking lessons from our operations and obviously looking to leverage them into Texas when that comes online as well.

I think Lincoln maybe just jump in. This this is another point where now we've got this step up in operating capacity and a resolution at Bitmain, and we've got the debt behind us, is to go back and actually focus on why we are differentiated. We don't do shipping containers, we don't do old abandoned warehouses. You wouldn't expect your local capital city data center to be down 10% of the year. Now that's not to say that it wouldn't make sense for bitcoin mining, but our approach is to build proper multi decade infrastructure that allows these machines to operate through various weather and climatic conditions because everyone present a downtime straight to our bottom line. It's a lot of money and it's worth the upfront investment, and that's just how we think. And I'll give you a couple of examples. One, when temperatures go subzero in winter these chips can get cold and they can start cracking if you don't look after them. Now again, the industry isn't necessarily incentivized to talk about these issues, but it's real. These are chip boards. You put them in negative five, negative 20 degree temperature, starts going to go wrong. So we put an automatic recirculation function in our data centers that adjusts the ambient temperature and automatically redirect some of the output heat air back into the intake to give these chips a bit of a blanket when temperatures go subzero. In fact, we've learned that the optimal operating temperature for the chips is actually a bit above zero. So we try to optimize for that. In summer, when you got the opposite issue, the ambient temperature is heating up. We've got variable speed exhaust fans that automatically ramp up and down based on the ambient temperature to optimize airflow and importantly optimize that ancillary power consumption and little things like that not only translate directly to our bottom line and those bitcoin mined efficiency stats. But more importantly in our mind, it's asset integrity and lifetime. But these chips physically will last a long time if you look after them. If you let them get dusty, you let them get humidity all over them, overheat, leave them out in 30 degree Celsius temperatures in shipping containers, they aren't going to last. So we have taken a different approach to that, and we'll be patient in time. I think that will be demonstrated even further.

Nice. Couple of questions being asked about whether we would be looking at next generation miners beyond the pros that we have, in particular, hydro cooled miners then. So hydro cooling is not really a next generation mining chip per se. It's just a way of cooling the chips themselves just by running fluid rather than air across the chips. And it's not like immersion where you're not physically having the chip service engage with the fluid. It's more done through tubes. Look, it's -- that's not something that's as much of interest to us and similarly immersion today. We're doing a bit of R&D. It's not that of interest. Purely and simply because air cooling is really efficient if you get it right. Because you take input air from outside, flow it through the chips and then you exhaust it back into the atmosphere. It's very hard and I'm not a technical guy, but the physics and the engineering challenge of having to have a closed loop system and recycle your fluid transfer medium where you're trying to get those hot molecules away from the chips. It just -- it doesn't seem intuitive to want to take them back in and apply them back to the chip services. We'll continue to do R&D, but that very much sums up how we see all these other technologies and methodologies unfolding. In terms of the chips themselves, look, we're absolutely static to have 29.5 joules per terahash efficiency. It's one of the top efficiencies in the market. And this efficiency is not the data center and production efficiency Lincoln referred to earlier. This is the efficiency of turning electrons into hashes. So how much energy do you need for each unit of hashing power? We've done that really efficiently as well. It may do have a more efficient model. We will absolutely look at that going forward and work out whether the cost benefit they do cost more money on a per tera hash basis. But carefully look at all the scenarios, the pricing, and go through our normal capital allocation decision process to work out what model we want at that point in time.

Thanks, Dan.

I think that's all of the questions that coming through on the platform. Perhaps now we just hand over to Dan just for a couple of quick concluding comments and then we can probably wrap up the call.

Sure. Thanks, Lincoln. Look, thanks everyone for dialing in. There's obviously challenging 2022 for the industry, for our team. I'd like to give a big special thanks to our team, they have worked so hard over the last 12 months and the reward in the last week for them is just enormous and that's really pleasing. And at the end of the day, we're here to enjoy ourselves and to see that lifting spirits is fantastic. We're really excited about now building from this point. We feel like it's another milestone and something to grow from. We're looking at the next 80 megawatts at Childress. We're looking forward to getting out amongst you the investors, educating you on why we came to market, why we believe that we're here for the long term. We've got a truly differentiated proposition, a 100% renewable energy proprietary data centers, doing things in an institutional grade fashion. We'll be patient as we've demonstrated, we'll go through the right processes. But finally, I'd like to thank you for all your support as investors since the IPO. It's been a bumpy ride, but the amount of support, encouragement, validation that we're doing things the right way is really appreciated. So thanks again for dialing in. Look forward to talking to you again soon.

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