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Argo Blockchain PLC Announces Interim Half Year Results 2022

Wednesday, August 24, 2022 4:30 PM
Argo Blockchain PLC
https://argoblockchain.com

Argo Blockchain plc ("Argo" or "the Group") Interim Half Year Results 2022

LONDON, UK / ACCESSWIRE / August 24, 2022 / Argo Blockchain plc, a global leader in cryptocurrency mining (LSE:ARB)(NASDAQ:ARBK), is pleased to announce its results for the six months to 30 June 2022.

Financial Highlights

● Total number of Bitcoin and Bitcoin Equivalent ("BTC") mined during H1 2022 was 939, a 6% increase over the BTC mined in H1 2021

● Revenues of £26.7 million ($32.5 million), a decrease of 14% from H1 2021, driven primarily by a decrease in Bitcoin price and an increase in the global hashrate and associated network difficulty level

● Adjusted EBITDA of £17.1 million ($20.9 million), a decrease of 28% from H1 2021

● Mining margin of 71%, down from 81% in H1 2021. Similar to revenue, this decrease is largely attributable to the decrease in Bitcoin price and an increase in network difficulty

● Pre-tax loss of £36.9 million ($44.9 million), driven primarily by a non-cash reduction in the fair value of digital currencies held on the balance sheet

● Total number of BTC held at 30 June 2022 was 1,953, a 54% increase from 1,268 BTC held at 30 June 2021

Operational Highlights

● Energized Phase 1 of the Helios facility in Dickens County, Texas and commenced mining operations on 5 May 2022

● Increased hashrate capacity by 38% from 1.6 EH/s at the end of 2021 to 2.2 EH/s at the end of July 2022

● Obtained $26.7 million (£20.2 million) of financing from NYDIG secured by certain electrical infrastructure equipment at Helios

● Obtained up to $70.6 million (£56.3 million) of additional financing from NYDIG secured by certain Bitmain S19J Pro machines at Helios

● Executed an agreement with ePIC Blockchain Technologies to purchase custom mining machines for use with Intel's Blockscale ASIC chip

Post Period End

● Strengthened balance sheet by reducing exposure on BTC-backed loan with Galaxy Digital to £5.5 million ($6.7 million)

● Completed swap agreement with Core Scientific for approximately 10,000 S19J Pro machines, which completes the strategic pivot to a self-hosted business model in which Argo owns and operates its own machines and infrastructure

● Released the Group's 2021 Sustainability Report and maintained climate positive status by producing no Scope 1 emissions and offsetting all Scope 2 and Scope 3 emissions through renewable energy credits and verifiable emissions reductions

Update to Mining Capacity Guidance

In response to current market conditions and to reduce near-term capital intensity, the Group is updating its year end guidance for hashrate capacity. The Group expects to achieve 3.2 EH/s of total hashrate capacity by the end of 2022 and to increase capacity in Q1 2023 to 4.1 EH/s.

Peter Wall, CEO of Argo, said: "The delivery and installation of the approximately 20,000 S19J Pro machines from Bitmain continues to progress on schedule, and we still expect to have all of these machines installed by October 2022. The revision to our hashrate guidance reflects our current expectations for delivery and deployment of the custom machines we are developing with ePIC Blockchain Technologies ("ePIC") that utilize the Intel® Blockscale™ ASIC chips. We have worked closely with ePIC and Intel to modify the machine design to increase total mining efficiency, which has delayed our expected deployment schedule. Further, we are preserving our optionality by reducing our overall capital spending on these machines as market conditions remain volatile. We remain confident in the performance of the custom machines and are excited to deploy them starting in Q1 2023."

Non-IFRS Measures

The following table shows a reconciliation of gross margin to Bitcoin and Bitcoin Equivalent Mining Margin, the most directly comparable IFRS measure, for the periods ended 30 June 2022 and 30 June 2021.

Period ended
30 June 2022
(unaudited)

Period ended
30 June 2021
(unaudited)

£'000

£'000

Gross (loss)/profit

(34,413)

14,533

Gross margin

(129%)

47%

Depreciation of mining equipment

10,852

4,758

Change in fair value of digital currencies

36,025

6,407

Realised loss/(gain) on sale of digital currencies

6,372

(219)

Non mining revenue

-

(1,148)

Mining Profit

18,836

24,331

Bitcoin and Bitcoin Equivalent Mining Margin

71%

81%

The following table shows a reconciliation of Adjusted EBITDA to net income, the most directly comparable IFRS measure, for the periods ended 30 June 2022 and 30 June 2021.


Period ended
30 June 2022
(unaudited)
£'000
Period ended
30 June 2021
(unaudited)
£'000
(Loss) / Profit after taxation
(30,504) 7,214
Interest expense
3,477 411
Income tax (credit)/expense
(6,386) 3,484
Depreciation/Amortisation
11,718 4,870
Share based payment
2,816 1,568
Change in fair value of digital currencies
36,025 6,407
Adjusted EBITDA
17,146 23,954

Inside Information and Forward-Looking Statements

This announcement contains inside information and includes forward-looking statements which reflect the Company's or, as appropriate, the Directors' current views, interpretations, beliefs or expectations with respect to the Company's financial performance, business strategy and plans and objectives of management for future operations. These statements include forward-looking statements both with respect to the Company and the sector and industry in which the Company operates. Statements which include the words "expects", "intends", "plans", "believes", "projects", "anticipates", "will", "targets", "aims", "may", "would", "could", "continue", "estimate", "future", "opportunity", "potential" or, in each case, their negatives, and similar statements of a future or forward-looking nature identify forward-looking statements. All forward-looking statements address matters that involve risks and uncertainties because they relate to events that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. Accordingly, there are or will be important factors that could cause the Company's actual results, prospects and performance to differ materially from those indicated in these statements. In addition, even if the Company's actual results, prospects and performance are consistent with the forward-looking statements contained in this document, those results may not be indicative of results in subsequent periods. These forward-looking statements speak only as of the date of this announcement. Subject to any obligations under the Prospectus Regulation Rules, the Market Abuse Regulation, the Listing Rules and the Disclosure and Transparency Rules and except as required by the FCA, the London Stock Exchange, the City Code or applicable law and regulations, the Company undertakes no obligation publicly to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. For a more complete discussion of factors that could cause our actual results to differ from those described in this announcement, please refer to the filings that Company makes from time to time with the United States Securities and Exchange Commission and the United Kingdom Financial Conduct Authority, including the section entitled "Risk Factors" in the Company's Registration Statement on Form F-1.

For further information, please contact:

Argo Blockchain

Peter Wall
Chief Executive

via Tancredi +44 203 434 2334

finnCap Ltd

Corporate Finance
Jonny Franklin-Adams
Tim Harper
Joint Corporate Broker
Sunila de Silva

+44 207 220 0500

Tennyson Securities

Joint Corporate Broker
Peter Krens

+44 207 186 9030

OTC Markets

Jonathan Dickson
[email protected]

+44 204 526 4581
+44 7731 815 896

Tancredi Intelligent Communication
UK & Europe Media Relations

Emma Valgimigli
Fabio Galloni-Roversi Monaco
Nasser Al-Sayed
[email protected]

+44 7727 180 873
+44 7888 672 701
+44 7915 033 739

About Argo:

Argo Blockchain plc is a dual-listed (LSE: ARB; NASDAQ: ARBK) blockchain technology company focused on large-scale cryptocurrency mining. With its flagship mining facility in Texas, and offices in the US, Canada, and the UK, Argo's global, sustainable operations are predominantly powered by renewable energy. In 2021, Argo became the first climate positive cryptocurrency mining company, and a signatory to the Crypto Climate Accord. Argo also participates in several Web 3.0, DeFi and GameFi projects through its Argo Labs division, further contributing to its business operations, as well as the development of the cryptocurrency markets. For more information, visit www.argoblockchain.com.

Interim Management Report

Argo entered 2022 with two clear goals: to complete Phase 1 of the Group's Helios facility in Dickens County, Texas while continuing to optimise the performance of its existing mining fleet.

Argo is making significant progress towards the completion of Phase 1 of Helios; on 5 May 2022, the Group energized the facility and commenced mining operations. Argo commemorated this important milestone with an inauguration ceremony attended by local, state, and federal elected officials, as well as members of the local community. Since then, the Group has continued to install new machines and is on track to complete the installation of its order of 20,000 S19 J Pro machines from Bitmain by October 2022. Additionally, in July 2022, Argo completed its machine swap agreement with Core Scientific, which included the installation of an additional approximately 10,000 machines at Helios.

Upon completion of the machine swap agreement, the Group now operates 100% of its owned machines and has no third-party hosting arrangements. This is the culmination of the strategic pivot away from hosting to a fully vertically-integrated business model that began with the acquisition of two data centres in Quebec in early 2021. Being vertically-integrated will allow Argo's management to have more operational control over its mining machines and drive increased performance. Additionally, controlling operational expenses will be critical as the next Bitcoin halving cycle takes place in May 2024 and the Bitcoin block reward is reduced by 50%.

On the second goal, Argo is operating with a mining margin of 70% over the period, which is among the highest of the Group's peers.

As the Group's fleet is upgraded to the newer and more efficient S19J Pro machines, it continues to review the profitability and performance of the older machines in its fleet. Post period end, the Group completed a comprehensive review of its mining fleet and removed 460 PH/s of non-operational mining capacity from its total hashrate. This primarily comprises S17 and T17 machines, which despite a higher rate of failure, have been profitable for the Group with a total aggregate ROI in excess of 260%.

Argo is also making progress on the custom mining machine it is developing in collaboration with ePIC Blockchain that is specifically designed to utilize the Intel Blockscale ASIC chip. Delivery and deployment of these machines is expected to take place in the fourth quarter of 2022.

In January, the Group formally launched Argo Labs, its in-house innovation arm established to identify opportunities within the broader Web3 and blockchain ecosystem while supporting the decentralization of various blockchain protocols. Argo allocated approximately 10% of the Group's crypto assets in its "HODL" to Argo Labs. Argo Labs is primarily focused on two key areas: network participation and strategic diversification through the efficient deployment of the Group's crypto treasury assets. Network participation consists of providing infrastructure support, running nodes and validators, and staking innovative projects. Efficient deployment of the Group's crypto treasury assets includes, among other things, supporting early-stage projects and participating in decentralized finance (DeFi), as well as the NFT & metaverse ecosystem, in each case in furtherance of the Group's general business operations. By gaining exposure to the broader digital asset ecosystem, Argo Labs will allow the Group to participate in disruptive technologies and provide long-term value to its shareholders.

Despite the overall market drawdown and the decrease in Bitcoin price, the Group has been able to raise significant capital via secured debt financing. In March 2022, Argo obtained £20.2 million ($26.7 million) of debt financing from NYDIG, the proceeds of which were used to continue the build out of Helios. These borrowings are secured by certain electrical infrastructure equipment at the Helios facility. Additionally, in May 2022, Argo announced another debt financing agreement with NYDIG for up to £56.3 million ($70.6 million); these borrowings are secured by certain S19J Pro mining machines located at Helios.

The Group is mindful of its carbon footprint and maintains a strong focus on environmental sustainability. The Group's mining facilities in Quebec are powered by hydroelectricity, and operations in Texas are located in the Texas Panhandle where 85% of the generation capacity comes from wind power. In 2021, the Group signed the Crypto Climate Accord, committing to achieve net-zero carbon emissions by 2030. In 2021, Argo reached this goal, releasing a full climate strategy and becoming the first Bitcoin mining company to announce climate positive status through its use of renewable energy to power mining operations, and by offsetting more scope 2 and 3 greenhouse gas emissions than it emitted in both 2020 and 2021. Additionally, Argo was a founding member of the Bitcoin Mining Council, which educates the public on the increasing amount of renewable energy used for Bitcoin mining. It also seeks to improve reporting and increase the amount of data available on the use of renewable energy within the sector.

Argo's operations in Quebec and Texas also promote sustainability by helping to stabilize the electrical grid. In Quebec, Argo participates in curtailment programs to lower electricity usage during periods of extreme weather. In Texas, the Helios facility will participate in demand response programs, whereby it can reduce its electricity usage and increase availability of power to the grid in times of peak demand. This flexibility in electricity load has profound benefits for grid stability and helps to ensure equilibrium between supply and demand. This was demonstrated in July 2022 when Argo, along with most large-scale Bitcoin miners in Texas, voluntarily shut down operations in response to a conservation alert from ERCOT. Bitcoin miners collectively curtailed over 1,000 MW of electricity demand, which was then available during a time of intense heat and peak electricity demand. This action enabled ERCOT to avoid implementing rolling blackouts, which would have negatively impacted residential and commercial electricity users across the state.

Having successfully energized the Helios facility and commenced mining operations, the Group's strategic focus for the remainder of 2022 is to complete the build out of Phase 1 and lay the groundwork for the development of future phases at Helios.

Outlook

While the first half of 2022 presented many challenges, I am delighted with the progress that we have made in developing Helios and positioning ourselves as a leader in the Bitcoin mining industry. We designed and built a world-class Bitcoin mining facility from the ground up, balancing prudent growth with a volatile market. Furthermore, we continue to lead the industry with our commitment to sustainability, and we were proud to publish the Group's 2021 sustainability report which explains our climate positive status.

As operations at Helios continue to ramp up, there are certain milestones which will enable us to optimise our operations and achieve greater efficiency. We are evaluating several opportunities to execute a long-term, fixed price power purchase agreement (PPA), which will lock in our electricity prices and reduce our exposure to short term price fluctuations. Once the fixed price PPA is in place, Helios will have more optionality to participate in the demand response programs offered by ERCOT, which will further reduce its overall electricity cost.

During the period, there has been a global macroeconomic pullback as investors and central bankers grapple with inflation, the war in Ukraine, and rising interest rates. These headwinds have impacted all financial assets, including Bitcoin and the equity of publicly traded Bitcoin miners.

Argo is well positioned to weather the current downturn with its large and highly efficient mining infrastructure, runway for growth, and experienced management team, which has successfully navigated the Group through previous crypto winters. In response to the challenging market environment, we have adjusted our treasury management strategy. Throughout the period, we have been steadily selling Bitcoin, utilizing derivatives to obtain a higher realized price than simply selling into the market. In Q2 2022, we sold Bitcoin at an average realized price of approximately $28,500, realizing hedge gains in excess of $1,500 per Bitcoin. Proceeds from these sales have been used for operating expenses, capital expenditures, and to reduce exposure on our Bitcoin-backed loan.

Despite the challenging economic environment in 2022, we continue to focus on our strategic priority of completing Phase 1 of Helios and laying the groundwork to further scale operations.

On behalf of the Board, I would like to thank all shareholders and staff who share in Argo's mission of powering the world's most innovative and sustainable blockchain infrastructure.

Onwards and upwards!

Peter Wall
CEO & Interim Executive Chairman

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SOURCE: Argo Blockchain PLC

Topic:
Regulatory
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