Thread by @anthonyc3004

1/ Following up from my prior thread after call with $HUT IR @bigsuey she was kind enough to set me up with a follow-up call with Hut 8 CFO @ShaneDowney8 which was very helpful.

Prior thread was here:

https://twitter.com/anthonyc3004/status/1443598663318708230?s=20

2/ Firstly, one thing to clear up.

I misinterpreted IR comments that the company's recent $170m equity capital raise fully funds them to get to the 6 EH target by mid 22.

3/ They are still on track for that target and are unequivocally saying they will not be raising additional equity capital any time soon but CFO acknowledged they will need more capital to get from 3EH (where they should be by year end 21) to 6 EH.

4/ They are looking at alternative financing options - issuing some debt (which I think would be very sensible and a good sign the industry is reaching a more mature phase), using some of their BTC holding as collateral and/or traditional equipment financing options.

5/ The CFO Shane Downey came across as very good, looking at all alternatives when it comes to financing options.

6/ Some key messages I took away were:

The third site is going to be great for lowering $HUT's cost of mining #BTC given industry-low electricity pricing (C$2.7c per KWh which has a +/- 10% variable aspect to it).

7/ Re their existing electricity cost it is around the C$4.5-5.5c per KWh mark which I found reassuring given global power price spikes recently).

They expect to be on time for their installation of $44m worth of MicroBT miners before end of Q4 21.

8/ This takes them to around 3EH.

9/ I asked why theirs would be on time while others seeing delays and their status as the certified repair centre for MicroBT not just for Canada but Northern Europe as well gives them a close relationship and a slight advantage when it comes to the queue for mining rigs.

10/ The plan is for the MicroBT rigs to go to the new 3rd Alberta site (with the cheap power from Validus). They said they are actively exploring options for a 4th site.

11/ They highlighted $HUT's conservative nature, depreciated their equipment over a 2 year period, hence lowering risk of impairment.

12/ I did note that back of envelope going from 1.4 EH to 6EH at say $60 / TH mining rig cost would mean US$276m of mining rigs bought, and hence depreciation of US$138m or C$170m.

13/ The CFO acknowledged this ballpark reality - people need to make sure to put much higher D&A in their numbers if modelling earnings power from the higher Exahash rate levels.

14/ CFO confirmed IR view that they are not planning to tap the capital markets any time soon, while also acknowledging they will need more funding to 6 EH. They have fully funded the build out of the 3rd site to 100 MW, not just the initial 35 MW targeted for Q4 21.

15/ Other stuff:

Electricity contract for 3rd site is C$2.7c per KWh for 5 years with a +/- 10% variability element plus two 5 year extension periods meaning it can go for 15 years which is good to hear.

16/ I asked what was holding up the remaining 75% of Ethereum miners and in general it was global supply chain constraints, specifically containers made by a Canadian vendor and parts that vendor needs from its suppliers.

17/ Re getting to 6EH - they alluded to interesting R&D opportunities (which means higher spec new rigs not announced to market yet) and expressed confidence re getting to 6EH by mid year. But have not announced purchase of rigs necessary to get there at this point.

18/ Referred to good relations with MicroBT and a domestic rig manufacturer (I don't know who that is?).

19/ We talked about how pleased they were with recent equity raise (as was I) - they don't want to have to go back to the HC Wainwright deeply discounted sale of equity & warrants they used to do (see $BTBT recent raise for good example of this).

20/ These things are reflexive and build on themselves - once you've tapped equity markets via a higher quality underwriter and attracted good institutional demand, you're in a better position to do it again. So, that bodes well for future raises.

21/ We talked about $MARA's recent revolving line of credit, using bitcoin as collateral, CFO said he would not look to use this for $100s of millions but can see it part of a fund-raising solution.

22/ He's exploring opportunities via debt capital markets as well as more traditional equipment financing options.

23/ Re existing sites electricity costs, Medicine Hat is powered by a mini-grid of its own independent power authority and so has the best arrangement with a mostly fixed price electricity supply. Drumheller is just plugged into the grid.

24/ The third site and the ETH mining will all help to bring down their overall cost of power. They don't fully disclose power costs but ballpark C$4.5-5.5c / KWh and sometimes a bit higher was what they would say.

25/ Re tax, they have tax losses such that they don't expect to be paying tax until into 2023.

CFO embraces the company view that Bitcoin will be the most valuable money in history. This justifies the HODL strategy, which other peers are beginning to embrace.

26/ We talked about managing capital allocation thru the cycle and CFO thinks striking a balance is key. Their institutional scale HODL leaves them very well-positioned from balance sheet perspective.

27/ A degree of aggressiveness at this time (adding 3EH of same vintage miners in a short period of time) is appropriate.

28/ Re investing in infrastructure vs mining rigs, CFO commented that it was easy during a bull cycle for peers to say that buying mining rigs is most attractive use of capital but ultimately building infrastructure allows $HUT to control its own destiny.

29/ They are enthused about the 3rd site, a relatively modest investment in the grand scheme of things.

30/ Thoughts on their ambitions for future beyond 6EH; They don't want to give up market share, they are increasing their share of global hash rate in here.

31/ CFO made interesting personal view (not co view) that he thinks some of the aggressive new entrants likely under-appreciate the execution challenge of getting this stuff up and working properly.

32/ Highlighted Alberta's very advantageous climate (cold!) vs say Texas which is hot and humid. He thinks it is more difficult to set up institutional grade mining facilities than people think.

33/ I talked about how SPAC market allows you to make very ambitious claims re your future growth without real diligence required vs a traditionally IPOing company. Will be interesting to see how some of those guys execute vs aggressive targets.

34/ Was a good call, $HUT in good hands.

Thanks for reading. END.