Thread by @anthonyc3004

1/ Re $BITF, I had a good conversation with CFO Jeffrey Lucas who joined in June 2021 and COO Geoff Morphy. Sharing some of my thoughts after the call:

2/ Summary thoughts: They are good operators delivering consistently strong monthly BTC mining results at very low cost and building out the infrastructure to support their 8EH by end 22 target.

3/ They trade at a notable discount to peers as I think the market overly penalises the company for perceived poor capital allocation and has not fully appreciated what a good deal they struck, renegotiating the cost of their 55,000 S19s to $38.50/ TH when the market was weak…

4/ …in July, saving themselves in the order of $200m vs current pricing.

5/ Going thru their recent filings, I added up their capital needs as $155m remaining to pay for mining rigs (see table below from Q3 filing) and $67m for infrastructure buildouts in Argentina, Sherbrooke and Paraguay.

6/ Cash on b/sheet at 30 Sep: $43m, cash raised via ATM up to 12 Nov Q3 filing date: $73m. Leaves capital need to get to 8EH at around $130m. CFO did not push back when I asked if I'd missed anything material from this ballpark estimate.

7/ He was pretty clear that they have options other than straight equity financing available such as loans collateralised by bitcoin and/or mining equipment and of course $MARA have recently shown that convertibles are another potential source of less-dilutive financing.

8/ So my personal view is they will not need to raise anywhere close to $130m via the equity markets to get to their stated goal of 8EH by end 2022. Which is quite striking when you look at the revenues they can generate at that hash rate.

9/ Let's assume network hash rate is 300EH by end 22 (vs 190EH now) - at a 50k BTC price 8EH would generate $455m in annual run-rate revenues. At 100k BTC that'd be $911m in annual run-rate revenues. With $BITF trading with a mkt cap of $1.2bn!

10/ We talked a bit about evolution of capital mkts for bitcoin miners, clearly the market is becoming more mature now vs early in 2021 when deals had to be issued with attached warrants etc. One attraction of the ATM route for them was flexibility and much lower fees and while…

11/ …I can see this caused quite a lot of investor angst over the summer, I think they've ended up in a good place, raising $35.2m via equity sales in Q3 at US$5.75 average and a further $72.6m up to the 12 Nov filing date at US$6.06 average so pretty minimal dilution given…

12/ …how close they are to being funded all the way to 8EH.

13/ We talked about Argentina - from my perspective it is a difficult narrative shift to go from a 99% renewable company to sub 50% once Argentina is fully built out & Argentina with a history of capital controls does also bring geopolitical risk.

14/ But it is only right to acknowledge the material positives - very compelling economics given very attractive 2.2 US$ cents/ kwh power locked in for 4 years, v reasonable infrastructure costs and diversification of geography does fit with the decentralised bitcoin ethos.

15/ And this is nat gas not coal! Their co-founders coming from Argentina gives them clear advantages in operating in this jurisdiction. They are providing good employment for 150-200 locals, revitalising a moribund power plant & can argue their presence is good for the country.

16/ Re their very good direct cost to produce a BTC of $6,900 in Q3 the CFO mentioned that 8% of their BTC was produced under a hosting agreement for $21k per BTC. If I back that out, it implies a $5,700 cost per BTC for their self-mining which is extremely compelling.

17/ As to why this is the case (other than Ben Gagnon @hashoveride being v good at his job!) the CFO noted they were on their 6th iteration of farm design so have learned a lot about optimising the process along the way.

18/ And they stressed the benefits of their vertical integration (they own electrical engineering subsidiary Volta), with in-house technicians and proprietary MGMT software system all helping to produce v good uptime results.

19/ Re Argentina build-out, hoping to see construction begin in Q1 22 - they are on track with their internal plans. I asked about long-lead time items such as transformers and these currently have 16-20 weeks lead times so not an issue.

20/ The Sherbrooke expansion plus Paraguay (which is expected to complete by end Dec) is what will give them the infrastructure to support the 3EH by Q1 22 target.

21/ The batch of miners expected in January are planned to go to Leger & The Bunker (the Sherbooke farms under construction now) plus they can also swap out older miners and use those older ones in Paraguay.

22/ I asked about their views on them hosting for others and they are focused on self-mining - getting efficient, inexpensive infrastructure is the constraint in the market so makes sense for them to self-mine with their infrastructure as they build it out.

23/ I came away with a positive view that $BITF are in good hands, building out a strong mgmt bench. I was impressed with the CFO and I think the stock does not deserve its undervaluation vs peers and vs their earnings power at 8EH of hash rate by end 22. Thanks for reading. END.

24/ Just realised my error in tweet 3 above - it should read 48k Whatsminer M30S+ they renegotiated instead of 55k S19s.

I meant to write 48,000 M30S+ machines in the above tweet, not 55k S19s - my mistake.