Member Info for Hexam

"The $31k direct costs from Q1 does not include depreciation so let's move on from this idea that they are still generating cash - that's simply not the case!"

Blimey - that's horrendous. The obvious follow-ups are why is it so high and how has it increased so much since they last reported (only a minority part of it is due to increased difficultly) and is such an increase temporary (due to weather etc.). So happy to admit I was wrong but in my defence I don't think anybody would expect their mining costs to have increased so much in such a short space of time. It also leaves unanswered the peculiar Q4 depreciation numbers.

So on these numbers they are barely breakeven cashwise even before interest and overheads. What's the saying? "They've got two chances. Slim, and none. And Slim just left town"?

HC - I agree the $18m is a real concern but as I said I'm not so sure that they are burning cash at the moment. It all depends on what that $31k 'direct cost' per BTC in Q1 actually includes. If it is just electricity/hosting then yes they certainly are but if it includes depreciation then almost certainly not. I can't believe their costs have shot up so much (or that they had next to no depreciation in Q4) but it all looks very strange (wrong?) so I can't be sure either way.

I thought we would know a lot more from the FY results but actually I'm much more uncertain now - at least until they, or someone else, can shed any light on what on earth is going on with these bizarre (to me anyway) looking numbers.

Flatliner - The new management have done a good job but nearly all of that improvement is simply down to last year's figures having both a big devaluation of BTC assets in them (when they had a HODL) and the huge losses incurred when they sold HELIOS and new machines at such a high discount.

So they've done wonders steadying the ship but the big numbers in the improvement have very little to do with them and those improvements won't be seen again.

CB - I prefer a top-down approach to costs i.e. looking at what it has actually cost them but it gets much the same answer.

I agree that CLSK etc. should be mining at around $30k per BTC (post-halving, normal fees) just allowing for electricity costs (and is another thing that makes the current $31k for ARB pre-halving look silly/misleading/wrong). Other cash costs would perhaps (up to) double that so I would think most miners are slightly cash generative at today's price - they don't need it go up to $100k. However, this doesn't leave much to invest in growth so they need a higher BTC to do that (and show profitability allowing for non-cash costs) or fees to remain so high - though of course they haven't been shy to issue equity to fund growth instead!

Perhaps Lanz, but Argo need it more than anybody else. Anyway, those like CLSK and MARA can survive comfortably with BTC less then $100k especially if other, weaker miners go to the wall.

I don't know what that table is at the end but the earlier (!) note 10 gives 30 as the number of employees.

If $31k really is their pre-halving cost of electricity/hosting only per BTC then heaven help them.

"Something that stood out for me was the sky high direct bitcoin costs in Q1, $31k direct mining costs in Q1, that's a huge jump and would suggest that cash break even is actually more like $100k post halving right, Hexam?"

I'm struggling to make sense of some of their numbers including this one. $31k direct mining cost is ridiculously high for Q1, and before halving, and much higher than last year (it was less than $12k in the last reported figures). One possibility is that this includes depreciation which some companies include in 'direct' costs but ARB hasn't before - but their description of costs in the financials of 'power and hosting costs' instead of 'direct costs' suggests they do now?

In addition their Q4 numbers seem inconsistent with end Q3 with depreciation of mining hardware only going from $18.2m to $18.7m but their cost of mining has shot up from $24m YTD Q3 to $36m full year. This implies virtually no depreciation for Q4 and a 50% uplift in mining costs. I can't see any notes though of a change in treatment/methodology.

My best guess is that the $31k DOES include depreciation and that this change of approach has somehow screwed up the presentation in the financials (hopefully it is just presentation/me missing something and not an actual mistake)!

So I think the $60-70k still holds but if the direct cost does only includes electricity and hosting then it doesn't and they are in big trouble - especially as they say they have $18m of further debt service obligations to be met before the end of June.

In the meantime if anybody can make more sense on what on earth is going on with their numbers then please shout - hopefully I've just missed something or messed up somewhere?!

"Are you clued up on when their debt matures?"

I'm afraid not but they only have (just under) $13m left of the Galaxy Debt now so I wouldn't imagine this is nearly as pressing as it could have been. It's still a lot obviously in relation to their cash position but even if a fair chunk of it was due soon they may still be ok especially (as I think) they are still generating cash at the moment (so Galaxy may not be as hardball as they overwise might)?

"I'm sure a while ago you said Argo's cash break even was around $35k so i'm surprised you still think $60k-$70k post halving with how much difficulty has adjusted upwards since"

I probably did because it was (or pretty close to it). To be fair to the new management though they've done a decent job of controlling costs especially on overheads and better terms on electricity (via Galaxy). That said it is hard looking at one quarter as it can fluctuate a lot (fees, curtailments/rebates etc.) but the trend suggests $60-$70k) and you're right it could easily be higher, especially as Q3 was over 6 months ago.

For reference the cash breakeven in Q3 2023 was $27k (which was much lower than the $33k in Q2) so my range still assumes quite an uplift from this - partly difficulty, partly as Q3 benefitted from some handy rebates more than offsetting coins lost through curtailment).

Q4 should tell us more (especially on further overhead savings) although that quarter had the benefit of high fees and they actually mined 20% more than in Q3.

I think ARB's cash breakeven is around $60k to $70k (should get a better idea tomorrow) so $100k would give a comfortable margin though still not a lot to play with in terms of manufacturing any growth. That assumes a more normal level of fees and so at the moment they should be generating cash because of the current high fees instead.

So they look to have some breathing space at the moment but that's probably all it is. With fees likely to come back down and difficulty still rising they need to find some way to grow but that looks very challenging with the debt still high, poor prospects as far as raising goes and uncertainty over the Galaxy deal.

Made me smile that one. Thanks Brew :-)

"Their constant negativity is never backed up with genuine evidence."

That's an odd statement but rather apt as absolutely nothing from the company itself is backed up with genuine evidence and this is the main point of disbelievers like me.

“Gone are the days of solo mining at $77,000 electric costs and an overall cost around $244,000..... Crazy......”

The $244k referred to the overall reward (due to the extremely high transaction fees) NOT the overall cost.

Also of course the big miners like MARA, CLSK etc don’t have electricity costs anything near $77k per BTC mined - more like $25k (and much, much lower whilst transaction fees are so high).

"What I've said is that it's a viable business at the operational level"

Disagree I'm afraid as to be a viable business at the operating level it's got to be making enough money on that basis to at least cover its interest and lease obligations which sit outside that figure. Fair enough you can exclude D&A from this as that money has already been spent but that doesn't hold forever as at some point the assets will need replacing for the business to continue to remain viable.

"Hexam thanks for your view, I'm not sure I buy it but each to their own and it's good to have a civilised debate"

Agreed but the depreciation and amortisation point I'm making is not really a view, it's simply a fact of how it works. This will continue rise for BOO unless the company starts to contract and I'm assuming you don't think that's very likely? Even then there will be a lag before it starts to fall (unless there are a lot of immediate write-offs).

So you will see it increasing this year and next year etc. just as it has in previous years.

"Hexam, it's quite simple I'm looking at the day to day actual running costs of the business, which remains profitable."

The profits on that basis still have to cover the impact of any investments (via D&A), interest, lease costs and any exceptional costs. So I wouldn't see being profitable on that basis as anything to shout about but as the very minimum it should be achieving. To achieve overall and sustainable profitability and positive cash flows its got to be making significant profits on that basis.

"I'm interested in why you think depreciation and amortisation will continually rise."

I said it will rise for the foreseeable future, not continually. Just the way it works really. The only way it will decrease is if the business starts to shrink and even then it will take time to feed through.

They depreciate/amortise over various timescales between 3 and 50 years - depending on the assets and their perceived useful lifetimes. As BOO is still relatively young those assets are still building up (especially over the last few years) so the amount to depreciate/amortise continues to accumulate even if the capex etc. then begins to fall. It's only when the end of the D or A time period is reached for an asset that it stops contributing towards the annual charge - but unless the business starts to contract that asset should be replaced and it all starts over. Of course if it turns out to be a poor asset investment then it may be impaired earlier - but again if that leads to an overall drop it implies a failing and/or shrinking business.

So any business that is relatively young or is still growing will see D&A grow as it's fixed asset base etc. increases. Even if it reaches maturity the D&A should still rise as the assets that need periodically replacing will cost more each time they do because of inflation.

Naturally some assets may prove useful beyond their initial estimate so they don't need replacing when the D or A schedule ends but BOO was growing rapidly until only very recently so that is not going to be a major influence for them anytime soon.

In short D and A continues to rise for healthy businesses (and more so if they are still growing) because of the accumulative nature of the charge and the increasing costs of replacing assets - even though capex etc. may vary considerably from year to year or even fall for several years.

Still don't get you as depreciation and amortisation will continue to rise each year for the foreseeable future and operating costs are higher than operating revenue - hence the reported operating loss of £21m. They do in places also show operating costs excluding D&A (maybe you mean this) but it is a fairly meaningless number and if they can't cover these with revenue then that really would be alarming!

If anything the figures flatter BOO - HOWEVER they are taking action to improve profitability and this may start to feed through in the year end results.

Not sure of the point you are making as depreciation and amortisation is used in order to give a fairer view of profit - if it wasn't done that way the profit line would look even worse. The cash figure is directly affected by capex but there would have been a net outflow even without any capex and only a small net inflow if you excluded the EBT share purchase as well. So even if the capex had not been elevated (just 'normal') and there were no share purchases then there would still have been a net cash outflow.

They also made an operating loss of £21m so they are not currently profitable at the operating level - maybe you are referring to adjusted EBITDA (?) but that is a different thing to operating P/L and excludes all manner of costs.

I would hope though that they've reached the bottom as far as profitability goes and the FY results will see a change in direction with losses starting to reduce and a clear path back to profits even if the headlines themselves aren't great.

"as in the business is fundamentally massively profitable other than boohoos intent on buying DCs etc?"

Not sure how you work that out. BOO made a loss at half-year and it still would have been a loss with no DC purchases. It is not fundamentally profitable at the moment, let alone massively, which is a big factor in why the sp is where it is just now.

Hopefully the full year results will show clear signs of a route back to profitability with progress on improving margins, in particular from cost savings and possibly pricing too.