Member Info for Hexam

"The value of the company cannot have changed, if your worth £5b and owe someone £500m, then you decide to pay them £500m your value hasn’t changed, or am I missing something else"

You are correct. Sort of. Assuming the money is coming from cash reserves the sp will only change depending on whether the market thinks it is a good, bad or just ok use of that money.

Here the money hasn't come from cash reserves but from raising capital from new shares. It's similar though. The mcap SHOULD go up by the exactly the amount of the new money but whether or not it does depends on what the market thinks of the move - good, bad or OK. The sp SHOULD then stay the same as although the mcap should go up the number of shares have gone up too - actually the sp should be expected to drop a little bit as the new shares were offered at a modest discount.

In short the sp shouldn't have changed much but it is sentiment that drives sp and clearly the market has (for now) judged this a 'bad' move. Personally I think it is an overreaction.

AB - I did mention the BTC selling strategy (briefly) and I thought PW expressed it very well with his hands!

What I found amusing was the question which seemed to basically ask if BTC recovered to highs would Argo consider going back to a HODL strategy. Er...surely that would be a better time to sell compared with now???

I think the numbers are generally good. Just think they shouldn't dress them up to be much better than they are - and it would be nice to be able to trust them more to get them correct.

Haha - Trouble is I'm more Anna than Elsa. Or maybe Olaf.

Thanks for posting AB and you were right - well worth watching.

FWIW the main takeaways for me were:

- Good and encouraging updates on Helios (and Intel) and useful to have more detail though understandably they are cagey at this stage about the benefits from immersion
- Nice to see the confidence they have in their ability to make best use of technology but I think the proof of the pudding will be in how much their efficiency improves in terms of coins mined per EH (which at the moment is one of their weak points)
- PW recognised the results weren't great for Q1 and when the CEO says something like that you know it's true but as he said they were expected
- I'm still annoyed though by the way they presented the financials (especially around EBITDA and costs) and that the Q1 numbers highlight just how wrong the monthly updates have been. The presentation didn't help sooth me but I ranted enough about that yesterday so moving on...
- We discussed yesterday whether they had enough BTC spare to complete phase 1 and what they would do if they didn't but good to see this was answered clearly i.e. that they will be looking at further debt if needed to meet part of the outstanding $50m
- Interesting (and welcome) that hosting is very much a possibility for phase 2
- Also interesting to hear him talk about phase 3 i.e. life beyond 800mW even though he didn't give much away
- Other good points like addressing issue of ERCOT head on, explaining why latest NYDIG loan a higher interest rate than first (relative quality of assets backing them) and strategy for selling BTC

So all in all I personally found it very encouraging even though I'm still peeved about the financials - am trying to let it go :-)

Pluto showed a loss in 2021 of which ARB's share (and reflected in their 2021 profit) was £1.2m. However, Pluto is still in start up mode and so their loss is unsurprising. By contrast their net assets otherwise increased significantly in 2021 (by over $26m) but ARB's share of this (£6.4m) has not yet been recognised as profit but instead is shown below the line in Other Comprehensive Income.

That's the financials and their impact on ARB since acquisition but as to what they are actually up to I haven't a scooby.

The interest cost on loans and borrowing in 2021 was just under £24m. Most of the debt IS on variable rates but the company does take action to mitigate the risks:

"The Group manages its interest rate exposure, which arises from the Group’s private placement loan notes, through cash, deposits and RCF drawings at variable interest rates, and through interest rate and cross-currency interest rate swaps. The swaps are designated fair value hedges against the fair value changes of the private placement loan notes."

It's been a rocky, and sometimes depressing, road over the last year but finally I think there is now a genuine light at the end of the dark tunnel and not just another false flicker.

The sp is holding up surprisingly well with the carnage around it (both tech stocks and BTC) and the next few months should finally see the realisation of the company's strategy with the new machines + immersion + swap + low electricity + intel link up + many more.

So dreams will hopefully become reality and the numbers will begin to reflect that and the sp will follow.

There are still risks of course, notably BTC and implementation risk, but I feel now is possibly the most exciting time to be an Argo investor (other than of course for the initial rocket from the penny days which sadly I wasn't part of).

So whilst it could all still go very wrong - it could also go very, very right. So strap in, fingers crossed and GLA.

Yes FP, we were both subject to Limp's nastiness yesterday. Best just to ignore it and focus on anything useful or interesting he and others like him have to say - which unfortunately is not a lot.

The other thing to note is if ARB is mining 600 per month, as in your scenario, then the costs per BTC I gave earlier will be much lower as:

- Lower electricity costs
- Immersion will greatly help efficiency as should the machine swap and simply having a 'younger' average age of machines
- Many 'Fixed' costs will still grow but not as fast as the number of coins mined (even the machine costs won't rise in line with production as the Intel machines are apparently much cheaper)
- If other miners are shutting down the reduction in difficulty will further help the numbers

So the all-in cost today maybe over $30k per BTC and the cash cost over $20k per BTC but these numbers will come down, it's just not clear how much. They should certainly have more headroom than they do today and my main concern was whether they had enough cash to complete phase I and so achieve those numbers (but as I said even if it's tight they have options to deal with it).

More seriously the drop does seem overdone given the relatively small number of new shares and modest discount. Yes, all things being equal the Earnings Per Share drops by around 10% but 'all things being equal' includes assuming the earnings are unchanged. They won't, for starters as the interest bill should be lower but also with a stronger balance sheet should come better growth prospects - but whether this is enough to offset the dilution impact is anybody's guess though it is clear at the moment with the drop what the market thinks.

So as HH says a company valuation is influenced by many things but today I think sentiment is firmly in the driving seat rather than the maths surrounding the placement.

"But if you're worried about every miner at that price doesn't that realistically suggest that much of the planned mining expansion won't be able to take place & many machines will be turned off, leading to a decrease in difficulty rather than an increase?"

Yes. Which is I think what I said in an earlier post which seems so long ago now. In essence what I think I said was that the quicker other miners close the more will ultimately 'survive' and I don't see ARB being one of the first in trouble. So maybe I could have phrased it better: All miners will be in trouble but the better ones will pull through (assuming BTC does recover).

Or be put behind the Green Door :-)

Personally I'd be worried about every miner if BTC fell towards $20k but I think ARB would be in much better shape to cope than most. I'm not nearly as evangelical as some here about BTC but, unless I really believed BTC would never recover (or would take ages to do so), if ARB dropped into the 30s then I would probably put a bit more in even though its already taking up more of my portfolio than I'd ideally like and my current paper loss is not pretty. I've have traded quite a few times to reduce the losses and will try to continue to do so.

My worry though is less about the hissy fits of BTC than the whole model of mining and the continued growth of difficulty that demands more and more capital to keep up - especially if BTC is not keeping up with difficulty. I think it still works though (for the better miners) but the moment I no longer do will be when I start thinking about an exit strategy (assuming I don't hit my price targets in the meantime). A bit rambling but hope that made sense - and of course just my view - nobody knows.

Yeah I’m still holding. I still believe in the business even if I don’t like the way they spin their numbers or whether they’re even right! Still can’t get over the 98% Adjusted EBITDA margin though (that should have been Adjusted to make it more sensible).

After all you don’t have to like everything the management do to invest in a company. As long as they get the strategy right and nothing today changes that for me. Even if they are a bit short of cash now then that’s down to low BTC and there are relatively painless ways to deal with what should at most be a short term issue.

Now that's refreshing to see and a lesson to some others perhaps. It's easy to make mistakes, much harder to own up to them. Impressive. Though to be fair it wasn't really a mistake anyway but a(nother) badly worded RNS that caught you out.

No I didn't attend as I was out for most of it - will catch it when it's posted. I included the senior notes - the only other loan I know of is Galaxy ($30m at 8%) plus a bit of mortgage at 5%. The first, and smaller, NYDIG loan didn't come into being until March did it so won't impact interest in Q1?

AB - Regarding the interest what I can't figure out is why the figure for Q1 was so high at $2.44m when the loans at the end of last year were around $70m and the interest less than 9% p.a. - unless they are not accruing the cost evenly which would be odd??

It sounds like you are trying to build a detailed cash flow. Too many assumptions for me, especially around timings, but good luck!

The reason I excluded those was because they are not normally made evenly throughout the year and are probably front end loaded. They are real costs though - but not a cash one.

@calamari - I get what you're saying and partly agree (it's another good reason- and maybe a better one) but not sure it applies here as the lease costs for machines actually went through depreciation too for ARB. The main problem for me is that it is often used as a standalone proxy for profit - or cash - and it is not generally a good one for either. In cases though where Capex is more variable or much less frequent it can give a better idea of underlying profitability trends and that's the point I was more getting at. With ARB though the need for Capex is constant and rising.