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Presentation

Tom Divine: Thanks Alex. Before we begin, I’d like to remind everyone that today’s presentation and remarks may contain forward-looking statements. For our full risk factors, please see our Form 20-F filed with the Securities and Exchange Commission for the year 2022. With us today for our discussion of Q2 and first half 2023 results are Seif El-Bakly, Argo’s Interim Chief Executive Officer; and Jim MacCallum, Argo’s Chief Financial Officer. And now, I’ll turn it over to Seif.

Seif El-Bakly: Thanks, Tom. Good morning everyone and good afternoon to our shareholders in the UK. It’s great to have you with us today to discuss our Q2 earnings and first half of 2023 results. As mentioned in previous calls, ever since Jim and I took the helm at Argo, we focused on three key priorities, which are financial discipline and deleveraging, operational excellence and growth, and strategic partnerships for the sustainable future of the Company. In my comments, I’ll provide updates on our progress as they relate to these key pillars. With that, let’s look at how Q2 shaped up. In the second quarter, we mined 456 Bitcoin and generated revenue of $12.6 million, which is an increase of 10% over a revenue from Q1 of this year.

Our mining margin percentage came in at 36%, which is down from the 49% mining margin we achieved in Q1. There are a couple of drivers for this. So, I’ll take some time to address that now. Helios now has a fixed price PPA for a significant portion of the facility’s power load. Because we get access to this fixed power price on a pass-through basis, it provides us with greater certainty over power costs going forward, and it also allows us to participate in economic curtailment. This means that during periods of the day when power prices are really high, Helios can curtail operations and sell that power back to the grid in real time. This generates power credits for us, which ultimately reduces our power bills. In Q2 alone, we generated $1.1 million worth of power credits.

This is equivalent to mining an additional 38 Bitcoin. In certain instances where power prices spike, it can be more profitable to curtail and monetize that fixed price PPA than it is to mine, and that’s something we’re closely monitoring. And with the ongoing heat wave in Texas, we are expecting significantly more power credits in Q3. For those of you who live in North America, you know that the summer has been exceptionally hot. Texas especially, it has several weeks — it has had several weeks of temperatures over a 100 degrees. So, that led to very high power prices at certain times. And although we were hedged for the majority of our load, we were still exposed to those prices for the portion of the load that is not covered by the fixed PPA.

But the fixed PPA is ultimately a good hedge and it’s proving itself to be very valuable so far for the third quarter. All-in, our average power and hosting cost for the first half of the year was slightly over $0.05 per kilowatt hour. For the second quarter, we generated an adjusted EBITDA of $1.1 million, bringing our half-year adjusted EBITDA to $2.3 million. As I said on the last call, cash generation is top of mind for us. We ended the second quarter with just over $9 million of cash on the balance sheet. So now, I’ll let Jim provide some additional comments on our financial results for the quarter.

Jim MacCallum: Thank you, Seif. We generated $12.6 million of revenue for the quarter with $4.5 million of mining profit for a mining margin percentage of 36%. As Seif said, we faced higher power costs in the second quarter relative to the first quarter, but the fixed price PPA at Helios provides us with greater certainty over our power costs going forward. We expect significant power credits from economic curtailment in the third quarter. Our core business operations remain profitable and we generated adjusted EBITDA of $1.1 million. In comparison to Q1, we saw higher revenues and lowered non-mining operating expenses. We reduced our non-mining operating expenses by 21% over the first quarter. At the end of June, we had $9.1 million of cash on hand.

As you can see on this chart, our operating cash flow remained positive in Q2. Debt service makes up a sizable portion of our cash outflows, which is why we are continuing to focus on deleveraging the balance sheet. In May, we sold roughly $1 million worth of Ethereum at an average price of $1,900, and we used those proceeds to pay down debt. In July, subsequent to the period end, we completed the share placement and raised $7.5 million of gross proceeds, of this $1.8 million was used to pay down the Galaxy loan. On a pro forma basis, after the equity raise and the Galaxy debt pay-down, our June 30th cash position would have been $14.5 million and our Galaxy debt deposition was $30 million. Moving to the next slide, we continue to scrutinize all of our non-mining operating expenses and find ways to reduce costs.

In Q2, we reduced these non-mining operating expenses by 21%. This means that since the second half of 2022, we’ve cut our non-mining operating expenses by 75%. This cost reduction is important because it improves cash flow generation and allows us to continue deleveraging. One of the key themes that Seif and I have been emphasizing is deleveraging. In Q2, we reduced our debt by $3 million, and in Q3 we expect a further reduction of approximately $5 million. In addition to that, we’ve also discussed the possibility of selling non-core assets. We are in advanced discussions regarding the sale of certain of these non-core assets, and we anticipate providing more details in due course. With that, I’ll pass it back to Seif.

Seif El-Bakly: [Technical Difficulty] Quebec, we continue the installation of our ePIC BlockMiners. In July ‘23, we deployed 1,242 BlockMiners, representing about 130 petahash of additional hashrate capacity. We expect to deploy the remaining BlockMiners by the end of the year. Additionally, our operations team has been collaborating very closely with Galaxy on ways to improve the operational efficiency of the fleet at Helios. So, we expect to see the results of that work in the coming months. And finally, we continue to explore some interesting growth opportunities to maintain our market share. As the hashrate network continues to grow. We continue to engage with energy and power providers looking for opportunities to pair Bitcoin mining with underutilized or excess energy.

We’re thinking about ways that we can partner with energy companies in an asset light manner and bring our expertise in Bitcoin mining to a strategic partnership. So, that’s it for now. Jim and I are open to take your questions. Alex and Mark — actually not Mark, but Alex, back to you.

Operator: Seif, Jim, thank you very much indeed for your presentation. [Operator Instructions] Seif, Jim, Tom, as you can see, we have received a number of questions throughout today’s presentation. And Tom, if I may hand over to you to read out the questions where appropriate to do so, and I’ll pick you at the end.

Tom Divine: Great. Thank you, Alex. Seif, our first question comes from Chase White at Compass Point. Can you give us some color on the details of your arrangement with Galaxy in terms of the size of the markup on the pass-through cost of power and how you go about sharing the economics of curtailment?

Seif El-Bakly: So, under the current hosting agreement that we have with Galaxy, there is no markup on the power cost. So basically what we have is a pass through power agreement on a — so it’s a — there’s a fixed power price and then there’s a pass through agreement and a hosting charge on top of that. And in regards to curtailment, we essentially split the proceeds from any economic curtailment that we get from Galaxy and we split that evenly. So, hopefully that answers your question.

Tom Divine: Great. Our next question comes from Darren Aftahi at ROTH MKM. Seif, how is management positioning itself ahead of the halving next year?

Seif El-Bakly: Good question. I mean, look, like all of our peers, what we’re trying to do is we’re trying to essentially have the least amount of fixed costs as possible. We’re trying to reduce our OpEx as much as possible. We’re trying to delver. We’re thinking about growth opportunities. We’re thinking about sort of continuing to take advantage of the fixed price PPA that we have with Galaxy. We’re thinking about positioning and really we’re just thinking about the health of our balance sheet and the market share that we have from a hashrate perspective. And so, I think the less obligations that you have the better off you’re going to be. So that’s really how we’re thinking about the halving.

Tom Divine: Seif, the next question comes, we’ve got this from a couple of folks, including Bill Papanastasiou at Stifel, as well as Matthew R from the webcast. Can you give an update on the asset divestitures that you mentioned?

Seif El-Bakly: Yes. So, in the past we’ve mentioned excess inventory and real estate as examples of non-core assets that we can potentially monetize to generate additional cash. And Bill, we’re currently in advanced discussions with some of those as well. So, I think we’re in a good place, we’re in a good position. And back to sort of Darren’s question, we’re thinking about, using that cash flow to delever some more and reduce our obligations. Balance sheet’s been top of mind for Jim and I. And so, we’re happy with where we are. We’re happy with the discussions that we’re having. They’re advanced and, I’m confident that we’ll get something going in the near future.

Tom Divine: Our next question is for Jim, and this comes from [indiscernible]. Can you talk a little bit more about your plans for debt reduction?

Jim MacCallum: Payments on the Galaxy debt, we’ve used the proceeds of our Ethereum sale as well as a portion of the equity raise that we just completed. There’s additional levers that we continue to look at, including the sale of non-core assets to further reduce the debt. It’s a key focus for Seif and I, and we’ve done a — had a big reduction since June 30th of last year in our debt reduction goals. Thank you.

Tom Divine: Thanks Jim. The next question comes from someone in the chat for Seif. What impact does the hot temperatures have on mining Bitcoin in Texas?

Seif El-Bakly: Yes. It’s a good question. So, a lot of people have asked us, this is probably the best time for Bitcoin prices to be depressed for us. Like obviously Bitcoin prices being depressed is not a good thing, but generally, if there was a good time for Bitcoin prices to be depressed, it would really be now. And the reason is, is because when you essentially have a fixed PPA or where you’re dealing with a counterparty that has a fixed PPA, you can pretty much use those power blocks and sell it back to the grid. So essentially when it gets really hot there, we curtail, meaning we just shut down our machines and the power that we’re essentially not using, we can sell that power back to the grid. And so, when Bitcoin prices are high, sometimes when prices spike and it gets really hot in Texas and prices start spiking, we essentially turn off our machines.

But the higher the Bitcoin prices are, the more of an opportunity cost it is for us not to mine. And at times it’s actually more beneficial for us not to mine and sell that power back to the grid rather than keep mining. And so, in those — in the last weeks and in the coming sort of weeks when temperatures are really hot and Bitcoin prices are low, it lowers our opportunity costs and it gives us the opportunity to sell our power back to the grid. So ultimately that’s the impact it’s been having that we are curtailing, but we are getting rewarded for curtailing at a low opportunity cost.

Tom Divine: Next question comes from Jeff H, and this is for Jim. Can you give some more color on our current cash balance and liquidity?

Jim MacCallum: Thanks, Jeff. As I mentioned on the call at the end of June, our cash balance was $9.1 million. We completed the equity raise in July for $7.5 million through the share placement in the UK, so that strengthened our cash and balance sheet. Of that $7.5 million that we raised, approximately 25% of that proceeds went to pay down the Galaxy debt. So, our pro forma cash balance at June 30th would’ve been $14.5 million or was $14.5 million, if you take the $9.1 and then the net cash after the debt pay-down.

Tom Divine: Another one for you, this came from a couple of folks in the chat. Can you give an update on Argo’s investment in Pluto/Emergent?

Jim MacCallum: No, we are taking a more active role in our investment in Emergent. We’ve recently joined the board. We’ve taken a position on the board. So we’re just — we’re being more active and we’ll give updates as we have them moving forward.

Tom Divine: I think our last question is going to be from Chase White at Compass Point, it’s for Seif. You mentioned getting to 2.8 exahash by the end of the year. Could this come earlier? What sort of time range are you targeting internally?

Seif El-Bakly: The team has been doing a really, really good job at installing — our teams in Quebec and Baie Comeau have been doing — our ops team, just the entire ops team have been doing a really good job at installing those miners at a really good pace and good rate. Right now our total capacity is around 2.6 exahash. And so we are confident that by the end of the year, all of the nearly 2,900 machines will be deployed, which should bring us back around the 2.8 exahash target that we have. Given the current deployment rate, I’m confident that we can likely deploy them before Q4 of 2023.

Operator: Seif, Jim and Tom, thank you for that. And I think you have addressed those questions that came from investors today. And of course the Company will review all questions submitted today and we’ll publish those responses on the Invest Company Platform. But before redirecting investors to provide you with their feedback, which is particularly important to the company, Seif could I please ask you for a few closing comments?

Seif El-Bakly: Sure. Thanks Alex. Just want to thank everyone for tuning into our earnings call today. Again, just to reiterate, we’re really focused on deleveraging and strengthening our balance sheet, and we’re focused on reducing costs and being opportunistic with financing and focusing on operational excellence and yield. So, until next time, thank everyone for being here and we will be in touch soon. Thank you.

Operator: That’s great. Seif, Jim and Tom, thank you once again for updating investors today. Could I please ask investors not to close this session as you’ll now be automatically redirected to provide your feedback in order that the board can better understand your views and expectations? This will only take a few moments to complete and I’m sure will be greatly valued by the Company. On behalf of the management team of Argo Blockchain Plc, we’d like to thank you for attending today’s presentation, and good afternoon to you.