Read on to see an article posted on the OMG blog on 7 July 2020:
A mine with an algorithm on the top
June’s operational update showed the Bitcoin halving* had depressed crypto miner; Argo Blockchain (LSE:ARB) . Mining revenue in June reduced to £1.4m compared to £1.9m in May and margin declining to 27% from 34%. ARB, after significant investment has built a strong position in mining cryptocurrency with 18, 000 machines and 730 Petahash, a 244% increase in hashpower from the end of last year. It claims to be one of the world’s largest and most efficient listed crypto miners. As the Mkt Cap is only £11m the question is, can mining bitcoins make a sustainable business model?
Since joining the market through a shell in 2018, ARB have further transitioned from a consumer-facing ‘crypto mining-as-a-service’ to a proprietary mining model as a response to challenging and chancing industry conditions. The new team have managed this significant reset of the business investing £15m in making ARB’s low-cost Canadian facility state of the art, a lead that could last 18 months- two years.
The technical team are fine-tuning the efficiency of the mining infrastructure attempting to improve margins despite the variables of price, difficulty and operating parameters. Argo employs proprietary applications and algorithms to adjust the power consumption and efficiency of its mining hardware for different outcomes whether that be pure output or gross margin depending on market conditions.
The finals to December 2019 reported an 11-fold increase in revenue to £8.62 million (2018: £0.76m) as the total mining hardware in production increased by 10,000 to 17,000 machines. Operating loss reduced by 80% to £0.83m (2018: £4.14m loss). Based on daily foreign exchange rates and cryptocurrency prices during the month, mining revenue in April, May and June amounted to £5.1m and with a mining margin average of 30% would imply a profit and cashflow positive. Although cautious about extrapolating forward for the full year but annualizing June to £16.8m would give a £4.4m GP, which is £0.4m more than last years cost and there could be room for improvement. The CEO recently purchased £20k worth at 3.5p.
Financials
As at 28 April 2020 Argo held £1.5m cash and 118 BTC which is around £1m at the current rate of under $9,250 a coin. It has paid down its debt but an accelerated growth strategy may need further funding.
Trading Strategy
There is a window of opportunity to build a sustainable growth, otherwise we anticipate corporate activity. Speculative Buy.
Argo Blockchain (LSE: ARB)
3.9p (3.8p-4p)
Mkt Cap: £11m
Next Results: Interims June RNS September
Last OMG! 4.7p
*A Bitcoin halving event is every four years when the reward for mining Bitcoin transactions is cut in half. This means that the reward for unlocking a “block” has been cut from 12.5 new coins to 6.25. Supporters of the cryptocurrency say that this scarcity is part of what underpins its value and makes it a potential haven against currencies that are vulnerable to devaluation during times of economic crisis, and the price of bitcoins should go up.
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