May was always going to be a challenging month for Argo Blockchain, the UK-based firm with operation centers in Quebec and Texas. The opening of its new flagship site, Helios, in Dickens County, Texas was sure to have road bumps, but not to the level revealed during May’s public disclosures which showed Argo’s production to be as low as 124 Bitcoin even after increasing hashrate under management (HUM) from 1.6 EH/s 1.9 EH/s over the month.
It’s easier to look at the metric – Bitcoin mined per EH/s – in comparison with other listed miners. Given that you can, with reasonableness, calculate the expected output in a month, Argo underperformed. The UK-based miner produced 71 Bitcoin per EH/s, significantly lower when compared to other peer miners: Iris Energy (IREN) produced 130 BTC per EH/s, Bitfarms (BITF) 129 BTC and Hive Blockchain (HIVE) 126 BTC per EH/s. The table below highlights performance of the four miners year-to-date.
Argo’s performance in comparison to the other miners is considerably lower. In fact, Argo would have had to increase its production by 50% over the first five months of 2022 just to achieve the same level of Bitcoin mined as its competitors.
As Argo also highlighted in their monthly update, the firm’s mining margin has reduced from 75% in April to 62% in May, predominantly due to the value of Bitcoin. Moreover, Argo mined 41 less Bitcoin in May compared with April even with an extra day of mining. Argo CEO Peter Wall informed shareholders, via video that there were four factors that contributed to this reduced performance: difficulty, pool luck, energy curtailment and the development of Argo's Helios site.
Production
Difficulty
The difficulty is a measure of how hard a miner has to work to verify the transactions on a block in the blockchain.
Read: What is mining difficulty?
The difficulty level usually undergoes an adjustment every two weeks. May saw one large difficulty 5% adjustment, thereby impacting the amount of Bitcoin Argo would have produced. This accounted for approximately ten Bitcoin.
Terra Pool
Terra Pool is an environmentally friendly Bitcoin mining pool powered by sustainable clean energy, launched recently by DMG Blockchain Solutions (DMGI) in partnership with Argo. In Terra Pool, you’re paid what you actually mine during the month. In previous months, this arrangement has worked in Argo’s favor, but in May bad luck came, accounting for about 20 Bitcoin.
Energy Curtailment
Texas’ hot May temperatures meant that energy prices actually spiked with greater demand, requiring power to be curtailed and given back to the grid. While a great advantage for miners and energy markets – in that they are able to ramp up and ramp down in literally seconds as domestic demand is required – it can lead to lower efficiencies. May curtailment accounted for approximately five Bitcoin lost from Argo’s final tally.
Helios
There were a couple of small teething problems with the energization of Helios in early May, particularly with the immersion pumps. These types of issues are to be expected in new large facilities and Wall went on to comment that he expected them to be less of an issue moving forward.
Installation update
The team at Helios have been working extremely hard and have now installed the first shipment of 2,500 S19j Pro machines, part of the 10,000 miner swap deal with Core Scientific (CORZ). The machines are destined for immersion cooling tanks designed by Argo Chief Technical Officer Perry Hothi. Installed at a rate of 250 machines per day, these units have brought total hashrate at the end of May up to 1.9 EH/s, an increase of 300 PH/s or 3,000 machines.
ePIC Partnership
Argo will work with ePIC Blockchain, a Canadian blockchain hardware manufacturer, to design and build crypto mining rigs using Intel's new second-generation bitcoin mining chips. Wall said that Argo is working closely with both ePIC and Intel to design their own immersion machines, which could be a “game changer” in terms of both hashrate and cost. These units will be built over the summer. Deliveries will begin to arrive in September, with installation commencing in late Q3 and through Q4.
Capital Requirements
Wall highlighted that Argo still requires $50 million of capital by the end of the year to fund the Intel miner project and other Bitmain machines. He added that raising further capital via equity was not a tenable offer given the current financial environment. That leaves two other levers for Argo to utilize: raising debt or selling Bitcoin. Luckily, Argo has managed to navigate debt markets extremely well in the last 12 months and have great relationships with a number of the main providers. The completion of the Helios facility on time and delivering a world class mining facility with immersion technology will only enhance the opportunity to raise more debt as and when required.
The company did in fact sell 300 Bitcoin last month, joining a handful of other miners who sold into the depressed market. Argo sold to fund projected growth and have made it clear to shareholders that this option will continue through the rest of the year. As things get tougher for new miners in their ability to raise capital to grow, Wall, like many of his CEO peers, believe consolidation is coming to the industry over the next few months.
Summary
Overall a mixed update with some positive news on hash rate and future growth incorporating the new Intel machines into Helios, this year. In comparison to other listed North American miners, production is a major concern for Argo. Monthly updates have generally been below par over the previous 12 months. Wall has indicated that the June update should be significantly better than the previous month. He also stated that Argo would consider all options with regards to mining pools, in order to mitigate any potential future loss.
Time will tell for Argo, as everything is now firmly factored into the success of Helios and benefits of immersion technology. Shareholders patience has certainly been tested this last 12 months.
Disclaimer: This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any investment or to adopt any investment strategy. This information is for educational purposes only and is as of the date of that particular presentation. Compass does not guarantee profits from mining activity. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a mining product, service or strategy. Changes in the rates of exchange of cryptocurrencies, hashrate, difficulty, network transaction fees, hosting and other fees may cause the efficiency and returns of mining to diminish or increase. Individuals are responsible for their own decisions regarding cryptocurrency mining, including all financial and operational risks.
