Bitcoin Miner Iris Energy Says Bad Debt Contained in ‘Rotten Arms’

Bitcoin miner Iris Energy remains defiant despite facing a $103 million loan default next week.

In a recent SEC filing, the Australian company said that while it can generate $2 million in monthly gross profit from mining bitcoin, monthly principal and interest payments on the debt are $7 million, representing a monthly shortfall of $5 million.

Iris Energy shares are traded on Nasdaq and fell 15% after the disclosure, now down more than 80% so far this year.

Macroeconomic factors, rising inflation and a sharp rise in electricity prices are affecting miners’ ability to make money globally. Miners now find themselves in a very different market compared to a year ago, when many across the industry took out high-interest loans to finance rapid expansion.

Loans were usually financed against bitcoin miners, as is the case with Iris Energy. But now that prices are down and the difficulty of bitcoin mining is high, several large operations have found themselves underwater, weighed down by unmanageable debt obligations.

Core Scientific, one of the largest bitcoin miners in the world, revealed last month that it was considering restructuring its capital or seeking relief through bankruptcy, sending its share price collapsing by more than 80%.

Argo Blockchain, another major miner, has also felt the pinch after an unnamed investor withdrew a $27 million capital injection at the eleventh hour. The firm faces potential closure if it does not find new financing.

There are concerns that Iris Energy may suffer the same fate. But Bom Shin, vice president of corporate finance at Iris Energy, told Blockworks that the company’s bad debt is structured within a series of special purpose vehicles (SPVs).

Iris Energy’s SPVs maintain a market value of approximately $65 to $70 million, approximately 35% less than outstanding principal at the end of September.

According to Shin, this means that the debt is “very contained” and should not immediately lead to bankruptcy. Shin said that while an “uneconomic market” was not generating enough cash flow, Iris was engaged in ongoing discussions with the lender to shore up the situation. The manager declined to comment on who this lender is.

Should a deal with the financial lender fall through, Iris said in its update that none of the SPVs would be able to make scheduled principal payments on the debt until next Monday.

The firm said it is holding ongoing discussions with mining equipment supplier Bitmain in an effort to unlock upfront payments over time. Prepayments refer to partial or full settlement of debt before an official due date.

Iris Energy still hopes to expand and diversify its income

Iris Energy immediately unloads its mined bitcoin at market rates, meaning it has averaged down from BTC’s peak last year. This contrasts with strategies used by some competitors, who only sell bitcoin when times get tough – or not at all.

Bitcoin’s price has shrunk 68% from its highs 12 months ago when it hovered just above $64,000. Bitcoin was trading at $20,350 on Thursday morning.

While registered in Sydney, Iris said they have three of their operations based in Canada, including a flagship in British Columbia. All operations are entirely hydro-powered at a fixed price of four cents per kWh, providing 12-month fixed cost visibility.

Additional expansion plans are expected in Childress County, Texas, which will happen “very carefully,” signaling the firm’s intentions to move forward with its business, Blockworks was told.

Iris made plans to establish hosting services that would allow clients to mine crypto for a fee without having to build or invest in the infrastructure itself, which it sees as a significant growth opportunity.

Shin remained optimistic, comparing Iris’ current situation to a healthy body with a rotten arm. “Cut off the arm and the body survives,” he said in reference to the firm’s SPVs.

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