Bitcoin Miner Stronghold Digital Strengthens Balance Sheet By Cutting Costs, Cutting Debt By More Than 60%
Bitcoin miner Stronghold Digital Mining (SDIG) ended a hosting agreement, which is a cost to the miner, with miner Northern Data (NB2X:GER) and lowered some of its debts, in its latest attempt to turn around the difficult balance.
The end of Stronghold’s deal with Northern Data will eliminate all profit-sharing obligations, which it estimates would be $10 million-$25 million (depending on the price of bitcoin) until September 2024, according to a statement Friday. Cash flow under the previous deal would be about 35% of the miner’s earnings, net of $0.027 per kilowatt-hour (kWh) in power costs, according to the statement. On top of that, Stronghold is exempt from about $2.6 million owed to Northern Data.
Hosting is a service that data centers provide to crypto miners so that customers, like Stronghold, can store their mining rigs and mine their preferred digital assets for a fee or profit sharing without having to build the accompanying infrastructure themselves. Norther Data both self-mines bitcoin and operates data centers to host other miners.
The problems for Stronghold started earlier this year, when it failed to meet Wall Street’s revenue expectations and cut its own hashrate expectation for 2022. Since then, challenges for the company have continued to mount as both crypto and stock markets continued to fall. However, the miner has actively tried to strengthen the balance sheet and turn the company around by restructuring debt, cutting costs and raising capital. The miner said in a presentation on Friday that it has also lowered the principal amount of its debt burden by nearly 60% since May to $59.1 million.
Read more: Bitcoin Miner Stronghold Digital Restructures Debt Significantly
Closing the deal gives Stronghold “enhanced operational control over our bitcoin operations” and a “material increase” to cash flow generation for the next two years, as well as options, co-chairman and CEO Greg Beard said in the statement. “Overall, we believe we continue to make significant progress towards improving our balance sheet, liquidity and cost structure to deliver shareholder value,” he added.
Under the terms, Stronghold will also be given the right to operate around 50 megawatts (MW) worth of Northern Data’s bitcoin mining containers for $1,000 per year for two years, and will retain the option to buy the containers at the end of the term for somewhere between 2 million and 6 million dollars.
In return for terminating the agreement, Stronghold must pay Northern Data $2 million, on top of the $2.5 million it has already given to its hosting partner. The miner previously returned 2,675 mining machines to Northern Data, eliminating Stronghold’s obligation to pay about $8.8 million to the data center operator.
Stronghold has also been able to shed $65 million in loan obligations under a previous agreement with lender NYDIG to hand over 26,000 mining rigs in exchange for debt relief, the firm said in the presentation. Another $2 million will be written off as soon as Bitmain’s mining rigs are released from customs, the presentation said. The miner expects to be able to buy these machines for less than $40 million at current market prices, which have fallen sharply this year.
Stronghold has struggled, along with other bitcoin miners, amid a low bitcoin price and high energy prices. The mining industry has been looking to cut costs and keep its head above water this year as bitcoin has lost more than 50% of its value. Shares of the miner have fallen around 93% this year, while shares of the larger bitcoin miners such as Marathon Digital ( MARA ), Riot Blockchain ( RIOT ), and Core Scientific ( CORZ ) have all lost more than 70% of their value. .
Northern Data has also had a challenging year and said in a letter to shareholders on September 19 that it will drop hosting clients as self-recovery has been more profitable and predictable for the company. The firm also cut expectations for year-end mining rig deployment by more than half to a maximum of 42,000 and announced a “tighter investment strategy.”
Read more: Crypto miners face margin calls, standard when debt matures in Bear Market
