What to expect from miners’ Q3 earnings as industry remains ‘distressed’

A number of bitcoin miners are set to report third-quarter results in the coming days as several companies in the mining sector struggle to cope with financial pressures.

Marathon Digital, Stronghold Digital Mining and Hut 8 Mining are among the companies in the area to host earnings calls this week.

While analysts don’t necessarily expect big announcements about bankruptcies or acquisitions during industry players’ upcoming calls, they will be listening for how mining executives intend to navigate the current environment.

“I’m always listening for signals about expectations — company-specific and industry-specific — and specific companies’ moves to meet their expectations,” said Kevin Dede, senior technology analyst at HC Wainwright & Co. to Blockworks.

Industry watchers told Blockworks earlier this month that miner consolidation is imminent, as some of the larger miners in the area may look to acquire struggling companies and their assets.

But Lucas Pipes, managing director of B. Riley Securities, said miners in a solid financial situation are still likely to take a wait-and-see approach.

“They want to make sure they’re all secured and propped up and build that coffers to the extent they can,” he said. “Are you going to have exceptions to this rule? Yes you can.”

Keeping Bitcoin Mining Rigs Buzzing During Crypto Winter

Core Scientific disclosed in filings last month that it was considering bankruptcy, and Argo Blockchain followed up by saying a potential $27 million capital injection it expected had fallen through.

“The place is troubled,” Pipes said. “There’s no other way to put it.”

Dede added that as it becomes more difficult to raise money on public markets, miners are forced to purge assets.

Core Scientific said on Monday it sold 2,285 bitcoins at an average price of $19,639, as revenue totaled about $45 million. The company had 62 BTC and about $32 million in cash as of October 31.

Core Scientific and Argo Blockchain have yet to list earnings dates.

Iris Energy is also in financial distress. The Australia-based bitcoin miner said in an SEC filing last week that it can generate $2 million in monthly gross profit from mining bitcoin, while monthly principal and interest payments on the debt are $7 million.

Bom Shin, vice president of corporate finance at Iris Energy, told Blockworks last week that the company’s debt is structured within a series of special purpose vehicles (SPVs), which had a market value worth about 35% less than outstanding principal as of the end of September.

The company was engaged in ongoing discussions with its named lender, Shin added.

Iris Energy said that if it is unable to restructure the loans, two of the SPVs would have to default on the loans, which would likely lead to lenders foreclosing on the mining rig security, according to a Nov. 3 Compass Point research note. Research and Research Analysts Chase White and Joe Flynn.

The analysts added that while Iris Energy’s share price fell on the news – and that the company may struggle to get equipment-backed financing in the future – they believe the company will be in a better financial position after negotiations with lenders.

“We believe the market is misunderstanding the implications of the situation, which we see as a potentially significant upside [Iris] which will allow it to continue operating without the burden of expensive debt,” White and Flynn said.

Adding to the more recent struggles in the space, crypto mining data center operator Compute North filed for bankruptcy in Texas in September.

Dede said he expects it will take a little more pressure before more bankruptcies and consolidations take shape.

“You can expect to see some suffering for a while, I think,” he added. “I’m not in a position to say how long this bear market will last, but the people running these companies should position themselves to endure a prolonged one.”

The space’s potential buyers could wait to buy

Marathon Digital posted a net loss of $192 million during the second quarter and is set to report third-quarter earnings on Tuesday at 4:30 p.m. ET.

The company said on Nov. 2 that it added about 32,000 miners last month to increase its hash rate to about 7 exahashes per second (EH/s). It also produced a record 615 bitcoins in October, increasing its total holdings to 11,285 BTC.

Marathon is seeking to reach about 13 EH/s by the end of 2022 and 23 EH/s by mid-2023, Marathon CEO Fred Thiel told Blockworks.

Thiel said last month that Marathon would keep an eye on cheap assets from struggling miners. He noted that the company could look to buy a hosting site, for example, if such a purchase made strategic sense.

Riot Blockchain is another company that has expressed interest in acquisitions, with CEO Jason Les calling his firm one of the segment’s “best-positioned acquirers.”

The company produced 509 bitcoins in October and had 6,825 BTC as of October 31. It seeks to reach 12.5 EH/si during the first quarter of 2023. Riot has a special shareholder meeting set for November 17.

Frank Holmes, executive chairman of HIVE Blockchain Technologies, told Blockworks in September that his firm would consider buying equipment, and potentially mining companies, in the next six months.

On Nov. 1, Cleanspark said it purchased 3,843 units of Antminer S19J Pro bitcoin miners for $5.9 million. The machines appeared to come from Argo Blockchain, which reported selling the same number of S19J Pro devices last week.

Pipes said that while he believes “we’re getting close” to seeing more mergers and acquisitions in the area, there are often relatively few operational synergies to take advantage of.

He added that Riot is probably in the best financial situation of any miner, while Marathon is also in a position to take advantage of the opportunities. But, he noted, these companies may want to focus on their ambitious hashrate targets.

“I think it’s first things first — execute the existing growth plan before you take valuable capital to add more growth that may not be as attractive as what you’ve planned for anyway,” Pipes said.

Other miners to keep an eye on

Following Marathon’s earnings call on Tuesday, Stronghold Mining and Hut 8 Mining are scheduled to host their own on Wednesday at 5:00 PM ET and Thursday at 10:00 AM ET, respectively.

Canada-based miner Bitfarms is set to report its third quarter results on November 14 at 11 ET.

Stronghold said last week it eliminated all outstanding principal — totaling about $67 million — under its equipment financing agreements with NYDIG and The Provident Bank.

Stronghold CEO Greg Beard said in a statement that the company quickly reduced its balance sheet and improved liquidity to pursue acquisitions of bitcoin miners at attractive prices. Stronghold had approximately $30 million in cash and bitcoin liquidity as of Nov. 1.

Meanwhile, Hut 8 Mining produced 299 bitcoins in October to increase its total holdings to 8,687 BTC. Its installed hashrate capacity was 3.07 EH/s at the end of the month.

Hut 8 CEO Jaime Leverton said at Blockworks’ Digital Asset Summit in September that acquisitions aren’t necessarily the best thing in the current market environment, as the company can buy new machines at attractive prices.

Bitfarms, which resorted to selling bitcoin earlier this year, broke out 486 BTC in October and sold it all.

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