Good afternoon, and welcome to the Argo Blockchain plc Q3 Update Investor Presentation. Throughout this recorded presentation investors will be in listen-only mode. Questions are encouraged, can be submitted at any time by the Q&A tab situated on the right-hand corner of your screen, click Q&A scroll to the bottom type your question and press send.

Given the large attendance on today's call, the Company will not be in a position to answer every question received during the meeting itself. However, the Company will review all questions submitted today, will publish responses where it's appropriate to do so. Before we begin, I would like to submit the following poll.

I'd now like to hand you over to Tom Divine, Vice President of Investor Relations. Good afternoon..

Thank you, Paul. Before we begin, I'd like to remind everyone that today's presentation and remarks may contain forward-looking statements. For our full risk factors, please see our Form 20-F filed with the Securities and Exchange Commission for the year 2022.

With us today for our discussion of Q3 2023 results are Seif El-Bakly, Argo's Interim Chief Executive Officer; and Jim MacCallum, Argo's Chief Financial Officer. And now I'll turn it over to Seif..

fleet efficiency, cost structure and the strength of our balance sheet. Argo has a strong fleet efficiency of right around 30 joules per terahash, and we've had attractive power and hosting costs at an average of $0.045 per kilowatt hour so far this year.

This combination of fleet efficiency, low power costs and hosting costs makes us well positioned for the halving. On the balance sheet front, we said this time and again that one of our main priorities is reducing our debt and interest payments in order to strengthen the balance sheet to be well positioned for that halving.

Turning to our third quarter results. We mined 370 Bitcoin and generated revenue of $10.4 million, which is a decrease of 17% compared to our revenue from Q2. This decrease was primarily driven by economic curtailment we experienced at Helios during August and September.

However, through this curtailment, we accrued $4.4 million of power credits through power trading activities at Helios, which more than offset our decrease in revenue versus Q2.

On the next slide, I'll go into some more details about economic curtailment and how that benefits us since we've gotten a lot of questions from investors pertaining to this source of net revenue. But put simply, the power credits we accrued helped us achieve an overall power and hosting cost of less than $0.04 per kilowatt hour.

For the quarter, our mining margin was 58%, translating into an average direct cost per Bitcoin of $11,736. We also continued to focus on cost reduction, and we reduced our non-mining operating expenses by 11%.

Our adjusted EBITDA for the quarter was $3.1 million, which is an improvement from the $1.1 million of adjusted EBITDA that we generated in Q2. In July, we strengthened our balance sheet by raising $7.5 million in gross proceeds through an equity raise with primarily institutional investors in the U.K. and also reduced our Galaxy debt by $5 million.

And at the end of September, our cash balance was $8 million. Given our strategic decision to mine in Texas, I'd like to give a little more color on economic curtailment there. So on the screen is a slide that came out of an ERCOT presentation during the September meeting of its Large Flexible Load Task Force.

That's the group within ERCOT that is tasked with integrating large power demands such as Bitcoin mining into the Texas grid. The slide shows the impact of elevated power prices and the use of power by Bitcoin miners on September 6. If you follow the screen, Bitcoin mining usage is in blue, and the gray line shows the power price throughout the day.

So you can see a very strong negative correlation between the price to power and the consumption of power from Bitcoin miners. As power prices increased, it became less profitable to mine, incentivizing miners to curtail their operations. From this chart, it demonstrates how the majority of miners were shut off during peak hours of power price.

As power prices came down in the evening, you can see miners ramp up their operations and their consumption increasing again. So this data is important as it demonstrates how flexible Bitcoin miners are and how quickly they can reduce power consumption when demand is high. As soon as prices spike above their breakeven point, miners are turning off.

This is what is meant by flexible load. When the market price of power spikes to a maximum amount of $5,000 per megawatt hour, as it did on September 6, miners who are not hedged will simply shut down and stop mining. The miners who have locked in their power prices can make a decision.

They can either use that power for their operations and continue to mine or they can sell that power on the open market and make a profit from the difference in the prevailing market price and the price which they've locked in their power.

In other words, when the price is high enough, it makes economic sense to sell that power in the open market rather than to use it and mine Bitcoin. In essence, that's what happens at Helios, and through our hosting agreement, we share in those proceeds. And for this quarter, those power credits amounted to $4.4 million.

That being said, let me turn it over to Jim to provide some additional comments on our financial results for the quarter.

Jim?.

Thank you, Seif. As you mentioned, we generated $10.4 million of revenue for the quarter, a decrease of 17% from Q2 resulting from economic curtailment. However, the power credits that we generated from the curtailment reduced our net power costs significantly and increased our mining profit to $6.1 million.

Our mining margin percentage was 58% for Q3, an increase over the 36% mining margin we achieved in Q2. During the quarter, we recorded a onetime noncash provision of $1.2 million related to prior year sales tax expected to be received from the Canadian tax authorities.

This is the majority of the $1.5 million of nonrecurring expenses that we added back to adjusted EBITDA. We generated adjusted EBITDA of $3.1 million, which is a strong improvement from the second quarter. For the nine-month period ended September 30, we generated $5.3 million of adjusted EBITDA.

At the end of the quarter, we had $8 million of cash on hand. As Seif mentioned, we've seen a significant increase in hash price in October and so far into November.

With our total hashrate capacity, every $10 increase in hash price results in approximately $2.5 million of incremental revenue per quarter, which dramatically improves our profitability and cash flow. This slide shows our cash flow from the end of June to the end of September.

Our cash flow from operations, excluding working capital changes, was $1.5 million. As Seif mentioned, we raised $7.5 million in gross proceeds from the sale of equity, and we paid down $7.8 million in principal and interest on our debt. At the end of the quarter, we had a net power receivable of $2.8 million.

Adding that to the $8 million closing cash balance would have given us $10.8 million at September 30 compared to $9.1 million at June 30. We are pleased that we continue to improve our operating cash flow with our focus on operations and cost reduction.

As we've shown in prior quarters, we continue to scrutinize all of our non-mining operating expenses and find ways to reduce costs. In Q3, we reduced our recurring non-mining operating expenses by 11% as compared to Q2. Since the second half of 2022, we've cut our non-mining operating expenses by more than 70%.

This cost reduction is important because it improves our overall margin and cash flow generation. Again, one of our key priorities is to reduce debt, which is critically important as we approach the halving. In Q3, we reduced our debt owed to Galaxy by $5 million to $27 million, and we ended the quarter with $70 million in debt.

We are also in advanced discussions to sell certain noncore assets, which is an important part of our deleveraging strategy. We anticipate announcing further details by the end of the year. With that, I'll pass it back to Seif..

Thanks, Jim. In Quebec, we've now completed the deployment of our ePIC BlockMiners numbering around 2,700. This represents around 300 petahash of additional capacity, bringing our total hashrate capacity to 2.8 exahash as per second.

We're seeing really good performance from these machines, and we're excited to have added them to our fleet just in time to take advantage of the recent run-up in hash price. So all in all and in summary, it was a great quarter for Argo.

We increased our mining margin, our adjusted EBITDA and our total hashrate capacity, all the while continuing to cut costs and reduce debt. I'm also really optimistic about the trends that we've been seeing in the market with the increases in both Bitcoin and hash price.

Argo is well positioned to capitalize on these trends as we move forward into 2024. With that, back to you, Paul and Tom, for any questions. Thanks, everybody..

[Operator Instructions] I'd like to remind you, a recording of the presentation along with the copy of the slides and the published Q&A can be accessed via your Investor dashboard. As you can see, we've had a number of questions submitted both throughout today's presentation and pre-submitted.

Tom, if I may just hand back to you just to read out those questions where appropriate to do so, and I'll pick up from you at the end..

Great. Thanks, Paul. Our first question comes from Bill Papanastasiou at Stifel. Hash price has been rebounding lately with the recent appreciation in the Bitcoin spot price.

Can you speak to the improvements in Q4 '23 and elaborate on how it is impacting cash flow?.

Yes, sure. I'll take. Thanks, Tom. Thanks, Bill. Yes, the hash price is something that obviously we're paying very close attention to. It's come down a bit from its most recent peak at $90, but it's still significantly higher than the Q3 average of $67.

So I mentioned this during our remarks, but really, for every $10 increase in hash price, based on our total hash rate capacity of 2.8 exahash, we're generating an additional $2.5 million per quarter. So we did just have a difficulty increase of around 3.5%.

So that tempers a little bit with the hashrate, but it's actually smaller than the difficulty adjustment we were actually expecting a year ago -- a week ago, sorry, not a year ago..

Our next question comes from Kevin Dede at H.C. Wainwright, and this is for Jim.

Can you remind me how you reduced the debt by $5 million? Did that come from operating cash flow?.

Yes. Thanks, Kevin. In July, you'll recall, we raised around $7 million of net proceeds, and immediately, 25% of that went to reduce the debt. Plus, we had another three amortization payments of roughly $1.1 million each, and that came out of our operating cash flow and cash on hand.

So that's the three plus the $1.7 billion is $4.8 million or approximately $5 million there..

Thanks, Jim. Our next question comes from Chase White at Compass Point.

Seif, now that all your machines are installed and operations are going well, do you have any visibility into future growth options? Is there a time frame for making any decisions?.

Yes, absolutely. Thanks, Chase. Look, we're continuing our discussions with some key strategic partners and hope to share some updates with you on our next call. Right now, we're -- in parallel to that, we're focused on reducing our debt and cost structure. So it's really going to allow us to be opportunistic when we're thinking about the halving.

So I think we're going to see a lot of opportunities in the market as a lot of unprofitable miners come offline, and we're basically just going to be ready to take advantage of that be it from an operational perspective, financial perspective or a strategic partnership perspective..

Our next question was submitted in the chat.

How were the non-mining expenses reduced by 11%? And is that reduction stable going forward?.

Yes, I can take that. As I mentioned earlier, we were able to reduce our recurring non-mining OpEx by around 11% from the prior quarter. This was primarily driven by lower insurance costs, lower professional fees and lower salaries as a result of reduced head count. And so yes, we believe this is going to be an ongoing reduction going forward..

Thanks. Our next question for Seif from Kevin Dede again from H.C. Wainwright.

Can you speak a little bit about how the ePIC BlockMiner machines are performing in Quebec?.

Yes. Thanks, Kevin. Performance is just better than expected. We're seeing really good results, especially when we overclock them to about 130 terahash per unit. Currently, they're averaging about 114 terahash through the fleet. So they're representing about 11% of our overall hashrate capacity right now. Efficiencies on par with the S19J Pros.

They're capable of achieving good efficiency when we down clock them. So down clocking them brings them to about 27 joules per terahash. Uptime is outstanding, thanks to Quebec's reliable power. We're entering our curtailment season in Quebec, so minimal downtime still despite that is to be expected. Firmware-wise, it's stable.

It's performing as expected. ePIC has been providing us with all the right updates and then the installation process was amazing thanks to our tech. I got to -- kudos to our operations team here. I think the rigs were deployed within 48 hours once they got to the data centers.

So all in all, Kevin, I would say that they're performing better than expected..

Thanks, Seif. Our next question is for Jim. This comes from [Jason F.] in the chat.

Can you comment on Argo's capital structure and how you plan to continue addressing debt?.

Yes. Thanks, [Jason]. Yes, we continue to focus on paying down our debt. We've made significant progress in paying down our Galaxy debt especially, and we are continuing to look for other ways to strengthen the balance sheet. Some of the avenues we're exploring include noncore asset sales and potential refinancing of our existing debt.

We have seen, with the improvement in Bitcoin mining economics over the past month, more appetite for debt and equity financing from the capital markets. So we're having lots of conversations on that front as well..

Another question that we've received several times in the chat, how do you plan on -- or do you plan on expanding the mining capabilities in Canada? And do we plan on renewing our contract with Galaxy and continue to mine at Helios once the two-year contract expires?.

Yes, I'll take that. So good question. I think having our history or Argo's history beginning in Canada, I mean we know it. We understand it. We love the reliability of the power here. But we're also nimble. We're flexible, and most importantly, we're mobile. So which really makes those geographically agnostic.

When we're thinking about growth and opportunity, we're really looking at anywhere from hydropower in Quebec or Texas or the deserts of Oman. So we're really open and having these discussions accordingly and remain opportunistic and again, geographically agnostic..

Thanks, Seif.

Another question that we've received several times, including from [Sabir B.], [Sagar S] and [Satish P], when should we expect to hear more about the discussions mentioned on the asset sales?.

Yes. Thanks, [Savir, Sagar] and everybody else. I mean I appreciate everybody's patience on this. As Jim mentioned, we're still in advanced discussions with partners. We're genuinely making good progress here, and we anticipate sharing something hopefully by the end of the year..

Our next question comes from Bill Papanastasiou.

What are your network hashrate forecasts post halving and how will ARBK remain competitive?.

Yes. Good question, Bill. Thanks. I mean we're expecting to see a lot of hashrate come offline as miners with older-generation machines and an older fleet, mining -- as mining gets more expensive and power contracts or good power contracts, it's just more difficult to find and to mine profitably.

So as we've seen in past halving cycles, I think the difficulty adjustment will fluctuate back and forth as the network flushes out the miners that are just right on margin or below. And I'm going to say this again.

I mean, really, our focus is what we can control, and it's why, in my initial comments, I say that we're so focused on efficiency and costs. So relative to the entire network, we have an efficient fleet. We're competitive from a power and hosting cost perspective. Year-to-date, our power hosting has been all in at around $0.045 per kilowatt hour.

So we're looking at, again, efficiency in operations, and we're also looking at potential hedging opportunities using derivatives, which I think everyone in this space should be looking into.

And so I think those factors, the ones at least that are in our control, should enable us to remain competitive and continue to mine profitably after the halving. So thanks for the question, Bill. It's a good one, and we're conscious of all of that..

And then this will be our last question from Kevin Dede at H.C. Wainwright.

Seif, can you clarify, when you reached 2.8 exahash, did that come from the BlockMiner machines?.

Yes. So thanks, Kev. In our September monthly operational update, we announced that we had completed the deployment of our ePIC blockchain machines. So -- and they represent around 300 petahash of hashrate capacity. So that essentially enabled us to grow from 2.5 to 2.8 exahash. So the BlockMiners have been online and hashing since the end of September..

Great. Thank you, Seif.

Paul?.

Fantastic. Thank you very much indeed for addressing those questions. And of course, the Company will review all questions submitted today and will publish responses on the Investor Meet Company platform.

Before redirecting investors to provide you with their feedback, which is particularly important to the Company, Seif, if I could just ask you just for a few closing comments, please..

Yes. Thank you, Paul. I just want to thank everyone around the world for tuning into our earnings call today. Again, it was a great quarter for Argo with improvements in mining margin, adjusted EBITDA and hashrates. So we really continue to focus on deleveraging and reducing costs and looking forward to our next call to give everybody some more updates.

So thank you, everybody. Be well. Thank you, Paul. Thank you, Tom. Thank you, Jim. Thanks, team..

Thank you all for updating investors today. Could I please ask investors not to close the session as you'll be automatically redirected to provide your feedback in order the team can better understand your views and expectations? This will only take a few moments to complete and is greatly valued by the Company.

On behalf of the management team of our Argo Blockchain plc, we'd like to thank you for attending today's presentation, and good afternoon to you all..