Good morning, everyone, and welcome to the Bitfarms Limited First Quarter 2023 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note, today's event is being recorded.

At this time, I'd like to turn the floor over to David Barnard of LHA Investor Relations. Sir, please go ahead..

Thank you, Jamie. Good morning, everyone, and welcome to Bitfarms conference call for the first quarter of 2023. With me on the call today is Geoff Morphy, President and Chief Executive Officer; and Jeff Lucas, Chief Financial Officer. Before we begin, please note, this call is being webcast live with an accompanying presentation.

To watch along with the slides, you can log on our website at www.bitfarms.com under the Investor Relations section under Presentation. If you prefer to listen to the call on your smartphone, you can download the presentation from there as well.

I would like to remind you that, this morning, Bitfarms issued press release [announcing its] first quarter 2023 financial results. I'll remind everyone, turning to Slide 2, that certain forward-looking statements will be made during the call and that future results could differ from those implied in this statement.

The forward-looking information is based on certain assumptions and is subject to risks and uncertainties, and invite you to consult Bitfarms' MD&A for a complete list of these.

Also, during the call, reference will be made to supporting slides, and you can find the presentation on our website again at bitfarms.com under the Investor Relations section.

The company will also refer to certain measures not recognized under IFRS, and they do not have a standardized meaning prescribed by IFRS, and therefore, may not be comparable to similar measures presented by other companies.

We invite listeners to refer to today's earnings release and the company's fourth quarter 2022 -- excuse me, the first quarter 2023 MD&A for definitions of the aforementioned non-IFRS measures and the reconciliations to IFRS. Please note that all financial references are denominated in U.S. dollars, unless otherwise noted.

During today's call, CEO, Geoff Morphy, will review our [operations for] (ph) the quarter; CFO, Jeff Lucas, will follow with a detailed financial review; and Geoff Morphy will return for some closing remarks after the Q&A. And with that, turning to Slide 3, it's my pleasure to turn the call over to Geoff Morphy..

Thank you for joining us today. I trust you will take away why Bitfarms is well positioned to capitalize on the improving Bitcoin mining economics. To this end, I would like you to take away four points.

First, we have established the financial and operating discipline that gives us the strength and flexibility to achieve our existing growth plan on an accelerated schedule, Second, we have also, and importantly, updated our end-of-year 6 exahash per second target to the end of the third quarter 2023.

Third, with our foundation and momentum, we expect to seize upon opportunities both today and around the next Bitcoin halving, which is approaching in April of 2024. Fourth, during Q1 2023, we improved our balance sheet and, more recently, we resolved some significant hurdles in Argentina that unlocked the best economics in the industry.

As a low-cost producer with relatively stable energy costs and a fixed operating structure, Bitfarms achieves asymmetrical upside with financial performance that exceeds Bitcoin performance. Turning to Slide 4. I'll review some of our accomplishments that took place in Q1 2023.

We ended March 2023 with 4.8 exahash per second, up 7% from December 31, 2022, and up 78% from March 31, 2022. Subsequently, we have increased our hash rate another 4% to 5.0 exahash per second. During Q1 2023, we mined 1,297 Bitcoin, up 35% from Q1 2022.

Then in April, we announced a major achievement of 21,000 Bitcoin mined using 100% renewable energy. With the finite supply of 21 million Bitcoin, to date, Bitfarms has mined over one one-thousandths of all bitcoin to be mined. We believe we are the first publicly-traded miner in the industry to reach this milestone with renewable energy.

Bitcoin prices are rising, and drove Q1 2023 revenue to over $30 million. With our low-cost operations, we delivered gross mining profit of $12 million, which represents a gross mining margin of 42%.

Our direct cost of production of $12,500 and our all-in cash cost of production of $17,600 support high margins and remain a strategic advantage as we approach the next halving in less than a year. Adjusted EBITDA improved from $1 million in Q4 2022 to $6.3 million in Q1 2023.

And looking ahead to the halving, we have continued to deleverage our balance sheet, and improved our financial flexibility. In a moment, Jeff will elaborate on our reduction of more than $140 million of debt in 10 months to just $19 million at April 30, 2023. Slide 5 shows we have 10 farms located in four countries.

In April, we reached 196 megawatts in operating capacity, 91% of which is powered by sustainable hydroelectricity. I will now review our operations and development plans. Please turn to Slide 6. In Q1, 2023, in Rio Cuarto Argentina, we are transitioning from our start-up phase.

Now we have 18 megawatts currently online and an additional 32 megawatts of built capacity. In April, we made a lot of progress. First, our private power provider received its operating permit to power up to 100 megawatts, triggering our minor acquisition plan at our built 50-megawatt warehouse.

Second, we energized 2,100 additional miners, bringing the total to 4,400, and expanded operating megawatts from 8 to 18. Third, with our power permit approved and miners on site, we started drawing power under our power purchase agreement at prices approximately $0.03 per kilowatt hour.

This is the lowest in our portfolio, and reduced our overall corporate cost of production. Fourth, we finished testing and brought online our substation, which has more than enough power -- enough capacity to power the permitted 100 megawatts.

Fifth, we purchased an additional 6,200 Bitmain and MicroBT miners, about half are in transit and the others will be shipped in the next couple of weeks. Upon their installation, the first warehouse will achieve over 75% capacity.

As previously stated, we already received approval to import the MicroBT miners, and this morning, we received approval for the Bitmain miners. In each case, the importation approval was given in about 10 days of us making the submission.

Sixth, we are working expeditiously to ramp production at our first 50-megawatt warehouse to full capacity by the end of Q3 2023. To this end, we are in the process of procuring 3,000 additional miners.

Seven, with this increased visibility in Argentina, we have accelerated our 6 exahash per second target from the end of the fourth quarter of 2023 to the end of the third quarter. Turning to Slide 7. In Paraguay, in January 2023, we installed 2,888 new, more efficient miners. That boosted the farm's hash rate to 290 petahash per second.

We are optimistic about future opportunities in the region, as it has abundant and underutilized hydro power. Also, we believe the country is on a verge of greater clarity about the industry, as the election concluded on April 30 and a new President will be inaugurated in August.

In North America, we have 178 megawatts with the option to tap another 10 megawatts in Quebec. In Washington State, we have planned ongoing modifications and cost improvements through 2023. Each facility continues to run smoothly, reflected by our minor uptime, defined as the actual production output versus the theoretical capacity of all our miners.

Our proprietary MGMT miner and facilities monitoring system empowers our team to optimize our return on assets. Our repair facilities excel at promptly getting miners back in action. Uptime varies with weather conditions, curtailment programs and other factors such as parts availability.

As we approach summer in North America, the winter curtailment programs have ended, and we are entering a period of peak power availability. In April, our uptime reached 97.7%, demonstrating what is possible with moderate weather, good contracts and optimized operations.

In fact, operating reliability from both miner uptime and our power sourcing is a hallmark of Bitfarms, and contributes to strong and consistent margins and cash flow. In Quebec, we are prudently executing our expansion strategy to accretively add megawatts and create operating synergies.

In Baie-Comeau, we entered into an agreement for a new farm for up to 22 megawatts of hydropower capacity. Our two-phase plan slates 11 megawatts to come online in 2023 and another 11 megawatts in 2024. The transaction is expected to close by the end of Q2 2023, after which we will expect to increase our exahash projections. Please turn to Slide 8.

I will now hand the call over to Jeff Lucas for the financial review..

First, Bitfarms has stable low-cost power contracts that consistently place us among the lowest cost producers. Second, our financial liquidity creates flexibility. This is important as we are now less than a year away from the next halving event.

Third, in March, with improving economics and lower debt, we started to [hold] (ph) a portion of our free cash flow, reflecting our surplus cash flow from operations after our debt service.

Fourth, we've introduced a hedging program, furthering our flexibility and reducing some of the impact of the Bitcoin market conditions on our financial performance. And fifth, we had the balance sheet to finance our robust pipeline of opportunities and planned growth in 2023.

I'll now review our mining economics and our performance in our balance sheet. Please turn to Slide 9. In the first quarter of 2023, we mined 1,297 Bitcoin compared to 1,434 Bitcoin in the fourth quarter of '22 and 961 in the first quarter of '22. The quarterly difference is primarily due to the 13% increase in average total network difficulty.

Our first quarter revenue was $30 million, comprised of $29 million from our mining activities and $1 million from our Volta Electrical subsidiary. This compares to $27 million in the fourth quarter of '22, reflecting a 24% increase in the average Bitcoin price quarter-over-quarter.

This also reflects 10% fewer Bitcoin mined during the quarter due to the increase in network difficulty, partially offset by our higher hash rate. Focusing on our mining economics, please turn to Slide 10.

In the first quarter of 2023, Bitfarms' direct cost of production for Bitcoin remained among the lowest reported in the industry, averaging about $12,500 per Bitcoin. That's up from $11,100 per Bitcoin in the fourth quarter '22. The change reflects the 30% increase in network difficulty and approximately 2% higher energy costs quarter-over-quarter.

First quarter gross mining profit was $12 million or 42% of revenue compared to $8 million or 33% of revenue in the fourth quarter. This reflects an average Bitcoin price in the first quarter of 2023 of $22,500, which is 24% higher in the average price of $18,100 in the fourth quarter of last year.

Our total cash cost of production, defined as direct mining costs plus the fixed cost of revenue, including rent and technician salaries, as well as overhead, such as cash, general and administrative expenses, were $17,600. The majority of this $800 increase from the fourth quarter was due to the $1,400 increase in direct mining costs.

On the other hand, we are controlling our cash G&A cost, which decreased by 25% from the fourth quarter. And on a recurring basis, removing a one-time expense in the fourth quarter of last year, our cash G&A decreased by $900,000 or 13% sequentially and 25% year-over-year.

What's impressive is that even though fewer Bitcoin were mined during the quarter, which typically increases the overhead per Bitcoin, we reduced mining costs even more, which is also positive in preparing for the halving. Turning now to Slide 11.

For the first quarter, our operating loss improved to $15 million compared to the operating loss of $20 million in the fourth quarter of '22. Our net loss for the first quarter was $2 million or $0.01 per basic and fully diluted share compared to a net loss for the fourth quarter of '22 of $17 million or $0.08 per basic and fully diluted share.

The combination of our low-cost mining operations and higher Bitcoin prices delivered improved profitability, with adjusted EBITDA rebounding from $1 million in the fourth quarter to adjusted EBITDA of $6 million in the first quarter of 2023. Turning now to Slide 12, I'll review the strength of our assets.

We have 50 megawatts of built out and in-place capacity at Rio Cuarto. And as of today, we have $20 million available under vendor credits. Therefore, we have minimal funding requirements for our planned growth in Argentina and in Baie-Comeau.

At March 31, we had cash of $29 million and 435 Bitcoin valued at $12 million for total liquidity of $41 million compared to $38 million of liquidity at December 31, 2022. During the first quarter, as I mentioned, we mined 1,297 Bitcoin, deposited 30 Bitcoin into treasury and sold 1,267 Bitcoin, generating $29 million of proceeds.

In March, we launched hedging activities with the objective of reducing the variability of future cash flows from sales of digital assets and bringing a greater financial stability to the company.

In April, we deposited another 30 Bitcoin, increasing Bitcoin in custody on April 30, '23 to 465 Bitcoin, representing a total value of approximately $13.6 million based on the Bitcoin price that day of $29,300. In the first quarter of '23, we also raised $16 million in net proceeds from our ATM program.

For the second quarter of '23 through May 14, we have raised additional net proceeds of $5 million. These funds raised through the ATM earmarked for our existing growth initiatives and future opportunities. We continue to deleverage our balance sheet and reduce total indebtedness to $21 million at March 31, and then to $19 million as of April 30.

Turning now to Slide 13, I'll return the call back over to Jeff..

our competitive low-cost structure, our stable and surplus sources of energy with attractive pricing, our proprietary mining and facility management software, our vertically-integrated electrical subsidiary, and our exceptional management team. With this powerful combination, we expect to continue to improve efficiencies and scale operations.

As such, we are strategically positioned to grow this year with minimal capital outlay to achieve our near-term 6 exahash per second target and will be primed for the halving in 2024. Importantly, we will continue to be well positioned to capitalize on opportunities that meet our criteria, both before and after the halving.

Before I open the call for questions, I would like to invite you to meet us later this week at Bitcoin 2023 in Miami or virtually at the 18th Annual Needham Technology and Media Conference. Operator, we can now open the call for questions. Please go ahead..

Ladies and gentlemen, at this time, we'll begin the question-and-answer session. [Operator Instructions] Our first question today comes from Bill Papanastasiou from Stifel. Please go ahead with your question..

Hi, good morning, gentlemen. Congrats on the solid performance this quarter..

Thank you. Good morning, Bill..

Good morning. So first, I just want to hit on cash operating expenses. The company saw a decrease in the quarter and the quarter-over-quarter delta was greater than what we were estimating on our end, which obviously helped to produce an impressive $6.3 million in adjusted EBITDA.

Can you speak to the drivers that caused the drop? It seems like it's mostly coming from professional fees and perhaps insurance duties.

Just wanting to gain a better understanding of whether this serves as a good for a more appropriate base for forecasting the upcoming quarters? And any color you can provide with how expenses will ramp with Argentina coming online, that would be great. Thanks..

Sure. So, let me start that, and then Geoff can add to this as well. First of all, to give a bit of context here, the reason we actually generated a surplus cash during the quarter is largely because we brought down our debt service pretty dramatically, first and foremost.

And then secondly, of course, we're helped by the higher price for Bitcoin going forward, even though difficulty went up substantially as well. And by the way, in reference to your question here, when you look at our debt service right now, it's come down very dramatically.

We've commented in the past that we had about $165 million of debt about nine, ten months ago, and today, we have less than $19 million. What that implies is that our debt service requirements right now are about $2 million a month, which is really about a third of what they have been actually earlier.

In reference to your comment about the operating cost of -- the cash G&A expenses going forward, I think what we saw in the quarter that ended is a good representation going forward. You're absolutely right in terms of what some of those savings that were achieved here.

First and foremost is that we saved about $300,000, because actually we were -- because the cost of the replacement value of the miners, which we have coverage for, have fallen as they have with the market overall, the insurance cost that we incurred came down pretty dramatically.

The second point to keep in mind is you're right, we have a very sharp eye in our professional fees, and generally, we have been keeping an effort to tailoring those things pretty dramatically going forward.

I do just want to point out, Bill, that there can be a little bit of variability about that, because as we are exploring various new initiatives and projects, we naturally incur some professional service fees as part of the diligence, analysis, and things of that sort. There may be a little bit of variability of that going forward.

But I think generally, again, the G&A that we incurred in the first quarter is a good representation going forward. We don't anticipate much of an increase really at all in terms of Argentina going forward for additional G&A costs. Really, the cost that are going to be incurred here are going to be obviously predominantly electricity costs.

I do want to point out that in the quarter that ended, our costs of electricity were just under $0.05 per kilowatt hour. Now that we're actually drawing right from the provider here, as Geoff pointed out, we're anticipating costs coming down to a little under $0.03 per kilowatt hour.

And also not only that, but in addition, we're anticipating Argentina, that will be comprising of about 9% to 10% of our overall revenues and capacity going forward, that's going to help, in general, our overall cost of electricity..

Let me jump in there. Let me jump in just -- you invited me to add some extra color. But Bill, we've talked about this, and I've said it on previous earnings calls, our focus was on expenses. This is a maturing industry. And as we saw last year, prices came down, margins got squeezed.

And we had put an investment starting about 1.5 years, 2 years ago into a new and higher caliber management team, that could be scaled. And I think we've had the runway now and the ramp-up for all those individuals to really get up to speed and running, and we're seeing the benefits of it now. It's a highly productive team, and they're eager.

They know their roles, and they help each other out, and they really complement each other. So, we built this team to scale. We're into the scaling process now, and we're now starting to deliver those results of that investment that was really started a couple of years ago. So, we're really proud about it. And some of that was -- continues in that.

We shifted out of some of the professional fees and some of the consulting arrangements, brought some of that in-house, and all that's making a difference. We like to control our variables. So I'll just add that..

Great. Thank you, guys, for that color. Now for my second question, Bitfarms had this equipment purchase credit going into 2023 that has obviously begun to be used to help fund near-term expansion, especially with the recent purchase of the ASIC. Now my understanding is that portion of the credit and the cash was used.

Can you provide color in terms of how much of that credit is remaining today? And then, just talk about the prioritization of expansion projects in Argentina, Quebec? I believe you also got approval in Washington for 6 megawatts..

Jeff, why don't you start with the financial aspect of Bill's question..

So, we had -- the credit originally was around $22.4 million. As of today, we're a little under $20 million, and that includes the utilization of a portion of those credits. As we mentioned, as we're now building out the first warehouse in our Rio Cuarto..

Okay. So let me jump in with some of the deployment here. In Rio Cuarto, Argentina, so just to recap, we have 18 megawatts now operating there. So that's, give or take, 518 petahash.

We have 11 megawatts that we plan to bring on later this month, and that's from the MicroBT miners that were ordered and are in transit right now, should add about 290 petahash.

As I just updated in the comments this morning, we got importation approval for the Bitmain miners, which will probably arrive in and around June and add another 11 megawatts. And those are slightly higher performance machines, so 384 petahash is generally what's expected there.

That should bring us to about 40 megawatts, 75% of capacity at that facility by the end of the quarter, June 30, and it should be operating at about 1.1, 1.2 exahash at that point. We then have 10 megawatts to go. We are out there looking for good purchase opportunities for miners. As we've said, the infrastructure is built.

So we're just going to layer that in. Hopefully, they're there within the next few months. And really, that will bring about 50 megawatts on or about September 30, about 1.5 exahash from that facility. So we're very excited about being able to roll that out. It seems to be a long time coming. And now the gates are up, we're rolling.

Just to that vein, let me talk a bit about Baie-Comeau. The deal is not yet finalized. We expect that to be done by June 30. And -- but assuming that everything fits into place as expected, I think we have zero megawatts now. We're buying a company that possesses the electricity contract.

So, it's a bit of a greenfield and that we're going to take over a building, lease it and then put our infrastructure in place. We expect 3 megawatts in early summer, which is approximately 85 petahash.

Approximately 3 megawatts in the latter part of the summer, another 85 petahash, and then 5 megawatts later in the year, probably about 140 petahash, sort of about 310 petahash in total for 11 megawatts in 2023. Please note that these numbers are not in our guidance because the deal hasn't closed yet.

So as I said in the remarks, when the deal closes, we will update guidance accordingly. And then the second 11 megawatts, we expect them to build and activate next year. So Bill, I went on there, but it's -- I know that's the type of stuff you like to hear..

Yes, that's great. Thank you for the color. Makes my life easier [indiscernible]. With that, I'll exit from the queue. Thank you..

Thanks, Bill..

And our next question comes from Kevin Dede from H.C. Wainwright. Please go ahead with your question..

Thanks. Good morning, guys..

Good morning, Kevin..

A couple of things. I think it might have been your remark Mr. Morphy with regards to higher energy cost sequentially or maybe it was Mr. Lucas. And I was just wondering if you could -- and this was in a sequential comparison when you talked, I think -- yes, it was Mr. Lucas.

When you talked about the increased costs in mining in March versus December, and I was just wondering if you could elaborate on what happened there and how you see that changing over the next couple of quarters?.

Okay. So first of all, what I mentioned was the increase in energy costs that was driven per Bitcoin was really as a result of difficulty, and then there was a modest 2% increase overall in electricity prices, maybe that's what you're speaking to, actually..

It is exactly what I was speaking to, yes..

Well, I'm glad I can answer your question here. So, to be very specific, the cost of electricity for us in the fourth quarter was about $0.0427 per kilowatt hour overall. In the first quarter, it was roughly $0.0441 per kilowatt hour.

And that was really driven -- that modest increase that was driven there was by some increases in both in Paraguay, Washington, and a modest increase as well that we saw in Canada overall. And so that was offset, and Argentina was substantially flat at just under $0.05.

In terms of where we see electricity prices going forward or I should say per kilowatt hour, the biggest factor here, as I alluded to before, is the fact that we anticipate Argentina is going to be declining from roughly about $0.047 per kilowatt hour down to a little under $0.03 per kilowatt hour.

Now that was about 5% of our total capacity in the first quarter. As we are ramping up in the warehouse now, that will be more like around 10% in the second quarter we're coming into here. So what we're saying here is that we're 5% of the total capacity with around $0.05 in the first quarter.

In the second quarter, now 10% of the capacity will be actually at $0.03. So there's going to be -- we envision a savings at this point going forward..

And the balance of that 90% going forward, you'd imagine to be fairly consistent, Jeff? I think that's kind of what I was looking at. I wasn't sure -- I guess what I had heard sort of anecdotally is that overall gas prices were falling.

And I wasn't sure if that was being reflected in the hydropower costs that you're seeing in Washington and Paraguay..

Generally, it does not. I mean the true beauty for us, in addition to the fact that it's renewable energy, the true beauty of hydro is the stability actually of energy cost is both when the markets are reversed at its higher fossil fuel prices, but stability as well when prices also come down here.

So what we are reflecting here though and what the numbers in the first quarter largely reflect is we did talk about an increase in electricity in Canada, around 6%, that happened in the first quarter here, and also a modest increase that we saw in Washington as well, going up a little bit.

But again, Washington is sort of a small percentage of our total overall production here. Paraguay has been relatively stable so far as we're seeing it, and again, Argentina, we expect to have a decrease..

Yes, let me jump in here. In Washington, the electricity supplier is in fact -- is affected by inflation, but also some rehabilitation projects, river re-embankments and some to the hydro facilities and such. So they have quite a capital campaign that they've told us that they need to undertake over a number of years.

It's not inexpensive, and they are having to pass some of those costs on to the user base. So yes, we were hit with an increase there. The other thing I'd like to just to add about Argentina is that unlike us in North America, they are heading into winter. So their cost of natural gas are higher right now.

We actually expect lower costs to come, give or take, October of this year when they come out of their winter months, which when they consume more gas. And they're adding infrastructure up to our site and beyond. So there's more gas that can flow through the pipelines there. So that will also help.

But we expect that gas prices and thus, electricity prices for our Argentina project will actually decrease from where they are now sort of in a few months based on their seasonality. Thank you for letting me add that..

Okay. Yes, no, thanks for adding it.

Do you -- is your private power supplier, they are also powering the grid, Geoff?.

Yes. They have numerous facilities and the one that we are located at has turbines that they can turn on, on a dispatchable basis to support the grid. So they provide power to Epic, which is the local electricity supplier, and then there's CAMMESA that also controls everything from the whole country standpoint and all the local distributors.

But yes, they supply power to those guys as well....

We....

Which just brings up another point, Kevin, which is nice because we have the buses, the electricity buses there, I think this provides us with some redundancy, too.

We're not just with an electricity supplier, but because of those buses, if something happens one way or the other, those connections allow us to draw power from the grid should something happen with the turbines on that location. So it's a bit of an insurance policy, too.

But yes, our primary power will come from the private power producer right on site, and we transfer to those high-voltage buses..

The importation point you made, Geoff, about that reduction to 10 days, how did that compare to the first shipment of miners? Was that -- I know it was months. I just -- I've lost track of the time..

Yes, we didn't. We were acutely aware of it. You couldn't just have an application. Under the old system, where you would get a beneficial exchange rate, we needed to use brokers. And the brokers were given allocations on a periodic basis from the government for bringing equipment into the country.

So you had to contact the brokers, you had to negotiate them, you needed to get part of their allocation, and then you were generally limited by that allocation. So unlike in North America, where we can just bring in thousands of miners in a purchase order, we couldn't do that in Argentina.

It would be, go to the broker, negotiate the capital cost and number of units, get it spec-ed in, and then it generally would be probably 30 to 60 or so days, but just getting in the allocation of those brokers took time. Once you're in the allocation, then you could go ahead and make your logistics and make it happen.

But it was cumbersome and very labor intensive. This new system where you basically get your packing list and you've split your application has turned out to be a lot easier. And now that we've had two successes, much more predictable..

Okay. So the -- yes. Just a little more insight on the two successes you've had, or color rather on the two successes you've had and the one Bitmain shipment that you have in the works.

Can you just, I mean, give us a little bit more of the play-by-play on that, so maybe to instill a little more confidence in that happening?.

Okay. Well, the first order was for 2,982 MicroBT miners, M30s in this case. And in April, as soon as we received approval to power up the facility, we also coincidentally got approval same day for our first importation permit to be a direct importer, April 21 or something about that area. So they're in transit.

And hopefully, there -- the miners will arrive, clear customs within the next week or so. We really hope that we can get them plugged in and activated this month. We did not have all the details with the Bitmain miners, so it was a little slower. We needed a packing list with the details of the miners and the equipment.

So, we put that in just over a week ago for 3,200 S19 Pro+, and it was turned around. So it's been under 10 days for that application. So we will figure out logistics and get them moving to the site. And as mentioned, we hope to activate them in June..

Do you have your guys from your electrical company -- your in-house electrical company from Quebec down there installing, or is it other third-party contractors you have to use?.

Third-party contractors. The subsidiary you're talking to is our wholly-owned subsidiary called Volta that we've owned for three-plus years now. There're 30-plus licensed electricians. But we're keeping them busy in Quebec, and they can also do residential and industrial. But no, we have never moved any of those electricians down to South America.

In fact, the standards down there and the measurements sort of like standard versus metric, there's various different conventions within the trade. Like, they certainly know what they're doing, but we've hired electricians locally in Argentina and improving our knowledge base down there. That's actually worked out pretty well.

And there's the low voltage within the facility that's come along very well without a hedge.

And then in April, we also commissioned the substation high-voltage where we switched from a 50-megawatt provisional line, which was a temporary line to get the first warehouse done to a substation that has -- that was really built as part of the 210-megawatt campus there.

And more than half of that has been constructed and it's ready to go for 100 megawatts.

So much more redundant, multiple lines and much more control and that's where we got Epic and the local people, and they needed to get trained up on [Siemens] (ph) and some of the safety connections there, and all of that was done in April and is done and works beautifully..

Can we take a step back and look at the total Bitfarms' network at 39 joules for terahash? Can you talk a little bit about that $20 million credit you have in reserve? Some of it, obviously, you've used to fill out Rio Cuarto, and, I guess, the balance to get to your 40 megawatts.

Can you talk to -- I mean, the -- some of the age of the older machines you have in the fleet and your philosophy about how you might work to sort of improve the overall fleet and efficiency in front of the halving?.

Sure. First, the credit of, give or take, $20 million now, we have plans to utilize that fully this year and in a combination of Argentina and Baie-Comeau and whatever else might come later. So, I don't think there's any fear about that. But we're -- as we've done in the past, Kevin, we're constantly updating the fleet.

For example, a number of our M20s were taken out of action and we've been selling them, getting some proceeds for them and putting it towards our new CapEx. But the whole system is M30s and S19s now right across the board.

That 39 joules per terahash will fall, particularly as we bring in these miners that we just talked about, the 6,182 miners that are headed for Argentina now, that will drop the joules. And then with the additional miners, we will move it down towards 30 later this year, and I would expect sub-30 maybe around year-end or next year.

But it's more than just having machines that produce, it's the cost per terahash that you have to look at. It's more than just buying hardware. It's more than just buying the high-performance sports car. You want something that you're not paying premium dollar for, but getting a good -- getting immediate return from and a payback essentially.

Like, we could go and buy the real high-performance miners and spend two or three times more for them, but the payback stretches out, and stretches into the halving period where it stretches even further out.

So getting a miner performance combination that you can actually run and we run, as you know, our performance and what we get out of the -- out of our assets is amongst the top in the industry. We -- in many cases, we get better performance out of our miners than even the higher-performance miners that others are operating.

And that's because of our MGMT system and the fact that we've got five-plus years of operating miners in the setting. We have repair centers. But we will be dropping that number. But, as capital cost allocate, we're prudent towards the capital, and you have to get a payback on your miners.

So right now, these miners that we're getting have a less than one-year payback with current economics. So, we will have them payback before the halving. We will do a similar analysis with -- as we build and possibly acquire and see other opportunities this year.

We're actively looking for new opportunities now so that we can build and activate them before the next halving. Next halving is less than 12 months. So hopefully, we -- whatever we build and do now, we can complete in six to eight months ahead of the halving. So everything is accretive, and we are lean and mean..

Can we talk a little bit about the hedging strategy? I don't know that you guys have mentioned this before. I'm wondering what type of derivatives you're using, how expensive it is, how comprehensive it is.

Could you give us a little more insight on that?.

Sure. Let me speak to that. I'm more than glad to. We've actually been working on this for several months, and the person we've been doing for a couple of months is really making sure that we really had the control processes and the practices in place here. We've actually got a risk committee here.

Actually, we have a VP of Risk Management whom we brought on board at the beginning of the year, although he worked with us much of the latter part of last year here, to really look at the sort of risk exposures that we have and the enterprise risk that we face overall given the volatile nature of the business that we're in.

Part of our thinking, Kevin, just to give you a bit of foundation here behind setting up this hedging operation, we do recognize, as do all the companies in our space here, that there's little control [indiscernible] variability over our top-line, dictated in large part, of course, by the price of Bitcoin in which we have almost no control here.

So, we had thought what can we do here on our side here to sort of better provide stability, visibility and consistency to our earnings. And so with that thought in mind, we began embarking on this hedging practice. We're stepping in here very carefully and very thoughtful here. We're not being overly aggressive by any means.

And the goal here, quite frankly, is the means of insulating and protecting our downside here. And right now, we're doing that primarily either by writing or by buying options in place here, though we're looking for some other more sophisticated instruments as we get more advanced here.

And also to a degree on the upside, we do offset some of that premium cost by actually writing some dramatically out-of-the-money calls here. So that's how we started initially. But again, the goal here is for us to have greater visibility, predictability and stability through our top-line into our earnings stream..

Okay. I appreciate that, Jeff. Thanks..

Yes..

As the -- I know in addressing Bill's question earlier, you're expecting to see a little less cost in SG&A. Would these hedging costs be reflected in that line? And....

No, first of -- go ahead..

Yes. Sure, go ahead. Yes, just give us some insight on that and maybe the size of the cost..

Sure. So, a couple of things here. First of all, in terms of the impact with G&As going to look like going forward, I think in -- with -- my comments was that where we were in the first quarter is a fair representation of where we're going to be going forward.

There's a little bit of uncertainty there, clearly, particularly as we incur some professional service fees associated with the deals as we conduct in our various acquisitions. In terms of the actual cost of hedging itself, it's really been largely de minimis for us.

Secondly, because we did not employ what is called hedge accounting, any of the P&L impact, the pickup of the gains or the losses that they may arise, gets reflected in financing expense. And that's actually down below the operating income lines..

Okay. Yes. Okay, good. Thank you for that. I appreciate it. Apologies for the ignorance. Can we talk a little bit about Baie-Comeau? I don't know what that site looks like, but I get the impression that there's one building there.

Would that be needing retrofit, or you have to build from scratch?.

For the 11 megawatts that we plan on doing this year, there's an existing building, and we're frankly working on it already. We have a high confidence that the transaction will close by June 30. And so, we're starting to work on the building now.

As I think we've mentioned before, we get a real jump start on it because the -- some of the equipment that we pulled out of the De La Pointe facility in Sherbrooke, we warehouse knowing that we would have future use for it, and lo and behold, here we are. So we're shipping that equipment up there.

And that will allow us to very quickly get 3 megawatts going in early summer and another 3 megawatts in the latter part of summer. But we expect to have 11 megawatts running there this year, I think before September 30, hopefully.

We just need the transaction to get closed to really turn our sights full bore there, and we'll reset guidance accordingly. But it's -- Baie-Comeau is located further away than our locations, our farms right now.

It's approximately an eight-hour drive from our existing facilities and it's further east, but it's an area with enormous amount of hydroelectricity. I think there's 4 or 5 gigawatts of hydroelectricity. It's an area that was developed decades ago for the forestry, aluminum sectors, and there's a tremendous amount of hydro there.

So, not only is it strategic to go there because there's this contract, but we're hoping because we can go for where the electricity is, and we're being a responsible corporate citizen in the province of Quebec.

But this is an area that they might open up for expansion in the future because the electricity is there, and it's a long way to wheel it to population centers in Quebec and part of some of their wholesale contracts in the U.S. if they sell to. So it's strategic as well..

Do you foresee, I mean, I know there was some talk about [indiscernible] offering maybe another as much as 280 megawatts.

Do you think -- that could be one of the sites that they might allocate toward that?.

Fingers crossed. It would be a good site. It fits within their plan, as do some of the other locations in Quebec that we've spent a fair bit of time and effort getting to know local towns and cities and mayors and councils and businesses throughout the province.

But it's one of the areas where there's surplus electricity, and it would make good sense also because we bring jobs. So, we can bring a business case to the province for some of those locations where we can add value, jobs, tech jobs and capital investment.

So, we think there's more in the province, but the province is slow with that RFP as they rejuggle their imperatives. There's -- the latest we're hearing just in the last week or two is that they plan to study it in more detail over the summer and make some announcements in the fall.

We're behind the scenes providing various numbers and statistics to support our value add in the province, because like nobody else, we can curtail our power in high needs when it's very cold in most cases there.

And I think that adaptability is important for the province, and we plan to make that case and get them to know more about us, and it's something that we've -- we're investing a fair bit of time and effort in..

Last question for me, gentlemen, and I'm sure you're relieved to hear that. Can you give us an update on the installation facilities in Rio Cuarto? I know the one building is done at 50. I know you have 210, so that you could go, I think, to four buildings in total.

I was just kind of wondering where the other three stood and your time line and strategic thinking?.

Kevin, thank you for that question. It's an update that is an important one. So yes, we have a 210-megawatt power purchase agreement. And as originally envisioned, the campus is going to be four 50-megawatt warehouses. And we developed this back in 2021 when Bitcoin economics were much more robust than they were last year and even as they are now.

So, we announced that we were changing the expectation. We're going to scale it from four warehouses to two, of which we're going to build the first and re-evaluate the market when the gates were open, and we could look at it again. So we're there. We're there now. We've got the first 50 megawatts warehouse.

We're filling it over the next number of months, as I've already described. And now we're taking a look at the second warehouse and whether it makes sense. So the substation is built for it, and it's ready to go. So capital in that regard has been spent.

When we originally designed the whole campus, we put deposits down with some steel people and transformer people and things like that. And some of those deposits are there.

So it would be nice to actually take advantage of those deposits and why it makes sense that our capital cost for the balance of this year is pretty trimmed, because we've already invested in the future. So the second warehouse is there. It's designed.

We're now in discussions with Albanesi, with the permitting people, with the suppliers for time lines. Because as you remember, what I said was we -- whatever we do now, we want it to be built and accretive ahead of the halving. So if we cannot build it and have it being accretive by the halving, then it will have to wait.

But if we can get the ingredients in place that it makes sense, then we're going to go to the Board and seek approval for that. So it's a hot topic right now, and we're looking at it. But Jeff Lucas, why don't you come in and add a few more details about that..

I think a good point -- just a few points to add here are that for the second warehouse here, as we anticipate that the cost to construct that would be well below $300,000 per megawatt.

I'll add, though, because of some of the payments that are being made towards the overall complex, there will likely be the actual cash requirements going forward, if you were indeed to build the second warehouse to be more in a range just a little north to about 200 megawatts -- $200,000 per megawatt here.

But outside of that, I think we're pretty well positioned, and we're now in the process of making the assessment in how to do this most economically going forward..

Thanks for taking the question. Thank you, gentlemen..

Thank you, Kevin..

Yes, thank you. I'll turn it back over to you..

And ladies and gentlemen, I'm showing no additional questions. I'd like to turn the floor back over to the management team for any closing remarks..

First, evidenced by the fact we've mined over 21,000 Bitcoin with 100% renewable energy, we've proven our capability to scale the business. Second, we've maintained profitable mining operations each quarter as a result of our determination to maintain stable, low energy and operating costs.

Third, with little capital outlay, we expect to reach 6 exahash per second by the end of Q3 from our existing portfolio with upside from the pending close of planned 22-megawatt farm in Baie-Comeau and one or more acquisitions will bring even further value to shareholders. Thank you all for attending today's conference call.

We look forward to updating you with our monthly production reports as well as other developments and on our Q2 conference call in August. Thank you, and have a good day..

Thank you. Take care..

Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines..