Good evening, and welcome to Stronghold Digital Mining’s Conference Call for the Third Quarter ended September 30, 2022. My name is Carmen, and I will be your operator this afternoon.

Before this call, Stronghold issued its results for the third quarter 2022 in a press release, which is available in the Investors section of the company's website at www.strongholddigitalmining.com. You can find a link to the Investors section at the top of the home page.

Joining us on today's call are Stronghold's Co-Chair and CEO, Greg Beard; and CFO, Matt Smith. Following their remarks, we will open the call for questions. Before we begin, Jeff Grampp from Gateway Group, will make a brief introductory statement. Mr. Grampp, please proceed..

Thank you, Carmen. Good afternoon, everyone, and welcome. Today's slide presentation, along with our earnings release and financial disclosures were posted to our website earlier today and can be accessed on our website at strongholddigitalmining.com.

Some statements we’re making today, may be considered forward-looking statements under securities law and involve a number of risks and uncertainties.

As a result, we caution you, that there are a number of factors, many of which are beyond our control, which could cause actual results and events to differ materially, from those described in the forward-looking statements.

For more detailed risks, uncertainties, and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and public filings made with the Securities and Exchange Commission.

We disclaim any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law.

We will also discuss non-GAAP financial metrics, and encourage you to read our disclosures in the reconciliation tables to applicable GAAP measures in our earnings release carefully, as you consider these metrics.

We expect to file our quarterly report on Form 10-Q with the Securities and Exchange Commission, by the end of the week, which sets forth detailed disclosures and descriptions of our business, as well as uncertainties and other variable circumstances, including, but not limited to, risks and uncertainties identified under the caption Risk Factors in our quarterly reports on Form 10-Q and annual report on Form 10-K.

You may get Stronghold's Securities and Exchange Commission filings for free by visiting the SEC website at sec.gov or Stronghold's Investor Relations website at ir.strongholddigitalmining.com.

I would like to remind everyone that this call is being recorded and will be made available for a replay, via a link available in the Investor Relations section of Stronghold's website. Now, I would like to turn the call over to stronghold's Co-Chairman and CEO, Greg Beard. Greg, please proceed..

Thank you, Jeff. Good evening, everyone, and thank you for joining us on our third quarter 2022 earnings call. For today's call, we're going to reference an associated slide presentation that is available through the webcast and on the IR portion of our corporate website.

As I'm sure you're all aware, the entire cryptocurrency industry is experiencing extreme challenges.

While no public miners are immune to the downturn, we believe that the current environment has allowed Stronghold to distinguish itself as the first vertically integrated crypto asset mining company, with a focus on environmentally beneficial operations.

In light of the recent downturn, we have taken steps that we believe will strengthen our balance sheet and liquidity position by transferring a portion of our Bitcoin miners back to the lenders in exchange for the extinguishment of debt. We have mitigated the impact of returning miners through selling power to the grid.

With lower Bitcoin margins and higher grid prices, we have been consistently toggling between selling power to the grid and mining. This ability provides some insulation from Bitcoin market weakness without reducing our ability to capture upside in a Bitcoin recovery.

Putting ourselves in this position did not come without significant effort from our entire team. And I'm extremely appreciative of all their hard work, the data center teams who aggregated over 20,000 miners in days to return to our lenders.

Our power plant teams are recently completed the plant upgrades and maintenance during our fall outage and got the plants back online successfully and the finance team who executed on debt restructuring, got cost cuts and strategic deals. Thank you all. We'll go through all of these items on this call. So turning to Slide 3. We'll start there.

We have been extremely busy in the last several months executing on what we discussed during our last call in August. Our overarching goals with these moves were to reduce leverage, improve liquidity, cut costs and opportunistically build our mining fleet. And we have had a lot of progress to report.

First, we have fully extinguished $67 million of debt associated with our NYDIG equipment financing. Since our last call, we delivered back to the lenders of approximately 26,000 miners, including approximately 19,000 that had been operating at our facilities and 7,000 yet to be delivered.

At the time of our last earnings call, we thought we could replace the miner as we return for between $40 million and $50 million. Based on recent prices, we think it's closer to $30 million to $35 million and that does not reflect today's move lower.

Even when factoring in costs associated with the turn of the mines related to the equipment financing, we view the delta between the debt reduction and replacement costs as a material shift in value to our shareholders.

Additionally, the day after closing of our debt extinguishment, we closed on our new credit agreement with White Hawk based on the binding commitment letter disclosed in August. This restructuring with White Hawk materially pushed out the amortization schedule, approximately tripling the weighted average maturity from the 13 months to 36 months.

The new credit agreement also provided $21 million of net incremental cash to our balance sheet to help solidify our liquidity position to manage through the industry downturn and opportunistically purchase miners at distressed prices. The principal amount of debt outstanding under White Hawk is approximately $58 million.

Secondly, on the cost side, we continued to actively execute on material cost reductions across our business that we expect to begin to materialize in our results as soon as the fourth quarter of this year and throughout 2023.

We have identified and already completed a majority of the $15 million to $20 million of annualized total cost reductions through a combination of completing several one-time projects and rightsizing our business through in-sourcing certain functions and eliminating inefficiencies.

We've built the business focus on rapid growth, and much of this infrastructure is no longer needed in the current market conditions.

The third point is that the combination of debt extinguishment, increasing White Hawk’s commitment to us and cost cuts all contribute to maximizing our liquidity position and reducing our leverage giving us flexibility to manage through this down cycle and be opportunistic but disciplined in growing our miner fleet.

Since our last earnings call, we have reduced our total debt significantly and as of November 7, we have total cash of approximately $27 million. We will continue to manage our liquidity conservatively.

Having said that, we expect to take advantage of this liquidity position as a central part of our strategy we laid out in August to rebuild our mining fleet at seemingly perpetually improving prices.

We said, we would be patient and opportunistic, a strategy we think has already proven to be quite prudent, given the continued deterioration in pricing of mining equipment. However, we have not been stagnant in rebuilding our mining fleet, as we aim to take advantage of our fully built out data center slots.

Since our last earnings call, we had procured or received approximately 10,000 Bitcoin miners with a hash rate capacity of nearly an exahash, of which 6,000 are on site.

Of the 10,000 machines, 4,500 are associated with a new strategic partnership with foundry, who is a leader in the Bitcoin ecosystem and operated the largest Bitcoin mining pool in the world. We entered into a definitive host agreement with Foundry on November 7.

While hosting is not our core focus, we strive to be opportunistic and creative and we think this deal is highly beneficial for Stronghold, in addition to a $60 per megawatt hosting fee, we will receive half of all the Bitcoin mining profit and still have the option to curtail the miners to sell power to the grid without penalty.

The hosting we get with Foundry allows us to quickly get minus plugged in with no material CapEx, while we work to finalize a new and more complex transaction to purchase the miners in exchange for a limited amount of cash plus stock and a profit share.

Fifth, our last update relates to our power plant upgrades and maintenance that were conducted at both Scrubgrass and Panther Creek in late September and into October.

Recall that we strategically elected to conduct this outage in late September, when power prices were seasonally lower, giving us the opportunity to import power to mine Bitcoin if margins were sufficient. Since the plant maintenance was completed, we have been satisfied with the performance of our plants.

Scrubgrass and Panther Creek have both successfully come out of their outages and have run a base load when power pricing from the grid was favorable. With Panther Creek and Scrubgrass maintenance and upgrades being essentially complete, we expect much more reliable power generation for the remainder of this year and into 2023.

Looking ahead into Q1 2023, we expect our net cost of power to be $45 to $50 per megawatt hour, which we anticipate will provide for healthy margins for both Bitcoin mining and grid power sales. Moving to Slide 4. To bridge you to our current hash rate capacity as result of recent transactions, we have made to increase our Bitcoin mining fleet.

Our August 16 hash rate capacity pro forma for minor returns was 1.4 exahash. As I've previously mentioned, we have entered into agreements to receive or have received approximately 10,000 Bitcoin miners with hashrate capacity of about an exahash. Most significant of these agreements is our hosting agreement with Foundry.

Foundry will supply 4,500 Bitcoin miners with 420 petahash of capacity at Panther Creek. We will charge a hosting fee of $60 per megawatt and receive half of the Bitcoin mined net of the hosting fee. Importantly, we have also the option to curtail the miners and sell power with no penalty.

We view this hosting deal as a short-term placeholder, while we work on a definitive deal where we buy these machines using a mix of cash, stock and profit share. I'd like to note that Foundry approached us, diligence stuff and is moving forward to participate in our business model.

After today, we expect to receive the remaining approximately 1,500 miners from Foundry as well as miners under contract from legacy agreements. This brings our total hash rate capacity to 2.8 exahash, and we are guiding to 3 exahash for 2023, which we think is highly achievable in this oversupplied miner market.

Turning to slide 5, we issued a press release in October related to the mutual termination of the Northern Data hosting agreement, and I'd like to walk through why this is a favorable outcome for Stronghold.

This termination allows us to take control of the operation, gives us access to infrastructure that we can use the hash for ourselves and most importantly, is materially accretive to our cash flow profile.

As we not terminated the agreement with Northern Data, we would have expected to pay close to $1 million per month in profit share payments or approximately $14 million to $28 million through September of 2024. The amount is now zero. Northern Data has also forgiven a payable owed of approximately $2.6 million.

Additionally, we are leasing their pods, which have an aggregate capacity of approximately 50 megawatts and for two years for $1,000 per year. So we are not using the pods to hash for ourselves with no profit share.

At the end of the two-year term, we have the right to purchase the pods for between $2 million and $6 million based on the prevailing cash price at the time. We believe that the market value of these pods is at least $15 million.

Everything considered we expect this termination to increase cumulative net cash flow, over the next two years by approximately $10 million to $22 million. Moving now on to slide 6, we provide an update on our power plants.

Both plants successfully completed their planned fall outage and can operate at baseload if power pricing is favorable enough to do so. The fall outages represented the last of the major planned investment cycle in Panther Creek and Scrubgrass, and we expect to see more consistent and reliable power generation moving forward.

Regarding Scrubgrass, the focus has shifted to putting redundant systems in place, similar to what Panther Creek currently has to avoid issues before they arise. We expect these plants to run a baseload, through the high power price winter months with estimated net cost of power ranging from $45 to $50 per megawatt by the Q1 2023.

I'll now hand over the call to our CFO, Matt Smith, to discuss our financials in more detail..

Thank you, Greg, and good evening, everyone. Slide 7 provides a high-level overview of our third quarter 2020 results.

Keep in mind, that third quarter results were greatly impacted by the returning of a significant portion of our Bitcoin mining fleet, throughout the quarter, which were unplugged in mid-August, and the planned downtime at both of our power plants associated with the previously disclosed maintenance.

As a result, we do not think the third quarter financials are particularly informative in the context of our go-forward capabilities.

Revenue for the third quarter was $24.7 million, a 311% increase compared to $6 million in the same year ago quarter, but down sequentially due to lower power generation from the planned downtime and a lower overall hash rate associated with the returning of a portion of our mining fleet.

During the quarter, we mined approximately 567 Bitcoin, an 11% decrease sequentially due to the higher network cash rate and the lower company hash rate associated with our United debt reduction efforts. Operating costs were elevated in the quarter as anticipated due to the planned maintenance events at both of our power plants.

We estimate approximately $7 million of operating costs during the quarter were non-recurring in nature related to planned maintenance. Internally, we really view these as capital events since they ensure long-term plant performance, but accounting treatment dictates these items be expensed.

Adjusted EBITDA during the quarter was approximately negative $3 million compared to an approximately zero EBITDA in the same quarter a year ago and negative $1 million in the second quarter of 2022.

I would note that during the quarter, we recorded approximately $15.3 million non-cash loss related to debt extinguishment, a $13 million loss on warrant revaluation and approximately $4.2 million non-cash impairment on assets held for sale, both associated with our NYDIG equipment financing that was completely eliminated in October.

During the quarter, we continued to operate in an environmentally beneficial way, removing approximately 218,000 tons of coal refuse from piles and returning approximately 122,000 tons of beneficial use ash to remediate these toxic coal piles in Pennsylvania.

Moving now to Slide 8 to discuss our initial 2023 guidance, which represents our first initiation of guidance as a public company. We understand our business is dynamic, given our vertical integration. So in an effort to be more transparent with our go-forward capabilities, we would like to provide a framework to aid in the modeling of our business.

Note, we are not making any ROIC [ph] assumptions about bitcoin economics dramatically changing, although, we are constructive on bitcoin pricing long-term normalizing to a sustainable hash price.

Understand that many of these assumptions embedded in guidance are outside of our control, including bitcoin, hash price and market power prices, which could have a material impact on our performance. But we believe these are reasonable assumptions for us for 2023.

Our guidance assumes a hash price of $0.085 and which is higher than current market conditions and after the last several days, but we believe this represents a normalized environment.

Hash price for those of you not familiar with this metric takes into account both bitcoin price and network hash rate for a more accurate depiction of bitcoin economics than bitcoin price alone. We also assume average around-the-clock benchmark power prices of $64 per megawatt hour for 2023 and based on forward market prices as of November 7, 2022.

Based on our ability to curtail power consumption from our miners and increased grid sales during periods of higher power prices, we expect to realize more like $72 a megawatt on that same for power curve. We also expect the average power output of 135 to 140 megawatts, implying an uptime rate at our two power plants of between 80% and 85%.

On the bitcoin mining side, we assume an average hash rate capacity of three exahash for 2023 and an average effective hash rate of 2.4 exahash, which reflects the fact that we expect to curtail miners at times of higher power prices to optimize our profitability and cash flow.

While the 3 exahash is above our current capacity of 2.8 exahash laid out in Slide 4, we expect to either purchase machines at extremely depressed prices or enter into incremental hosting or profit share agreements given the total quantity of unplugged machines landed in the United States.

As it relates to costs, we assume recurring fuel operations and maintenance costs of between $46 per megawatt hour and $52 per megawatt hour, a material improvement from most of 2022 given the investments being made and recurring cash G&A costs of between $18 million and $21 million.

Yes, that's approximately a reduction of $10 million annualized year-over-year almost all of those changes have already been made and taken -- and undertaken during the fourth quarter. These cost assumptions reflect the benefits of many of the reductions Greg discussed, and we're not finished.

These assumptions result in an adjusted EBITDA range for 2023 of approximately $29 million to $34 million.

With much improved debt service and minimal obligatory future CapEx, given our past investments in our power assets, data center infrastructure and mining fleet, we expect this adjusted EBITDA generation to result in further strengthening of our financial position throughout 2023, despite industry headwinds.

Additionally, given the ever-changing market pricing, we provide a sensitivity to our financials at different hash price cases ranging from $0.07 to $0.0115. I will now turn the call back over to Greg for his closing remarks..

Thanks, Matt. We are pleased with the meaningful progress we have made in the positioning of Stronghold for long-term success. We have significantly reduced our leverage and our liquidity has been meaningfully improved. Our cost structure has been materially reduced, and our power plant assets are performing as designed.

Lastly, we are expanding our Bitcoin mining fleet in an accretive manner. Our vertical integration and power market optionality continues to provide us with strategic advantages over many of our peers as does our data center infrastructure that is fully built out with additional slots open.

The entire Stronghold management team and I are motivated to see Stronghold succeed and are excited to execute against the 2023 plans we have laid forth today. Thank you, everyone, for taking the time hearing our story. We're now ready to take your questions.

Operator?.

Thank you very much, operator. Good afternoon, everyone, and good job on many different fronts. My first question, and this is one of the positives, the foundry agreement, -- great to see that. You noted in the press release you can curtail the mining activity on the hosting side with no penalty.

I assume that if mining is uneconomical that they also have an exit, -- can you speak to that? And again, great job on that hosting agreement. Thank you very much for your color..

Yes. So [indiscernible] he's the one who led the foundry discussion, let him answer precisely..

Hey Lucas. So power -- sorry, mining economics are worse than that $50 per megawatt hour hosting fee, then the miners will be curtailed regardless of grid prices. So it's not a -- they are not forced to pay as the miners to operate at a loss.

Does that answer your question?.

That's very helpful. And then my second question, I did this a little bit on the fly, but thank you very much for the guidance for 2023 that -- that's really great to see. And so I did this a little bit on the slide, I tried to back into kind of what amount of your -- of the 137 megawatts of power would go towards BTC mining versus sales to the grid.

And I backed into roughly 58% of power going to mining in 2023? Is that the right ZIP Code? That's part one of the question.

And then part two of the question is I also backed again, this was on the slide to roughly $120 per megawatt hour on the revenue side for PTC mining, embedded in this guidance? And again, just looking for a sanity check and hopefully, I'm that lay not off. Thank you very much for your color on this..

Yeah. Hey, Lucas, we might have to get back to you on the revenue per megawatt hour. We'll try to pull that quickly here. But you're right on the power that is going to the miners, when the miner is – when all the miners are operating, that would be about – I think that's just over 60% of the power..

Terrific. Thank you for your comments. And yeah whenever on the revenue side. I appreciate the follow-up to that. But again, good job and continued business like..

Thank you. One moment for our next question, please. Our next question comes from the line of Jacob Roberts with Tudor, Pickering, Holt. Please go ahead..

Good afternoon, guys. Just curious looking at the net cost of power in Q1 2023, should we be thinking about that as an average rate, an exit rate – and then also, if you could kind of speak to that as well as the guidance on maintenance expenses.

Should – could it go lower than the 45% to 50%, or should we think of that as kind of the price to be in 2023 – or the cost to be out, excuse me..

Sure. Thanks for your question.

I think we feel pretty strongly about the arrival for a quarterly average in 1Q 2023 of that, at least that kind of $46 to $52 a megawatt, we pretty extensively described the activities of the team, the teams at the plants and the management team over the last six weeks, we have spent a tremendous amount of time at the plants working on improved processes, purchasing efficiencies.

There have been, unfortunately, some headcount reductions related to some redundancies.

And I think you'll find, although there are too many moving pieces 4Q, 4Q I think you're going to start to see a step function already coming out of the outages related to some pretty extraordinary costs going away from the January – sorry, the July, August, September period.

And we hesitate to give 4Q guidance, but I think you'll find that we're materially working towards that $46 to $52 range already. Part of that has to do with Rex up 50% in the last two months from $10 a megawatt to $15 a megawatt, some of it has to do with the dramatically reduced O&M costs.

We'd like not to point to specific plant level costs, but those are already down materially. And so I think what we would like to do is lay out a target need it or beat it, and then work towards an even better objective going forward.

And so we'll give you an update during the first quarter as we're finishing and preparing and providing you with 4Q financials. And I think we'll be in a good place to share with you then what we're -- what the run rate is and where we've arrived. But I think you will find really – feel really lot of conviction in this number.

And thankfully, it's something we can control and there's a lot of cost to take out. So we like having things that we can influence that have nothing to do with bitcoin prices..

Appreciate it. And then I apologize if I missed it.

Was there any guidance or color given on the cadence to get to the 28 or 3 in 2023 at a first half or a second half type number?.

Yeah. There's a bridge on the -- on slide 4 in our slide deck. And I would just point you to, it's not an ambitious target at all based on contracted miners already purchased earlier in the year or procured recently.

And again, these incremental miners have been purchased in the mid single-digit range on a dollar per terahash basis during this distressed period incrementally in the recent weeks.

So we feel really high conviction in at least the 2.8 and then the three would come through further purchases, which are well within our liquidity and minor prices could do that or beyond..

All right. Appreciate your time, guys..

Sure..

And it comes from the line of Chris Brendler with D.A. Davidson. Please proceed..

Hi. Thanks, and good evening. Again, congratulations on this is, I'm sure, a lot of hard work. And so it seems like we've gotten past the bottom here and starting to go the right way. I wanted to ask on the guidance, again, on the power side.

I'm not trying to understand what gets you to $45 million to $50 million from where you are in the fourth quarter? And does it continue to improve? Like what is the -- what is sort of the constraint on your -- I know the third quarter, there was maintenance and you weren't running at full capacity.

But is it just that issue? Is there other things that should help your overall cost of power go down?.

Yeah. So we haven't provided 4Q, but what you have before you is the sort of ability to back into 3Q with some decent efficacy. Obviously, when you have two weeks in September where there are zero revenues, and we're importing power to run the data centers and you have $5 million or $6 million of costs that dollar per megawatt is infinite.

But coming out of that period puts an extra attention by the teams to do lower cost meaningfully consultants and extra overtime go away. We reduced headcount. We've completely changed how we plan and procure parts and stage that and think ahead about what redundant systems we need to fix next.

And I think you'll find again, we're not formally providing 4Q guidance, but I think we feel pretty confident that we can arrive at that 1Q 23 number. That's the latest by that to average that in the first quarter, if not sooner than that.

Now importantly, fixed cost absorption is an element of the reduced costs when the plan -- if the plants are running below baseload, and in this case, I would describe 80-megawatt to 85-megawatt plants, the fixed cost absorption starts to be optimal at 680 megawatts.

And I unfortunately say coming out of the outages that we've seen both plants perform in excess of that and the sample is growing, and we're gaining conviction. And so I think we are looking forward to the fixed cost absorption that wasn't necessarily there to progress earlier in the year to our disappointment.

But I think we're I think Scrubgrass is going to be something that we look forward to demonstrating that fixed cost absorption going forward. And then REC are up $5 a megawatt in the fourth quarter so far. And we've taken advantage of that opportunity to lock that in. And 2023 RECs have been up meaningfully.

And so I think there are a fair number of moving parts of virtually every single one of them since the end of September have gone in our favor. I can't think of a single one that's not gone in our favor. We have been able to procure a lower-cost limestone than we were in previous quarters. We've been able to source with improved trucking availability.

Since mid-October, we've been able to source significantly more Russian coal, which is lower cost than the coal, we were -- the blend of coal we were procuring in the prior two quarters. And so again, it's virtually every component of cost that's moving in our favor. And that's not to say that inflation has improved for the sector.

It's really just been a lot of hard work by our teams to align coming out of the outage and a lot of fixed costs going away. And so we'll look forward to updating you further when it makes sense..

Obviously, a lot of great work by the CFO there, cutting all those costs. So congrats. I wanted to ask -- I don't want to nitpick, but is obviously a bad day, but your guidance has really some great detail on hash rate -- hash price and bitcoin price and slide eight, we're below $0.06 right now.

The hash rate is currently $2.65, so I'm hoping that I don't know, and this is going to come crashing down, but I've been really worried about the hash rate and sort of thinking that it needs to come down and it hasn't yet.

Is that -- how much does that change your outlook if it does not come down?.

We -- the market is obviously dynamic. I think our view is when you change the cash for like we've seen in the past couple of days, you're going to see a change in the amount of people running miners. So, I think today, we think that it's probably unsustainably low.

And you're going to see that the global hash rate declined to adjust or we're going to see bitcoin prices recover. But you can't -- you really can't add it both ways. Like if you have bitcoin prices deteriorate further, you're going to see global hash rate decline.

So it's our best guess, but we can -- I think our job is to give you the ability to put in your assumption for bitcoin price, your assumption for global hash rate. And when you do that, you should then have your own view as to what our financial performance will be.

I think we're going to do our best to deliver operationally and tough to control bitcoin price or global hash rate and that's where you analysts can make your best guesses and plug those assumptions into your model and come up with a year estimate.

Was that helpful?.

Yes, absolutely, yes. And I also appreciate that you've got an opportunity to sell power if the hash price is below $0.06 that a lot of your competitors don't have. I've to work on the sensitivities myself. But yes, I appreciate the color, Greg. Thanks a lot..

Hey Chris, I would just add, when we prepared the guidance two and three days ago, we were right on top of where cash price was for the most part or within a very close distance. It's really hard to adjust on the fly when you go through extraordinary deleveraging for industry shocks, systemic risk type of events -- risk type of events.

So, we'll -- we provide the sensitivity if we need to update the sensitivity as simple we will, but we're approaching the floor for power-only EBITDA. And so I think we feel pretty strongly that the model will be resilient as you move towards the lower end of this range. That’s point one.

Point two is Greg has got 25 years in energy power investing, mines not that far off. Tom, -- and our team, extraordinary energy sector experience.

I would maybe just point to that as an analog that whenever in the second quarter of 2020, for instance, if the market started to try to price in or extrapolate $20 or $30 oil prices, the entire industry would have been bankrupt immediately outside of Saudi Arabia and maybe some of the low-cost oil producers.

We're unlikely to be logically willing to extrapolate the current hash price, because the current hash price versus of the entire United States, Bitcoin mining industry, which is an extraordinary amount of the global hash rate, is underwater and broken, especially when you layer in the interest cost burdens and others.

And so I think we'll provide updates, but you've got a framework at least for the first time.

And what we're focused on and we would point you to is towards the end of 2023, we think we're going to be approaching our less than two times leverage, which we think is the result of some foresight by the team and a lot of hard work from our operations folks to get those miners back to the lender.

And I think we'd point you to the current valuation of the company at the enterprise level with some of the dilution and the new prevailing debt.

I think we feel like the company has moved to a place where market is pricing in bankruptcy, and we're just -- we're so far from that and eager to lay out how this improvement in cash flow is going to manifest in value for everybody. So, I think we would just point you to those as the reasons you gave you guidance and stick by and hopefully beat it..

Yes. And then hopefully, we see some rationalization real soon, because it's time to pursuing. I agree. Thanks so much. I appreciate it..

Thank you. One moment for our next question, please. And it comes from the line of Chase White with Compass Point. Please proceed..

Thanks for taking the questions. So a couple of questions. So -- how much -- just curious, the redundancy upgrades of scrub grass in the fourth quarter.

Any costs associated with that and also any downtime associated with that?.

No, we're not paying like a big severance package to people. Some of the -- and we can go through like a lion item where all of these the redundancies and cost savings have come from. I think a portion of it is, we spent money on kind of one-time upgrades in the past quarter that we're not having to do next year again. They're truly one-time.

We had contracts with -- so we're consulting people and we committed those. And as a part of those agreements, we have probably 10 extra people that after about six months of that work, we're able to sort of take over those roles ourselves. I know there will not be a one-time charge related to the cost cuts. So don't model that in..

And then additionally, so we talked about some redundant system additions, there's a pub pugmill fix that we're putting in place in November. That expense was already accrued as a part of the outage.

It's kind of an ancillary part of the power plant that enhances the containment of the ash and you mix it with water and you can put it in a truck and potentially go and sell the ash for instance or package it for sale or in control ash as it relates to the impact on the data center and filters. And so that pugmill was on order.

It should have gone in July, ended up getting pushed to September outage. And that expense was already accrued and affected the third quarter. And then we ended up getting pushed in November. But we do not expect any further material expenses. It's not to say that power plants don't break down and you have costs come up.

But I think we feel really strongly about the run rate of fixed costs and maintenance costs coming out of September..

Got it. That actually dovetails pretty nicely into my next question.

Any updates on the potential revenue opportunity from selling fly ash or at least any guidance on how to think about that opportunity?.

We work on it everyday. Just let us have it as upside. But, yeah, I think we have -- we do have a customer that is buying ash from us that is both saving -- giving us cash for it, and it's also reducing our costs, and working on expanding that relationship and growing into new ones.

But that's upside for us to -- it would rather be reward for when we deliver than have you make it in and have us potentially miss it. I would say it's hard to -- until the plants were running at a baseload capacity like they are now. And we didn't have a reliable stream of ash to sell. So now we do. Now it's tested.

We have a much better handle on what the inputs are with the waste coal to get a certain stack on the output of ash. So I think we're in a better position to be able to do it. But just let us have it as we earn it rather than putting it in the model..

Got you. Fair enough. Thank you..

Yeah..

Thank you. One moment for our next question please. And it comes from the line of Stephen Glagola with Cowen. Please proceed..

Hi. Thanks for the question. Just on the 21,500 self miners you have, I'm getting that around 18% or 3,800 on MinerVa rigs with the addition of the 420 miners you just received.

So just was curious if you could break out or discuss the economics of these rigs individually in the current depressed ash price environment? And then I have one more follow-up, please..

Yeah. I'll comment, we'll dig out the exact economics on the MinerVa in a second, but the -- I think our -- hey, we have received both the MinerVa miners and MinerVa has sent us both S19J Pros and there with T19s in lieu of MinerVa miners have done in the past.

They're now sending us as they're getting their production, MinerVa is back online, they're sending us more of those miners now as well. We have confidence that that we have thousands of these things and their reliability has been low looking backward, but there are -- the fixes are identifiable, and we are implementing them.

So as we receive the problematic parts we’re replacing them. So, I'm not sure they're going to get up to the reliability of a MicroBT or Bitmain. But they're certainly not going to be as poor performance as they have been in the past.

Can you talk about economics of it?.

Yeah. So the economics and as it relates to comparing dollar per megawatt hour basis, we haven't really seen any material deterioration in efficiency, a large part of the fix has been related to its certain parts that have really impacted the miners shutting off. And we think that we're making a lot of progress and getting them back online.

But in terms of the economics, today, they're kind of around $65, $70 per megawatt hour. The real focus for us has been the percent of the time that we have them on. And so -- we're making a lot of progress there on our engineering front..

If you're going to model them out model them the same as an M30S or they're pretty close to that 19..

I appreciate the color, Greg. Thanks, Tom and Matt. Also one more on the Q2 call last quarter, I believe you guided to outstanding penciled [ph] debt of $45 million by year end and $21 million by end of 2023, currently at $82 million.

I'm -- just curious what other levers are you going to pull to reduce debt by an additional $37 million by year-end, or if that's still on the plan here?.

Yes. So we -- that was a net debt number, not a total principal amount outstanding because everything that we said last quarter, we've executed on. In fact, WhiteHawk upsized the or access to liquidity by a few million dollars. That was a net debt number. And I would just refer to our convertible notes where they're $22.5 million right now.

And on $11.15, there'll be $17 million in terms of principal amount outstanding. And so we set ourselves up to be able to continue to deleverage using a number of different tools at our disposal. And I think we -- that 45% of net debt, I think, we still feel pretty good about it.

Obviously, power prices fell some in October, although 2023 forward power curve is still up 60% year-to-date versus Bitcoin is down 65% year-to-date. And so we still really like the business model and our spreads. But -- some of the net debt will be impacted by investment decisions. Some of it will be impacted by improvements.

Some of it will be impacted by forward power curve and Bitcoin price. But I think we still feel pretty good about where we're going to arrive -- where we're going to arrive at that number. And that just very quickly, that $45 million was assuming if we did not draw on the $20 million from WhiteHawk.

And so obviously, we've drawn on that is – you just have to adjust [ph] from that slide for the 2021 in change million that we drew..

Thanks for all the color, Matt. Appreciate it..

Sure..

Thank you. And at this time, this concludes our question-and-answer session. I would like to turn the call back to Mr. Beard for his closing remarks..

Okay. I have now -- accept thanks for those who listened. Thanks to the shareholders, the few of you that had hung with us so far. And hopefully, we have -- we got -- I can say we have a plan to execute the fourth quarter in 2023. And we hope to hit the plan and be rewarded with equity value. So that's all I got for tonight. Thank you..

And thank you for joining us today for Stronghold's earnings call. You may now disconnect..