Summary Overview:
Bitcoin Halving Strategy
Frank Holmes, Executive Chairman, of the Company stated, “HIVE was the first publicly listed crypto miner, listing on the TSX-V in 2017, and since then we skillfully and successfully navigated the last halving event in 2020, and additionally the bear markets of 2019, 2020 and 2022. Our team’s track record, couple with our fiscal prudence, puts us in a strong position to weather the halving event next April. Our focus is to maximize ROI on Bitcoin mining ASICs we purchase now, by making strategic acquisitions of only the very best offers in the market.”
Mr. Holmes continued, “For example, we made a series of Bitmain S19 jPro purchases in Q4 2022, and thus far they have already made an ROI of between approximately to 80-105% ROI after accounting for electrical costs. Thus some of these investments are already free-cash flowing, and the remainder soon will be as well.” The Company notes this variance in ROI is accounted for by purchase price and delivery date.
Mr. Holmes, HIVE’s Executive Chairman, added, “We’re laser focused on acquiring high-efficiency Bitcoin mining rigs at the best possible price. HIVE produced an average of 9 Bitcoin per day in September, which is exactly 1% of total Bitcoin network block reward average of 900 Bitcoin per day. We’re doing this as a clean, green energy focused Bitcoin miner. Going forward we will continue to invest in new Bitcoin mining machines at prices that will have optimal payback before the halving next April, and through our analytics, we expect they should continue to be cashflow positive after the halving correction. Furthermore, the high margin fixed-rate revenue from our GPU HPC and AI business unit, will supplement our income from Bitcoin, as we carefully plan for the halving in 2024.”
Bitcoin ASIC Upgrade with S19k Pro
Aydin Kilic, President & CEO of HIVE, stated, “We are thrilled to announce the acquisition of 1,000 Bitmain S19k Pro miners, with an efficiency of 23 J/TH and 120 TH/s per machine. This purchase is part of our strategic acquisitions to prepare for the halving. Our objectives with our equipment procurement strategy are the optimization of ROI, and sustaining positive cash flow post-halving. We note that 2022 was a choppy market for many crypto-miners, and I’m very proud of our team at HIVE, as we navigated this bear market with positive gross mining margins each quarter. This is a testament to our commitment to shareholders, to mine profitably, and our goal to realize the best possible cash flow return on invested capital.”
Quarterly Mining Recap
The Company notes that, based on publicly available filings, measuring revenues, direct operating costs, and corporate costs (also know as General & Administrative costs), recording the publicly available information from peers in the Bitcoin mining sector (including monthly production press releases, and financial statements for the period end June 30, 2023), HIVE lead the sector in Operating Margin per Average PetaHash and Revenue per Average PetaHash.
The Company defines Operating Margin as a non-IFRS metric, measured as revenue less direct operating costs (commonly expressed as Cost of Goods Sold or “COGS” in the MD&A filings for public companies) less corporate operating costs or G&A. The Company believes this provides the basis for a direct comparison of listed Bitcoin miners operating margins, to effectively compare all streams of income, against all cash operating costs, which are generally recorded in a similar manner. Since there are many non-cash line items that various companies may each record on a differing basis (including depreciation).
Furthermore, average Revenue per PetaHash is an effective measure of efficiency of uptime as a Bitcoin miner. The more uptime a Bitcoin miner has during a certain period, the more time hashing and earning Bitcoin. Publicly listed Bitcoin miners generally follow similar IFRS reporting methods for Revenue, this expresses the effective up-time or efficiency of a miner. Similarly, one may evaluate the Average Bitcoin per Exahash mined during the same period.
Figure 1: Operating Margin per Average Petahash period end June 30, 2023
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Figure 2: Revenue per Average Petahash period end June 30, 2023
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The Company notes June 30, 2023 is actually its first quarter of the fiscal year. The title of the bar chart describes the second calendar quarter of the year. Therefore, all data presented is for the same April to June 2023 reporting period for all companies.
September 2023 Production Figures
The Company’s total Bitcoin production in September 2023 was:
Bitcoin Global Network Mining Difficulty Is Volatile
Network difficulty factors are a significant variable in the Company’s gross profit margins. The Bitcoin network difficulty was 55.62 T as of September 1, and increased to an all-time high of 57.12 T as of September 30th. Accordingly, Bitcoin mining difficulty ended the month about 3% higher than the beginning of the month.
The Bitcoin Network Difficulty is a publicly available statistic, which reflects the total number of Bitcoin miners online and is important in analyzing a company’s gross profit margins, and number of Bitcoin produced. This data is available on many websites, here is one citation: https://www.blockchain.com/explorer/charts/difficulty.
As more people mine Bitcoin (difficulty increases), the daily Bitcoin block reward which presently is fixed at 900 Bitcoin per day, gets split amongst more miners; thus, each miner receives a smaller portion of the block reward. Conversely, as Bitcoin prices fall, many miners may lose money, and power down, thus taking their hashrate off the network, causing Network Difficulty to decrease.
Those miners with the lowest costs of production, by virtue of having more efficient machines and/or lower energy costs, are able to continue their production during these volatile cycles. Not all miners will continuously mine during the month, as a result some miners will produce less Bitcoin than expected, relative to their advertised hashrate. For the foregoing reasons, HIVE will self-curtail part of its operations if the unhedged spot energy prices are uneconomical, thereby leaving part of its total gross hashrate unutilized.
All Bitcoin miners are striving to use the most efficient Bitcoin ASIC chips, and we are happy that we have been able to upgrade our global fleet during this crypto market downturn.
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