Argo Blockchain (ARBK) 6-KArgo 2024 Interim Results

Argo Blockchain plc, a global leader in cryptocurrency mining (LSE: ARB; NASDAQ: ARBK), is pleased to announce its results for the six months ended 30 June 2024.

The following table shows a reconciliation of Adjusted EBITDA to net (loss) / income, the most directly comparable IFRS measure, for the six month periods ended 30 June 2024 and 30 June 2023.

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Since the appointment of Thomas Chippas as CEO on 27 November 2023 and Jim MacCallum earlier as CFO on 5 April 2023, the Company has focused on three key pillars: financial discipline, operational excellence, and strategic partnerships for growth.

The focus for Argo in 2023 and the first half of 2024 has been to reduce its debt obligations and strengthen its balance sheet. The $35 million debt owed to Galaxy began amortising at $1.1 million per month in May 2023. I am pleased to report that Argo has repaid the full amount of this loan to Galaxy as announced by the Company on August 12th. This Galaxy debt was repaid over four months ahead of the current schedule, and nearly 18 months ahead of the original repayment schedule. The early repayment reflects the Company's focus on strengthening its balance sheet, reducing its financial liabilities, and focusing on operational excellence.  Repayment was made possible by using cash flow generated from operations, cash generated from equity raises and cash generated through the sale of non-core assets without any meaningful impact to Argo's hash rate.  Repaying the Galaxy loan is a significant milestone for Argo.

Mining economics continue to be challenging for Bitcoin miners and as a result the Company recorded a $22 million impairment charge on its mining machines and updated its going concern disclosure in its financial statements to reflect current conditions. 

The sale of the Mirabel facility was completed with no meaningful loss to Argo's hash rate.  The significant reduction in operating expenses in the first half of 2024 compared to 2022 and 2023, and the strong mining margin percentage despite the Bitcoin halving are indications of Argo's strong performance.

The Mirabel sale enabled the Company to de-lever the balance sheet with minimal impact to the Company's hash rate. Following the sale, Argo relocated the majority of the mining machines at Mirabel to its Baie Comeau facility and sold certain prior generation machines representing approximately 140 PH/s. The sale allowed the Company to streamline its operations by locating all self-mining machines at its Baie Comeau facility. Additionally, the sale of Mirabel reduces the Company's non-mining operating expenses by $0.7 million annually.

Argo has taken aggressive action on its cost structure and non-mining operating expenses. As compared to the second half of fiscal 2022, the Company has reduced its operating expenses by over 70% to $5.8 million. As compared to the first half of 2023, the Company has reduced its operating expenses by over 25%.

Despite the Bitcoin halving and the lower hash price realised since then, the Company has maintained strong mining margins and its mining margin percentage has remained consistent with the first half of 2023. Lower mining margin and a lower mining margin percentage are expected for the second half of 2024 as Bitcoin economics have deteriorated since the Bitcoin halving in April 2024.

The strengthened balance sheet and repayment of the Galaxy debt gives Argo more flexibility to pursue strategic opportunities moving forward. The Company continues to explore opportunities where mining can be paired with stranded or wasted energy. There is tremendous potential for energy generators to utilise mining as a balancing and optimization tool, particularly in the energy transition where limitations currently exist in the ability to store renewable energy. Argo is evaluating several projects with companies across the energy value chain.

For the remainder of 2024, the Company will continue to focus on its three pillars - financial discipline, operational excellence and growth and strategic partnerships. On behalf of the Board, I would like to thank all of our shareholders and stakeholders. We remain committed to optimising our capital structure and driving long-term value for our shareholders.

 

 

Sincerely,

 

On 12 January 2018, Argo Blockchain plc acquired a 100% subsidiary, Argo Innovation Labs Inc. , incorporated in Canada. 

On 21 December 2022, Argo Innovation Facilities (US) Inc became Galaxy Power LLC. On 28 December 2022, the Group sold Galaxy Power LLC.

 

 

 

The condensed consolidated interim financial statements for the six months ended 30 June 2024 have been prepared in accordance with IAS 34 'Interim Financial Reporting' and presented in US dollars which is further described in Note 3. They do not include all the information required in annual financial statements in accordance with IFRS and should be read in conjunction with the consolidated financial statements for the year ended 31 December 2023, which have been prepared in accordance with UK-adopted International Financial Reporting Standards as issued by the IASB. The report of the auditors on those financial statements was unqualified.

 

The financial statements have been prepared under the historical cost convention, except for the measurement to fair value certain financial and digital assets and financial instruments.

 

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the financial statements for the year ended 31 December 2023.

The principal accounting policies applied in the preparation of these condensed consolidated interim financial statements are consistent with those of the previous financial year, except the change in presentational currency from British Pounds to US Dollars and recognition of power credits within Mining Margin in the Statement of Comprehensive Income.  The Group changed its presentational currency to US Dollars with effect from 1 January 2023 due to the fact its revenues, direct costs, capital expenditures and debt obligations are now predominantly denominated in US Dollars.

 

In order to satisfy the requirements of IAS 8 and IAS 21 with respect to a change in the presentation currency, the statutory financial information as previously reported in the Group's Annual Reports have been restated from GBP into US Dollars using the procedures outlined below:

 

Power credits: The Group recognized power credits in relation to selling power back to the power grid.  The hosting facility sells some of the Group's power back to the power grid when economically feasible.

 

The preparation of consolidated financial statements requires an assessment on the validity of the going concern assumption. Mining economics since the halving in April 2024 have been challenging due to the reduced reward not being offset by a reduction in overall network hash rate. We have benefited from lower power prices at Helios which has allowed us to sustain mining margin percentages, albeit on a lower revenue base. However, based on mining economics as of the date of this report, our mining margin percentage is expected to decline in the second half of 2024.

 

During 2024, the Company has continued to focus on strengthening its balance sheet. Subsequent to 30 June 2024, the Company issued 57.8 million shares and raised gross proceeds of $8.3 million. This allowed the Company to repay the remaining Galaxy debt in August 2024.

 

Paying off the Galaxy debt is a significant milestone for the Company. However,  material uncertainties exist that may cast significant doubt regarding the Group's ability to continue as a going concern and meet its liabilities as they come due. The significant uncertainties are:

 

2) The Group's exposure to Bitcoin prices, power prices, and hashprice, each of which have shown volatility over recent years and have a significant impact on the Group's future profitability. The Group may have difficulty meeting its liabilities if there are significant declines to the hashprice assumption or significant increases to the power price, particularly where there is a combination of both factors. Current mining economics are challenging for Bitcoin miners and as a result the Group recorded a $22 million impairment charge during the period. The Directors' assessment of going concern includes a forecast drawn up to 31 August 2025 using the Group's estimate of the forecasted hashprice. These include estimates of a renewed hosting agreement with Galaxy beginning in January 2025.

3) The Company may not be able to extend its hosting agreement with Galaxy on terms that are acceptable to the Company. In addition, finding acceptable alternatives may be challenging given that the miners hosted by Galaxy are an older fleet and in immersion fluid.

Offsetting these potential risks to the Group's cash flow are the Group's current cash balance, the Group's ability to generate additional funds by issuing equity for cash proceeds and selling certain non-core Group assets.

 

Based on information from Management, the Directors have considered the period to 31 August 2025, as a reasonable time period given the variable outlook of cryptocurrencies. Based on the above considerations, the Board believes it is appropriate to adopt the going concern basis in the preparation of the Financial Statements. However, the Board notes that the significant debt service requirements, the volatile economic environment and uncertainty over the Galaxy renewal at Helios renewal  indicate the existence of material uncertainties that may cast significant doubt regarding the applicability of the going concern assumption. The auditors also made reference to this in their audit report on the financial statements for the year ended 31 December 2023.

 

 

The Group has adopted all recognition, measurement and disclosure requirements of IFRS, including any new and revised standards and Interpretations of IFRS, in effect for annual periods commencing on or after 1 January 2024. The adoption of these standards and amendments did not have any material impact on the financial results or position of the Group.

Standards which are in issue but not yet effective:

At the date of authorisation of these financial statements, the following Standards and Interpretation, which have not yet been applied in these financial statements, were in issue but not yet effective.

 

The Group has not early adopted any of the above standards and intends to adopt them when they become effective.

 

The tax on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows:

 

 

The directors consider that the carrying amount of trade and other receivables is equal to their fair value.

The Group mined crypto assets during the period, which are recorded at fair value on the day of acquisition. Movements in fair value are recorded in change in fair value of digital currencies on the statement of comprehensive loss.

The directors consider that the carrying value of trade and other payables is equal to their fair value.

 

 

The mortgage is secured against the building at Baie Comeau and is repayable over periods of 30 months at an interest rate of lender prime + 0.5%.     

*The Galaxy loan was fully repaid subsequent to quarter end.

 

 

 

 

 

All financial assets are in listed/unlisted securities and digital assets.

There were no transfers between levels during the period.

The Group recognises the fair value of financial assets at fair value through profit or loss relating to unlisted investments at the cost of investment unless:

 

 

 

Key management includes Directors (executive and non-executive) and senior management. The compensation paid to related parties in respect of key management for employee services during the period was made only from Argo Blockchain PLC, amounting to:

 

Total director fees and remuneration, paid directly and indirectly, totalled $541k (2023: $280k).