Good morning, welcome to Cipher Mining Inc's Fourth Quarter and Full Year 2022 Business Update. All participants are in a listen-only mode. After the speaker's presentation, we will conduct a question-and-answer session. To ask a question, you'll need to press star followed by one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Josh Kane with Investor Relations. Thank you. Please go ahead.
Good morning. Thank you for joining us on this conference call to discuss Cipher Mining's Fourth Quarter and Full Year 2022 Business Update. Joining me on the call today are Tyler Page, Chief Executive Officer, and Ed Farrell, Chief Financial Officer. Please note that you may also review our press release and presentation, which can be found on the Investor Relations section of the company's website. Please note that this call will also be simultaneously webcast on the Investor Relations section of the company's website. This conference call is the property of Cipher Mining, and any taping or other reproduction is expressly prohibited without prior consent.
Before we start, I'd like to remind you that the following discussion, as well as our press release and presentation, contain forward-looking statements, including, but not limited to Cipher's financial outlook, business plans and objectives, and other future events and developments, including statements about market potential of our business operations, potential competition, and our goals and strategies. The forward-looking statements and risks in this conference call, including responses to your questions, are based on current expectations as of today, and Cipher assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law. Additionally, the following discussion may contain non-GAAP financial measures. We may use non-GAAP measures to describe the way in which we manage and operate our business.
We reconcile non-GAAP measures to the most directly comparable GAAP measure, and you are encouraged to examine those reconciliations, which are found at the end of our earnings release issued earlier this morning. I'll now turn the call over to Tyler. Tyler?
Hi, this is Tyler Page, CEO of Cipher Mining. Thank you very much for joining our fourth quarter and full year 2022 business update call. Let me start with some key developments since our last call. As we moved towards completion of our four initial data centers, we began publishing monthly production reports. Page three gives a snapshot of our business as of our most recent production report. At the end of February 2023, we reported 5.2 EH/s of self-mining operations across all of our sites. This is well on the way to our initial build-out of 6 EH/s of self-mining capacity across the portfolio.
Later in this presentation, I will detail how we have the potential to expand to up to 8.2 EH/s at our existing sites by year-end 2023 if we choose to pursue expansion. We have over 48,000 rigs operating and anticipate an additional 11,000 miners to be energized in the near future. In total, Cipher has now purchased and paid for over 59,000 machines, including 7,700 rigs that we announced in December 2022. As we mentioned at the time of that announcement, we were able to purchase these new rigs with minimal cash outlay, an important example of our focus on cost discipline and our ability to manage the cyclicality of prices in the Bitcoin mining marketplace.
The philosophy of managing through the cycle is one you'll hear me talk about a lot because it is a fundamental part of the way we run every aspect of our business. In terms of production, you can see that we ended the month of February with the ability to mine over 15.5 Bitcoin per day, and that we held 465 Bitcoin in reserve. Later on in the presentation, we will talk more about our philosophy around our Bitcoin reserve and treasury management. Turning to page four. We think it's important to step back and take stock of the past year and the developments that have led to these very strong production numbers that we are now reporting.
In 2022, we completed development on three of our four initial sites and began production at our fourth site, Odessa, the largest data center in our current portfolio. It's a testament to the tremendous capability of our team that in roughly 15 months, we were able to go from a group of greenfield projects on paper to operating four best-in-class data centers. Our Alborz, Bear and Chief data centers were fully operational coming into the new year, and here we have provided some cost estimates from our recent electricity bills that illustrate the low cost that Cipher pays on a per-Bitcoin basis at the site. As a reminder, the large majority of operational costs paid by a Bitcoin miner are its electricity bills.
As you can see, in January at Alborz, we paid about $5,143 in electricity per Bitcoin produced, while at Bear and Chief, we paid roughly $6,293 in electricity per Bitcoin produced. These costs are among the lowest we have seen for a Bitcoin miner in the current market, and we believe demonstrate one of Cipher's greatest competitive strengths. In November, we announced that our Odessa data center began Bitcoin mining operations just 10 months after we broke ground at the site. As of the end of February, we have roughly 4.2 EH/s of our self-mining operations at this site alone, and we'll talk later in the presentation about our expansion plans. We also plan to report electricity costs per Bitcoin for Odessa in the future when it is operating at full scale.
As you can see, we have now reached that critical inflection point in our business where we have gone from a development story to a story of large-scale Bitcoin production. Combined with strong and resilient unit economics. In the coming quarters, we expect to demonstrate that best-in-class execution at full scale across all of our sites. Before diving deeper into a market update, let me take a moment to remind everyone how our business model works. On slide five, you will see a simple overview of a Bitcoin mining business. We operate the box in the middle of the drawing that says mining equipment, which represents our data centers and mining rigs. As I discussed earlier, we spend the majority of our operating expenses on electricity, which our data centers convert into computing output.
Unlike traditional data centers which operate a similar model and sell their computing output to enterprise clients for dollars, Cipher sells its computing output, called hash rate, to the Bitcoin network for Bitcoins. To make this model operate profitably, a Bitcoin mining company needs to control both its electricity costs and the capital it spends to build its data centers, including what it spends to purchase mining equipment. Controlling these costs enables a miner to be a lower-cost producer, and our focus at Cipher has always been on controlling these specific costs to produce the best possible unit economics. Now let's turn to page six and take a look at recent market events in the Bitcoin mining space and talk about Cipher's approach to these challenging markets. Our philosophy continues to be that as a low-cost producer, these markets present opportunities for us over the long term.
Since our last business update, Bitcoin prices initially dropped significantly in the fourth quarter to the mid-teens thousands of dollars before rallying to the mid-twenty thousands of dollars in early 2023. Accompanying this price increase has been a steady climb to an all-time high in Bitcoin network hash rate, which continues to suppress overall mining economics. This market backdrop has led to several noteworthy news events for competitors in our industry, including the repossessions of competitors' mining rigs by equipment lenders, the sale of assets, and M&A activity. Energy prices have softened recently, there continue to be many more mining rigs looking for a home than available sites with good mining cost economics. With our strong portfolio of data centers, Cipher is very well-positioned, and with the strength of our balance sheet and the successful growth of our business, we've been approached with many different opportunities.
It's important to remember that cheap assets are only part of the equation and that many of the businesses that are now in distress have fundamental issues around their cost structure that make them unattractive acquisition targets. While we continue to look at a variety of distressed opportunities, our current view is that the best potential growth opportunities are already within our portfolio, beginning with finishing the initial build at Odessa and subsequently expanding to full capacity later this year at the site. We will continue to look for low-risk cyclical opportunities where we can take advantage of our relative strengths and continue building a company that can withstand the storm. We believe we can ultimately emerge as the industry winner when brighter days return.
As a final note on the market, big disruptions seem to coincide with our business updates, so it is challenging to keep up to the minute on this slide. Unfortunately, this quarter is no different with recent bank failures. I am happy to report that Cipher had no exposure to Silvergate or Silicon Valley Bank, and we had less than $20,000 at Signature, which we are in the process of moving. Proactive counterparty risk management is a major focus for us. We currently have accounts with three of the largest 10 banks by asset in the U.S. , as well as other more niche-focused accounts. We see positives for Bitcoin in the long-run future coming from the recent turmoil, and Cipher will help ensure that positive future. Moving to more specific highlights on our data centers. Slide seven shows some operational highlights from our Alborz data center.
Alborz is 100% powered by wind and is a joint venture that we share with our energy provider. It has a total operating capacity when the wind blows of 40 MW. That 40 MW powers roughly 1.3 EH/s of rigs. Alborz can mine almost 4 Bitcoin per day, and year to date, the site has mined approximately 186 Bitcoin. Roughly half of that total capacity and production belong to Cipher. Most importantly, our recent all-in electricity cost per Bitcoin at Alborz was approximately $5,143, demonstrating our resilient low-cost structure. Slide eight shows operational highlights from our Bear and Chief data centers. Bear and Chief were completed and made fully operational last October.
Combined, the sites operate 20 MW, which powers approximately 0.65 EH/s at the data centers and can generate roughly 2 Bitcoin per day in current market conditions. Bear and Chief are also structured as joint ventures with similar shared economics to Alborz. Unlike our other sites which have behind-the-meter power arrangements, Bear and Chief are set up in front of the meter in a location within Texas that typically features attractive market prices. Our recent all-in electricity cost per Bitcoin at the sites was approximately $6,293. Turning to our Odessa data center, slide nine includes our most recent production numbers as well as a timeline for the completion of our site build-out. At the end of February, we reported a hash rate of approximately 4.2 EH/s at the site, generated using approximately 143 MW.
We have mined roughly 770 Bitcoin at the site to date and had a recent daily mining capacity of approximately 12.9 Bitcoin per day. We continue to expand at the site every day. We expect it to reach approximately 4.7 EH/s of capacity by the end of March and 5 EH/s of capacity shortly thereafter. Beyond this initial machine deployment, we will also have completed the necessary infrastructure at the site to accommodate further machines capable of taking the site to a total of 6.2 EH/s by year-end. In previous quarters, we have talked in detail about the Odessa power contract. It's important to reiterate that because of our long-term, low-cost, fixed-price power contract at Odessa, we have an advantage that few other Bitcoin miners have.
We have the flexibility to resell our power capacity at market rates, and this flexibility can provide a hedge against potential future declines in Bitcoin mining profitability. As a further hedge against deteriorating market conditions, our power purchase capabilities exceed our power purchase obligations under the contract. While we have the right to purchase 207 MWh under the contract, we are only required to purchase two-thirds of these hours per annum. In possible situations where both Bitcoin mining and reselling power to the market were not profitable, we will have limited our exposure. This feature of our power contract also sets Cipher up for growth potential while minimizing risky commitments, as I will explain on the next slide. Slide 10 provides further detail on the organic growth capacity at our current data centers.
Though the potential for hash rate growth has not been as much of a focus for investors in our sector recently, given choppy market conditions, we always keep an eye on the potential for growth into the future. Our goal is to identify opportunities for growth that feature favorable mining economics, but minimal financial commitments so that we can remain flexible. Our existing portfolio of sites features the best expansion opportunities we have found and are detailed here. As I mentioned, our most immediate expansion opportunity will be to purchase mining rigs to utilize the full 207 MW available to us at Odessa. In advance of acquiring those machines, we can resell the megawatt hours we are not currently using to the market or elect not to take them at all.
That is, we already have mining operations at the site that exceed our take-or-pay obligations under the contract. If we need to, we can simply mine with our existing build-out and await better market conditions for expansion. In the coming months, it is our current intent to purchase rigs with the revenues we are generating from operations to fully utilize our 207 MW at Odessa. If we purchase current generation machines, we could add approximately 1.2 EH/s of mining capacity to the site this year. However, given volatile market conditions, we want to be mindful of not overextending ourselves, so we will continue to evaluate expansion in light of market conditions.
This near-term opportunity for growth with strong built-in unit economics, but without operational spending commitments, is one that few, if any, of our competitors have and demonstrates Cipher's continued approach to look for low-risk opportunities. Continuing with this same theme, our joint ventures at Bear and Chief have expansion potential in 2023 as well and have mapped out 30 MW of expansion at each site. Again, Cipher has the right but not the obligation to participate in this expansion. Should we choose to opportunistically participate, these expansions could add another 1 EH of self-mining capacity to Cipher in 2023. Beyond 2023, Bear and Chief have further expansion potential, and our joint venture at Alborz is exploring adding a grid connection to supplement the existing wind farm in the coming years, which would expand its capacity meaningfully.
As you can see, we have the potential to expand to 8.2 EH/s in 2023 and significant potential for further expansion beyond that in the years to come at the data centers we are already operating. We will manage this growth potential prudently as we navigate challenging markets and financing conditions. I will close my portion of the call by reiterating some key statistics of Cipher Mining that show how we are built to succeed through bear markets and bull markets. Our fleet of roughly 59,000 rigs operate at a very efficient 31.4 J/TH average, and we power them with electricity purchased at a price of roughly $0.027 per kWh .
Using newer and efficient machines with a low cost of power makes us a low-cost producer of Bitcoin, giving us resilience in the bear market and also operational leverage in a bull market. In this current tough market for Bitcoin miners, I'd like again to emphasize Cipher's strong liquidity profile. At the end of February, we had approximately $16.4 million of cash in Bitcoin. We do not have the debt service woes some of our competitors are experiencing, and we have no further obligations to make any additional payments to mining rig manufacturers. As part of our prudent liquidity and balance sheet management, we also have access to a $250 million at-the-market equity shelf. We have yet to sell a single share from the shelf.
In the last quarter, we passed on multiple offers for debt financing that we found to be unattractive and have continued to fund our remaining CapEx at Odessa from our operations. We will prudently manage our Bitcoin treasury over time. While we plan to grow the Bitcoin treasury over time, we also liquidate Bitcoin to pay OpEx and CapEx and overhead when necessary. We currently anticipate funding all of the remaining infrastructure expenses at Odessa from our treasury and ongoing operations. We expect to complete our initial build-out of infrastructure in the second quarter. When you combine our current liquidity profile with our expanding Bitcoin production and strong unit economics, we believe Cipher is positioned to emerge from this challenging market as the true leader in the Bitcoin mining space. I'd like to turn it over to our Chief Financial Officer, Ed Farrell.
Thank you, Tyler. Hello to everyone on the call. Our flagship data center at Odessa was energized in November. For the period from November 22nd, 2022 through December 31st, we mined 180 Bitcoin at an average price of approximately $17,000, resulting in Cipher reporting $3 million in revenue for the year. With the ramp-up of Odessa in 2023, we look forward to providing the market with greater detail on our operations, which we believe will illuminate our best-in-class unit economics. We have no burdensome debt, and we are funding our operations with our current Bitcoin production. If you recall, we've recorded a derivative asset on our balance sheet the third quarter, driven by our Luminant power agreement. The change in fair value of this derivative asset was $73.5 million for the year ended December 31st, 2022.
The $73.5 million includes $83.6 million of income recognized for the initial derivative asset fair value on July 1st, 2022, offset by $11.8 million of expense recorded related to a decrease in fair value of the power agreement as of December 31, 2022. The change in fair value of the derivative asset in 2022 also included $1.7 million for a sale of electricity facilitated by Luminant. For this year and future periods, the change in fair value of this contract will flow through our GAAP earnings and will exclude the impact for non-GAAP reporting. Other significant assets include liquidity of $18.2 million. This includes cash of $11.9 million and Bitcoin of $6.3 million.
Property and equipment of $191.8 million, primarily related to our Odessa site, which includes miners of $80 million, leasehold improvements of $95 million, and construction in process of $20 million, offset by $4.2 million of depreciation. Deposits on equipment of $73 million is primarily related to miners of which sizable portion have been delivered in 2023. As Tyler stated, we do not have any amounts due associated with purchase commitments for miners. Security deposits of $17.7 million primarily related to our collateral for our Luminant PPA and our equity investment in our JV Alborz Bear and Chief of $37.5 million. As Tyler stated earlier, our liquidity position at the end of February was approximately $16.4 million in cash and Bitcoin.
To date, we have not utilized our $250 million ATM shelf, when market conditions improve, it will be additive to our liquidity profile. Let's look at our GAAP operating results for the year ended December 31st. We had a net loss of $39.1 million, resulting in a net loss of $0.16 per share. Revenue for the year ended December 31st, 2022 was $3 million and was generated entirely from Bitcoin mining operations. The change in fair value of our Odessa power agreement, which I mentioned earlier, resulted in a gain of $73.5 million.
This was offset by equity and losses of equity investees totaling $37 million for the year ended December 31st and primarily consisted of losses totaling $33.4 million, resulting from a contribution of miners to our JV Alborz Bear and Chief between June and October 2022. This is due to the miners having fair values at the time of the contributions that were less than the cost paid to acquire the miners. We had general and administrative expenses of $70.8 million during the year ended December 31st. This includes stock-based compensation of $41.5 million, payroll and benefits of $4.3 million, corporate insurance of $9.5 million, professional fees of $5.2 million that include legal, accounting, audit, and tax services. Other G&A of $8.5 million that include IT, occupancy, consulting, and other public company expenses.
We had $4.4 million of depreciation primarily related to the assets put into service at Odessa. Our non-GAAP financial measures. We are providing supplemental financial measures for non-GAAP loss from operation that excludes the impact of depreciation of fixed assets, stock compensation expense, and the non-cash change in fair value of our derivative asset. These supplemental financial measures are not measurements of financial performance in accordance with U.S. GAAP. As a result, these supplemental financial measures may not be comparable to similarly titled measures of other companies. We believe that these non-GAAP measures are also useful to investors in comparing our performance across reporting periods on a consistent basis. Management uses these non-GAAP financial measures internally to help understand, manage, and evaluate business performance and help make operating decisions.
For the year ended December 31st, 2022, we had non-GAAP loss of $64 million, resulting in a non-GAAP net loss of $0.26 per share. We have provided a reconciliation of GAAP versus non-GAAP results for your review. Finally, our team takes great pride on continuing to deliver the plan we set out back in 2021, and we look forward to reporting our progress in future periods. I will stop there, and Tyler and I are happy to take your questions.
As a reminder, to ask a question, please press star followed by one on your telephone keypad. To withdraw your question, please press star one again. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Please rejoin the queue for any additional questions. Thank you. Our first question comes from Josh Siegler from Cantor Fitzgerald. Please go ahead. Your line is open.
Morning. Thanks for taking my question today. First off, how are you thinking about the CapEx spend needed to expand at Bear and Chief? Do you plan on funding this expansion through your operations? Thank you.
Thanks, Josh. you know, I think it remains to be seen. I think the reason why we highlight this sort of opportunistic flexibility that we have in our model is that these are choppy markets, right? At any given point in time, if you think about the levers we could easily tap for financing, we could look for debt financing, which I mentioned we've seen offers on some of our data centers. We could theoretically sell equity to fund it or we could sell our Bitcoin effectively via operation. it kind of depends on market conditions and point in time. I can't give you a specific answer for, you know, this is the lever we're going to pull for those particular expansions.
That'll be a question that will come more to the forefront in the coming months.
Understood. It seems like you do have many levers and optionality around that. For my second question, I was wondering if you could discuss what prices you're currently seeing for rigs right now, and if you consider purchasing rigs earlier than the infrastructure is actually available to take advantage of the current low prices.
Yeah. It's a constantly shifting target, you know, it moves day by day. I think the thing to keep in mind is, candidly, I haven't seen a price run since this Bitcoin rally began with the news this week. Hash price is still depressed, right? We've seen a huge growth in network hash rate. The most recent prices I've seen, I've seen quotes in the low double digits, dollars per terahash, so kinda $12, $13. You know, that can move day by day, and it depends on how many you order at a clip. I think it's fair to say that it's certainly not a bad time to buy rigs.
We don't believe if you've got the capital, we will be prioritizing that as we finish the build-out at Odessa, right? I think we have probably the greatest opportunity of any of the miners, given that we've got this free option on available infrastructure at a very low fixed price there. Rest assured, certainly philosophically, we are ready and excited to purchase rigs at prices that are seemingly, you know, potentially below cost of manufacturing for the rigs. It's all about, you know, just being cautious as we finish the build, finish the capital spend on Odessa to get the infrastructure in place and then pivoting to purchase rigs. I'm hoping we do that in the near future.
Thank you very much. Appreciate it.
Thanks, Josh.
Our next question comes from Reggie Smith from JP Morgan. Please go ahead. Your line is open.
Hey, good morning, guys, and congrats on the build-out. I had two quick questions. I guess one, and this is probably difficult to answer, and so to the extent that you could kinda walk me through your thinking, I think it would be super helpful. Thinking about that $250 million shelf offering, Like, what's the calculus or the math behind capping that versus the dilutive impact of it? Like, is there a rule of thumb that investors or you kinda look to in deciding, "All right, this is a good time to use that?" When does it make sense, and what do those conditions look like?
So tough to answer that question with specifics, Reggie. It's a good one. We think about it a lot. I think as a framework for it, we would want to use it to do something accretive. Well, let me actually say in two ways. I view it as it's a nice thing to have in place just in choppy markets, right? It's just yet another lever, you know, we could tap if we had to. You know, Bitcoin, something terrible happens, and Bitcoin drops to $8,000 and the market is stressed, like, you know, it's just another lever we can pull. I think we're more likely to think about using it opportunistically, and the framework for that would be something accreted.
You know, for example, if we could find an incredible price on rigs to immediately plug in at Odessa, you know, we would view that as instantly accretive to shareholders. That's the kind of thing where we would think about it. As I'm sure you know, there's many dimensions to thinking about using it. You know, our liquidity is steadily building in the market. Of course, we wanna be mindful of not impacting the stock in a, in an adverse way, while we do something accretive.
Understood. Yeah, I guess accretion could be thought about a number of different ways. I think one way I was kind of thinking about it, and tell me if this makes sense, if you were to think about, exahash per share outstanding and, you know, kind of do the math that way, and as you did a shelf offering, that would increase your shares outstanding, but it would also bring in more. Is that the right way to think about accretion, or is it more from the profitability?
Yeah, it's an interesting angle.
Is it too complicated? You know, I don't know.
Yeah. I mean, it starts to get a little challenging. I think we probably fall back on a dollars-based profitability to drive value-
Got it.
... to shareholders. you know, exahash per share is a, I guess, is a proxy, but it sort of ignores the hash price element of things, right?
Yeah.
You know, the problem with that is, what if network hash rate goes to 1,000 EH or something like that?
Right.
Like, you have to sort of think of both of those things at the same time, if it makes sense?
No, it does. It's, it's a, it's a fascinating problem to solve. We'll be watching there. I guess, if I could sneak one more question in, very impressive energy price per Bitcoin numbers you guys posted. It's like the lowest I've seen among any of the public miners, that's great. Hats off to you for that. My question, how do you think about kind of the unit economics below the energy line item? What are you driving the business to there? I don't know if, you know, if it's overhead per unit. Like, what's the right way for investors to think about that, too? Thank you.
That's a great question, and I'm optimistic that in the future, when we are operating at full scale throughout a quarter, we'll be able to drill down with more specificity on that. With electricity, it's pretty straightforward, right? We can take a monthly bill, and we can look at how many Bitcoin we produced and its division. You know, on operations, I'll tell you how we think about it overall at the company level. We try to leverage technology to drive efficiency. This is one of the great benefits we had of rather than sort of incrementally scaling up as a miner, we sort of came public with a big plan to build scale.
Starting from a blank sheet of paper, we've architected a firm that generally has fewer people and fewer better people and leverages technology. I think what you'll see is, in the future, parallel with our low energy costs, you'll see low overall OpEx costs to match with that. But keep in mind, electricity is sort of, in my mind, the big variable. Even if we are the most efficient at the other OpEx, the thing that really drives the overall cost economics is the electricity price.
Understood. That's, that's good color. Thank you.
Thanks, Reggie.
Our next question comes from John Todaro from Needham. Please go ahead, your line is open.
Great. Thanks for taking my question, and congrats on the quarter. First question, with Odessa getting a little bit further built out here, is the G&A spend, is that kind of already in play? Should we be taking that Q4 number and thinking it holds at least for the first half of 2023, or?
I can take that. Hi, John. How are you? Yeah, as Tyler said, we, from a personnel perspective, I think at this point in time, we don't see a tremendous increase in headcount for 2023. Some of our, you know, early company expenses, I think, have been put behind us and just starting to level out more. I think if you look at the last two quarters, you could use that as a reasonable run rate in 2023.
Got it. Okay, great.
That's helpful?
Thanks for that. Yes, that is. Appreciate that. The second question, on the potential Alborz expansion, I believe that's the lowest power cost in the portfolio. Any expansion there, could you just give us some more color on what those power contracts would look like today?
It's a little bit early. you know, I think we wanted to put it on there to include it because it is within the portfolio, but you will note that, we don't have any of that marked for 2023. What we are exploring there is adding a grid connection. Recall that Alborz operates an off-the-grid wind farm only. When the wind blows, we mine, and you can see why it's so attractive because the electricity price is so low there. Of course, when the wind doesn't blow, our machines are not hashing. Also, it is a 40 MW facility from a data center perspective, but it is co-located with a 165 MW wind farm. Theoretically, we can go get a grid connection.
There are some structuring hurdles and some things we need to go through. You know, we need to map out the approvals process, et cetera. What we would be doing then is adding the potential for 100% uptime there and also expansion. From a cost perspective, you know, we would be buying that power, front of the meter, right? We'd be buying it from the grid. That would be the market price, unless we opportunistically put in place a financial hedge. Hard to forecast-
Yeah
... but, you know, the point is it would be a floating price, at least inasmuch as we're buying, from the grid directly.
Got it. Okay. just to make sure. partially would be still wind, and then-
Yeah
Part of it would be from the grid direct. Okay. Got it.
Correct.
It'd still bring your average cost down quite a bit, I would imagine.
It's hard to forecast, right, because it we'd have the exact same price when the wind is blowing. When the wind stops, we would be tapping the power prices that we could get. It probably, you know, would look something like a mix of the Bear and Chief power price plus the Alborz power price-
Got it.
... if that makes sense. Think about, you know, 1/3 the Alborz cost and about 2/3 the Bear and Chief cost. Keep in mind, the Bear and Chief cost we put in the deck, but that can vary, right, because it's front of the meter. If market prices go way up, that could change or conversely, if they go down, same thing.
Okay. Got it. Understood. Thank you, guys. Appreciate it.
Our next question comes from Mike Colonnese from H.C. Wainwright. Please go ahead. Your line is open.
Hi. Good morning, guys. Thank you for taking my questions this morning. First one from me, I saw on your slide pre-presentation that you have 2.2 EH of self-owned expandable capacity at three of your four sites, does the Bear and Chief that you call out specific for 2023. How long would it take you guys to develop the additional capacity when you decide to do so? Really just trying to get a better sense on the timeline to scale organically during this calendar year.
Thanks, Mike. The 2.2 we mentioned across Odessa, Bear, and Chief are all theoretically possible within the calendar year. That, you know, that would be there is the early work going on at Bear and Chief. We need to go acquire rigs. They need to get delivered. You know, we need to build the infrastructure, et cetera. We estimate that we would be able to bring that up by year-end. Certainly at Odessa, that's just a matter of acquiring the rigs after we finish the build-out, and the build-out, you know, will be finished in the next quarter.
Got it. Got it. That's helpful. Thank you, Tyler. Then the next one from me, you mentioned, you're seeing a lot of acquisition opportunities right now. What type of deals would get you more excited to engage in M&A versus expanding organically?
You know, we try to stay very disciplined on modeling costs and profitability and ROI. The truth is, we would evaluate an M&A opportunity or an asset purchase just like we would expansion. Now, obviously there's some extra risks that you mix in with M&A that we also have to somehow put a, you know, call it a risk price on. We really just have to compare what the opportunity is. I think it's fair to say I can't imagine there is possibly an M&A opportunity as good as the expansion at Odessa, right? We have a fixed lowest cost that I'm aware of in the industry just waiting for rigs there. I don't think anything from an ROI perspective can possibly beat that, you know, unless someone, I guess, was in real distress.
You know, beyond that, what I'd say is there are questions that as we get closer to the halving, now we're only about a year, 13 months out, a lot of miners with sort of different approaches to costs are gonna get under more and more stress. We think we're gonna be, you know, the belle of the ball. I think that people are gonna be very interested in partnering with us. You know, we will look for whatever the best opportunity is to grow thoughtfully and produce the best shareholder returns.
Makes sense. Thank you for taking my questions.
Thanks, Mike.
Our next question comes from Joseph Vafi from Canaccord. Please go ahead. Your line is open.
Hey, guys. Good morning, and nice update. Nice progress. I thought we'd, you know, I know you mentioned, you know, the Bear and Chief locations and expanding there, and I know it's front of the meter. How do you think about, kind of price volatility of power in those sites and how that is incorporated, I guess, into your thoughts on expansion there? I have a quick follow-up.
Sure. Thanks, Joe. Bear and Chief are located in very favorable front-of-the-meter locations. So if you look at the prices in that geographical location of the ERCOT grid, you can find very low front-of-the-meter prices because there's an abundance of supply, historically, although it does bounce around, of course, with the weather and other conditions. The other thing is they're favorably located to minimize the various associated transmission and distribution charges. What I'd say is you saw the prices we've paid with the floating prices, which are in the deck. That gives an indication of how favorable those locations are. Well, what I would also say is we always evaluate what we could find as a hedge.
It is possible to get a financial hedge that we would put in place, but both Bear and Chief are in Load Zone West, and that has a particularly low transmission and distribution tariff. We always look for a hedge and think about locking a price, but the floating price is pretty favorable right now, so it could go either way. It's sort of market-dependent.
Sure. Fair enough. Then, as you expand out, Odessa, and it sounds like you're using your funds from operations really to expand that. Could you just give us a feel for kind of the rate at which you can expand versus your, intention to perhaps keep some Bitcoin as HODL while you're expanding? Just kinda, I guess, the mix of operational funds that goes back to the balance sheet as HODL and then what's being deployed to continue to grow exahash. Thanks a lot, guys.
Sure. That's also a tough one to answer 'cause it's a little bit of a dynamic element to managing it. What I mean by that is March will be a decent chunk of CapEx we will spend to complete the infrastructure at Odessa, and then that will tail off into April and there may be some cleanup final payments subsequent to that, but it's tailing off. At the same time, we will be thinking about opportunistically buying machines, right? If we were to purely fund the machines out of operations, you know, very rough back of the envelope, you know, we will have...
When we stop using funds to pay for CapEx expansion, we would have, you know, $2 million a month that we could think about spending on machines. Now, when you think about the overall Bitcoin inventory that we wanna build over time, I think of that on more of a long-term timeframe. If we saw, again, an amazing opportunity to do something accretive, we could theoretically go sell the Bitcoin inventory because it would be in the pursuit of rapidly increasing our rate of Bitcoin production. You know, there's no hard and fast rules other than the philosophy around the Bitcoin inventory is to build it slow and steady over long timeframe, and think about, you know, tapping it. Obviously, we use it to spend. We liquidate our Bitcoin to pay for OpEx as we go.
What gets held and what goes to CapEx and investment is somewhat dynamic and market-dependent.
Sure. Fair enough. Yeah, lots of options, always watching the opportunistic opportunities. I get it. Thanks a lot, guys.
Thanks, Joe.
Our next question comes from Bill Papanastasiou from Stifel. Please go ahead, your line is open.
Hi, good morning, everyone. Thank you for taking my questions. Just looking at the Bitcoin price here, it looks like mining economics are improving, so that's a great start to the day as well. My first question is in regards to fleet efficiency. You know, we continue to see a premium for the latest generation of mining equipment, which, you know, seems to be largely as a result of mining operators that have exposure to higher electricity prices than companies like Cipher looking for, you know, equipment that provide the highest implied break-even cost of electricity.
Given that Cipher is operating at, 31 J/TH , curious to hear whether your team has any targeted fleet efficiency, profiles, as we look at the halving coming up later this year, later in 2024 rather, and how that might look, as you guys potentially pursue growth to 8.2 EH. Thank you.
You know, that's a great question. We usually wouldn't look at that in a vacuum, like having a goal specifically for fleet efficiency. It's really part of a mosaic when we look at the return on investment for a site. Meaning, and you highlighted this, more efficient machines are gonna be really a requirement for miners that have higher electricity costs. We are spoiled for choice. What we end up doing is when we look at the potential to buy rigs, we will look at whether the premium you have to pay for the latest and greatest and most efficient machines is sort of worth it from an overall ROI perspective. I think a lot of miners are handcuffed, and certainly will be more so when the halving comes, with having no choice.
That basically, they will have to pay the premium because they have to pay their higher cost of operations. For us, it is a little bit opportunistic and dynamic. I could see a situation where perhaps the S19 generation prices or the M30S++ generations drop enough that we make a better overall forecasted return than paying the premium that has generally been You know, a little bit too high for us in the past. That's why we have not purchased the kind of XP generation of machines. I do think that's something that is going to squeeze the higher-cost producers. It sort of highlights, while we don't have a target, certainly we recognize that over time, your fleet efficiency needs to keep up.
We are set up to have a lot of optionality with our power costs.
Great. I really appreciate that color. I mean, you know, we all know that Bitcoin mining is a relative game, so we have to see kind of how the other players continue to expand or contract our operations. At least, you know, Cipher has the flexibility there to potentially look at cheaper models that provide a better ROI profile. My next question is in regards to the U.S. Treasury Department's proposal recently for a 30% excise tax on the total cost of electricity used for digital mining. Wondering what the company's thoughts are there, and, you know, it seems a little bit ridiculous in some sense that, you know, there would be the, also the inclusion to apply the excise tax to firms that are producing or acquiring power off grid. What are your thoughts to that?
It's a really interesting development. I'm not sure that our thoughts are fully baked at this point. You know, I'd say, first of all, it's a proposal that our advisors have told me is unlikely to pass, and, you know, people can get deep on thinking about, you know, taxing certain uses of energy. There's certainly a partisan element seemingly to that I hope we avoid as it makes its way through the legislative process. What I'd say overall, though, is that it's always comes back to the same answer that it's good to pay the lowest electricity prices.
If that were to happen, you know, we're still at the lower end of the cost spectrum. Given the competitive dynamics of the way network hash rate works, you know, we would be better equipped to handle it than anyone else. Everything I have heard and read is that it's probably unlikely to materialize. We'll see.
Thank you, really appreciate the color.
Thank you.
As a reminder, to ask a question, please press star followed by the one on your telephone keypad. We have no further questions in queue. I would like to turn the call back over to Tyler Page for closing remarks.
Thank you everyone for your time today. It's always exciting to update you guys on our progress, and we look forward to the next one. Thank you for your support. We'll talk to you soon.
This concludes today's conference call. Thank you for your participation. You may now disconnect.