Good morning, and welcome to the Hut 8 third quarter earnings call. My name is Brandon, and I'll be your operator for today. At this time, all participants are in a listen only mode. Later, we will conduct a question-and-answer session during which you may dial star one if you have a question. Please note this conference is being recorded. I will now turn it over to Shane Downey, and you may begin, sir.
Thank you, Brandon. Good morning, ladies and gentlemen, and welcome to the 2021 Third Quarter Earnings Call for Hut 8 Mining Corp. I'm joined this morning by Jaime Leverton, CEO of Hut 8. I'd like to start just quickly by acknowledging what's most important for today, which is Remembrance Day here in Canada, Veterans Day for our American friends as well as everyone overseas. We're certainly very grateful for sacrifices of those that came before us, and then that's ultimately what allows us to gather today and discuss something like Hut 8's and our contributions to the future of our digital economy. Overall, we were very pleased with strong operating results during the third quarter. With the improvements in Bitcoin mining economics and our strategic capital investments, Hut 8 remains well-positioned for continued growth.
I will run through some short disclaimer language and then jump into a summary of our Q3 results. I will then turn things to Jaimie, who will have some commentary, and then we'll open it up for Q&A. In addition to the press release issued earlier today, you can find our financial statements and MD&A on both SEDAR and shortly on our website at hut8mining.com. Unless noted otherwise, all amounts referred to are denominated in Canadian dollars. I'd like to remind you that comments made during this call may include forward-looking statements within the meaning of applicable securities legislation regarding the future performance of Hut 8 Mining Corp and its subsidiaries. These statements are current expectations and, as such, are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations.
These risks and uncertainties include, but are not limited to, the factors discussed in the company's annual information form for the year ended December 31, 2020. At this time, I will walk through our financial highlights for Q3 2021. We achieved our third consecutive quarter of record revenue driven by strong mining activity and Bitcoin price. The total revenue for Q3 2021 was CAD 50.3 million compared to CAD 5.8 million in the prior year quarter. We earned CAD 47.9 million from mining activities as we mined 905 new Bitcoin at an average of approximately CAD 50,000 per Bitcoin. This compares with 372 Bitcoin at an average of approximately CAD 14,000 in the prior year quarter.
Our hosting line of business also generated CAD 2.4 million of revenue compared with CAD 0.5 million in the prior year's quarter. Hosting benefited from onboarding a second customer in late May of this year, whereas the prior year's quarter was the initial launch of our hosting business. Cost of revenue for Q3 2021 was CAD 21.2 million compared with CAD 11.1 million in the prior year quarter. The increase is a result of higher site operating costs, mostly electricity and an increase in depreciation expense. The increased depreciation expense was driven by the addition of mining equipment over the past 12 months, partially offset by revised estimated useful life of the company's infrastructure assets from four to 10 years, which was made in Q2 of this year.
Site operating costs increased due to Hut 8's continued expansion, specifically the addition of miners to our fleet. Specifically, I note that in absolute terms, site operating costs were depressed in the prior year quarter when, due to poor Bitcoin mining economics, the company ran much of our mining fleet in quote unquote eco mode so as to reduce power consumption. The cost of mining each Bitcoin for Q3 2021, excluding depreciation expense, was approximately CAD 17,700 compared with approximately CAD 20,300 in the prior year's quarter, reflecting the investment in more efficient mining equipment that we've made over the past 12 months. I also want to bring emphasis to the fact that our cost to mine figures are fully loaded costs inclusive of electricity, T&D and associated fees, as well as personnel, network monitoring and equipment repair and maintenance costs.
General and administrative costs were CAD 10.8 million compared with CAD 1.3 million in the prior year period. After excluding non-cash share-based compensation expense of CAD 2.8 million and non-operational sales tax expense of CAD 4.0 million, G&A expense was CAD 4 million for the quarter compared with CAD 0.7 million in the prior year period. This increase stems from the strategic investment to building out a larger and deeper pool of executives and managers, professional fees associated with various capital markets initiatives, and the new management team's commitment to best corporate practices as well as higher insurance and investor relations costs. The sales tax expense referenced previously relates to amounts we expect ultimately to be refunded by Canadian tax authorities, but have been fully provided against given collection uncertainty.
The CAD 4 million quantum is larger in the third quarter of 2021 due to sales tax import duties associated with our significant mining equipment purchases. In terms of finance income, we currently have Bitcoin lending arrangements with both Genesis and Galaxy. The income earned from our Bitcoin lending arrangements are reported in finance income. These lending arrangements were renegotiated during the third quarter of 2021, resulting in a revised annual borrow fee of 2% for Genesis and 2.25% for Galaxy, which in the case of Galaxy is paired with a $ 50 million undrawn credit facility. These lending arrangements allow the company to generate additional fiat cash flow while supporting our HODL strategy. We earned CAD 0.8 million of finance income during the quarter and CAD 2.1 million year to date from these lending arrangements.
We've recorded net income of CAD 23.4 million for Q3 2021, compared with a net loss of CAD 0.9 million in Q3 2020, driven by gross profit of CAD 29.1 million, reflecting the significantly improved Bitcoin mining performance. Given the movement in the price of Bitcoin for year-to-date Q3, we recorded a $53.1 million unrealized gain on digital assets, all of which has flown through other comprehensive income, net of tax expense of CAD 6.5 million. We then recorded the recovery of this deferred tax expense through our P&L. Altogether, this results in CAD 85.1 million of comprehensive income on a year-to-date basis.
Hut 8 achieved adjusted EBITDA, a non-IFRS measure of CAD 30.7 million for Q3 2021 compared to an adjusted EBITDA loss of CAD 2.6 million in Q3 2020, driven again by Bitcoin mining profitability in the period as previously discussed. From a balance sheet perspective, our balance sheet remains healthy. We raised approximately CAD 220 million, $172.5 million in a September 2021 common share offering. This brings total gross capital raised year to date to approximately CAD 413 million. The proceeds from this latest raise will continue to be invested in the growth of the company through the acquisition of mining equipment, including the recently announced 12,000 new MicroBT miners for delivery throughout 2022, as well as ongoing development of our recently announced third mining site in North Bay, Ontario.
Our Bitcoin holdings are marked at fair value and totaled CAD 263.8 million, reflecting 4,729 Bitcoin as at September 30. This balance consists of 2,729 Bitcoin held in custody and 2,000 Bitcoin subject to lending arrangements with Genesis and Galaxy. We continue to emphasize our HODL strategy and did not sell any Bitcoin during the quarter. To update these Bitcoin figures further, I note that we recently surpassed 5,000 Bitcoin held in reserve. As of November tenth, 2021, we held 5,053 Bitcoin, reflecting a market value of approximately $430 million. With that, I will turn things over to Jaime.
Thanks so much, Shane. I'd also like to take a moment to acknowledge Remembrance Day. In fact, I am speaking to you today from Ottawa, our nation's capital. On this day, we remember the sacrifices made by so many great Canadians to give us the opportunity to be here today, and we are so grateful to live in a country that gives us the freedom to pursue our dreams. We honor and remember the legacy of those who fought during World War I and World War II today and every day. As Shane discussed, this has been a tremendous few quarters for Hut 8, and I am very proud to see our vision of transforming this company from the scrappy small cap that it was into the multi-billion dollar global leader in digital asset mining and technological innovation that it is today.
I would also be remiss not to offer my gratitude to our incredible team and the continued support from our partners and shareholders who have truly made this journey possible. Every success story is a tale of constant adaptation, revision, and change. Transformation is a process, a journey of discovery. Q1, Q2, and Q3 were about restructuring and changing some of the ways we traditionally did things, from negotiating our new strategic power relationships to forming new partnerships with mining equipment manufacturer, MicroBT, to seizing opportunities and buying new equipment at competitive prices, all while consistently growing our stack of Bitcoin on our balance sheet. As we look to the future, we are focused on continued execution, scaling, and growth.
We now have over 5,000 Bitcoin on our balance sheet, and we'll continue to strengthen our position as market leaders, holders, and mentors of the reserve currency of the future, Bitcoin, and now Ethereum. We strive to deepen our relationships and operations across Canada from Alberta to North Bay, operating cutting edge and profitable compute centers and continuing to expand this business with an innovation lens on everything we do. We are not just miners, we are business-building technologists. We are believers in decentralized systems, open access, and financial inclusion. Through innovation, imagination, and passion, we are helping to power the fourth industrial revolution to create value for generations to come. With that, I will turn things back to Brandon to open it up for questions. Thank you so much.
Thank you. We'll now begin the question and answer session. If you have a question, please dial star one on your phone keypad. If you'd like to be removed from the queue, please dial the pound sign or hash key. If you're on a speakerphone, please pick up your handset first before dialing. Once again, if you have a question, please dial star one on your phone keypad. On the line, we have Joseph Vafi. Please go ahead.
Hey, Jaime. Hey, Shane. Great results here in the quarter. Thanks for taking the questions. Just, could we get maybe just a little bit more update on the North Bay build-out? I know in the press release and what you've said previously that you think that will be operational here by the end of the year. Do you have an idea at this point of you know how much capacity will be up and running by the end of the year? And then if you could, I know it's a little early, but maybe a high-level view of how that site continues to develop in 2022. And then I have a quick follow-up.
Sure. Thanks, Joe. The site's progressing well. We do expect it to be powered up by the end of December, but I would forecast little mining capacity before mid to late January.
Okay. Are you planning on putting the newly ordered miners in North Bay, or is there gonna be, you know. Which machines are gonna be going into North Bay?
Yeah. It will be the new MicroBT equipment that goes into North Bay. We still have some older equipment in Medicine Hat and Drumheller that will be upgraded with the first deliveries of MicroBT coming in November. Then the balance of that order will ship to North Bay to power up the first 35 MW.
Great. I mean, you're clearly generating some income now on your HODL. Those two relationships with Genesis and Galaxy have been ongoing for a little while here. Just wondering if you've thought about expanding out the lending at this point, given performance there, given kind of maturity, financial markets around digital assets o r is there another reason that you're just HODLing those other 3,000 Bitcoins kind of in reserve more or less at this point?
Shane, do you wanna take that?
Yeah, sure. I'm happy to start. No, I think listen, the key point and key theme from our perspective is sort of fundamentally that we view our Bitcoin held in reserve as not only our most valuable asset today, but very much our most valuable asset in the future. You know, we're extremely mindful of the risks that we take associated with Bitcoin. I think a fundamental strategy being to hold in custody where it's safe and secure is sort of speaks for itself in many ways, and then being very, very strategic and very intentional with the counterparties that we've engaged with thus far.
As you point out correctly, Joe, Genesis and Galaxy, we view both as important partners for us and sort of very well established in the space. That's the primary theme, I would say. Certainly to reiterate, that we are, all that said, mindful of making our Bitcoin work for us as best we can. That's something we continue to evaluate and maybe, you know, in position as our stack grows over time to continue to think creatively.
Great. Tim, maybe just one more quick one. You did make some material orders here for those MicroBT machines, but I think that you still do have some balance sheet capacity in terms of cash. Is there a plan for that cash at this point, or are you just working on this build-out and being mindful and opportunistic on continued expansion? Thanks again, guys.
You definitely answered your own question there, Joe. We continue to be mindful and opportunistic as we've been throughout the year.
Great. Thanks, Jaime.
Anytime, Joe.
We have Chris Brendler on line. Please go ahead.
Hi, thanks, and good morning, folks. Congrats on the nice results.
Good morning.
I'm gonna start with just a numbers question, maybe for Shane. The gross margin came up a little bit more than we were expecting and you know nice cost per coin that we're calculating here. So just wanna know you know what's driving that since we don't really have the third site online yet. And should it continue even before you know sort of Ontario is operational to see that cost per coin to come down? Is it more driven by the global hash rate, so potentially it could go back up before the January launch?
Great question, Chris. Again, I think you correctly alluded to, not unlike Joe before you, to several of the relevant points. Fundamentally, improvement throughout certainly year-over-year, but you know, more relevant I would contend is just sort of quarter-over-quarter improvement in our average cost to mine, fundamentally is a function of a gradual improvement of the average efficiency in our fleet. Reflecting that even earlier this year, bringing on some new MicroBT miners we ordered through a strategic order with Foundry, and then of course, those coming online throughout the year.
In mid to late Q3, at least the beginning of getting our new NVIDIA CMPs online and hashing. To be clear, the contribution from those chips in Q3 really was quite minimal, you know. But we'll ramp up here as we continue to get those brought online here in Q4. First and foremost, I would point to increase in average efficiency of our fleet. Then you know you correctly alluded to the sort of hash rates, global hash rate and network difficulty.
You know, we of course had significant and sort of unprecedented downward movement in difficulty adjustments throughout the early summer as the China ban on mining came to hold and, you know, broadly in line with expectation, we've certainly seen a significant increase in hash rate throughout really the back half of the summer and throughout the fall. Which of course will sort of be a counteracting force in terms of Bitcoin mining economics. Yeah.
I think, you know, that aligns with where you were sort of suggesting and, yeah, I think that the balance of the year, I mean, we'll in terms of what we're able to control, Jaime alluded to in her comments, you know, the strategic initiative that was undertaken in her early weeks really to secure more attractive and additional power. That's on its way shortly in terms of our relationship with Validus at North Bay. And then bringing additional miners online.
We're at the very early stages here in October and now early November in receiving deliveries of MicroBT orders from our one exahash order that was announced back in the summer, all of which is broadly speaking on schedule. Yeah, I think that maybe the other point to make there, that that's all the good news piece.
Of course, the on the ground practical reality is that, you know, we've got our team working basically seven days a week here, going through the exercise of, you know, of unplugging older miners, getting our new miners plugged in, whether that be MicroBT that are beginning to arrive and for the last while, with an emphasis on the NVIDIA CMPs. So that does, at the end of the day constitute some periodic downtimes or when you think about it on average, that we will have some downtime in Q4, that will exceed what we would've had in Q2 or Q3.
That's part of the process of Q4 will definitely be an evolution for us as we get all these new rigs brought online. Then of course, North Bay will be a bit more of a sort of a straightforward exercise of just you know net incremental additions of mining rigs. Maybe I'll pause there and ask Jaime if there's anything I missed.
No, I definitely think you covered it, Shane. Thanks for the question, Chris.
That was great. Yeah, that was great. I do have another question. 11,000 MicroBT top-of-the-line models still expected to be delivered before year end or hopefully close to it. You know, given the premium that is on space to plug these things in right now, would you consider unplugging and replacing some of your fully depreciated equipment to get those online, or are you planning on putting them in Ontario and waiting for that to be online, just to continue to have the most machines running as possible?
No, initially in Medicine Hat and Drumheller, we'll take the balance of the B8s offline and they will be entirely MicroBT or the newest generation of Bitfury equipment, which is Clarke. That's what we'll be running at those two sites, and we expect by the end of this year that the B8s will not be powered up.
Okay, great. One final one, and just making sure I didn't miss it, you don't have any results for October yet or any comments?
The only comments that were made for October were with respect to, I mean, it's the updated Bitcoin balance as of today, which Shane gave you at 5,053 Bitcoin on balance sheet as of end of day yesterday, as well as the commentary around all of the NVIDIA equipment is now on site and 95%, I believe is the number of machines that are up and hashing as of today as well.
Awesome. Thanks so much. I'll hop back into queue.
Our pleasure.
Okay. Up next, we have George Sutton. Please go ahead.
Morning, George.
Thank you, Jaime. I look forward to reading your book, Adaption, Revision and Change: A Journey of Discovery. Should be interesting. With that in mind, you have pursued self-mining given how profitable that is right now. At the same time, hosting is becoming increasingly lucrative as well. I'm curious if there has been any revision in your thought process of more aggressively self-mining, less aggressively going after hosting opportunities.
George, it's a really fluid state of consideration for us. We look at the market, we look at the economics, not just in the immediate term, but we try to think kind of six-12 months out. I mean, the nice thing about our business and how we're continuing to drive growth and scale is we do have some ability to be fluid as we grow. I think I can't answer that question specifically around any fundamental changes except to say that it's fluid and we're constantly evaluating and reevaluating that mix.
Okay. As you are growing rapidly in terms of your capacity, obviously there's a lot more than just the miners and actually having the facilities to grow, but it's all the other things, the transformers, the things like PVC pipe. I'm just curious how far out you feel you are in terms of securing things like that that are obviously important in the equation.
Yeah. The vast majority of those long lead items are already physically on site in North Bay, not just for the first 35 MW, but we also did pre-ordering for expansion beyond that. We feel really blessed that we were well ahead of those long lead items.
Got you. Last question. The lending arrangement, the new lending arrangement, has that given you the ability? Is there any constraint on your side in terms of how much you could be providing to that arrangement?
With respect to Galaxy and Genesis?
Yeah. I'm curious about your ability to give them more. Is there any constraint on that side? Or is it really your own internal view of how much you wanna do in each case?
That has been our view. I actually don't know the answer from a Genesis Galaxy perspective. We started with 1,000 Bitcoin with each counterparty, and that's kind of what we're comfortable with. I don't know, Shane, if you have anything to add.
I mean, just very quickly, I would say we would certainly need to, you know, engage with each group around, you know, increasing that from, say, 1,000 to 1,500 or something. From their perspective, as you can imagine, they would view that sort of their arrangement with us ultimately as a commercial one. It's a function of sort of the supply-demand dynamics on their side of the equation. It is something we need to engage on with them. I think for the time being, we're quite comfortable with the arrangement.
Perfect. Thanks, guys.
Thanks, George.
Up next, we have Kevin Schnepel. Please go ahead.
Good morning, Kevin.
Yes. Hi. Say hi. Can you hear me?
Yeah, you're clear.
Okay. Great. I wanted to ask a question about your company versus the others, other miners. Where would you kind of rank your company as far as... you know, there's a lot of talk about who is producing the most Bitcoin, who's the largest miner. I guess generally you're considered in the top five, I would guess. I mean, are you the largest, do you think? Or is that your goal to become the largest? I don't know if that's a fair question or not, but I was curious.
Well, I think we do have a theme today with our people asking questions, answering their own questions at the same time. We're certainly among the largest, and I think it's really subjective going forward as far as, like, how do you view largest and how do you compare one against the other? We're certainly not all the same. We have. There are sometimes very large and sometimes more subtle nuances between our businesses and ultimately our go-to-market strategy. I don't think. Certainly I wouldn't be in a position to do an apples-to-apples comparison between the miners, and really that's for our analysts and our shareholders to assess really for themselves based on what they think about the market and what they value in a miner structure.
Yeah. Okay. All right. Thank you.
No problem.
Up next, we have Mark Schervish. Please go ahead.
Good morning, Mark.
Hey there. Actually my original question was kind of about the rest of the miners there for the rest of the year, but it pretty much got answered. Maybe I could make a little comment or request there just regarding current hash rate. I know we're about 1.37 from Bitcoin mining and the 1,500 gigahash, but I just found it a little hard to find the kind of, up-to-date hash rate. Like I know the contracted hash rate is advertised, but maybe it'd be good for the investors there to have a updated hash rate kind of, I know I heard on an interview with a different CEO, he was talking about a live hash rate, but he had the technology through Google to pull that data, and I know that might not be something you can do.
Maybe just a more up-to-date hash rate there, and then it can give retail investors a bit more information to value themselves compared to the other companies like Marathon. I know I take in a lot of different metrics when I'm comparing the two. I guess I have a question I just thought of there as well. Is it much of a hurdle? I know the way you report your Bitcoin, it's expenses all in, however, so it seems quite a bit higher than the competitors. For anyone who's done their DD, they know kind of your accounting style, and I know that's what the institutions are looking for. Do you find it much of a hurdle on the retail side, like getting that point across that your expenses are a little bit higher, but for good reason?
I certainly think it's been a journey of education. For the most part, I do think our investor base, both institutional and retail, understands that our metrics can't be directly compared to the way others report their metrics. It hasn't been a problem. It's just been a journey of education. The investor base, from my perspective, has done an incredible job of doing that homework effectively.
Yeah, that's great.
With respect to your hash rate question, I mean, that is our existing live hash rate is the 137+ the gigahash as we reported.
Yeah, that's perfect there. I guess one other thing. I was just taking a look at the Fintel site and seeing the 76 institutional holders. I don't know if that's still correct, but 73 out of 76 are long, which is amazing. I guess it's kind of a question. I don't know if Sue's on the call. I joined a little late, but she was alluding to one of her potential personal heroes as an investor. I don't know if that's something you guys can disclose, or you're waiting for them to kind of make that announcement, or if it's kind of a treasure hunt for us retail investors to figure out who that is.
I'm not sure who her hero is. I'll have to ask her. I believe that the updated 13Fs are expected tomorrow. I'm not 100% sure. I will check in with Sue, but I believe that's the next update there. Obviously, it's nothing that we would ever share. You need to look at public filings for that information.
Yeah. All right. Definitely. Thanks. So that answers all my questions.
No problem.
Up next, we have Kevin Dede. Please go ahead.
Good morning, Kevin.
Hi, Jaime. Hi. Hi, Shane. Thanks for having me. Could we dig in a little bit more on North Bay, on the North Bay site, 35 to start, is that one still able to go to 100? Do you still have? I mean, I know that press alluded to an option in Alberta, and I'm wondering if some of the logistical issues that held that back are being rectified.
That it wasn't so much a logistical issue in Alberta. Unfortunately, Kevin, it was the COVID-19 situation in Alberta that put them into a severe and prolonged lockdown. At this point, we are incredibly pleased with the progress that we're seeing in North Bay and the incredible support that we're getting from local and municipal government. It is a site that's expandable up to 100 MW, potentially even further. As that site gets built out, we will assess where we think makes the most sense to put the next 35. That decision hasn't been made. We definitely have optionality, and that's one of the beautiful things about our partnership with Validus.
They have so many options as far as sites go, that we get to be fluid as we make those decisions.
All right. Correct me if I'm wrong here too, Jaime, but your Validus is converting natural gas to electrons for you, but I got the impression that there are other power options in North Bay. Can you talk a little bit about that?
Well, I am definitely not a power expert, Kevin, but I believe the technical term is it's a combined cycle plant. It is a mix of natural gas and steam. We are also working into our data center directly with some geothermal. There are certainly conversations, and I can't speak to the technical details with respect to where they're looking at also including hydrogen in the plant. Suffice it to say, it's an incredibly efficient plant, and they are driving at some really incredible innovation around how we maximize the efficiency and minimize the carbon output at that site.
How are your miners coming to you from China? Are you air freighting? I, you know, it's funny, but there are 100 ships off L.A.
They are.
I scratch my head.
They are flying in, is the answer.
Okay. Can you talk a little bit about the Genesis and Galaxy deals? Why were the returns reduced? Were you offered any, I don't know, some sort of compensation for accepting the new deal?
Shane's gonna answer that. I can hear him breathing.
Sorry, Shane.
Good question. Quite simply and quite sincerely, both counterparties reached out and were seeking a renegotiation of terms on a market basis. And frankly, the phone ringing from both groups within almost a week of each other really wasn't a big surprise. No, ultimately, this is a market rate. I would say we had an awareness going in that 4% yield was not likely gonna be where we, you know, stood with these folks for the long haul.
You know, though don't get me wrong, I'd love to, you know, earn 4% on our Bitcoin on loan as opposed to 2% or 2.25%, you know. But the very positive aspect of this that I do think, you know, on a call like this is most relevant is one should really be thinking about this as indicative of, you know, discount rates applicable to the broader sector. What it speaks to from the Genesis and Galaxy perspective, you know, I think, I can't speak for them obviously, is an increasingly liquid environment around, you know, from their perspective, borrowing and lending of Bitcoin. So that manifests itself for Hut 8 in a lower annual borrow fee percentage.
Yeah, the sort of very optimistic view that's been sort of certainly that I take personally is that it speaks to the ongoing maturation and the depth of liquidity in the Bitcoin market.
Just help me understand a little bit better, Shane. It just seems counterintuitive, right? Because I would think that, you know, the trading demand has put more demand for Bitcoin, right? I guess it just seems a little upside down to me.
Yeah, I think there's more demand. Sort of likewise to me, seems like a sensible assumption to make. Just the other side of the Bitcoin here being the supply of Bitcoin available. That, as we've seen, you know, a real increase, and if you look at this is outside of sort of my area of expertise and outside of our sort of domain as a, you know, as a company. But Bitcoin adoption has continued to really ramp over time over the last sort of several months, both institutional and, you know, retail. That is and a significant percentage of those folks are not entering into the Bitcoin space as traders, but rather as HODLers really.
Part of that, you know, HODL strategy or for some portion of those folks is, you know, making their Bitcoin available on various, you know, yield platforms. There's countless out there I think now that are targeted at a retail audience. It's, you know. That's, I think, those combination of things that makes it, you know, sort of the evolving, the evolution of the supply-demand dynamic. I would maybe also add, like I don't anticipate because I don't see it being sort of sensible and realistic landing point over the long term for sort of the kind of return we can expect from a counterparty like a Genesis and a Galaxy to like further kind of move downwards significantly.
Maybe a little bit of change or, you know, in and around the 2% range. I don't see it, you know, dropping down to 50 basis points or something. That I just don't think is gonna make. That doesn't make sense for us. I can say that sort of unequivocally. I don't think it'll end up making sense in the market, sort of dynamic either. That's just not gonna be a viable spot for anyone.
I think last time we talked about this a little bit. You mentioned that you were still sort of hunting around for opportunities where you felt that you weren't gonna jeopardize your holdings, but might be able to reap higher yields. Have you made progress in that search?
Well, I think I addressed this. Excuse me, I'm just getting a water. I think I addressed this as best as I can earlier, where we definitely made some progress. Excuse me. We definitely made some progress in terms of continuing to have what I would characterize as a really constructive, engaging, interesting dialogue with a host of groups, a host of, you know, partners or potential partners. As you can imagine, I think we're one of a fairly short list of some corporate entities out there in certainly in North America that, you know, is on the radar of institutional sort of the borrowers and lenders in the Bitcoin or in the digital asset space more generally.
We're known for, you know, the size of our self-mined Bitcoin stack, and there's been lots of great discussion. Yeah, I think the theme remains what I was saying before, that we remain, you know, fairly conservative around the kind of risks we're sort of willing to take with our Bitcoin stack.
Okay. Jaime, just to go back to North Bay. I mean, is the plan still to rubber stamp the modular data center that you folks have perfected over the years in the deployment, or were you thinking about building a sort of a bigger building?
No. In the case of North Bay, Validus is actually building out a more permanent structure that we are leasing from Validus. So we're not bringing our own infrastructure there. It's actually a Validus building that we'll be moving our equipment into and leasing.
Are you confident that they're proficient enough with the thermodynamics as not to melt all your fancy machines? I've seen that happen a couple of times.
We are confident, and we're very actively engaged in the build and design and testing process. It's again one of the nice things about this partnership is we work very closely together to make sure that everything is checked and triple-checked by both parties. Of course we're working with our traditional design and engineering firms in this space as well.
Right. That building must be up, right, in order to be feeling comfortable that you're gonna have machines running it in January.
Well, it's actually the building that's being put in place is a fabric type of construction, which has been ordered and is being constructed, but it hasn't yet been erected at the site.
Okay.
It's not a lengthy process to stand it up once it gets to site.
In order to sort of get to the or at least at what I've seen is that current and contracted capacity of 4.5 exahash, does that include more of those buildings?
It would, yes. We would need that. To get that total 4.45 powered up, we will need another 35 MW stood up.
Okay. Well, thank you very much to both of you for taking the time. I really appreciate it.
Of course. Anytime.
Okay, up next we have Francis Dunn. Please go ahead.
Be quiet, mom. Hello?
Hello.
Hi. Jaime, just real quick on the freight of the flights coming in, is these chartered flights or these like, you know, because Marathon chartering flights are bringing their machines because they've got a bunch of them coming in. I know you're flying things in, so you guys seem to have that under control, basically.
Yeah, absolutely. We've got equipment coming on site this week. We've had MicroBT equipment from our Q4 order is arriving on site. We don't —
Okay.
personally charter the plane, if that's what you're asking.
Okay. Got it.
We work with the logistics. Yeah.
That answers the logistics question. Here's my — I'm gonna make a statement and a question I'd like you to try to answer, because I am involved and I own all the latest miners been there in the game with the Bitcoin miners for quite a while. Marathon is gonna go to 10 exahash, and their philosophy is basically, you know, don't put money into infrastructure because the value of the Bitcoins are so, you know, gonna be worth so much. They're deploying pretty much all their capital to just mine Bitcoins and build up their stash or HODL, whatever you wanna call it. I know you guys have a more balanced approach because you've been through the last downturn and, you know, survived with all the bankruptcy. A lot of other companies didn't.
Now you've got a balance in there. I think, you know, a year from now, you know, the mining market's gonna look a lot different. There's gonna be one company that's gonna be 10 exahash, I believe. You know, Riot's gonna be in there somewhere, kind of. You're kind of like almost like a Riot type business model, except you have more diversified forms of whatever. Basically, my concern is I own your company. I think you guys are gonna get buried in terms of the market valuation compared to, you know, I think, you know, Amazon's gonna be in this industry. Now, can you address that and maybe give me a little comfort after owning a lot of your stock?
Well, I'm really not sure how best to answer that. You've answered the question. You've given the answer in the asking of the question in that we are a—we have a different business strategy than Marathon in that we own our own infrastructure. We like to control our performance directly with our own staff and equipment. We like to be able to directly manage our margins and be able to power up and power down and really control everything end to end so that we're in the best possible position regardless of market dynamics, because we control our own destiny through the process. Again, our diversification strategy is an important one for us.
We're very conservative in when and how we deploy our balance sheets. You know that we have an incredibly conservative depreciation schedule for our miners, and we intend to be here for the long haul as we have been since late 2017.
Well, my main concerns are I think maybe you're a little too conservative on increasing your Bitcoin mining segment as quickly as possible because, you know, there are a lot of players are coming online. There's a lot of money out there for this, you know. You know, you can get money for this stuff. I think you guys really, you know, a year from now, you know, based on what I see, you know, you're gonna be stable. Everybody's stable financially. These miners are all pretty much well capitalized and stable and diversifying some income resources except Marathon, which I think is gonna. You know, I think they have a business plan that you ought to really consider.
That segment of your business you ought to consider being a little bit more aggressive, because 12 months from now in this conference call, you know, I think valuations are gonna be disproportionately not in the favor of Hut, which I own a lot of. Like I said, I own more Hut than Mara, actually. Just a statement, just a comment. I'd like, you know, some feedback.
I think one of the things that really needs to be considered closely is ultimately with the hash rate coming online and the margins being compressed, making sure that the balance sheet and the business models are able to perform under all the market conditions that this industry faces. I think it's best to leave it at that. Ultimately, it's up to our shareholders to analyze the space and the business models and the management teams and make their determinations. But it's —w e are very confident in our strategy and ultimately protecting shareholder value over cycle.
I like that. I like it a lot. Thank you for that. Now, one thing I wanna say is you guys have a head and shoulders above everybody is you've got a female CEO, and she's better looking than everybody else.
Well, thank you so much. You guys have yourself a great day.
Thank you, ma'am. Bye-bye.
Up next, we have Dylan Fung. Please go ahead.
Hi. I just had a few questions in relation to the NVIDIA CMPs. What's your strategy in regard to after Ethereum goes proof of stake?
Look, I think we can debate that if and when it goes proof of stake. We've addressed it in the past, and I'm happy to do so again, which is one of the beautiful things about mining using these CMPs is we can pivot to alternate blockchains. There are a ton of other blockchains we can mine if and when Ethereum makes a move to proof of stake.
Do you anticipate the same efficiency that you would be getting there, or are there plans to kind of mitigate if you do have to go to another blockchain? Because in your statement you know you're getting extremely high efficiency off of these units, so.
Yeah. That's all about the power profile. The efficiency doesn't change, based on the blockchain that it's being applied to.
Okay. You anticipate a full ROI on these units?
Yes. We do.
Okay. Just one last question. What do you guys do with your old equipment? Do you guys sell that, or do you just kind of mothball it?
Historically, we would sell it in the secondary market, but at the present time, our B8, we are not selling. We are looking for opportunities to bring them back online at low cost with low cost power. That's our current view, is we think that they're better kept in our fleet, and we're looking for opportunities to bring them back online.
Okay. Thank you. I appreciate it.
No problem. No problem.
Up next, we have Philip Nicholas. Please go ahead.
Hey. Thanks everybody for the opportunity to ask a question. Some of my question was already asked previously, so I'll just focus on the second piece I had here. Are you guys considering, for efficiency's sake, staking some of your digital assets, now that you guys will be likely holding some Ethereum as well?
We have not yet made a determination to hold Ethereum. All of our the Ethereum we mine is actually converted into Bitcoin and paid directly as Bitcoin from the pool. That's part of our relationship with Luxor's pool. If and when that changes, we will obviously let the market know.
Okay. Thank you very much.
No problem.
Up next, we have Rupert DeLuca. Please go ahead.
Hi there. Question, some of them have already been answered. The 4% down to 2% you're getting from Galaxy. Question, it's a stupid one maybe, but the return you get, is it based on as the price of Bitcoin goes up, does your return increase, or is it based on a set value of the Bitcoin that you set? Do you understand my question?
Yes. In short, it's a function of the price of Bitcoin.
As the Bitcoin goes up, your 2%, obviously, is worth more, you're getting more for it. Okay.
Correct.
Secondly, your cash on hand, have you already taken the money off for the deposit for the last batch you purchased, or is it all paid for already, or is there more gonna come off of that, more cash has to be paid for that?
You're referring to, I think, our most recently announced purchase with MicroBT of 1,000 miners.
Yes.
To be delivered per month throughout 2022. We've made an initial, sort of in the very normal course, an initial deposit on that, and then the balance will be paid, I think a little bit later this year and then throughout the first 2/3, I would say, of 2022.
It still hasn't come out, the cash. Okay. I guess for Jaime. Hello, Jaime. Question is, I'm gonna shoot off a few things here and if you can answer any of them, I'm gonna put them under opportunities. Abu Dhabi conference, anything gonna come out of that? Kevin O'Leary situation maybe and combining the company, mergers, acquisitions, any comments possible out of any of these things I've said?
No comment. I mean, it's obviously public. Kevin has spoken highly of us in the past. He's a fellow Canadian and a friend, and we always appreciate his commentary and support. We had an incredible series of meetings in Dubai and Abu Dhabi, and really pleased to continue to expand our network and our profile globally. Certainly, we'll continue to do so. We've been transparent that we're looking at, and we'll always look to be opportunistic not just for organic growth, but inorganic as well. But nothing. No further comments.
Thank you.
No problem.
Up next, we have Brian Hannah. Please go ahead.
Hey, can you hear me?
Yeah. You're clear, Brian.
Perfect. First of all, just thank you very much for the presentation today. Really impressed with the progress so far. I guess the question I have is that right now it looks like the total contracted hash rate is about 3.5 exahash. I guess that's what I've seen so far in terms of purchases already made and miners coming in. I know that you have a goal right now of 6 exahash for like mid-2022. I guess my question is, you know, in terms of bottlenecks, like do you find right now that it's an issue of getting more miners? Do you have enough land as it is right now to make that expansion? You know, what's kind of holding you back, I guess, if there's anything from reaching that six by mid-2022, and like what do you see going forward after that?
Yeah. Our total current and contracted exahash, including the gigahash converted into exahash, is right around 4.5 —
Yeah.
which includes some of the older equipment that will come offline, but then we're looking at opportunities to bring it back online. As we've done all year long, we've been very strategic, very opportunistic in deployment of capital into mining equipment. As you know, the supply chain is tight. We are in a situation where the semiconductor shortage affects our industry as much as any other industry and it's very important for us to deploy capital where we're confident in the IRR on that deployed capital. Spot pricing of equipment today is well over the $100 a terahash level, which is not a level that we think is comfortable from a deployment of capital perspective.
You can see in our transactions that we have done, the MicroBT order that we made most recently, we were able to secure at the $50 a terahash range, and it's delivering in January. We will continue to be very opportunistic and thoughtful as we deploy capital. The constraint right now very much is in the mining hardware supply chain for certainly for the first half of 2022.
Got it. Then the last question I think I'd have now is, I know you have a big partnership right now with Validus. You have the plant coming up in North Bay. You know, I saw a recent update from Validus themselves that they're looking at another plant in Northern Ontario, like, I think the Kapuskasing region.
Kapuskasing
I'm not sure the exact name.
Yeah, that's right. Kapuskasing.
Is that something that you see as? Is that something that you could go with going forward? Is that like, are you looking at that as like a fourth plant, or is that like just too early to tell? It's just Validus increasing their own capacity.
That is Validus increasing their own capacity. I mean, they continue to also look at their own expansion, and they're very opportunistic as well in the deployment of their capital. Kapuskasing is a potential site for us. It's quite a bit further north than the North Bay site. From a geographic perspective, we're really comfortable in North Bay. We haven't yet decided where the next 35 will go. We're focused on North Bay for now, would be my answer.
Got it. Appreciate the answers there, and keep up the good work. Appreciate it.
Thank you so much. Brandon, we are coming up to 11:11, and I am actually sitting in a location that's right next to our Parliament buildings here in Ottawa. At 11:11 there will be a moment of silence, and then we will start to hear some cannon fire. I think it would be safest, Brandon, if we just take one or maximum two more questions so that we can take our moment of silence at 11:11 and then not be interrupted by cannon fire.
Sure. Absolutely. Next question will be from Greg Lipar. Please go ahead.
Good morning, Greg.
Thank you, Brandon. Good morning, Jaime and Shane. Just wanted to touch base. You know, I think first off, hats off to you both for, you know, locking down the supplier and the power negotiations that you guys have done, y ou know, just really outstanding. And also, you know, I agree with your point of trying to hold on to your B8s. Because, realistically, you know, you are competing against everybody else, and as soon as you plug in a machine, it's already losing its value in because other people are bringing theirs on board. I was wondering why you're holding back on, like, taking the B8s offline. Is that a capacity issue or just, you know, I just want to get some insight on that?
As new MicroBT equipment comes in, we upgrade the BH. It will be all MicroBT going to North Bay.
Okay. The other thing is, I was just wondering if you have considered holding Ethereum, given that it's, you know, maybe a little less stable than BTC, but it seems to be outperforming recently.
Well, we're certainly absolutely thrilled with the investment that we made in the NVIDIA machines and the profitability we're getting mining Ethereum. Again, continuing to settle and hold Bitcoin, we're always looking at the market and assessing, but at this point, we do not have an intention to hold Ethereum. We will continue to settle directly in Bitcoin.
Excellent.
Okay.
You've talked about North Bay. You're bringing 35 W online and possibility to extend past 100. I'm wondering what Alberta is sitting at for unused capacity.
Our sites in Alberta are maxed out. Medicine Hat is maxed out at 67 and Drumheller is maxed out at 42. There's no further expansion available at either site. We're at full capacity.
Wow. Okay. Thank you very much.
You're welcome. Brandon, last question.
Last question is a follow-up from Chris Brendler. Please go ahead.
Hi, Chris.
Oh, thanks. Jaime, I just wanted if you could just give me a quick thought on the state of Bitcoin mining. We're seeing a lot of capital come in the space, and just wanted to see if you had sort of a top-down view based on any of your conversations on, you know, what we could expect from Hut 8 as they try to keep pace as capacity starts to ramp up here.
I'm not sure that I have anything to add that we haven't already covered in this call. We'll continue to focus on opportunistic, profitable scaling and growing and diversifying of the business.
Fair enough. I think it's gone long enough. Thanks so much for all your time.
No problem. Thank you so much, Chris. Thank you, Brandon. Thank you, Shane.
Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.