Good morning, everyone, and welcome to the Bitfarms Transformative Fleet Upgrade conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you can press star and one using a touchtone telephone. To withdraw your questions, you may press star and two. Please also note, today's event is being recorded. At this time, I'd like to turn the floor over to David Barnard with LHA Investor Relations. Sir, please go ahead.
Great, thanks, Jamie. Good morning, everyone, and welcome to Bitfarms conference call to discuss our 2024 transformative fleet upgrade plan. With me on the call today is Geoff Morphy, President and CEO, Jeffrey Lucas, Chief Financial Officer, and Ben Gagnon, Chief Mining Officer. Before we begin, please note this call is being webcast live in accompanying presentation. To watch along with the slides, you can log in to our website at www.bitfarms.com under the Investors Presentation section. If you prefer to listen to the call on your smartphone, you can also download the presentation from there as well. I would like to remind you that this morning, Bitfarms issued, or actually it was yesterday, issued a press release announcing the fleet upgrade plan and related 2024 guidance.
Turning to slide two, I'll remind everyone that certain forward-looking statements will be made during the conference call and that future results could differ materially from those implied in these statements. The forward-looking information is based on certain assumptions and is subject to risks and uncertainties, and I invite you to consult Bitfarms' MD&A for a complete list of these. Also, during the call, reference will be made to supporting slides, and you can find the presentation on our website, again, under the Investor Relations section. The company will also refer to certain measures not recognized under IFRS and that do not have a standardized meaning prescribed by IFRS, and therefore may not be comparable to similar measures presented by other companies. We invite listeners to refer to yesterday's press release and the company's third quarter MD&A for definitions of the aforementioned non-IFRS measures and their reconciliations to IFRS measures.
Please note that all financial references are denominated in U.S. dollars unless otherwise noted. During today's call, CEO Geoff Morphy will provide an introduction, Chief Mining Officer Ben Gagnon will review the upgrade plan, and CFO Jeff Lucas will follow with financial commentary. Geoff Morphy will return for some closing remarks after the Q&A. With that, I'll turn to slide 3 and 4. It's my pleasure to turn the call over to Geoff Morphy.
Thank you for joining us today. During 2022 and 2023, we built our world-class scalable infrastructure in preparation for the next halving. With the market now offering the most attractive equipment pricing since 2020, we have begun to implement a transformative fleet upgrade that supports optionality and a well-defined pathway to 17 EH/s that can be achieved in the second half of 2024. As we have reiterated many times, Bitfarms is very deliberate in choosing accretive growth opportunities. Our consistent, disciplined, and long-term goal-oriented decision-making strengthened our financials and positioned us such that 2024 will be a year of growth and transformation. I'll start by highlighting the four reasons why we are so excited about this purchase and why we are now investing heavily in growth. First, high efficiency.
The T21 is the newest miner available from Bitmain and has some cutting-edge capabilities. These miners are the most powerful air-cooled Bitcoin miners ever produced. We have placed a firm order for nearly 36,000 of them. To add context, these miners collectively are capable of producing up to 8.4 EH/s, over 1.5% of the current network hash rate at an incredibly efficient 22 W/TH, significantly lower than the current network hash rate, which is in the mid-30s W/TH. Second, halving ready. These miners will be delivered between March and May of 2024, specifically timed around the halving. As such, over the next six months, we expect to nearly double our hash rate to 12 EH/s and improve our energy efficiency 29% to 25 W/TH. Third, capital efficient.
When deployed at full power, these miners will be one of, if not the most capital-efficient and cost-effective miner purchases on a per terahash basis, seen by the Bitcoin mining industry throughout the first eleven months of 2023, and likely even longer. In our opinion, this order has the most attractive expected payback period for new miners that we have seen since 2020. Fourth, flexibility and upside. We created the flexibility to fully benefit from today's advantageous pricing. By locking in pricing with an option to purchase 28,000 additional T21 miners, we are positioned to nearly triple our hash rate to 17 EH/s during 2024, with the same attractive economics as a 36,000 unit purchase order. With that, I will now turn the call over to Ben Gagnon to go over the transaction details and economics in more detail.
Thanks, Geoff. So happy to be here talking about the purchase today. Starting off on slide six. Many people may be asking, why the T21?
Well, as Jeff just stated, the T21 first announced only a few weeks ago, has some amazing unique features not seen on other miners, including its sister product, the S21. Yes, it's the highest new efficiency miner from Bitmain, but more importantly, the T21 is the highest voltage and most energy dense air-cooled miner that Bitmain has ever released, and is powered with a completely new three-phase, 415-volt power supply unit that is rated up to 6 kilowatts. This is particularly important to Bitfarms, as many of our farms were designed around air cooling and miners that are significantly smaller and more energy dense than S19 or S21 miners.
The energy density of the T21 enables us to get a significantly higher utilization out of our assets than the S21, and is merely a plug-and-play upgrade, significantly reducing ancillary CapEx. The energy density is also incredibly meaningful when it comes to overclocking. Yes, you can overclock any miner, but it usually requires third-party firmware, which invalidates the warranty. It may require further investment in custom power supply units, and it often results in significant hardware failures when the equipment is pushed well beyond its engineered limits. By comparison, the T21 is the first air-cooled miner from Bitmain that is specifically engineered around a wide variable operating load with native support for overclocking over 5 kW. This is expected to drive rapid improvements in performance and cost saving out of the box, while maintaining full warranty coverage of our equipment.
Not something that would be applicable when using immersion to overclock comparable S21, XP, or J Pro miners. The combination of this new high-efficiency PSU and the high energy mode makes the T21 the most powerful air-cooled Bitcoin miner ever made, and the most cost-effective choice for an upgrade or a new build. Turning to slide seven. As we have consistently communicated, we've purposely leapfrogged the XP generation because we felt the price premium associated with the XPs was too high. The expected payback on an XP purchase was far outside our target payback period for new miner purchases, and that we anticipated better upgrade opportunities around halving. This slide demonstrates this by showing the relative cost per terahash and the total computation Bitfarms could achieve with pro forma upgrades to XP, S21, or T21 miners.
The T21 is clearly the most cost-effective and most meaningful upgrade possible, but the cost efficiency of the T21 in this transaction goes well beyond the sticker price. First, on a per unit basis, the T21 costs 18% less than most XPs purchased this year and 5% less than the recently announced S21 purchases, and is capable of producing significantly more hash rate than either miner, while maintaining one of the highest levels of energy efficiency of any miner on the market. Second, the extra hash rate that comes from high energy mode effectively reduces the per terahash cost by approximately 19%.
Third, with approximately 42% more power consumption and 22% more hash rate per miner with a high energy mode deployment, the total quantity of units needed to fill our farms and utilize our MW is reduced by approximately a third, resulting in a similar pro rata reduction in shipping, logistics, and duties, which results in $ millions in estimated savings. Fourth, 68% of the miners will be deployed in existing facilities, significantly limiting infrastructure CapEx to grow our hash rate. And fifth, we have locked in this pricing with a miner option that gives us the right, but not the obligation, to buy an additional 28,000 miners in 2024 to grow our exahash to 17 and improve our energy efficiency to 23 W/TH, but also significantly reducing our capital obligations associated with those 28,000 miners. Turning to slide eight.
I will now go over the scale and the scope of this order. Not having seen a miner investment like this since 2020, I'm really proud to say we have taken full advantage at scale, with our largest purchase of Bitcoin miners ever for up to 63,888 Bitmain T21 miners. This is a sufficient quantity to upgrade 10 of our 11 farms and fills all of our contracted megawatts to be developed for 2024. The transaction is split into two parts. First, the main purchase of 35,888 T21s to be delivered between March and May. This is specifically designed to ensure our having readiness. The second part is a miner option that locks in this advantageous pricing for an additional 28,000 T21 miners in 2024.
With this option, we have not only secured the lowest effective cost per terahash we have seen in 2023, but we have extended it throughout the entirety of 2024, giving us long-term price visibility and de-risking future growth at some of the lowest hardware prices seen in years. We secured this option with just a 10% non-refundable deposit. That is applicable to the purchase price in full, resulting in no call premiums if the option is also exercised in full, significantly reducing our upfront capital obligations by about 90% associated with the securing these 28,000 miners and our growth pipeline. On top of all of that, we have the flexibility to effectively cash settle in the money options by reselling the miners in the future.
This is not something that we are planning to do, but we have the flexibility to do it, and is another example of how we are constantly working to provide more capital-efficient upside to our investors. This purchase of nearly 64,000 miners is unique in both scale and scope, affording Bitfarms a unique and unparalleled upside to improving mining economics, as illustrated on slide nine. With the exception of the recently upgraded Magog site, which will remain as is, the T21 purchase will impact every farm in operation and every site under construction, driving transformative increases in both hash rate and energy efficiency across our entire portfolio. While most of the miners will be used to upgrade our existing farms, the vast majority of organic growth next year is expected to occur in Paraguay.
While the main purchase will nearly double our hash rate from today to 12 EH/s and dramatically improve energy efficiency to 12-25 W/TH, ensuring our having readiness. Exercising this option in full would nearly triple our hash rate from today and further improve our overall energy efficiency to just 23 W/TH, which we believe would make us one of the largest and most efficient Bitcoin miners on the planet. On top of all that, it would also drive an increase in our sustainability energy mix to approximately 85% and rebalance our portfolio so that no single country contributes more than 50% of our hash rate or revenues, with more hash rate coming from LATAM operations than North American ones for the first time in Bitfarms' history.
Notably, the U.S. remains a disproportionately small representation of our portfolio, but a highly strategic market for us, and we continue to evaluate opportunities in the U.S., especially deregulated markets that would enable us to integrate energy trading into our portfolio. Shown on slide 10. In order to facilitate the T21 upgrade, we will be deracking a large number of miners, namely our fleet of M31Ss and M30Ss. Under the full 17 exahash plan, we would derack over 46,000 miners capable of producing more than 4 exahash.
These M30Ss provide Bitfarms with further strategic flexibility to pursue a wide variety of initiatives to further grow our hash rate by four exahash to 21 exahash, with minimal CapEx and minimal impacts to our overall energy efficiency, such as redeploying the fleet into hydrocurtailment or energy trading markets, and/or into strategic joint ventures with low-cost energy producers like those that utilize flare gas, methane capture, or micro hydropower, and can deliver lower cost electricity with greater amounts of downtime, and could potentially—or the M30S could also potentially be an additional source of financing for the T21 plan. While these miners are still profitable, this deracking and upgrade to T21s is crucial for us to ensure our having readiness. Having readiness, something I, I've said many times today, what do I mean by that? Well, moving to slide 11, here's where we are today.
6.3 exahash, 35 W/TH, and a direct operating cost per terahash of about $0.035. This is a solid margin with roughly an $0.08 hash price. But were that having to happen right now, hash price would be cut to $0.04 per terahash. With our Inexpensive Power Price and the high energy efficiency from the planned T21 upgrade in the first half of 2024, we expect we will reduce our direct operating costs to just $0.025 per terahash. We believe that this hash price, we believe that hash price would incur major resistance starting in the $0.04-$0.045 range, and that at $0.025, we are well below the level of safety.
This positions us to likely be in the lower third of miners globally on a cost basis, and this is what we mean by having readiness. But we are not stopping there. We are looking beyond the halving with a clearly defined but flexible path forward that not only gets us ready for the halving, but positions us for a transformative growth beyond that to 17 exa, sorry, to 17 exahash with the exercise of the option and 21 exahash with the option and the redeployment of our M30S fleet into a potential energy trading scenario or similar. This strategy gives us the firepower and flexibility to outperform and react to virtually any market conditions and is a total game changer for the company.
That said, I'll hand the call off to Jeff Lucas to review the capital requirements, financial impact, and the creativeness of this upgrade and expansion plan.
Thank you, Ben. As Jeff mentioned earlier, we have been preparing for further opportunistic growth, deleveraging our balance sheet while building cash in Bitcoin and Treasury throughout 2023. As we have reported during our November 7 third quarter earnings call, at September 30, we held cash of $47 million, and as noted in our October production update, at October 31, we held we held 760 Bitcoin, valued at $26 million. With the funds from our financing announced this past Friday, November 24, which generated gross proceeds of $44 million, we have sufficient liquidity to fully fund the purchase of the 36,000 Bitcoin Bitmain miners, all of which are currently scheduled for delivery in the first half of 2024.
This is in addition to the purchase option on the 28,000 additional miners, which we are securing with a 10% deposit. Other than the capital required to complete the current construction of the 50-MW warehouses at Paso Pe, Paraguay, there is minimal additional infrastructure investment to house these 36,000 miners. So in summary, our current financial position is sufficient to deploy the miners and achieve 12 exahash per second by the end of the second quarter, 2024. As described earlier, our 2024 plan includes optionality should we elect to make a firm purchase order commitment for an additional 28,000 miners, which would bring our hash rate to 17 exahash per second.
We thus have set a strong growth path for the first half of 2024, and we have the ability to move quickly to implement a more aggressive path if the industry conditions warrant and the economics of doing so makes sense. Turning now to slide 14, I'd like to take a moment to review the corporate economics of the upgrade plan. First, I want to emphasize that this is a highly accretive transaction for Bitfarms. For an incremental capital deployment of about $100 million, we plan to increase our hash rate from 6.3 EH/s to 12 EH/s. This represents a cost of about $18,000 per PH. I'll note that a commonly used valuation metric for public miners is the enterprise value per exahash. While this metric can vary among miners, the average is about $66,000 per petahash.
The $18,000 marginal cost per petahash for deploying these miners in comparison to this valuation metric shows just how accretive this project will be to Bitfarms Shareholders. By extension of this industry metric, we are creating $350 million of value for a capital investment of $100 million. We will now review the potential benefit to our mining cost structure and the profitability of our mining operations. To facilitate an apples-to-apples comparison, we'll show the cost structure on a pro forma basis with our actual third quarter 2023 results. You will see that this fleet upgrade will lead to dramatically lower production costs, which is an even more important consideration for the upcoming halving expected in April 2024.
Assuming all 35,888 miners are installed and operating on a pro forma basis, our direct cost of production would have been $12,100. That's $4,800 lower than the $16,900 as reported in our third quarter results. Further, at 12 exahash, with all 35,888 miners in operation, our pro forma quarterly production would have been 2,654 Bitcoin versus the 1,172 we reported. Our all-in cash cost of production per Bitcoin would have been $14,800. That's $7,900 lower than the $22,700 we reported. In addition, as we've discussed in the past, our direct costs in February 2022 includes a 15% value-added tax on Canadian energy as a result of recent legislation.
We believe we ultimately may be exempt from this incremental tax. Without this tax, on a further pro forma basis for the third quarter of 2023, our direct costs and all-in cost of production per Bitcoin would have been $11,400 and $14,100, respectively. Naturally, with a lower cost of production, we expect to realize higher mining margins and cash flow from operations. Referring again to pro forma figures based on our third quarter results, gross mining margins would have been 56% in comparison to the 38% reported, and adjusted EBITDA would have been $35.7 million or $36 million, about $29 million higher than the $6.9 million reported. Under current mining economics, our projected payback period on these new miners is well under one year. Moving on to slide 15.
In conclusion, we show a comparison of our targeted hash rate for 2024 in relation to the published 2024 targets of our largely publicly traded peers. You can see our miner upgrade program would place us among the top five largest miners, and just as important, from a BTC cost basis, our direct and all-in cash costs will be among the lowest of the public industrial-scale miners. With that, I'll turn the call over to the operator to begin the question-and-answer session.
Ladies and gentlemen, at this time, we'll begin the question-and-answer session. If you'd like to ask a question, please press star and one using a touch-tone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask you please pick up the handset prior to pressing numbers to ensure the best sound quality. Once again, that is star and then one to join the question queue. We'll pause momentarily to assemble the roster. Our first question today comes from Josh Siegler from Cantor Fitzgerald. Please go ahead with your question.
Yeah. Hi, guys. Good morning. Thanks for taking my question, and congrats on this news. It's very exciting and looking forward to tracking this progress. For my first question, I was wondering if you've actually gotten your hands on a T21, and how do you expect them to perform in all your different geographies? You know, you have some hot geographies, some colder ones. I'd love any insight into the T21 on that. Thanks.
Yeah, I'll take that one, Josh.
Ben, why don't you take that one? Yep.
Yeah. We're gonna have our first sample unit here in a couple of weeks, so we don't have one on hand right now. You know, the big thing here is that this is using some, you know, really powerful technology here on the power supply unit, and the power supply unit is, generally speaking, what goes wrong in miners. The higher voltage power supply unit and the higher efficiency here should eliminate a lot of, a lot of issues that we usually have. And really, there's no issue with the amount of energy density in terms of the hardware. It's really about what the hardware is designed for. So, you know, with a MicroBT, it's about half the same size, as an S19, but it's running twice as much, you know, it's running the same power, so it's, like, twice as much energy dense.
There's no problem with handling the heat with the energy density. It's about whether or not the hardware was designed for it. And the important thing about the Bitmain T21 is it's specifically designed around operating between 5-6 kW. So we've got a lot of flexibility there in that operating range and, you know, the hardware specifically designed to operate at these higher levels.
Got it. That's helpful. Thanks, Ben. And then, you know, when we're talking about the growth optionality, right, the optional order, how would you be thinking about different funding strategies to pursue that? I was curious, you know, whether you would, you know, further tap the HODL or would still be open to equity investment financing?
So the answer actually is yes to all of the above, Tom. We want to maintain flexibility in terms of how we choose to finance that. That'll certainly depend on where the markets are, the capital markets at that point in time, as well as you know, the value accorded to our Bitcoin. So quite frankly, Josh, every of the options that you just mentioned are the ones that we're going to consider. But we're not in a position right now, although we certainly have ideas as to how exactly we're going to, or how precisely I should say, we're going to fund that. I do want to add, by the way, that we are, and will, with this upgrade here, be generating more cash flow from operations.
Needless to say, even getting up to 12 exahash, that's not going to be sufficient to meet the, the cost of this option here, here. But, you know, we do feel we have a lot of options, and we find this, again, very attractive, given the extent of the investment required for additional petahash versus, you know, the valuations in the marketplace.
Great. Thanks, Geoff. Appreciate your answers, and I'll hop back in the queue. Thanks.
Our next question comes from Chase White, from Compass Point Research. Please go ahead with your question.
Thanks for taking the question. Morning, guys. So, just to be clear, for the 12 exahash guidance, is that assuming you're going to use all 36,000 miners, and, and, at that point, or does that assume that you develop, ultimately Iguazú, or the Iguazú, like, does that need the extra 28,000 miner option? If that makes sense. I'm just, I'm just trying to get a sense of, like, what's actually, planned versus what, what, what, is optionality.
Yeah, happy to jump in here. It's a good question. So, the simple answer is that every site in Quebec, with the exception of Magog, is getting upgraded, and the 35,888 miners is going to be deployed in order to reach the 12 exahash. The Iguazú comes in with the miner option upgrade for the 17. So we will be using about 50 MW at our Paso Pe construction in Paraguay in order to reach the 12, and in order to reach the 17, we'll need that 70 MW in Iguazú, as well as deracking the remaining M30S fleet that would be in Argentina and Paraguay at that time.
Got it. That's very helpful.
By the way, Chase, just, just to add a comment, if I can here. This is, Geoff here. You know, the beauty of, of this project that we have on the way here is that there's really almost no risk associated with the infrastructure side of it. We've already got the infrastructure in place, so we have a clear plan for it, and that's what makes it such a great opportunity for us and so optimistic.
Got it.
Geoff Morphy, and I'll add one more thing. In the Paso Pe site, we had previously not provided guidance or information around 30 of the 50 MW at that location. Today, we're saying that we're filling it with these air-cooled miners to fill that facility, so that's an incremental upgrade. We've also believed that we can increase the air-cooled capacity there by another 20 MW through an amendment to the power purchase agreement. So, we're very excited about the Paso Pe site and what it can deliver to us over the first 3 and 6 months of next year.
Got it. That's very helpful. And then, you know, in terms of the CapEx needs to Just for infrastructure to completely complete the development of Paso Pe and then the Iguazú site, and also Baie-Comeau, how should we think about that and the cadence of that spend?
So let me give you some numbers here that I'll hop out, some of which you've already previously disclosed here. Right now, for the Paso Pe, you know, that project is pretty far along. We estimate we have an additional probably maybe $15 million-$16 million of CapEx to build out Paso Pe, which, again, is certainly part of our existing liquidity plan. I want to point that out. Iguazú, we have not mentioned the amount here. That would be a sufficient capital, probably a little more than what we've conveyed for Paso Pe, but certainly it would be manageable within our expectations as well.
Got it. And Baie-Comeau, probably very minimum, but just curious on that one, too.
Yeah, that is minimal at this point going forward. Actually, we've got, less than $5 million of capital spend this year mandated for that, and that's why I'm sure we need that full amount.
Got it. Thanks, guys.
Our next question comes from Bill Papanastasiou from Stifel. Please go ahead with your question.
Yeah, thanks. Just wanted to circle back on the T21, purchase option. Can you share some more color in terms of the pricing? Just want to confirm that you guys have locked in at the same price of $14 per terahash.
Yeah, absolutely. And we want to confirm that, too. We have absolutely locked in the same $14 a terahash throughout the entirety of 2024 for 28,000 T21 miners.
Okay, great. And then just following the fleet upgrade, you know, how should we think about the Bitcoin treasury strategy going into the halving? How's management considering that play out, given this recent equipment purchase order, as well as, you know, the uncertainties revolving around the halving event?
So while we contemplate, you know, continuing to build on our, on our holding, we do want to point out here that it's a, You know, from my standpoint, it is an efficient, you know, use and source of capital for us. These are the alternative sources available to us. So as we are indeed growing the business and expanding our hash rate here, we recognize that for us, you know, our strength here, we get a higher return and better appreciation, certainly, from effectively deploying these miners.
... and more certainty than we get certainly with building up our HODL. But in summary here, we do view our HODL here as a portion of our liquidity here going forward. We are prepared, you know, to tap into that as it makes sense for us to meet our capital requirements going forward here. But outside of that, we are going to look to continue to build our HODL position.
Okay, great. Thank you. Congrats on the purchase order.
Our next question comes from Kevin Dede from H.C. Wainwright. Please go ahead with your question.
Good morning, guys. Congrats on the announcement. Very impressive analysis surrounding the investment. I'm curious, Mr. Morphy, you mentioned shipments starting in March and concluding in May. Has Bitmain given you more insight on maybe the allotment you'd see? And maybe Ben can add to how he sees those machines coming to Quebec and South America and the deracking process. How should we think about the escalation of 6.3-12 through the, you know, March to May time frame?
Good morning, Kevin. All of that has been very carefully calibrated with our internal resources and our infrastructure team on what can be done with the Quebec facilities and as the Paso Pe facility gets completed on construction, both the first phase for the full completion of the first 50 MW and now the next 20 MW. One of the international issues that in terms of timing that we had to play with was the Chinese New Year in February. Apart from that, equal deliveries, and I'll pass the ball over to Ben to elaborate on that more because a lot of time was spent on that planning.
Yeah, absolutely. Thanks, Geoff, and good question, Kevin. Basically, we're going to be starting off in terms of the deployment, because this is going to affect, you know, the 10 sites we mentioned and the new sites under construction and the full plan. We'll start off with deploying miners in the Paso Pe Paraguay site first. So the first deliveries are going to be shipped to the new infrastructure, which will, you know, help to drive up our hash rate and our performance earlier. And then, after Paso Pe is filled up, we'll begin upgrading the Quebec site. We'll go one by one through those different sites, and we'll just be upgrading them.
We've got a solid plan laid out to roll in through the different sites, but it's Paraguay first and then all the Quebec.
Do you want to offer-
All the Quebec sites will come after that.
Okay. Thank you, gentlemen. Can you give us a little more color? I mean, should we just think about that, those 35,888 miners coming in in equal amounts each month?
Correct.
Okay. They haven't started manufacturing them, or you're convinced that they've got the chips coming from TSMC to meet your manufacturing requirements?
They have not started manufacturing at scale, but they do have the initial miners out, right? So they do have their miners that they've produced for all their own internal evaluation purposes. So these miners have been produced, but scale production is, I think, just starting about now.
All right, Ben, you spent a lot of time on density. I don't know that I'm convinced. Can you help me understand that? My understanding is your fleet's a two-phase. You got to go to a three-phase, which I would think would require a change in the PDU. And then what assurances do you have that with this increase in power density, you're not going to have the same increase in heat density that your facilities will now have to deal with?
It's the right question, Kevin. So, you know, as many people might be aware, a lot of our sites are MicroBT sites. If you're familiar with a MicroBT miner and a Bitmain miner, a MicroBT miner is physically half the size of an S19 equivalent, and it consumes even a little bit more power than an S19. So it's not about the miner itself, it's about how it's designed, right? Right now, in the space of a T21, which we'll be deploying, we're actually consuming more power with the MicroBTs that we have on rack than one T21, which will be replacing those units. So there shouldn't be any issue with a heat density.
But for us, there was a logistical problem with the size of our facilities and our racks, which were customized for a miner that is physically half the size of a Bitmain unit, that if we didn't have that same energy density and we wanted to deploy those miners on rack, we'd only be able to get about a 65%-70% utilization out of most of our sites. We just wouldn't be able to draw enough power out of our sites with the facilities designed the way that they are now. So in order to accommodate with the smaller size of the MicroBT, we really needed to have a higher power density unit, and that's why it's so important to us. This is not as important if, say, you're looking at a new build, where you have a little more flexibility in terms of the physical footprint.
But for our sites in Quebec, especially, which are designed around a MicroBT entirely, that was a limitation.
Okay. The 10% deposit for the 28,000 has been paid or will be paid? Where are you in the payment schedule, and what did you have to put down for the initial 35,888 machines?
... Both miners required-
Go ahead.
Go ahead.
Go ahead, Ben. No, Ben, you proceed.
Okay. Both the 35,888 and the 28,000 miner option required a 10% deposit. The 10% deposit on the main purchase has already been paid, and the 10% on the option is scheduled to be paid on Thursday.
Great! Well, congrats, gents, and thanks for entertaining my questions. Appreciate it.
No problem.
Our next question comes from Lucas Pipes from B. Riley. Please go ahead with your question.
Thank you very much, operator. Good morning, everyone. Thank you for all the detail. My first question is just in terms of ancillary costs with this development. Appreciated all the details in response to the prior questions, but wondered if you could maybe put a dollar amount to the installation costs. Thank you very much.
Ben, do you want to handle that one, or would you like me to cover that? You can be more detailed than I can.
I can. Sure, I can. You know, actually, this is a good chance for me to finish up on Kevin's question before, which I did miss, because he had a question about the PDUs. Really, the PDU is what we do need to change. Our current PDUs are incompatible with the three-phase power supply unit that's on the new T21. So we will be making a PDU upgrade. However, at every site other than two, that is the only change that needs to be made. We are taking opportunity of this PDU upgrade also to upgrade to smart PDUs, which will give us a lot more functionality and automation in our sites. It's. It was kind of the last powerful tool that we haven't employed at our sites at scale to date.
We're going to be able to do it with this. We have a budget to do that of, I think, $6 million, including all labor, all equipment, and all shipping, logistics, and duties in order to do that facilitation upgrade.
That's very helpful. Thank you. Thank you for that. And in terms of Argentina, the way I understood it is that this is scheduled for the second half of next year, and it would follow the deliveries to Paraguay and then Quebec. Is there consideration around the recent election results, or is it really just kind of your internal cadence being optimized with that schedule? Thank you very much.
Lucas, it's more about the internal cadence on this one. Yes, we did slow down and consciously decided that there was going to be no more expansion at our Rio Cuarto site in Argentina until we knew the outcome of the election results. We now know the outcome, but I think we're still... would like to see how things settle out. It looks very positive, but the real opportunity here in the short run was taking advantage of this equipment, upgrading our facilities in Quebec, which is basically a plug-and-play and very quite simple, actually, and cost efficient. And then also filling the voids in Paraguay with our runway for new developments. So Argentina will happen. Just it's going to take a little more time, and it's, as you said, it's the cadence.
Ben, do you want to add more to that one?
Yeah, absolutely. You know, Quebec was the low-hanging fruit because it had our M31S fleet and our oldest miner. So in terms of having a meaningful upgrade, Quebec was lower-hanging fruit. You know, secondarily, we are also trying to reduce our operating cost per terahash. It's something that we've talked about many times. We don't control our revenue, we only control our costs. And we're trying to bring our operating costs down to that $0.025 that I managed. With Argentina's electricity prices being, you know, lower than most of our other sites in our portfolio, we don't actually need to install these new high-efficiency machines to have that $0.025 direct operating cost per terahash. We're already achieving those high levels of cost efficiency because of the electrical efficiency.
And so there's really no need to rush an upgrade there in Argentina.
Got it. That's very helpful. Thank you. Then, going back to my first question on the cost, the $6 million, what would be the best way to model that? Just kind of spread it equally between first and second half or tie it to miner deliveries? Thank you very much.
Sorry, I didn't really hear that question. Maybe it's a Jeff Lucas question, or he can repeat it.
It's a Jeff Lucas, Jeff Lucas sort of budgeting question.
Yeah.
Let me answer.
Okay.
Actually, I'm sorry. I was late to my... I had a problem with my mute button here. But, no, actually, you know, we have planned that expenditure actually happening over the next couple of months here, really in the first quarter of 2024. That's how we factor it into our numbers here. And that's included, by the way, in the liquidity numbers of which I spoke to earlier.
Super. Okay, great. Well, thank you so much, and congrats on the announcement.
Thanks, Lukas.
Our next question is a follow-up from Josh Siegler from Cantor Fitzgerald. Please go ahead with your follow-up.
Yeah, thanks for taking my follow-up, guys. Just real quick, Ben, I'd like to dive a little bit deeper into the High-Energy Mode offered by the T21s. Specifically, do you expect lower depreciation since you don't have to install, you know, third-party hardware? Just any insights, that would be helpful.
Well, depreciation, I mean, we're going to keep with our, our, our normal schedule. It's probably a question for, for Jeff Lucas. I, I don't expect there to be any faster degradation of the equipment, though, if, if that's the question, because, this, this is the first miner that's specifically designed around operating at those, at those higher levels. Usually, the problem that comes from operating miners at higher energy is that the equipment is not designed for it. You know, if your equipment is designed at 3 kW and you're running at 4.5, it's very likely that you're gonna have problems. But when your equipment is designed to run at 5.5-6 kW, and you're running it at 5 kW, you've got a pretty solid margin there.
By the way, let me add to that, Josh. From that standpoint, we have a very conservative depreciation treatment here, probably one of the most conservative in the industry here. By way of reference here, in the first year, we've actually fully depreciated one third of the value of the miners, and by the end of the second year, we're over 60%. From our standpoint, that seems realistic and practical, and we don't envision changing that.
Okay, that's helpful, guys. Thanks, and congrats again on the announcement.
Ladies and gentlemen, at this time we'll end today's question and answer session. I'd like to turn the floor back over to management for any closing remarks.
Thank you, Jamie. We've been anticipating the opportunity for vigorous growth and especially excited about the industry and our upgrade plan going into and after the halving. While numerous opportunities have existed, performance and return thresholds were not sufficient, and we knew we needed to remain disciplined. This opportunity, with high performance miners, superior pricing, along with an expedited deployment schedule with low risk, checks all the boxes.
Bitfarms remains as one of the most highly productive and geographically diverse, pure play Bitcoin mining companies in the world, and this accelerated phase of expansion promises to deliver dramatic growth in our hash rate, vastly improved fleet efficiency, lower cost of production, and the ability, in about six months, to once again attain production levels, placing us amongst the largest publicly traded mining companies in the world, albeit with better performance metrics and our proven uptime performance record. Thank you all for attending today's conference call. We look forward to updating you with our monthly reports as well as our other developments, and at our Q4 and full year conference call in March. Thank you.
Thank you all.
Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.