Good day everyone, and welcome to the Bitfarms third quarter financial results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to David Barnard, LHA Investor Relations. Please go ahead, sir.
Thank you. Good morning, everyone, and welcome to Bitfarms conference call for the third quarter of 2023. With me on the call today is Geoff Morphy, President and Chief Executive Officer, and Jeff Lucas, Chief Financial Officer. Before we begin, please note this call is being webcast live with an accompanying presentation. To watch along with the slides, you can log onto our website at www.bitfarms.com under the Investors, Presentation section. If you prefer to listen to the call on your smartphone, you can download the presentation from there as well. I would like to remind you that this morning, Bitfarms issued a press release announcing its third quarter 2023 financial results. Turning to slide two, I'll remind everyone that certain forward-looking statements will be made during the call, and its future results could differ 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 again on our website at bitfarms.com under the Investor Relations section. The company will also refer to certain measures not recognized under IFRS, and that do not have the standardized meaning prescribed by IFRS, and therefore, may not be comparable to similar measures presented by other companies. We invite listeners to refer to today's press release and the company's third quarter 2023 MD&A for definitions of the aforementioned non-IFRS measures and their reconciliation to IFRS measures. Please note that all financial records are denominated in U.S. dollars unless otherwise noted.
During today's call, Geoff Morphy will review our operations for the quarter, and CFO Jeff Lucas will follow a detailed financial review, and Geoff Morphy will return for some closing remarks after the Q&A. We have also requested investors to send questions in advance, which I will manage after we open the call to those interested in the live Q&A. Turning to slide four, slide three, and then onto slide four, it's my pleasure to turn the call to Geoff Morphy.
Thank you for joining us today. I'm excited to review highlights of our third quarter performance and our strategic outlook with you. The timing of capital investments is the most important factor of the four-year Bitcoin mining cycle. As such, we continue to follow a disciplined plan, stressing an attractive ROI hurdle for upgrades and new projects, so that we are best positioned for the halving in April 2024 and beyond. We plan to move aggressively to capitalize on improving market conditions going into the halving and capture market share consolidation opportunities that will likely arise post-halving. This, in conjunction with sustained and predictable costs of operation, we believe, will drive long-term value. I'll elaborate. First, until the last 30 days, we deem miners to be at unacceptably high prices.
To avoid overzealous spending, to achieve high growth targets with unacceptable returns, we exercise patience and discipline. Two, throughout 2023, we prudently fortified our balance sheet and made modest opportunistic expansion moves, such as at Baie-Comeau and in Paraguay. Three, we remain committed to investing in new facilities and miner upgrades. Now, with the Bitcoin rally and the recent introduction of new high-performance miners at lower costs, we are focusing on opportunities to take advantage of more competitive pricing for equipment upgrades. Four, combined with years of international development in securing surplus energy and realizing low direct costs while reducing overhead, we are well positioned to continue our expansion and further reduce corporate operating costs. On slide five, I'll review some of our accomplishments for Q3-2023 and post-third quarter events.
In September, we fully energized our first warehouse in Rio Cuarto, increasing exahash per second to 6.1 at quarter close, up 15% from June 30, 2023, and up 45% from September 30, 2022. In October, in Baie-Comeau, we completed the first phase of expansion, increasing from 5 MW- 11 MW, bringing our corporate hash rate to 6.3 exahash per second. During Q3-2023, we earned 1,172 Bitcoin, compared to 1,223 earned in Q2-2023, reflecting increased network difficulty. Q3-2023 revenue remained consistent at $35 million compared to Q2-2023, reflecting network difficulty increases, offset mainly by our hash rate increase. Adjusted EBITDA was $7 million for Q3-2023, and our Bitcoin holdings increased to 703 at September 30, 2023.
Slide six shows a summary of our operating capacity and installed miners. Our diversified portfolio comprises 11 operating farms in four countries, as well as two more in development. In October 2023, we reached 240 MW in operating capacity, up 32% from a year ago. With long-term and low-cost energy contracts totaling 573 MW, only 42% of contracted capacity has been placed into operation, highlighting our considerable embedded development runway. I will now review our operations and development plans. Turning to slide seven. In Paraguay, we acquired two hydropower purchase agreements, one for 50 MW at Paso Pe, adjacent to our Villarrica farm, and another for 100 MW at Iguazú. We expect the new Paso Pe 50 MW farm construction to be completed in Q1 2024, and development is progressing quickly.
For civil work, we have been preparing the site, improving the access road, and constructing the high voltage substation connection. We anticipate completing most of the substation building and the production buildings by year-end 2023. For equipment, we purchased 20 MW of MicroBT hydrocooling miners and related containers, primarily employing $19 million of vendor credits, substantially reducing the capital outlay for this farm. These hydro miners utilize the latest mining technology and feature among the best efficiencies in the industry, which will drive significantly lower costs of operations. The additional 30 MW of capacity will be housed in two air-cooled warehouses currently under construction. For nominal added cost, we purchased the high voltage transformer rated at 80 MW, creating optionality for more expansion at Paso Pe.
I'll add that the timely delivery of this transformer is key in meeting our Q1 2024 operating target, and progress reports from the manufacturer indicated it's on schedule. At Iguazú, the site selection process is going well, and the final decision will be reached that fully aligns with our timeline in 2024. Turning to slide eight. In Rio Cuarto, Argentina, by modifying the rack layout, we managed to expand capacity from 50 MW- 54 MW, or 8% beyond original design. With 7,500 new miners installed in Q3 2023, we added 800 PH/s and brought our hash rate to over 1.6 EH/s in October. Notably, in Argentina, October 1 marked the start of the summer season, when natural gas is typically less expensive.
During this seven month period, we expect fully loaded energy costs at Rio Cuarto to be reliably below $0.03 per kWh, compared to between $0.03-$0.035 during the winter months. This makes Rio Cuarto among the lowest cost operating facilities in the industry. As this farm represents about 23% of our operating capacity, it will reduce our direct cost per Bitcoin, which is one of our strategic goals. In summary, our LatAm investments are poised for growth in the coming investment cycle. Bitfarms benefits from exceptionally low costs in this region, and there are significant barriers to entry to LatAm, uniquely positioning us in this region to capitalize on low-cost expansion opportunities. For example, we have paid our dues in Argentina, and others looking to duplicate our development efforts in this low-cost country will face many organizational and logistical challenges.
We have a track record and a strong team. We have also achieved qualification as a self-importer of miners and retain an additional 156 MW of contracted low-cost power for future development in Rio Cuarto. In short, we remain excited about the long-term prospects for further development in this, in the country. And in Paraguay, we have one operating farm and 150 MW under development. In Canada, in early July, we closed the purchase of Baie-Comeau and initiated operation at 5 MW. In October, we achieved our plan of activating the first 11 MW of operating capacity. We plan to complete the construction of the additional 11 MW in the second half of 2024, coincident with the delivery of power to the facility.
In Magog, we further optimized the facility as we imported and installed approximately 2,900 high-efficiency S19 Pro Plus miners. We concurrently relocated the older miners to the Baie-Comeau facility. By increasing the density of rack miners at both farms, we netted an increase of 110 PH/s at Magog and provided a cost-effective capital deployment at Baie-Comeau. In Washington State, we upgraded ventilation and cooling systems, increasing average uptime. While we took 2 MW offline, reducing total operating capacity to 18 MW, we are in the process of various facility modifications and improvements. To elaborate, we are adding fiber optics to reduce latency between buildings and constructing a new warehouse. These improvements in operating practices will result in greater efficiencies in early 2024. Please turn to slide nine, slide nine. With that, I will now hand the call over to Jeff Lucas for the financial review.
Thank you, Geoff. I'll begin by highlighting some key elements of our financial strategy and position. We have efficient operations predicated on our operational excellence and with the majority of our energy from green hydropower, stable and predictable energy rates that are not subject to the variability associated with fossil fuels, and in the case of Argentina, which derives energy from natural gas, a positive contribution overall with the lowest energy cost of our portfolio. We have a laser focus on return on investment at the individual project level and rapid payback of capital at the corporate level. We've achieved our 2023 growth plan by the end of October, and for 2024, we have a minor upgrade and infrastructure expansion plan that will provide significant growth to our hash rate and our competitive efficiency.
We have maintained throughout this a strong balance sheet that now positions us to utilize our operational expertise to take advantage of these fleet upgrades now in the attractive growth opportunities arising from unpredictable economics of the halving. I'll now review our financial performance for the quarter, production economics, and our balance sheet. Turning to slide 10. In the third quarter of 2023, as Geoff pointed out, we earned 1,172 Bitcoin compared to 1,223 Bitcoin in the second quarter of 2023, and 1,515 in the third quarter of 2022. Our hash rate was 15% higher sequentially and 45% higher year-over-year. This achievement was offset in part by increases in average network difficulty of 9% over the second quarter of 2023 and 82% year-over-year.
Our third quarter total revenue was $35 million, comprised of $33 million from our mining activities and $2 million from our electrical subsidiary, Volta. This compares to $35 million overall in the second quarter of 2023 and reflects slightly higher average Bitcoin price quarter-over-quarter and 4% fewer Bitcoin earned during the quarter due to the difficulty. Focusing on our production economics, as illustrated on slide 11. In the third quarter of 2023, Bitfarms' direct cost of production per Bitcoin was $16,900, up from $15,700 per Bitcoin in the second quarter of 2023. This change reflects the increased network difficulty, offset in part by approximately 3% lower electricity rates quarter- over- quarter.
While our total direct cost was up in Q3 2023, at Rio Cuarto, the site with our lowest cost power, it was in fact under $12,000 for the quarter for Bitcoin, and we should benefit more fully going forward as Rio Cuarto wasn't fully energized to its 50+ MW capacity until September, and has become a large proportion of our overall portfolio. As on our last call, I'd add one more caveat to those building financial models. Our direct costs since February 2022 includes a 15% value-added tax on Canadian energy costs as a result of recent legislation. We firmly believe that we are exempt from this incremental tax and are pursuing a revenue ruling with the Canadian and the Quebec tax authorities to formalize our exempt status.
More to come in this matter, but I will state that without this tax, our direct cost per BTC in the third quarter would have been about $15,200, $1,700 less than our reported direct cost of BTC overall. Third quarter gross mining profit was $13 million, or 38% of mining revenue, compared to $14 million, or 42% of mining revenue in the second quarter of 2023. As with the reduction in our production economics, the decrease in the gross mining margin reflected the increase in network difficulty. The total cash cost for BTC was $22,700 in the third quarter of 2023, up from $21,800 in the second quarter. Higher network difficulty was the primary driver, leading to fewer Bitcoin during the quarter and higher energy costs for Bitcoin.
General and administrative expenses, or G&A, decreased compared to the prior quarter, which largely reflects our focus on reducing operating expenses, including savings and insurance costs, attributable to lower replacement values for our fleet and risk mitigation measures implemented company-wide. Going forward, we plan to tackle the combined effects of the halving and the increase in difficulty by upgrading the mining fleet with some of the recently announced and highly efficient mining models and reducing our G&A cost structure, including lowering professional fees and discretionary spending. Moving now to slide 12. For the third quarter, our operating loss was $19 million. This includes non-cash depreciation expense of $22 million. This also compares to the second quarter operating loss of $25 million, which includes depreciation expense of $21 million and an impairment charge on short-term prepaid deposits and property, plant, and equipment of $10 million.
Our net loss for the third quarter was $19 million, or $0.07 per basic and fully diluted share, compared to a net loss for the second quarter of 2023 of $25 million, or $0.10 per basic and fully diluted share. As previously noted, slightly higher average Bitcoin prices were offset by increases in network difficulty, which impacted the bottom line. Adjusted EBITDA was $7 million in the third quarter of 2023, as compared to $8 million in the second quarter of 2023. The adjusted EBITDA equates the profitability per Bitcoin about $5,900 in the third quarter, versus $6,300 in the second quarter. Turning now to slide 13. At September 30, we held cash of $47 million in Bitcoin, valued at $19 million, for total liquidity of $66 million.
This compares to $31 million cash and $48 million total liquidity at June 30, 2023. During the third quarter of 2023, of the 1,172 Bitcoin we earned, we sold 1,018 to generate $28 million of proceeds to fund our operating and debt service requirements, and deposited 154 BTC into Treasury with a September month-end value of a little over $4 million. In October, we deposited another 57 Bitcoin, increasing Bitcoin in custody on October 31 to 760 Bitcoin, representing a total value of approximately $26 million, based on the Bitcoin price that day of $34,200. In the third quarter of 2023, we raised $31 million in net proceeds from our ATM program, which expired on September 12.
The monies we raised under our ATM are specifically earmarked for the growth initiatives about which Geoff spoke. We continue to use cash generated from operations to deleverage our balance sheet. Total indebtedness was reduced to $10 million on September 30th, and to under $8 million at October 31st. As we've noted in previous earnings calls, our debt related to our Bitcoin activities is scheduled to be fully repaid by the end of February 2024, well in advance of the halving. Before I hand the call back to Geoff, I'll take a moment to highlight one of our new initiatives, the Synthetic HODL. At our Analyst Day in September, we introduced our concept of using the Synthetic HODL to achieve a capital-efficient portfolio.
The primary objective of the Synthetic HODL is to enable us to accumulate BTC in Treasury and increase the company's BTC exposure in a manner that is risk-managed and capital-efficient. With it, we maintain discretion to dynamically adjust our hedge and Synthetic HODL ratios within risk limits to respond to market factors. In October, we initiated our strategy with the purchase of long-dated BTC call options. As of November 6th, using the Synthetic HODL, the company has increased its upside to BTC prices by 35 BTC equivalent exposure. Turning to Slide 14, I'll now turn the call back over to Geoff.
Thank you, Jeff. Before I open the call for questions, I would like to mention some upcoming events, including the Benzinga Future of Crypto Conference in New York on November fourteenth, and the Blockchain Jungle Conference in Costa Rica on November 16th . Referring to slide 16. In summary, we are following a highly disciplined capital allocation strategy with projects to be completed ahead of the halving in April. Fleet upgrades will reduce our costs of operation, and the patience we exercised in 2023, we expect will pay off well in 2024. Over the past 12 months, we've increased our hash rate 45%, achieving our 2023 target of 6.3 exahash in October.
The first 50 MW of our 150 MW expansion in Paraguay is underway, and opportunities that meet our criteria for growth and lowering our costs, both before and after the halving, are abundant. We expect to achieve 7 exahash in Q1 2024, with the energization of hydro miners currently on order for Paso Pe, with additional capacity there coming from the 30 MW air-cooled warehouses. With newly signed PPAs, we have significant and low-cost expansion projects to develop when conditions warrant following the halving. This is an exciting time in the industry cycle, and we are well-positioned to leverage our core competencies and advance Bitfarms' global operations in a new phase of diversified and accretive growth, while working strategically and steadfastly to reduce our production costs. Operator, we can now open the call for questions. Over to you, David. Please go ahead.
Okay. Thanks, Geoff. Yeah, just before we go to the analyst Q&A, there's two questions that we got from online in advance of the call. I'll just read out the first one to you. You seem to be more positive in your outlook today than at your Analyst Day back in mid-September. Could you elaborate on why?
I'd be happy to take that one. Well, the climate's different now. It's, it's much more positive. Like, let me elaborate. Like, Bitcoin, which was trading sideways for the longest time, $26,000-$28,000, is now $34,000-$35,000. That's 26%-30% higher than it was. The hash price that we, we saw, like, not very long ago, was $0.06 and a little bit under $0.06 per T. Now it's over $0.07. Like, that helps the margins and certainly helps our optimism. We are reading and seeing record inflows of cash going into the exchanges with new excitement coming around Bitcoin and Bitcoin purchases, and I think that's fueling some of the price increases. Part of that is also all the news about the ETFs coming.
It sure sounds like there's gonna be approvals coming in December and probably them going live early in the new year, and that's going to be a phenomenal opportunity for the whole industry in terms of credibility and adoption and more investment. And then just in the last two weeks, we have multiple manufacturers announcing new miners that'll be released in the first quarter of next year at less cost and sub-20 joules per terahash performance. That adds up to a lot of optimism in our eyes. And as we've said in the past, we want to be opportunistic, and it sure looks like this is a good time to be opportunistic.
Great. Thanks, Geoff. And I'll just give you the one other one from the online community. You seem to be accelerating the pace of growth in Latam. What is motivating this move over further growth in Canada?
Jeff Lucas, do you want to start with that one?
Sure, I'm glad to do so here. So the biggest driver for us, naturally, is the lowest energy cost. And currently, you know, Canada's costs are a little north of $0.045, albeit when that VAT tax is removed, it'll be probably a little below $0.04. But for us, right now, the most opportunistic region in the world, and where we have a very strong foothold, is in Latin America, and particularly developing some Paraguay. So really, the driving force behind that is the fact that we have electricity right now in Paraguay that's a little north of 3.38 cents or so. Further opportunities, we believe, for additional cost reductions, and to us, it's the most promising region and the most economically compelling region at this point in time.
Okay, operator, I think we can go to the Q&A.
Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Bill Papanastasiou with Stifel. Please go ahead.
Hi, gentlemen. Good morning. Thank you for taking my questions.
Hi, Bill.
Hi, Bill.
Yeah, I really appreciate the commentary at the beginning on the importance of timing your capital investment. You know, clearly, Bitfarms has a very strong balance sheet with a ton of liquidity and debt that's gonna be paid off in the new year prior to the halving. You also have the situation of attractive pricing, which you alluded to. I'm curious to hear whether you could share more details in terms of what hardware models look most attractive to your team today. I know you've been your team has been very diligent with calculating payback periods, and so just hoping to get an update to that end.
Sure. Well, I think the industry's all been very much keen on these new miners being announced, particularly the Bitmain S21 and T21 are very attractive. The pricing is very good, and sub-20 watts is really changing the landscape. The pricing and performance is better than the last generation of miners and which we thought were just too expensive. And while other people were just growing and buying these models, we just said, "It's hard to get the paybacks," particularly at $0.06 per in terms of hash price. And those paybacks were long, and it was not a good use of capital.
So we had to hold back, but we think now the environment is much better, and we are looking at this new generation of miner, which will be available starting early next year, and to put in some of our facilities and also upgrade the fleet. As people have commented in the past, we have quite a number of M30s and M31s, so some of the replacements there, if we can do it, would be quite remarkable in terms of our performance.
Great. Thank you for that color. Then for my final question, you know, you've been able to optimize and kind of maximize every square inch at the first warehouse in Argentina, and it's a no-brainer, right? Very attractive, low-cost power. I'm just wondering whether the appetite or the outlook for further expansion in Argentina has changed at all. I understand your team is heads down on the Paraguay expansion, but just hoping to get some more outlook to that end.
Bill, it's great to have flexibility, and it's great to have good people in all of our local markets. It really opens up opportunities for us. Like, as we said, we paid our dues in Argentina. We have a superb team in Buenos Aires managing the region. We have a superb team in Rio Cuarto that's now well trained, and we were able to put another row of miners in there, take full advantage of the primary transformer there, and move that up by 6%-8%, and all with new miners. So like, we're 1.6 exahash per second there now.
Quite remarkable, and I think it's an area which we've learned sometimes by mistakes and sometimes by good fortune, but we keep trying hard and then figuring out sort of how to adjust things along the way. So until we got ourselves up and really primarily using all the output from that transformer at sort of 50 MW, the facility wasn't optimized, and we were always saying when we optimize the facility, we could bring the cost down. So I think in the summertime, we were seeing sort of $0.036 per kWh after the translation. September, it dropped below $0.03, and now we're in the summer months, where we're going to get seven months- probably price, probably price is closer to $0.025 than $0.03. But once again, it's let's see what actually materializes.
And we also have the same situation. Let's see what materializes from the election coming on November the nineteenth. So it's an area that we're excited for because the costs are low, but we want to walk before we run and make sure that we don't make any expensive mistakes. So, once we get a little more confidence, then this really could open up this opportunity and at some point in 2024, when the economics are right, and 2025, sort of and beyond for sure. But, we have the land, we have the contracts. It really represents a very low-cost opportunity. We're 23% of the overall book right now, and that's bringing down our cost of production, and that's a real strategic goal for us, is bring those costs down.
I appreciate that color. Thank you, gentlemen. I look forward to seeing that hard-earned cash being used toward some key upgr ades. Thank you.
Very good.
Our next question comes from Josh Siegler with Cantor Fitzgerald . Please go ahead.
Yeah. Hi, guys. Thanks for taking my call today. Congrats on the lower G&A. Great to see that profitability improvement. For my first question, I wanted to touch on, you know, financing. So obviously, you've been paying down the debt and improving the balance sheet over time. Would you ever consider taking on additional debt burden, if, you know, it made the right sense from a financing perspective? And can you give an update on whether those debt markets have opened up to you?
Sure. Let me, Josh, let me speak to that here, I can. You know, we have seen some pretty interesting instruments out there, primarily from, I think, hedge funds, you know, convertible debt outstanding here. And look, in a general picture, there is room for debt, you know, on the balance sheet to a degree, in the sense that it lowers your overall cost of capital, particularly on a tax-adjusted basis here. You know, we estimate, both for our own calculations, that the cost of equity for the sector and for us is between 30% and 35%. So if you can indeed get debt with an all-in cost of maybe 15%-18% here, you know that, and then that tax-adjusted afterwards, that doesn't make it attractive.
Of course, given the variability and the volatility of the industry in which we operate, and the fact that the biggest drivers, i.e., Bitcoin pricing and Network Difficulty, are largely beyond our control, we do that very, very judiciously. At this point in time, Josh, we don't have any immediate plans to incur debt on the balance sheet, but again, if conditions change and for the right opportunity, we would consider that, consider that on a limited basis.
Hey, Josh, and I'll remind-
Yeah.
I'll remind people that coming into the halving, we expect a, like a-
That's right.
Network correction and things like that. We've said before, we do not want any debt obligations at that point. Any. Like, we don't know how severe this can get because it depends on pricing, which is out of our control. So, we want to be as lean as possible so that we can take maximum advantage of opportunities post-halving.
Great. No, I appreciate the color there, Geoff, and it actually leads into my next question, which is around the halving. So obviously, you guys are uniquely positioned to replace some of your older legacy machines with some more highly efficient machines, which could both, you know, improve your efficiency overall and increase your hash. I was curious how you're thinking about the timing of that come halving. Would you look to be aggressive as we enter the halving, or is it really a wait-and-see approach to see what's happening across the network?
Well, as we've said many times, we want to have the balance sheet and margins and management team to be able to be opportunistic. Opportunistic means that really, this window has really only opened in the last two, maybe two and a half weeks with the announcement of these miners. We're looking at things very closely. The halving is very much in focus for April 15th, 16th, 21st, whenever the mathematicians have best estimated right now. But we have opportunities to plug them in before the halving. It'd be nice to be able to do that, but there's no commitments and no decisions made just yet. But we're working on a variety of scenarios.
Got it. Thank you, Geoff.
Our next question comes from Chase White with Compass Point Research. Please go ahead.
Thanks for taking my questions. So a couple, if I may. First is a housekeeping question. So, what were the and apologies if I missed this, but what were the power costs in Argentina during the quarter, the average cost?
So generally, the costs for the quarter were just a little, overall, a little over $0.03. But what I want to underscore here is that, one, that did include the winter months to degree of, you know, that came into play here a little bit. And then secondly, during this quarter, we did revert over entirely to, the, you know, getting the energy costs from private producer, where there was earlier in the quarter, some contribution from the grid itself as we were making that transition, which was higher cost. So again, overall, though, for Argentina, we were just over $0.03 for the quarter. And by the way, I'm going to add here that in September, and some of it being foreign exchange influence, our cost was about $0.028 of energy for Argentina.
Got it. That's helpful. You know, how should we think about CapEx for the remainder of this year? And how much should be left over as we head into next year? Obviously, you've got some minor purchases that you need to make and don't necessarily know the exact pricing for that, but in terms of the infrastructure and then how many miners you would contemplate putting in there. Any comments on that? Thanks.
Let me start this off, and Geoff, you can certainly fill in in terms of some of the minor accounts there, if you wish. So first of all, I'm just going to speak to what we have in terms of our disclosed and communicated CapEx and our growth plans. We have other initiatives about which we spoke to regarding, you know, the, what we're doing with the miner fleet and things of that sort here. But the thought to keep in mind at this point here is that the major project we really have here is development of Paso Pe, which as, as Geoff indicated, will be up and running, by the end of the first quarter of 2024. We also have what's going on.
We've identified Baie-Comeau, that was a $22 million acqui- excuse me, 22 MW acquisition we announced in April. We've got the first 11 up and running, and we're scheduled to have the second 11 in the second half of 2024. We also have some smaller projects in the works, generally $1 million or less. In Washington, some improvements there, and even some sort of minor modifications as well, that we have going for another $1 million or so. So overall, what we're looking for, to be very specific here, is about $70 million of CapEx commitment that we've identified between now and the end of 2024. Of that amount, just to be clear here, roughly $50 million-$55 million of that is going to be Paso Pe, so we're going to Paso Pe again, up and running by the end of March.
Then we have the Baie-Comeau, the second 11 MW, maybe an additional $10 million-$15 million. That'll be in the second half of 2024. And then the additional, you know, little dogs and cats, so to speak, that we have, that will get filtered out through the remaining months here.
Yeah, Chase, as Jeff mentioned, the Paso Pe facility, we've got 20 MW spoken for with the hydro miners, which is fantastic that we're going into, into that new technology there. But we haven't announced the 30 MW that are from the air-cooled facilities. So great opportunity to, do our own mining, our own hashing at that location, with those 30 MW. The other upgrades that Jeff mentioned are later in the year, but sooner than that, if we can really put things together, a fleet upgrade, we have over 16,000 M30s, M31s that are primarily in Quebec.
Like, talking about the opportunity for rapid increases in hash rate and rapid improvements in efficiency by replacing some of those M30s and M31s with with T21s, S21s, that type of series of of miner, like, you're talking 46%-50% improvement in in efficiencies right away. So we're looking at that very keenly.
Got it. That's helpful. Thank you guys.
The next question comes from Kevin Dede with H.C. Wainwright. Please go ahead.
Hi, gents. Thanks for taking my question.
Good morning, Kevin.
Yeah.
Hey, Kevin.
You gentlemen alluded to a seven exahash target, I think, for the. Did you say the end, Geoff, the end of the first quarter next year?
Correct.
Okay.
Yes.
Could you give us a little more detail on how you see. I think, what not, we're at about 6.3 now. Can you just walk through the step function improvement there? And given that some of that is a function of the, the M50 and M56 order, I'm just kind of trying to figure it out in my little brain on, shipment and deployment.
Well, we, we've announced a lot, a lot of new miners, but most of them are now into Argentina and plugged in now. So you're not really going to see, you're going to see a little bit more coming from Rio Cuarto, Argentina. But really, this is all about Paso Pe and the 20 MW dedicated to the hydro miners and the hydro containers that we have there. That, that's really the step function that'll get you to 7 EH/s. The 30 MW in the air-cooled facilities there, we're building the air-cooled warehouses, but we have not announced what's going in there yet or how it's going to be configured. So that does not go into the 7 EH/s.
Arguably, if we did, if we put our own miners in that, in those air-cooled facilities, then we could be probably up to the 8 exahash area and perhaps a little more. But right now, that's how we get to the seven.
So what machines do you have ordered, Geoff? Just to seven, right? So if you go to eight, you'd, you'd have to place orders.
Correct.
Okay. Just along that line, have you fully utilized the credits that the manufacturers have offered you, or do you still have more on the books?
We sure have. Jeff, do you want to comment on the $19 million?
Sure, we did. We actually had around $15 million-$16 million remaining, and we fully utilized that, actually, for the Paso Pe, for the hydro coolers and the miners and the containers associated with that. So that pretty much utilized fully the remaining credits that we had, Kevin.
Okay, so when we look at the December balance sheet, you'll have 0 machine credits?
Correct.
Okay. You mentioned, Jeff, this situation with the Quebec tax authorities, or maybe it's, I guess, the full Canadian picture. I just want to understand what exactly is going on there and where your confidence comes in that tax either goes away and maybe previous allocations are refunded. How should I think about that?
Sure. So first of all, this legislation was originally proposed back in February of 2022, and at that point in time, we began accruing the expense of that VAT. So in essence, here, we have a 15% value-added tax on the energy cost. Normally, we can actually apply for a refund, or historically, we could apply for a refund and recover that VAT. Effective, actually, in February, that's when this proposed legislation was put forth, February 2022, indicated that recovery or that refund would no longer be available to that Bitcoin miner too. So that's why we've actually been incurring that additional cost, and accruing to that additional cost here since that point in time.
About two months ago or so, the legislation was officially passed, actually, that removed that opportunity with certain exceptions, including where if you are actually selling, if you are selling your computing power capacity to a third-party pool, as we do actually with Foundry, which is located in New York here, you actually can therefore recover those VAT taxes that are inputted here. So what we are actually now doing is that we're getting a specific revenue ruling that makes it completely clear, 100%, that we indeed have the, indeed, excuse me, have the recovery of that refund here.
As a matter of fact, if we get that back, what will happen is, rather than recording roughly $0.047 per kWh, as you did in Canada in the third quarter, you'll be down to a little under $0.04, more like around $0.039, and that's going forward. In addition, speaking to your second question here, Kevin, as a matter of fact, we've actually paid around $16 million of that taxes since February, actually a little more, about $17 million at this point, and we would get a refund for that amount. Not banking on it yet, not putting to our projections, but it's something we feel we're very entitled to. The legislation implies we should get it and that we're going to be pursuing that very vigorously. Hopefully, that addressed your questions.
Great. And just help me understand which authority that is. That's beyond the territory of Province of Quebec, right? That's for the entire country.
It's the Canada Revenue Agency, and also-
Right.
It's at the provincial level, the MRQ as well.
Okay.
It's there, they're harmonized between most of the provinces and the federal government. But yes, this is a federal government initiative. It's their lead. It's the interpretation from them that we need to clear this up. And we've been trying to be patient, but they seem to be taking an awfully long time in getting this crystallized for us.
Can you just maybe offer a little more color on your confidence in the ruling going your way?
We're highly confident. I don't think I can be any more. I don't think it would be beneficial to be more specific than that, but we have every expectation as we read the regulations, as our attorneys read the regulations, it seems very clear to us that we are indeed entitled to have that refund.
Well, there are a slew of other Bitcoin miners operating in Canada. Are they in a similar position, you think, with offering their hash to a U.S. resident pool?
I'm only going to speak to our situation here.
Fair enough. Fair enough. The synthetic HODL that you've put in place, right? I'd imagine that's 35 contracts, right? You spoke to 35 Bitcoin.
That's correct. In essence, that's correct. That's right.
Okay. That's all since the September quarter closed?
That's right.
Okay. How would we see that shown in the balance sheet in December?
Well, we actually- yeah, that's, that's a good, good question. So we do not practice hedge accounting here. There are some complications and wrinkles associated with it at this point in time here. So where you actually see the results of the impact of that is going to be actually in, in the below the operating income line in sort of financial income and expense. So we'll be breaking that out in the detail there, and in the future reporting, you'll see it broken out in that section and in the footnotes.
Okay. When. Obviously, you gentlemen scrutinize the capital allocation decisions carefully. I, can you offer just a little insight on, on the factors that led you to deploy capital in that vein, given the improvement that Mr. Morphy addressed in the hash price and the purchase, or at least the utilization of the equipment credits?
Well, let me. I'll start off here. First of all, we utilize the equipment credits because we're getting a we were going to get a, actually, you know, it was a great, it was a great price for us in terms of the equivalent value for what we're doing. Secondly, obviously, we do want to husband our cash as carefully as we can here, given the uncertainty coming up with a halving overall here. But I think what's important to keep in mind, just sort of step back and give a little more color here. As I pointed out at the beginning here, our cost of equity for the industry overall is around 35%. So we do have, you know, a pretty high hurdle here in terms of what we're looking for on a return on our project.
We find, though, however, some of the economics, such as what we're seeing in Paraguay, is very, very compelling at this point in time. While sure, there's greater uncertainty and greater risk, which in turn warrants a higher hurdle, higher hurdle rate for that part of the world here, we find that even so, that the potential returns that we can achieve here in, in that part, in that part of the world, make it very compelling for us to sort of just continue to make investments of that nature. Does that address your question, Kevin? I want to make sure I'm being thorough here.
Yeah, it definitely helps, Geoff. Thank you. Maybe you could speak a little bit more specifically to the power prices that you're seeing in the PPAs. As I understand it, there are two separate ones, one, right? There's one for Villarrica, and there's another one for ANDE.
Paso Pe and Iguazú. Yes.
Yeah. So maybe you could speak to that. Clearly, one of your competitors is working with a partner in that jurisdiction that I know you must be intimately familiar with. So maybe you could just help us, for all of, for my, not just myself, but all our colleague, my colleagues here in understanding the that power price scheme.
Okay. Well, first, our first 10 MW that we put in in January of 2022 was in Villarrica, and our contract is with a private franchise owner within Paraguay, the only one like it, and it's called CLYFSA, and it's been about $0.036. There's been a few changes to it, but it's pretty steady at $0.036 consistent now. But we can't get any more power or production from that site because the ANDE distributes, which is the national Paraguay National Distributor of Power, the CLYFSA only gets so much, so our allocation is there. So for future growth, we've gone to ANDE itself, just like the competitor that you mentioned just moments ago, Kevin, and pretty much all of these contracts are very similar in terms of rate. There's high voltage rates and there's medium voltage rates.
We're taking the high voltage rates. That's put us in about $0.039 per kWh, not subject to indexation with inflation, and all green power and all consistent, and all done in a very harmonious partnership with the, with the government and national distributor. It's working well, and I think the, the other guys will have similar arrangements. We're not privy to their contract, but unless they are taking smaller amounts and under the medium voltage tariff, and that, that would have a higher rate.
When you sort of take a step back and you look at ANDE's source, right, I think they have, what? 50% of the what? 14 MW that come out of that dam. How much do you think they're willing to allocate to crypto?
Rounding thereabouts and trying not to speak for them, but it sure seems like it's about sort of 550 or so high voltage and about 100 MW, medium voltage.
Okay.
I think they want to make sure that they have good, strong, committed power from that. They're making a commitment to the dam up there, and, but I. There is some variation season to season, and I don't think they want to get into that all that much. So, I think they want to make sure that they can sign these contracts, get it into production, and see what it looks like before going any further.
Okay, I'm sure you're happy to hear last question for me. Could you just give us a little more color, Geoff, please, on the Iguazú site selection? I, on the timeline and, you know, maybe how you're thinking about narrowing it down.
Sure. Iguazú is 100 MW. We know ANDE likes to do it with 80 MW transformers. It's their choice. That's why we put one in in Paso Pe, and hoping that we might be able to get a little more there at some point. But Iguazú, we are looking for real estate up in that area, fairly close to the substation up there. That's the main transmission corridor, so there's a lot of power up there. It's recently been upgraded as well, so it's a nice new substation there. And we are going through multiple sites right now in terms of selection.
Some have been ruled out, some are still in the running, but they're relatively close, and you basically measure which ones are high and dry, which ones are fairly close, so that you can run less electrical cable, which is a big factor. The electrical cable can cost more than the actual site itself. So we're going through that. As we said in the script, it's all fitting in within the timeline for next year, but I think we should be able to hopefully identify a preferred site this year, hopefully secure it, and then we'll start laying out plans for the substation to reduce the voltage there. We haven't announced any plans in terms of hydro miners or containers or air-cooled yet. That's all part of design and development plans for next year.
By the way, Kevin, let me just add a little comment here. You made a statement about the size of the Itaipú dam. It's actually a 12 GW dam. It's been running now for about 40 years or so. Half of the power is allocated to Brazil, half of it goes to Paraguay. Paraguay is actually using less than 10% of it for their own purposes here, and the other 40% of their share, actually, they sort of sell back to Brazil at about $0.01 per kWh. So clearly, it's very compelling and strongly in their government's interest to try to expand the use of it locally, including opportunities, you know, obviously Bitcoin mining, which is why one of our peer companies is following us as they're looking at opportunities in that area.
Great comment to add. Thank you very much, Geoff. As always, gentlemen, I'm very appreciative for taking my questions. Thank you.
Thank you, Kevin.
Thanks, Kevin.
Our next, your ID, please go ahead. Lucas, is your line muted?
No, thank you, operator. Sorry, I didn't hear my name. Hey, good morning, everyone. Thank you very much for all the color. A very informative call. Just a few quick questions. The first is kind of on the hash price assumption post-halving. What do you think is a reasonable level to assume to clear that hurdle rate you indicated earlier?
Well, it's the $0.06 is something that we've been really sort of maneuvering around in our analysis for some time. If it's better than that, then we can make some investment decisions with some half-decent payback periods. I think we're watching the network hash rate, which continues to set new records in terms of increases. Boy, we've had 45% growth over the last year in terms of our hash price, but difficulty in the network is up sort of almost double that. It's quite phenomenal. But this excitement here, the ETF excitement, you know, I hope we can see Bitcoin prices of sort of $45,000, maybe $50,000, going into the halving. That'll produce that type of hash prices that we're looking for. We will see.
Okay. That's helpful. And then when you think about kind of the power cost distribution across the industry, what? Again, this is an industry question, but I would appreciate your perspective. Where do you think the midpoint is in terms of dollars per megawatt hour? Where would you kind of put the bottom 25%? Where would you put the top 25%? Thank you very much.
Wow! I think probably, and there's people with a lot more, a lot better data than I am, but it's probably average being sort of $0.05-$0.055 per kWh is probably sort of where the average is. You see a lot of hosting contracts that are, that are a fair bit more than that. Like, when we go through the halving, it cleans a lot of inefficiency up, and we do expect a radical adjustment here, and where 15%-20% of the network hash rate will probably fall off, for a few months, and it just depends where Bitcoin price is and some of these new miners and adoption, how quickly it is replaced, but it will be replaced.
Like, this is why I'll repeat it again, like, through this whole script and what we're talking about here is we are really pushing for improving our cost of production. We're bringing down our G&A, and like the biggest factor is electricity costs, so we are expanding in areas where there's low-cost electricity. Argentina and Paraguay is cheaper than where it is in North America. And while there's no demand response that can pad your EBITDA and your earnings, like, just in pure margin on Bitcoin play, you need lower cost electricity. And that's why we are seeking earnestly anything under $0.04 per kWh, and that's why we think Paraguay with their dynamics, it's $0.036-$0.039 now, and with the potential for some improvement there, like in reduction.
Then we've got Argentina right now, that's less than $0.03. That's if you're gonna be successful going forward, you need to be in low-cost areas. Being able to get $0.04-$0.045 going forward, especially subject to inflation, it's not a, it's not a good recipe for longevity.
I appreciate the color. Thank you. Then one last one. On the election in Argentina, any potential fallout, and what it could mean for you doing business there?
We've decided to go slow there. We've been. We've said this many times, that we wanna see what the election brings, but we've seen with a Forbes article just most recently, where it said both remaining candidates are pro-Bitcoin. I think how they go about it will be different. We have one more radical candidate that talks about dollarizing the economy and things like that. It's gonna be interesting to play through, but it's one of the reasons why we have not put our capital budget dollars towards Rio Cuarto at this time, because we wanna make sure that we can continue to get the lower cost electricity and just have confidence in continuing capital investments in the country.
But even, I think in that Forbes article, they talked about the government perhaps getting into Bitcoin mining in a particular area down there, which we've looked at. They think it's a novel idea, but we were looking at it two years ago, and it does represent some of the great opportunity in the country of Argentina going forward, provided that we can put the capital and the right people to play in that area.
Geoff, seems like lots of folks are copying you. I'll turn it over. Continue. The best of luck.
Thanks, Lucas.
This concludes the question and answer session. I would now like to turn the call back over to Geoff Morphy for any closing remarks.
Thank you, operator. We are especially excited about the industry as the halving cycle is coming in about five months. Positive developments include increasing confidence that Bitcoin ETFs will be announced later this year and activated in early 2024. And two, in public sentiment, that Bitcoin is being recognized as a store of value given heightened world uncertainty. We believe these factors may boost the sector and increase its credibility, along with increases to Bitcoin prices sooner than expected, and put the wind at our back as we execute our plan to, one, grow low-cost operating capacity to 290 MW in Q1 2024. Two, maintain top decile performance from mining assets and reduce costs as a result of additional sources of stable, lower-cost energy.
Three, develop more of our 573 MW of contracted, yet undeveloped capacity, of which only 240 MW are currently in operation. Four, increase productivity with timely and cost-effective fleet upgrades. And five, remain one of the most highly productive and geographically diverse, pure-play Bitcoin mining companies in the world, and embark upon an accelerated phase of smart expansion as and when conditions present themselves. 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 conference call in March. Thank you.
Thank you all.
The conference has concluded. Thank you for attending today's presentation. You may all now disconnect.