Good morning, and welcome to the second annual Bitfarms Analyst Day. My name is Geoffrey Morphy, and I'm President and CEO. As most of you already know me, I will dispense with the detailed version of my background. I've been with Bitfarms for over three years now. Prior to joining Bitfarms, I've had considerable experience at the senior level in finance and operations, helping public and private companies in many industries execute their business plans. Before going further, I'm required to refer you to our safe harbor statement, and I'll try to be really quick with this. I'll remind everyone that certain forward-looking statements will be made during today's presentation, that 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 today's presentation, reference will be made to supporting slides, and you can find the presentation on our website at bitfarms.com under the Investor Relations section. The company will also refer to certain measures not recognized under IFRS 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 participants to refer to the company's most recent 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 US dollars unless otherwise noted. With the safe harbor statement dispensed with, let's get into it. The upcoming halving is very much on everybody's mind.
What is interesting is that there are many similarities with the situation that prevailed four years ago, and in fact, the halving before that. Please indulge me while I take you back to April 2020. This is when I was considering the opportunity to join Bitfarms. I assessed the company and saw considerable potential, but I also saw a number of challenges, including upcoming debt maturities, older miners, low liquidity. It needed many management and board changes and upgrades. While Bitfarms was listed on the TSXV, it had never done a capital markets transaction. And akin to the high interest rate and inflationary environment now, back in 2020, at that point, there was absolute uncertainty because of COVID. As you remember, March, the world had pretty much shut down, and we didn't know what was gonna happen.
On top of that, the halving was right around the corner in May. I joined Bitfarms a few days after the halving, knowing that I had considerable work to do. Fast-forward three years, a little over three years. Bitfarms is now operating in four countries, has 11 operations, and continue to experience high growth. We have grown by a factor of 10x since then, and the Bitfarms teams is now 150 members strong. We are listed on the TSX and Nasdaq, and we are one of the largest publicly traded Bitcoin miners that continues to achieve the best production metrics across the industry. Our company now benefits from seniority.
We are one of the—having almost been around for six years now, and a Bitcoin miner for that entire period, means we have longevity, and we have years of operating experience that few others can match. Vertical integration. We have designed, built, and operated all our sites since our inception. We also have a proprietary software system, several in-house repair labs, and electrical services subsidiary that provides us with dozens of electricians that optimizes our sites in terms of maintenance and construction every day of the week. We have built a cohesive and experienced management team that is scalable as we continue to grow, many of which you will meet today. We are decentralized, and we have a strong balance sheet and the best liquidity, and the best and most transparent financial and operational disclosures in the industry. So here we are again, déjà vu.
As mentioned, the industry is facing many of the same challenges that confronted us in late 2019 and early 2020, but this time, we're far better positioned and prepared. At last year's Analyst Day, many of you traveled to Quebec and met some of the management team, received some presentations, and toured some of our facilities. This year, we came to you. We made the conscious decision to take many of our key management personnel out of their normal day-to-day jobs and bring them to New York to speak openly to you about what they do. These folks represent our secret sauce. For many of them, they've never done this before. Also, you're gonna see some nerves. But you're also gonna see some vision, experience, and some incredible talent.
In fact, yesterday, everybody shortened their respective presentations so that we could extend the question and answer period, so that we can encourage you to ask questions to get to know them better. Just as a bit of an aside here, we do business, as I said, in four countries, three different prominent languages going on, and today we're asking many people that are in our management ranks in which English is not their first language, and they're coming here to present to you in English, so they're gonna do their best. And, you know, at times there might be accents and things like that. Bear with them. They are doing their best, and I'm sure you'll be able to get the messages and certainly do the follow-ups.... In a relatively homogeneous industry, Bitfarms is unique and special.
It also possesses many underappreciated value drivers that gives us strong advantages. You will see why we are not only well-positioned to weather the halving, but also to be able to capitalize on the next bull run. Today, we want to give you an under-the-covers view of Bitfarms and what makes us unique, special, and why we are poised to take full advantage of the next seven months leading up to halving, and then to describe how we plan to take full advantage on a post-halving basis to be opportunistic. While these are challenging times, we believe Bitfarms represents an excellent investment opportunity. I will return later to provide some final remarks. I will now turn the presentation over to Jeff Lucas.
Good morning, everybody. It's good to see all of you here, and thank you for joining us both in person and virtually as well. You know, early in my career, I was given a piece of advice, and I was told, "You want to find and work with people smarter than yourself." My kids tell me that shouldn't be a problem, and maybe they're right. But I've never experienced that in a company until I joined this one, and you're gonna find the exact same thing. Our people truly are our secret sauce, or as academics would say, our sustainable advantage.
Not just today, not just with the halving, but given the dynamic state of our industry and how it's changing so rapidly, where we're gonna be a year from now, two years from now, even five years from now, it rests in our people, and I think you're gonna find that. So during today's session, I strongly really encourage you to take time, talk to the folks, ask the questions during the two panels that we have here, and then during lunch and during the breaks, ask them as well. Get to know them. I think you'll find that these folks are some of the most intelligent, technically knowledgeable, committed, and passionate folks in the business, and you will see that for truth when you begin interacting with them directly. So if we can go to the agenda for just a second here, please.
You got the clicker.
Ah! Well, that makes it easier. Hang on.
The big button in the center.
Thank you. Okay. Good looking guy. Okay, there we go here. So we are, we're gonna cover a lot of territory today. We're gonna move at a pretty, pretty fast clip here. We're gonna move at a pretty fast clip here. You know, being in Bitcoin mining is sort of like God years, and we're gonna have that pace in here as well here. So as Geoff pointed out here, our goal, not only for you to get to know the management team here, but to sort of see the progression from how we identify and pursue growth and expansion opportunities, how we actually design and execute the build-out of our farms, how we optimize the operation of those farms, and even how we address a lot of the compliance and other jurisdictional issues that we have as being part of a global company.
And then finally, how we even handle some of the reporting, both the internal reporting to help us manage the business, but also very importantly, how we do that as a public company as well. So with that, again, we're gonna encourage you to ask a lot of questions. We'll have time for the panels and time at lunch for you to get to know the folks pretty well here. So on that note, let me now turn this over to Philippe Fortier, our Senior Vice President of Corporate Development. Philippe?
All right. Is my mic on? Yes. Good morning, everyone. I'm Philippe Fortier, Senior Vice President of Corporate Development at Bitfarms, where I've been involved with corporate development and strategic initiatives for better part of the last two years. I'm quite excited to be with you today and, you know, give you an overview of what drives us forward every day, how we implement our growth strategy in our everyday lives. So, main takeaway I would like you to take from my presentation is that our approach to growth and strategic development is anchored around improving our operational excellence and maintaining flexibility, especially around the upcoming halving. Geoffrey Morphy has already described what makes us so special.
My colleagues today in their presentation will describe how this comes into play in our everyday lives, pushing Bitfarms to be the best operator in the industry. But let me just get to the fact, we are a infrastructure-first, vertically integrated company. That means that we design, we build, and operate our sites, and we're pretty proud to say that we're able to do that in a very cost competitive. To give you an example, we build our site with CapEx of roughly under $200,000 per MW. This will be quite meaningful to you, I suppose, and very proud to say that we maintain a utilization rate of our miners above 97%. That is 200 basis points above our next, our best peer.
So we're really proud and, and think this is a key differentiator of us. We're also geographically diversifying. We chase the best power wherever it is on the face of this, this earth, and we don't shy away from engaging in challenging jurisdiction if there's an opportunity for us. We also think it levels the, it levels the risk for our investors of having this diversified portfolio. We're also a self-miner. We utilize 100% of our capacity for ourselves, and this provides our investors with the best exposure to Bitcoin mining, depending on the cycle. So this is something that we continually assess depending on market cycle. Regarding the market, our view is one where reaction of the industry to evolving Bitcoin prices is ever more rational and predictable, meaning that we see hash price going forward as rather stable.
This is our main driver when we're trying to forecast the market. We hold a very firm view that Bitcoin price will rally and go up in the long term due to ever-growing adoption of the protocol. We therefore imply a continuously growing network hash rate or difficulty. In the face of that, Bitfarms is incredibly well-positioned to remain successful. We've got a really strong balance sheet, an extremely resilient operation, and we're quite excited about the opportunity that may arise in the upcoming halving. We will remain opportunistic and ready to strike should there be any opportunity regarding distressed assets and miners that are coming up. Just wanted to share with you quickly some of the key value drivers that we consider when we evaluate and assess strategic initiatives or opportunities.
I will start on the middle right of this flywheel here with electricity mix and electricity cost. Assessing the energy profile of an opportunity is key for us. On the electricity mix, I would just comment that whenever you look at the profile of the energy supply, what we want to further our operational excellence is 100% uptime, ideally, of our miners. Certain types of energy will provide that very stable base load. We especially like hydro, as you probably know. It provides 100% reliability and very easy to forecast cost curve. We wouldn't shy away from renewables, I will just comment on that. However, capacity factor of solar and wind definitely involves some further CapEx or operational challenges, so it's really on an opportunity basis.
When it comes to location, we're interested in seeing how we're gonna interact with the grid. Are we gonna be interconnected? What are the curtailment programs and restrictions in place? Also, access to talent and resources is key in keeping such uptime as we post month after month. You know, Bitcoin mining is a pretty labor-intensive activity, so we need to make sure that whenever a miners fail, we're able to put it back in place. Mining in the middle of the desert is a challenge to that effect, so we prefer being closer to the center. We design our data center around these criteria. We select the equipment, we will mine around that as well.
Of course, we're conscious of the environment we're in and try to be on the cutting edge of new technology innovator, as I'll discuss a bit later. I'll skip that slide. On a day-to-day basis, we implement these value drivers around kind of two verticals, the tuck-ins or more organic growth and M&A external. On the tuck-in side, our view is really to grow our footprint, our existing hubs. We've already vetted four jurisdictions. We're quite bullish on these. We think the power supply is gonna take us forward on a very sure way. We would take more. We remain, although very diligent and selective in those opportunity. On the M&A front, same thing, same approach, diligent, and disciplined. However, the objective there is to improve the allocation.
What I present here is just where Bitfarms would be will be once we have further developed Paraguay and Quebec, and adding in hypothetical 100 MW of capacity in the U.S. would present a pretty interesting plan for the future of Bitfarms. And I'll conclude with just two examples of what we've acted on lately. Baie-Comeau is the acquisition we've announced in April of this year. This is a strategic location for us, located in our Quebec hub, but also at the crossroads of two major high voltage lines in Quebec. This site sits on the territory of 5 gigawatts of generation, and pretty much half of the energy that's generated in Quebec on its way to more urban centers.
We were also able to secure great deal economics, so we got 22 MW for $1.8 million, 60% of which was paid in shares, further protecting our balance sheet ahead of the halving. Our ability to realize some of the equipment we had decommissioned from the De la Pointe facility at the end of 2022 is gonna make this site one of our lowest cost built of our portfolio. So quite exciting news. Also want to touch on the acquisition of the two PPAs we've disclosed further in July this year for up to 150 MW. The first deployment will be at the site we call Paso Pe in Paraguay. This is gonna be a 50 MW deployment. Again, very strategic location, further developing our Paraguay hub.
What we really like about Paraguay, and Damian is gonna further develop on, our bull stand on Paraguay, but I'll just comment. This is one of the only jurisdiction, in the world, to our knowledge, that boast a positive outlook on price of energy. That's being said, where we see price of energy long term going down for 100% hydro. Try and beat that. So it was also an ideal location for a speedy deployment of the new cutting-edge technology we're deploying there, hydro miners, which we've contracted with MicroBT. So we're quite excited about this new innovative step in our deployment.
Finally, I'll just comment that looking at our ability to use credits with MicroBT, so basically offsetting the cost of building the site, the timeline, that's gonna bring this site operating before the halving, and also the type of power, make that a unique opportunity we're really, really excited to bring to our portfolio. With that, I'll be available for Q&A. Look forward to interacting with you, and I will pass it on to my colleague, Ben, who's joining from his office today. Thank you.
All right. Good morning, everyone. My name is Ben Gagnon, and I'm the Chief Mining Officer of Bitfarms. Sorry I couldn't be there in person today, but I'm glad I could join you remotely to tell you about how we manage our diversified mining portfolio with a really strong focus on capital and operating efficiencies in order to maximize our potential returns and yields. As the miners make up the vast majority of our revenue and are the largest single expense for any growth, it is really crucial that we make data-driven decisions to optimize capital allocation and performance whenever we invest in miners. Today, I will give you a glimpse on how we do just that. The easiest way to think of a miner is as a cash flow.
There's a cost to acquire this cash flow in the form of the miner purchase price, logistics, duties, and infrastructure needed to run it. There's a cost to maintain this cash flow, namely the energy consumption, as well as labor, rents, and other costs that make up direct operating expenses. Finally, there is a value in the yield that cash flow generates every day. Similar to how we would calculate the present value of any other cash flow, we can estimate miner value by multiplying the estimated miner profit forward by 16 months and then applying a multiplier that will either add a premium to the newest high-efficiency machines or apply a discount to the oldest and least efficient machines. What we can see here is the estimated value of some common miner models over the last three years with varying efficiencies. Well, they all follow the same pattern.
The higher the efficiency, the bigger the expected future cash flows and premiums. As a result, the highest efficiency miners also experience the largest depreciation in value as mining economics pull back. This also means that the least efficient miners with the greatest discounts already priced in, should have more upside to rising mining economics than higher efficiency miners that have not been discounted. We can use the same framework to look at our mining portfolio at many different levels, be it the miner itself, miner model, manufacturer, site, geography, or any combination of these attributes, and we utilize this framework to drive decision-making. Which is why I now want to address a question we have received a few times, which is: Why have we not brought the highest efficiency XP miners like most of our peers?
How will we be able to compete without the most efficient equipment available on market? To answer this, we need to take a step back and apply the same formulas in economics against an expanded selection of the most common air-cooled miners manufactured from 2020 through today. On this table here, we show the unit hash rate and energy efficiency of miners, the estimated values like the miner price and the price per Terahash, forecasted values in the estimated payback days, pre-halving free cash flow, and pre-halving payback percentages, as well as the XP equivalent hash rate. The table is then organized in descending order according to pre-halving payback percentage, assuming $0.04 electricity and a purchase and deployment on September 10, when these figures were calculated. I would like to point out the red box at the bottom of the screen highlights the XP miners.
A few things to note here. One, the real value of the price or the real value or market price of the XP at $24 a Terahash exceeds the estimated value of the XP of $18 a Terahash by about 33%, representing a large premium to acquire this cash flow. Two, the pre-halving free cash flow the XP is expected to generate will barely cover this premium, and a miner that was bought and deployed today may spend the rest of its days before halving, just trying to recover this premium. Three, the new higher efficiency miner models like the S21, are going to be released before halving, and that these new miners should claim this top-dog premium, while the XP miners will trade down towards a level consistent with their expected free cash flows.
Despite them being the most efficient miners available, this premium actually makes them the least likely to see a payback on their investment before halving, which ironically introduces different risks. Compare that to the S19 j Pro+ that have made up a significant chunk of our recent growth. We identified that through the Pro+, we were able to purchase 87% of the hash rate of an XP for less than 50% of the price, pay a price consistent with their expected free cash flows, and still get a high-efficiency miner that we can operate at under $0.03 per Terahash. With our power prices, we do not need the highest efficiency miners to remain competitive, and in fact, purchasing them would result in measurably lower returns and at a higher cost of dilution to shareholders.
The purchase of these Pro+s instead of the XPs is just one example of our focus on being prudent in our growth efforts, focused on capital-efficient growth, and maximizing our returns. I would also like to highlight the M31S towards the top. At around 44 watts per Terahash, these are our least efficient miners still operating in our fleet today. But having purchased and operated most of these miners in and since 2020, they've paid themselves back multiple times over and are still generating free cash flow. They have a fair value of around $4.5 per Terahash, but the real value is probably a little closer to $3.25. So we can see that these miners are actually expected to generate more in free cash flow before the halving than I could sell them for today, and we would still have the miner in hand.
Also, as I pointed out earlier, when mining economics improve, it is usually these lower-end miners that have already been discounted that will have the most to gain. When we look at miner purchases, sales, upgrades, and growth, we are taking all of these variables into account so that we fully understand what it costs us to acquire this marginal unit of computation, what it is worth, and whether or not it's a good investment. We will not invest in miners and growth that do not meet our strict investment criteria. We applied the same reasoning to our recent Magog upgrade, where we were able to grow the hash rate about 45%, improve energy efficiency 36%, and have a better overall return and risk profile for less than 50% of the CapEx had we bought XPs. To expand upon this, we can take a look at...
Sorry. One second. I think I've got a little mix-up here in my order. Sorry. To expand upon this, we can take a look at a hypothetical 30 MW built like the one underway in Paso Pe. You can see that depending on the miner model we could deploy here, we could grow our hash rate from anywhere between 1-1.3 EH/s for about $24 million-$38 million. While this does generate a nice cash flow today, the all-in estimated payback is closer to 2 years for all scenarios with current mining economics. We can also compare that to the base case scenario, which is hosting. At the bottom, we calculate how many MW of infrastructure we could build for the same amount of capital invested for a full 30 MW of self mining.
By not buying the miners and instead hosting with this hypothetical infrastructure, we would be able to build multiples more MW. This capital would be sufficient to fund not only the construction of 30 MW, but also an additional 50-96 MW, depending on the scenarios outlined here. While it is true that an estimated $20 a MW-hour margin, we would be generating much lower margins per MW-hour, we would actually generate higher overall levels of profitability due to the greater scale that we could build out for the same price. We'd also expect to pay back currently faster than mining and with a different risk profile, not correlated to daily mining economics. This is true across a wide variety of build-out costs and hosting margins.
Shown here, we have a quick sensitivity table, which calculates the annualized hosting revenue and what that would yield relative to the cost to build out a MW over various budgets and hosting margins. With current market prices for hosting between $0.06 and $0.075, hosting margins of $20 a MW hour could be achievable at many of our sites, assuming market demand. As you will see throughout the presentation today, our strength really is in building and operating infrastructure, and this strength in infrastructure gives us distinct advantages should we look to reintroduce hosting into our mix. As we look towards the future, and we see the network hash rate estimates could be growing anywhere up to about 700 Exahash over the next 18 months, if the previous 12 months of hash rate growth were sustained.
In order to do that, we'd have to add about 4-6 gigawatts of infrastructure to support all of this additional computation. The MW and the infrastructure would likely be the real bottleneck for growth. As we look to constantly manage our portfolio of mining assets with a mind on capital efficiency and returns, we are also evaluating whether or not it's time to reintroduce some hosting back into our portfolio in order to generate those stable, high-yielding cash flows that are much less impacted by Bitcoin price and mining economics, and take advantage of our operational strengths as a builder and operator of MWs. Thank you very much, and with that, I will hand it off to Damian.
Is my mic working? Does it work? Okay. Morning, everyone. I'm Damian Polla from Argentina. I joined Bitfarms two years ago to work on the LatAm projects. Prior to Bitfarms, I spent about 20 years in corporate and investment banking, both in New York and LatAm, working on project financings for Latin America. Now, before we jump to the specific projects and what we have done, I want to put a little bit into context what we, where we are in LatAm and what it represents for Bitfarms overall. Over the past two years, we basically built a strong local team. We consolidated our presence in the region. We have over 30 employees there, and we are the only public miner that we know that has significant presence in LatAm. Why do we do that?
Basically, right now, we have, as of late August, as of late August, we had 1 Exahash at the Rio Cuarto farm in Argentina and 300 petahash at the Villarrica farm. And we want to grow, and we want to grow, and we have 3 projects that have been announced, and we also have a pipeline of future projects that we want to bring to the attention of our management team. Of course, we need to decide what we do. In light of the halving, coming, and all the valid concerns that the investor community has, we need to prioritize projects over the next, especially over the next 12 months.
The three pipeline projects that we have announced are basically the two PPAs that we bought in Paraguay, 50 MW in Paso Pe and 100 MW in Yguazu, and we have the potential to expand our Rio Cuarto operations. Now, Paraguay and Argentina are probably unknown jurisdictions to many of you, so I want to take just a brief moment to talk about what's going on there. Paraguay is a very solid country macroeconomically. They had economic stability for the past 20 years. It's run basically by one political party for the last 75 years, with the exception of only 5 years.... They have pro-market policies, so the macro level is fantastic, although they lack in terms of economic equality and public infrastructural build-out. Many of you were there, and you could see the state of the roads and so forth.
However, we take benefit from a political point of view. They just had elections in August. Santiago Peña is the new president. He took office, and he maintained the status quo. So from a political and economic point of view, there are no issues there. And what happens on the energy side? Paraguay is a pretty much very straightforward country there. Paraguay basically has one state-owned company that runs all the transmission and distribution asset. It's called ANDE, and they buys that electricity from two binational dams owned by Paraguay and Argentina, and Paraguay and Brazil, respectively, Itaipu and Yacyretá . They have excess in electricity, because anything that they don't take, they send back either to Argentina and Brazil. So they decided earlier this year to work with the crypto miners.
They actually allocated, in high voltage, 550 MW to crypto miners with a special tariff, and there's also PPAs on medium voltage, but only for 6 MW at a higher tariff. The tariff on 220 kV, which are the ones that we acquired, are at $39 per MWh. This is the location of where the projects are. As you can see, much of the projects are located where in the Itaipu Dam region, on the eastern side of Paraguay, right next to the Iguazu Falls. We have our Iguazu project there, and then in the central region, where we have our Paso Pe project, which I'll talk a little further in the next slide, we have 50 of the 100 MW allocated there. This is our Villarrica farm that you probably know about.
We started operating that one since January of last year. All we did there was basically to replace the miners. Earlier this year, we had T3s. We brought 2,900 new M30S+ and M30S++. The PPA there is with CLYFSA. CLYFSA is the only tiny distribution local utility outside of ANDE's world. We cannot grow with CLYFSA anymore. They have 50 MW. We're taking 10 MW. They need the rest for other PPAs that they have and to provide residential electricity there. Although the tariff there is better than the one we're getting from ANDE's, $36. Here's the location of our Paso Pe project. You see our Villarrica farm on the left, upper left-hand side.
Villarrica farm to our Paso Pe is 1 kilometer away, so we can take the team that we have there and work, continue working like that. Paso Pe substation, that's the ANDE existing substation. That's where we're going to connect from. We're building a 500-meter transmission line to our location, where we are building an 80 MW substation. Why are we doing that? Because even though the PPA is 50, we believe there is room in the near term to increase that to 80 MW. Philippe already talked about we're using 30 MW air-cooled miners and 20 MW of hydro-cooled miners, which is a first for us. That's where Benoit, I think, will cover that and the rest of the team, how we're gonna do that technology.
I already talked about the PPA price and the COD expectation right by the halving. Now, Argentina is a completely different story. It's all over the news. It's economic instability over especially over the past 12 months, triple-digit inflation and devaluation, and they're going elections as we speak, with basically three parties completely tied up. So there's a lot of uncertainty. So we believe that Argentina has very good long-term potential. However, there's gonna be hiccups in the short term. This is what our facility looks like. What you see there, basically, behind our warehouse, that's the existing Central Maranzana. It's a 350 MW power plant owned by a group called Albanesi . Albanesi has about 2 GW in several projects in Argentina, and they were actually expanding another one 25.
What we built was a transmission line to the back of the property, and you see there on the left-hand side, our substation. The substation, as you can see, can only fit our initial warehouse, but a potential expansion to the second one. The warehouse is about 60,000 sq ft, divided into five 10-megawatt modules. We have office space there and a repair lab. Some of you that I see here visited our site and could see the quality of it. Benoit would actually show you some more pictures later. Finally, we highlighted the strategic importance of LatAm already from a geographical diversification point of view, but I want to highlight also that these two countries have strong fundamentals. Paraguay has abundant hydro energy.
The government made a case by awarding these PPAs recently, and Argentina sits on the second-largest shale gas reserves in the world. They need to monetize that in the next few years. So although we believe short term there's gonna be hiccups, we are bullish on Argentina going forward. We have a lot of new projects that come our way in the region. I look at Jeff Lucas and Geoff, and they tell me, "Hold on right now, because the halving is coming." So there's gonna be more from us in the coming years, hopefully. So with that, I leave it to Benoit, who will talk about the operational aspects of our company. And I'm available, of course, for Q&A. Thank you.
Thanks, Damien. Thanks, Damien. Hi, everyone. I'm Benoit Gobeil, Master Electrician at Bitfarms. My English is not so good, but my electricity expertise is great. I am the founder of Volta Électrique, which was acquired by Bitfarms in January 2018. Then I became Director of Operations, in charge of designing and building all the infrastructure of Bitfarms. Over the course of nearly six years, Bitfarms has demonstrated a continuous commitment to refining our facility and design strategy. With the construction of thirteenth farm and the seventh generation, to of improve each built-out has been informed by a lease and learn from previous project. As a result of this respective process, we know that the building and design of practice are one of the simplest, more cost-effective, easily adaptable, and inexpensive in this industry.
With my background as master electrician, I'm dedicated to developing the most straightforward plan to the mining facility. Our current design incorporates highly linear configuration, meticulously engineered to eliminate potential points of failure. This deliberate approach has reduced the length and amount of wire we use. As a result, we mitigate electrical resistance. Moreover, by minimizing the number of voltage step-downs, we drastically curtail transformer quantity, mitigating potential failure occurrence, and largely lowered our construction expense. This results in replicating this effective methodology across all next projects. Its exceptional, expandable, and efficient system as pivotal factor, enabling us to expedite construction timeline and maintain costs effective in comparison to industry counterparts. We believe this facet of our operation furnishes us with a distinct competitive advantage. Our facility adheres to a straightforward, highly effective, and design.
The design includes two primary sections, the intake, the cold side, and the extraction, the outside. This ingeniously simple and well-engineered cooling approach not only aligns with our commitment to operational efficiency, but also resonates with our overarching main objective. It highlights our capacity to easily leverage the natural environment to optimize our mining process, while decreasing the need for energy and cooling systems. This underscores our dedication to both economic and ecological sensibility, serving as a key factor in our continued operational success. In addition, we can reuse the hot air... Sorry, we can reuse the hot air to heat the farm during the winter period, and even in some cases, heat our neighbors, providing a significant heat for all the winters. At Bitfarms, being well organized, it's how we work is a top priority. We've become experts in this area.
Our skilled team includes members with vast knowledge, also plays a role in training new technicians and IT specialists who join us. A significant part of our fleet uptime involves the Network Operation Center, the NOC. They work 24/7 to quickly identify and dispatch any issue on our mining site. They monitor the performance of our equipment, the temperature, and the site intrusion. When a problem comes up, they send the right people to address it promptly. Our globally dispersed team technicians are crucial to maintaining site cleanliness and ensuring smooth miner operation. They receive comprehensive in-house training, giving them the skills to diagnose and fix a variety of miner related issues, except for hash board failure. When issues involve this miner's component, the site technicians collaborate with our repair lab. These experts have received training from respected companies like Bitmain, Innosilicon, and MicroBT.
This collaboration approach help maintain excellent equipment performance and extend its lifetime. The repair lab performance has recently increased to over 50 hash boards a week, and we try to improve that every week. Our systematic approach to labeling our miner also contribute to faster issue resolution. Each piece of equipment has a unique name or number, making it simple for our site team to report problem and resolve them quickly, even if it involves team from other department or other company, like Bitfarms, like Volta, sorry. Thank you.
Good morning, everyone. My name is Guillaume Reeves. I have about 15 years of experience in the IT domain. I started at Bitfarms in 2017, as a programmer when the company first started. Today, I'd like to present a bit of our in-house built management software that we call MGMT. Back in 2017, recognizing the depth of expertise we had in-house, notably one of our founder, as well as some skilled employees, we decided to build our own tailor-made solution to help us operate and manage our miners. Our objectives were pretty straightforward. It was to seamlessly manage different miner manufacturers, within a single software. It was to optimize our operations so that we could achieve the best uptime possible, and to simplify the task of on-site technician, making their role more efficient and effective.
Today, we're proud to announce that we're now on our fourth iteration of the software. It remains in constant evolution as we collaborate with the operational team to develop new features that will enhance their operational efficacy. Our journey was of continuous learning, adaptation, and innovation, and now, as we look to the horizon, we're more committed than ever to pushing the boundaries and setting new industry standard. At its core, MGMT is a sophisticated command center that effortlessly collates data from our expansive fleet of miners. It's our eyes and ears across a staggering 60,000 individual miners, all orchestrated from a single unified location. Regardless of where our miners are stationed globally, we have the capability to delve into both live feed and historical archive, tracking each miner's every metrics and movement.
This unparalleled visibility gives us an eagle-eye view from a global scale, right down to the specific miners of a single miner's operation. Something we like saying is, if you can't measure it, you can't manage it. At every scan of MGMT, the data retrieved from all miners is analyzed and generating alerts for found issues like misconfigured miners, high temperature, down miners, low hash rate, and more. So as we can see on the current slide, that's what we call our Rack View page. Looking at this page, we can quickly identify anomalies with the miners, and it's real easy to pinpoint the exact location within the rack. MGMT is more than just a tool. It's the core of our operation, ensuring that every one of our 60,000 miners is functioning at its peak every second of the day.
At the heart of MGMT lies a blend of precision and insight. We utilize unique identifiers such as MAC address, serial number, or IP address to achieve tracking capabilities for each miner. With the integrated repair system, we're able to calculate repair and maintenance costs at various granular level, from individual miners right down to our global operation. With this information, we can measure the return on investment for every miner in our fleet. These metrics help us. These metrics guides us in making informed decision, ensuring each miners are functional and optimized for maximum ROI. And as we talk about ROI, there's another pivotal facet to our operational strategy: extending the lifespan of our miners. With the information derived from MGMT, we've been able to strategically redeploy our older models to maximize their utility.
A prime example of this is when we relocated our T3 models into Paraguay, ensuring they remain productive and cost-efficient in a different operational environment. Moving to infrastructure. So uniformity in IT infrastructure across our operation is not just a strategy, it's a philosophy that underscore our commitment to operational efficiency. By adopting the same IT design for all our sites, we ensure a seamless, replicable environment. Central to this approach is our IT infrastructure and MGMT software synchronize. They operate in tandem, each complementing the other. This relationship ensures that our management tools are always effective, irrespective of their deployment location. But there's more. With our automatic site deployment configuration generation, we're able to expedite the launch of new site. The preparation and configuration of hardware for new sites are executed remotely, and once configured, these hardware system can be shipped out, ready for immediate deployment.
So in summary, MGMT stands at the core of our operation, monitoring and managing our vast fleet of approximately 60,000 miners on an individual miner basis. MGMT offers insight into the financial implication of our operation, shedding light on our expense and optimizing our bottom line. And as the world and technology evolve, so does an MGMT. It remains in constant evolution. Thanks, everyone. I guess it's time for break. Panel? Okay. Okay.
Okay, we're gonna carry on here. We're gonna have a panel on growth, operating principles, and practices. And this is where, really, we invite questions from you about what you just heard or some of the other things. Stephanie?
Ask me. You guys can ask your questions, and we'll get Ben back on the screen.
Okay.
If you have one specifically for him, he'll be there in a minute.
Okay. This, this chair is for virtual Ben.
Yeah, exactly.
Are we, are we waiting for Ben right now? Just go ahead? Okay. Well, then, there he is. Ben, you've got a chair right here. Excellent.
Hey. Zoom call.
Okay, let's get this started. Stephanie, you can also feed in some questions as well from the audience that's online. But, invite questions maybe from here to start with. Oh, we've got one over here. Okay. Should I-- You're gonna move the mic over?
Just curious, in the commodity-based Bitcoin world, I'm trying to... Each one of you guys, trying to understand the edge you have in the marketplace, for what you do. Can you tell us how you can get ahead of the group, that everybody's trying to be low-cost producer with energy, you know, and other things along those lines? So how do you stand out, from your competitors, in, in getting the, the growth that you have?
Every single person on this panel has already contributes this much and this much and this much, which aggregates to a significant difference over top, and that's how we really generate top quartile results every month. But, let's start with Ben, to, to provide a little more detail with that. And then, Benoit, maybe you can highlight some of your operational, things that you would add in. Ben?
Sure. Yeah, I think the key thing for us here as a company is that, you know, when we approach Bitcoin mining investments, we do so very prudently. And we do so with a strong eye for long-term cash flows and long-term predictability. So we're not buying into or investing into any miners that are just here for a short-term objective. And we're not investing in growth just for growth's sake. When we make investment decisions in growth, we expect them to generate good returns and positive yield, which is why we're making those investments in the first place. How we separate ourselves out from the peer, I think, is being a little bit more prudent in our growth approach.
Like I said, you know, we're not buying the most expensive, highest efficiency miners out there on market, even though that's the standard. But, you know, by doing a lower efficiency miner at a lower price, we're actually able to drive better returns for our shareholders at a lower cost. And these are just, you know, some of the different ways that we think about how we approach the capital investment decisions. And then, you know, Benoit can tie in about the strength of our operations, which, you know, if you see our facilities and if you've seen some of our, our photos or videos, you can see that our operations are, are top-notch. We've got a solid reputation in the industry that we've, you know, earned over five years here, building, operating, and delivering consistent results month after month.
I think that's really what separates us apart.
I will repeat a bit what Ben just said, but for sure, for us to have like facility and be able to build something that will stand there for a long time, for us is very important. The cleanliness and everything that all the technician... Yes, we have like a big management, like, good group, but we have technician and we, people in the farm that they are like big family with for us, that work all together for all the country that we have. I think for me, cleanliness, and after that, be able to maintain all the miner up like we're able to do already and that we prove it, is very important, and we're able to do it, so.
Philippe, big picture, anything to add?
Yeah, just to answer your question, in a commodity-based environment like that, you need to be-
... focus on your cost and what your competitive advantage is. I think Ben and Benoit have contributed their views to that, but I think the real question is, does a miner provide a competitive advantage to compete in that industry? I think it's questionable. What we have are great power contract, diversified worldwide, and the best in industry ability to monetize that energy, with best-in-class uptime. And I think this is really what, what makes Bitfarms stand in the industry.
Thank you. Any follow-up? Or was that good? Good. Okay.
Yeah. Hi, guys, Josh Siegler, Canaccord. Thank you for the presentation today. It's been great. I wanted to follow up on your discussion on hosting specifically. You went into, you know, understanding the cash flow benefits of hosting and the profit related to it. But I believe in Philippe's section, you also outlined a path of Bitcoin to $100K by the beginning of January 2025. So I'm curious how you're thinking about, you know, the difference between self-mining and hosting and kind of what Bitcoin price you're assuming when putting that calculation together.
Josh, I figured somebody would pick up on that. Like, this isn't new to us. Like, this is something that we did in the past, and then because of economics, we decided—I think we had a number of machines in Quebec that were hosted out to Foundry, and we bought it back, I think, in April 2021, just because of the age of the machines and the economics at that point. It was really that last bull run. But it's always been part of our DNA to do that type of thing. And Ben, why don't you expand on sort of where some of the numbers are right now with some of the economics, and why that's still sort of in our horizon and focus right now as an option?
Yeah, absolutely. You know, I think the most important thing here is that we need to be making comparative choices with our investments, right? There's a lot of different miners that we can invest in. They generate a lot of different cash flows and operating efficiencies, and we always need to compare that to the base case scenario of just hosting. You know, when we look at how we're going to generate the, the best returns and how we're going to manage our profile here to deliver, you know, capital efficiency and, and good returns, you know, really, we need to look at where the miner prices are, are priced today. And relative to their expected free cash flows, without a dramatic increase in Bitcoin price to $100K, you know, there is really a strong scenario in favor of, of hosting.
And so we have to balance out, you know, the expectation and probabilities that Bitcoin price is going to go up with, you know, the probability that it does not go up and it does not meet those expectations. You know, we as a company are not going to be making investments that are entirely reliant on a Bitcoin price going up. It's not a prudent way to approach capital allocation decisions. And, you know, when we look at, you know, what is our strength, really, our strength is not in buying the miners, even though I think we do have a more systematic and thoughtful approach to that than many of our peers. But the miners are a commodity, and they trade freely at virtually the same price for every peer. It's hard to get an advantage in that.
Where we can get an advantage and where we do have an advantage is in our operations. You know, we've got very stable, low-cost operating power. We've got incredibly reliable facilities. We've got great uptime and great utilization of assets. All of these features are features that are also very, very attractive for hosting clients, and could probably drive a premium. So when we go back and we look at what is the relative yield for, for investment, you know, hey, we can put a bunch of money into XPs, but, you know, we're relying on the price of Bitcoin to go up in order to make that a good investment, because with a two-year estimated payback right now, you know, that is not a super attractive investment for us.
Whereas if we tap into our, our infrastructure strengths, and we look at how we grow prudently with the capital that we have and the capital that we plan to raise, you know, we can just build a lot more MW. We have a more stable baseline on the bottom of the company that gives us a strong foundation of cash flow generation activities, you know, independent of mining economics. And so this gives investors a more stable baseline. It gives the company more predictability and better cash flow management. And these are the different elements that you have to balance. But right now, mining is a better return than— or sorry, hosting is a better return than mining. And in order for mining to be a better return than hosting, we're gonna have to see dramatically higher prices in Bitcoin.
And that's something, you know, we're not gonna be 100% in either basket. This is still something that we're evaluating right now. But would like to point out that part of our prudent approach here towards growth and more, part of our slower approach to growth than some of our peers is because, you know, we're evaluating these questions a little bit, you know, more thoroughly and a little bit more deeply, taking a look at the bigger picture and not focus on objectives, you know, that are not going to be driving better returns for our shareholders.
That good? Follow-up? Okay. Bill.
Yeah, good morning, guys. Thank you for hosting this analyst day. It's been great so far, and all the discussions have been really good. My first question is with respect to forecasts on Hash Rate and Hash Price as we go into the Halving and post-Halving. Can you just provide a little bit more detail in terms of where you think that's going and how that's getting baked into your analysis?
I think, I think Ben touched on that in some of his presentation. So why don't you start, and then maybe Philippe, follow up there on impressions and estimates and-
... Yeah, my, my current estimate right now for going into halving is that network hash rate is going to be somewhere between 400 and 445 Exahash. And if we continue extending out the, the growth rates that we've seen over the last 12 months and roll that forward a further 18 months, you know, we're gonna be closer to 700 Exahash at the, at the end of 18 months, if you sustain those growth rates. Right now, you know, we are at revenue per Terahash of about $0.06, and if we're gonna go up to 440 and we're gonna have the halving, we're gonna be a lot closer to $0.03 per Terahash. I think that is more or less the, the short-term floor around halving.
And we can kind of back test that by looking at the operating costs of different miner efficiencies at different electricity prices. And we can see that, you know, an XP miner, which is the best miner out there right now, even at $0.06, it has an operating cost of $0.032 per Terahash, not including things like labor, rents, insurance, depreciation, all those other, you know, factors that add into the cost of the miner. And so anywhere close to $0.03, I think we're gonna be seeing large sections of the network turn off. I think it'll probably start happening around $0.04 or $0.045. We'll start seeing pullback in network hash rate, either through underclocking or turning off of less efficient miners or higher cost operating miners.
But really, we're looking at somewhere around $0.03 is the ultimate floor for my estimates in the short term around Halving. I expect it to be a little bit higher than that, but I do not believe the market can take anywhere below $0.03.
And Bill, you know, just tying in, also Josh comments that we forecast like a much higher Bitcoin price. Of course, what drives the Bitcoin mining economics is hash price, the mixture of Bitcoin price and the difficulty. This is something that we prudently model as flat. And if you hold a view that Bitcoin price is gonna rally, network hash rate, you know, needs to keep increasing, as Ben just disclosed. I think there is a ton of evidence in the market that there's miners' oversupply everywhere, and we've been testing this $0.06 per Terahash per day level for the better part of this year.
It seems pretty reasonable to say that whenever Bitcoin price increases, there's a whole lot more hashes that comes online, and we've seen some pullback in the last difficulty adjustment with lower. So yeah, halving is definitely gonna bring a shock, but over the following 5 to probably 9 months should fall back to where it is. Yeah.
That good, Bill?
That's perfect.
Okay.
Thank you.
Over to you, sir.
A question on the operations in Argentina. Just looking economically, if you're looking just at dollars and cents, not about projections of how the country is gonna be, say, five years from now. So just economically, the political and economic issues in Argentina, has it been... How has it affected you in dollars and cents? You know, positively, negatively, neutral, and can you quantify it?
Sure. Well-
Emilio?
The challenge that we had was basically delaying the build-out, mostly associated with the fact that we struggled to import miners into Argentina, especially last year. The government changed the rules. We and the I think Patrick will talk about it later, but basically, we had to apply for a self import permit. That took longer, and then getting the miners there, that was basically the main delay. It wasn't on building the infrastructure or challenges on that. Now, I think right now we're very well positioned. I had it in my slides, but since we had to cut it short to five minutes, I was talking about how we, what we're doing this month, that actually Jeff announced a few weeks ago, how we were deploying miners there.
We have right now on the ground, I believe, 14,000 miners, we have 2, 2 more trucks coming to Rio Cuarto tomorrow. So I think we're in pretty good shape to finalize the full deployment of that first warehouse. And we're also thinking about ways of, within that same warehouse, to grow marginally not, right? And we're not gonna go to 70, maybe 63, 64, 53, 54, I'm sorry. So right now, that location is our lowest cost producer from the energy price that we're paying. But as we stated, I think we needed to weigh the pros and cons of where we grow in the next 12 months. And thinking about what Philippe said in terms of geographic diversification, we don't want to be too big on any specific geography.
Paso Peña, Paraguay, provides the perfect place right now for us to grow. So Argentina is profitable, will continue to be profitable. I think there's gonna be bumps. I'm not sure what you've seen on the news about Javier Milei, who basically came in first in the primaries. He has a quite disruptive agenda. So that's why we're keeping our options open there, growing in Paraguay, short term. But we think long term, Argentina, not only in Rio Cuarto, but there are many other opportunities there that are very interesting.
Argentina is quite an incredible place with the second-largest shale gas reserves in the world. But unlike other places, they don't really have the way to monetize that efficiently, except in-country. There's no LNG port. The pipelines aren't all that big to take it outside of the country, so it's self-consuming. So, one of the constraints we had for our Rio Cuarto site was the fact that it was a single pipeline. In July, they completed a second pipeline through there. So the gas was a little more expensive because it was constrained because of the pipelines issue. That's now been solved. So our Rio Cuarto site, there's substantial expansion opportunity there. The contract's for 210 MW. As Damian said, sort of 50/50 + should be there. It's part of our guidance for the end of September.
Two more trucks to arrive, like, today, tomorrow, like, it's happening. It'll be a nice relief to get that facility fully up and running finally. With that, we can optimize the power delivery from the two turbines that we've got at that facility, which brings down the cost. We've announced publicly that it's an average of $0.03/kWh, $30/MWh, around the year there. We're in the winter period because it's the southern hemisphere, so it's about $0.035, $0.036 right now. Summer is around the corner in October, and we have about 7, 8 months where we, fingers crossed, we might see $0.025 , maybe a bit better than that in the winter period, and that's sort of where we come around with the $0.03 average estimate for the year.
There's other opportunities in Argentina too, but politically, wait and see. But there's opportunities to actually bring down cost in other locations there even more. So it's an interesting jurisdiction for future.
If I can just add on to that really quickly-
Yeah.
Jeff.
That one more?
Yep. Yeah, just one more point. You know, with $0.03 per kWh electricity rates, our operating cost per Terahash is gonna range anywhere between $0.028 per Terahash on our lowest efficiency miners in Argentina at an M30S, to $0.021 per Terahash for our highest efficiency miners on the Pro+. And so, you know, given that low, low cost of electricity there, you know, all of these miners are generating computation at a very competitive rate and at a rate well below what we think is the expected floor next halving.
That was quite a question. You managed to get perspectives from every, every one of the technical people up here, and they're and the way they focus at things. Thank you.
Thanks. And, Ben, you know, obviously you've been, you know, involved in Bitcoin through multiple cycles and, you know, and clearly now, you know, you're laying out the capital allocation case versus for infrastructure versus rigs. You know, I guess what I would say is, it seems like in a lower priced Bitcoin mining world, infrastructure is the better investment, but that probably flips at a certain point, and rig pricing is tied to the Bitcoin price, so it is a little bit circular. But I guess two things. One is, is there kind of a level where you think it makes sense to look at acquiring rigs?
And that just is if we're to start moving towards a structure hosting framework in kind of the next near term, do we maintain some optionality to at our infrastructure location so that we can actually deploy our own equipment? And can we set up the contract structure or leave open capacity to do that?
Yeah, it's a good question. You know, when we're looking at capital allocation decisions, I think with miner purchases, you know, obviously it's a commodity, and we don't have too much of an advantage here purchasing with anybody else. Timing really is the largest determinant of any miner purchase here. You know, if you're buying a miner at the wrong time in the cycle, there's really no power cost, which is gonna save you from that depreciation in value. You have to buy the miner at the right time. And, you know, where we are right now, with a halving roughly half a year away, current mining economics at $0.06 per Terahash, it's not very attractive to us to be investing in mining infrastructure deployed today.
What we are looking forward to is actually that crunch around halving and what that's going to do and what kind of a supply shock that's gonna have around mining hardware. Because we expect that hardware prices, if unless Bitcoin price really rallies, hardware prices should fall. And that would enable us to, if we wanted to, pick up more hash rate at that time for significantly less capital than we could do so today, and generate higher levels of profitability and, and return by doing so. When we look at how we're, you know, approaching our new infrastructure projects, absolutely, we can approach this flexibly. There is no saying that we have to have, you know, hey, this entire substation or this entire warehouse dedicated to self-mining or dedicated to hosting.
You know, there could always be a scenario where we actively, you know, put 30 MW of hosting, 20 MW worth of self-mining, and, you know, as time changes and the mining conditions change, you know, we're gonna adjust and rebalance that portfolio as well. Really, what we're looking at here is the timing of things right now, going into the halving and the current miner prices relative to their expected cash flows. And we think that our capitals, you know, could potentially be better allocated towards more MW, which are not subject to those same, you know, economic constraints around halving, which are just right around the corner.
Felipe, I had a question. You know, thank you for your presentation earlier. You know, I guess a couple of things. One is, you know, you called out those sites, the site in Quebec, you alluded to more power availability. As you think and approach your, you know, the infrastructure development, how important is it when you look at a site that there is expansion opportunities?
... Yeah, it's really key, and mentioned that in all the hubs we're involved, we welcome the opportunity to grow. Now, Quebec was the cradle of Bitfarms. It kind of allowed us to grow into what we are now because of the stability of the power, the quality of the power, and the relatively low price of it. At this point, Quebec has a moratorium on more growth, so anything that will come from there will have to be through M&A. And this past cycle has been a bit daunting on that with price expectations. I think a lot of operators have kept extremely high expectation of value on the past bull run. So it's been challenging to see equity on what a MW is worth if you're to acquire it.
I think we did a fantastic job in Baie-Comeau. But, to answer your question, yeah, both in the U.S., where we are in the Pacific Northwest, should there be more sites available, and same thing in Latin America, we would look at it. When we deploy, keep flexibility to grow in the future, and that's key as well, even for a new geography or jurisdiction we would look at.
Things might change a little bit in Quebec going forward, too. When the provincial government changed last October, it brought about discussions with Hydro-Québec, with some of the players, how to bring more value added to the province, how that gets measured. They put a think tank together during the summer, 50 experts, they all started talking about, they're making those recommendations to government now. Like, I think we collectively see a positive momentum towards sort of where the province is going, where it seemed to be pretty stalled for a while in terms of closed-mindedness.
So I think with that more open-mindedness approach, and, like, we are starting to engage with Hydro-Québec and with the government, and being able to bring some of these advantages of finding out where they need jobs, finding out where there's surplus electricity, and having that two-way street where we can go to the power versus them just sort of saying, historically, "Uh, go here, go here, go here." Now, I think there's some more open dialogue, or it seems like that's starting to happen. So there could be some new avenues starting to open up, but we'll see.
Jeff, if I may just add a concluding comment on, on Quebec. In that particular jurisdiction, it's pretty easy to map out all the MW that are available because there's a moratorium, we're by far the largest miner in the country and in the province. And, you know, phone's been ringing. People call us up given, you know, just how well we posture, and they see us as a potential good partners for us. So whenever there's an ability to strike a deal, I think we're pretty high up on, on some of the other operators in the province, call list, for that. And that's just a testimony to what we've been doing for the past six years there, I think.
Like, where we do business, we have mayors that talk to other mayors, and we have mayors that want us to come to their communities to bring jobs and alternative employment and to help monetize, help their economies. So within the province, the municipalities are saying, "Come to our areas." And provincially, they've said, "Stop," but, like, there are these forces going on, so we're right in the middle of it. Okay, we're good? Okay. I think we're good now, so we're going to go for a 10-minute break.
Thank you.
We'll come back in 10 minutes.
Okay, so that's it?
Thank you very much, and welcome back. I encourage people in the room to take their seats. And first of all, just one housekeeping item. Our break took a little longer than expected because we had some technical difficulties with HDMI cables and things with some of the internal monitors. So we apologize for that, but we seem to be fixed and up and running, so we're gonna carry on with the second part of today's presentation. I'm going to give it over to Nicolas Vilches; here he comes, who is gonna introduce himself, and then we're gonna go into pretty much the same way we did with the first one, with pretty much rapid fire with other specialists. So away we go.
Okay. Thank you. Is the mic okay? Okay, so good morning, everybody. Welcome back. My name is Nicolas Vilches. I'm from Argentina as well. And I am LatAm operations manager, and I have been working in lean methodologies for the last 14 years in different companies. So through the day, we have talked about the strategy of putting more efficient miners and doing fast deployments. We have talked about operational excellence through the simplicity of our facilities and the cost efficiency as, and through the 24/7 control. And we have talked about data management through MGMT, our own system that we have developed within the company. We know we have grown, we are growing, and we work every day to continue to grow. So this is why we decided to create our own Bitfarms Operating Way.
So this system, as we call it, BOW, is our own high-performance system, and it's based on the principles of lean manufacturing. So with this, we will develop a standardization system for the whole company, based on the most important principles of lean manufacturing. We will develop management and leadership competencies to make sure that all our leaders in all the levels of the company have the right competencies to apply to their job. And we will develop a powerful continuous improvement system that would lead us to go a small step every day and make sure we give big improvements every day. So I will give just a quick basis on what is lean manufacturing.
Most of these methodologies were born in Japan more than 60 years ago, and we can see that here we deploy the Total Productive Maintenance that is going to maximize the uptime by going to the 0 breakdowns in all the facilities. We'll talk about total quality management. That is going to assure the process control and the process definition, so everybody knows exactly what to do in our facilities. We will talk about just-in-time. That is going to put the right thing in the right place, in the right moment, so we have a service-level optimization. And we talk about total industrial engineering. That is going to do the documentation of our facilities so we can improve them every day. Of course, this is not new, and many companies have used it in the past.
Many of you have already heard about it, but it's really good stuff to apply to the company. We have to demystify that this is only for manufacturing companies. We can see examples in the technology industry and also in the service industry. So I would like to share with you why we want to deploy this system within Bitfarms.
The most important thing, and the first reason, is that we need to guarantee that our managers and leader of any level of the company have the right competencies to achieve these three main important things: the commitment of the whole team in each one of our farms, to manage properly the objectives through defining KPIs and following them to improve every day, and to manage the skill of each one of the employees we have, of each one of the team members, so we can have the right person in the right place. Andrea is going to go deeper about that in the next presentation. What we're building here is a system to develop the standards that will be built on a strong management and leadership foundation, as I say.
We will use worldwide known and proven tools and methodologies, and we are going to apply it specifically to our company. On these nine pillars, we are going to be developing the standard for health, safety, and wellness, cost management, logistics, supply chains, and organization, maintenance, quality management, improvement and research and development, equipment management, people development, and environment. Of course, maybe you have seen or will see system like this in many other industries. This is not new. This is our own way to apply to our company. Each one of these pillars, or these verticals, are going to help us to create more efficiency and more cost improvement, sorry.
So just to talk about some examples, by developing the cost management vertical, we are going to set the standards to properly track each one of the costs we have in each one of the lower level of our facilities. By that, we are going to be able to identify non-value-added activities and eliminate them or minimize them. Or, for example, in the maintenance pillar, that we are going to develop the standards to, well, to kill the breakdowns or to put the breakdowns in the lower level possible, so we can continue to optimize the uptime. So we know we are already excellent. We know that we are one of the best performers in the industry, but we want to continue evolving. That is what motivate us to develop this. So some examples of the early application.
Here, we can see how applying a basic tool that is called 5S, of the Japanese origin, we will organize each one of the workplaces we have. That is going to assure our people to work safely and to know exactly what to do and have more efficient workflows. Or, for example, we are building our own quality management system and all the procedures that we are going to be, you know, we are already in four countries, and we are deploying the same miners in new facilities with new people. So this is going to set the basis so we can train them as fast as we can. So this is the principle. We are in the beginning of this Bitfarms Operations Way, or BOW, and we are going to continue to develop it.
Now, thank you very much for letting me be here, and I'm going to pass the word to Andrea.
... Thank you very much, Nicolás, and good morning, everyone. Thanks for the opportunity to, to be here. My name is Andrea Keen. I joined Bitfarms last January 2022 as Vice President of Human Resources. So it's my pleasure this morning to take a little bit of time to share, some of the stories and, and a little bit about what we're doing to support the development of what we consider to be our most critical asset, which is our people. Nicolás, shared with you some of the framework of BOW, the Bitfarms Operating Way, that we're currently putting into place. So I kinda wanna laser focus a little bit really on the work we're doing around people development. Specifically, Nicolás also mentioned the criticality of management and leadership competencies, right?
This is the base, this is the foundation of really being able to build a strong people development plan. So we have done a lot of work, particularly this year, focusing on our management, on our leadership, setting up really what the expectations are of those leaders. We've created our own three-day leadership development program. It was custom designed for us with a local university. All of our people leaders participated, and it really kinda set some of the foundations of core competencies we consider around leadership, like communication, feedback, delegation, engagement, and coaching. But of course, we understand, you know, what goes on in the classroom has to be applicable to the real world. It has to be applicable in all of the work that we do across all of our operations. We do base our culture on high performance.
We really wanna drive performance throughout the organization, and we really base ourselves and kinda ground ourselves on these three pillars. So our values, which you can see right here, communication, and measurement. On the communication piece, just like we create transparency with the market, coming here today as one example, we wanna do the same internally. So we recently, about a year ago, implemented town halls, which are kind of like quarterly all-hands calls. Employees are all invited to join. We give some kinda key pertinent presentations to the team and then open the floor to a Q&A. So this really gives the opportunity for employees to ask their questions. The entire management team is available to them to answer really any of the burning questions, you know, they have, whether it's about their roles, whether it's about the market.
We're really there to provide that clarity. From a communication standpoint as well, we also focus on the individual level. So we've implemented a process this year called Contribution Management, which is a continuous feedback cycle with employees. It's a one-on-one between a leader as well as their employees, where they have the opportunity to talk about their role specifically, and any development opportunities that they can identify for themselves. From a measurement perspective, you've seen kind of some of the great things we do from a technology standpoint. So now we're looking to link those, MGMT is one example, to the work that our employees do in the workplace.
So we're able to kind of create some key performance indicators, work that our employees are doing, and are able to measure that against how they're performing, and able to really quickly come in and put in place some easy improvements. Right, then just like the BOW talks about, you know, kind of a continuous improvement loop, we kinda see the same thing happening from an employment perspective, from a people development perspective, right? So it's very important for us to have skilled teams, very clear roles, very clear role profiles, an understanding of what everybody does in a detailed manner.
Through BOW, we've also created a skills map, so we're able to identify really what are the key skills, competencies required to do a job, and we're able to evaluate each employee against that, so that we can determine really some company-wide areas of focus for larger and broader training programs. We've also recently started to enrich some of our roles. So taking as an example, a diagnostics technician, giving him some IT or some cabling responsibilities. So we're giving him the opportunity to learn new skills, and you know, it's enriching his role. It's kind of giving people a broader perspective within the organization. This also helps us reduce our headcount or you know, minimize the need for new headcount. And it also keeps us lean, right?
and making sure that those jobs are enriched. Examples like this is something that really helps us scale as we grow globally. One example of this would be as we started to power up Argentina a few months ago, we identified the need to have one of our repair labs locally in Argentina. We found an employee who was kind of a skilled microelectronics technician, so we brought him over to our lab facility in Quebec, gave him a couple of weeks of training, and then sent him back to Argentina to kind of apply it over there. So obviously, this gave him a good professional and personal experience, but also, you know, it set us up for a lab there locally in Argentina.
Now, once we start to power up Paraguay, we've already got the skill set there, and we can kind of easily scale that very quickly, locally. Right? So we do believe that these types of, of opportunities really enrich the roles, give people opportunities, helps retain employees. Obviously, our best-retained employees create the next generation of leaders in the organization. And so this loop kinda continues to go around and around, right? You've got skilled people who are with the company a long time, learning the management skills that we're teaching them, and then they're kind of applying that to the next generation. So very important initiatives for us. And, you know, we really feel this is something that sets us apart. So I'll pass it over to Paul. Thank you very much.
Thank you, Andrea, and hello, everyone. My name is Paul Magrath, and I am the Vice President for Tax and Sustainability at Bitfarms. I'm pleased to brief you on our ESG mandate and where we are today. As a Canadian CPA with 30 years of experience in corporate tax and over 20 years working with governments on tax policy and administration in Canada, the U.S., and with the OECD, I think I'm uniquely positioned to lead this effort.
At Bitfarms, we were planning to launch our ESG in 2022, and I raised my hand to get involved and help drive our strategy forward, and I'm excited for the opportunity to bring my experience to lead Bitfarms in this important endeavor and have the support and guidance from the board and from senior management to take our existing strengths and amplify those as we embed ESG principles in our culture, integrate feedback from all levels of the company, and take that forward. ESG has and always will be a part of our DNA. What is sustainability? Sustainability consists of fulfilling the needs of current generations without compromising the needs of future generations, while ensuring a balance between profitable economic growth, environmental stewardship, and social well-being.
This sounds a bit like motherhood and apple pie, but at the same time, we have seen many calamities over the years, from climate change and the mortgage crisis, Enron, the mining of cobalt with child labor for pennies a day, and human rights violations in a company's supply chain. This ethos is necessarily moving from the media front page to the balance sheet and the annual report. Additionally, the explosion of ESG standards across the investment community has done more to confuse investors than to inform them.
However, with the recent push from the ISSB, IFRS, the SEC, and the EU regarding mandatory disclosures, the fog is beginning to clear, and we should see a greater consistency and comparability in the ESG information provided to investors, giving them the ability to look at companies across industries and determine how each of them are doing at identifying, reporting, and mitigating the risks within their business. As I said, ESG is in our DNA. We remain committed to sourcing economical, renewable power to supply our farms wherever we operate and will consider when and how to mitigate the greenhouse gas impacts of our operations as and when those regulations are put in place.
We were first, and continue to be the only publicly traded Bitcoin mining company, to be audited by a Big Four audit firm, and we continuously work and review our internal controls with external advisors to improve upon those as well. As you've heard, through our various programs, including BLIMP and BOW, we are working to build the principles of excellence, collaboration, fairness, and compassion into our people, which, together with open communications, will help keep us nimble and responsive in meeting the changing needs of all of our stakeholders. The journey. In late 2022, we formally created an environmental and social responsibility committee at the board level, led by Edie Hofmeister, a seasoned executive with a depth of experience in governance and ESG.
That followed in April 2023, with my appointment to lead Bitfarms' team and ESG effort, and shortly thereafter, I struck a steering committee represented by employees from all key areas of the business, including corporate governance, human resources, IT, finance, Latin American operations, and marketing and communications. In June, we conducted an internal materiality assessment and received responses from employees from all areas of the business and across our geographical footprint. The results were very informative and included highlights on our energy use, intensity, energy mix, gender equality, and supply chain concerns, as well as continuing to find ways to support the broader communities in which we operate. We will continue to seek feedback, internally and externally, as we develop our ESG strategy.
In August, we licensed a SaaS platform from Onion ESG out of Toronto, which will be implemented over the next 2 quarters with the plan to create our baseline reporting well in advance of the disclosure requirements under IFRS and the SEC. In closing, and before I hand over to my colleague, Patricia, Bitfarms is starting from a strong base on ESG, and we are committed to ensuring we create a sustainable business for all stakeholders. Thank you. I think I'm a couple slides behind, but that's all right.
Thank you, Paul. Good morning, everybody. I'm happy to be here, having the opportunity to present on something that not many companies are really about. My name is Patricia Osorio, and I am Vice President and Corporate Secretary at Bitfarms. My experience, I bring to Bitfarms 18 years of experience in corporate governance roles, basically in Canadian companies, publicly-listed companies. My previous role was with a Canadian company based in Montreal, dedicated to the development of environmental friendly technologies for the mining industry. So we face a lot of, sorry?
Similarities.
Similarities, as we do in the Bitcoin mining industry. Thank you, Jeff. So as such, I am not a stranger to navigating through disruptive initiatives and the efforts of educating others about the benefits of unconventional ideas. As Corporate Secretary at Bitfarms, I am responsible for managing corporate governance and compliance on a global basis. I support global business developments and integration from a perspective of balancing the respect to local laws and the North American best practices. Corporate governance in a global company, as Bitfarms, presents a myriad of complexity of compliance in multiple jurisdictions that affect all aspects of our business. It is like playing tri-dimensional chess every day. My job is to work through these complexities, and as I've been telling the company, I am the fixer.
When a problem arises or an issue comes up, I need to find a solution, or I need to put together the right people who needs to get together, analyze the situation, and find the best way of moving forward. Each territory brings its own challenges from a legal and regulatory perspective, but also from a cultural point of view. This is based on the uses and customs of each place where we work with. We need to work with that complexity of how people are used to do business, as opposed to how is the right way to doing business. As an example of the specific challenges we have faced in Latin America, and it has been already mentioned by Damian, and I think it came up in a question, it is the complexity of importation in Argentina.
So basically, what we did is taking a step-by-step approach. So we needed to put in place a system to import, initially through third-party brokers because we could not qualify as direct importers. Then, after a few months of dealing with situation, we finally qualify as self-importers. In the meantime, we were faced with restrictions in importations imposed by the government. So each of these step-by-step approach has allowed us to say now that we are successfully accomplishing that task of having in Argentina all the miners we need to operate, to fully operate the first 50 MW warehouse in Argentina. It took a lot of patience, perseverance, and a lot of teamwork to understand the process and to pass through every stone in the road.
Another example, and a more recent one we have been as a challenge, it relates to Paraguay. What happened in Paraguay with the new Paso Pe project is that the main pieces of equipment for the substation, we have to purchase them from unknown vendors located in China and other countries. This bring to us the risk of counterparty risk. As a way to mitigate that risk, we have put together, myself and Paul, Jeff, and Jeff Gao, so we put together that, a team, and we created a vendor KYC due diligence process. This is a way of applying scrutiny of potential new third-party vendors and reduce or mitigate that third-party risk. As a global company, and one that takes pride in doing things correctly and transparently as Bitfarms, we take this responsibility very seriously, and we are committed to keep doing it that way.
I will say that my role, I have the important task of making sure that the board of directors sleeps well at night, knowing that we, at the management level, we do have processes, and we have practices, the best practices we can apply to mitigate our global risk operations. That is basically my presentation. I will hand over to Jeff Lucas, I believe. This is how we go. Just-
Go ahead.
I didn't mention this, but this is just to show you-
Yeah
... how we operate. We are in four countries, and we have, like, 12 different subsidiaries and thus, the complexity. Thank you.
Great. So following on the heels here of the fixer, I guess I better behave. But, you know, one point just to make here quickly, for a company of our size to have a global footprint, the challenges are immense, particularly from a compliance standpoint. And quite frankly, Patricia does an outstanding job of ensuring that we are indeed compliant, and that we're moving ahead in these various problems and the complexities that we have in every country in which we operate. So I'm Jeff Lucas. I'm the CFO. I joined about 2 years ago, joining right around the time we were listed on NASDAQ. I've been in CFO and COO roles with public companies on NASDAQ and New York Stock Exchange, and many LBO companies as well, for the past 20 years. Previously, I've actually began my career on the buy side.
I picked up my CFA along the way. I spent six long, torturous years getting my CPA at PwC, which I really don't recommend to others. And then I also worked in Wall Street in high yield finance and special situations analysis here. You know, and Jeff and I go on the road a lot and speak to many of you folks here. We talk about operational excellence. You know, that rolls off the tongue very easily, but when it comes to putting in practice, it's a very, very complicated process here. And our goal here is to provide transparency, you know, pull back the curtain a bit, so you can meet some of the folks who make that operational excellence possible. These are the folks who drive, giving us some of the best metrics in the industry. It doesn't just happen.
It's a huge effort, and it's a learning process as we continue to go along the way here. So my goal actually right now is to talk a little bit about our overall finance strategy, not just our capital raising strategy, but our finance strategy and some of the other elements that you might otherwise not normally know about and how that plays a role here.... So to talk about operational excellence, really, from a finance standpoint, there are really five elements to it. The keystone of it, naturally, is our capital raising strategy. We're in such a capital-intensive business here, we wanna be sure that we have the availability of capital, and that we can do it as cheaply as possible.
What comes into play in those areas, and some of my colleagues are gonna talk about that, are some of the elements here that you see to my right here. So very, very importantly to us is to have our transparent accounting and reporting going on. That's key. Not only do we have very effective reporting internally, you know, I think Guillaume said it very well: "If you can't measure it, you can't manage it." But also to make sure that we are also very effective in terms of what we report publicly. You've heard again and again in our sector, some of the challenges about restatements, delays in filings. You know, we have to stay very much on top of our game to make sure that does not happen to us, that we're ahead of the curve. We understand the accounting changes that are going on.
That's key behind it. The other point here, and you'll hear more about this from Marc-André, particularly with the halving right around the corner, controls and information about what our exact costs are. What are the discretionary spending we can save money? What are the areas we can't? As we're going to the halving here, we know what the impact's gonna be for energy costs, but we also know we have a lot of fixed costs as well. How do you manage and minimize those fixed costs going forward, given the uncertainties and the challenges we're gonna have, you know, particularly with the hash price and that sort as we go into the halving here? The other point here is to make sure we have prudent banking and treasury management. Counterparty risk. How many times do we hear that as we talk about companies?
And how many problems do we hear about companies having with counterparty risk? We work assiduously to make sure that we're protected about that and careful. Patricia talked about this vendor KYC process we have in place here. It's a pain in the neck. It really is. But we all sleep a lot better at night knowing that we have that in place. That is key. I can't overstate the importance of that. It's not, it's not appealing, it's not sexy from the standpoint of growing the business, but you gotta make sure you have those building blocks in place here. And lastly, global risk management. We have to look at our operation overall from simple with the risk and exposures here.
But not only that, but we're actually doing some very forward-thinking work that Jeff Gao is gonna share with you right after me, in terms of where the opportunities are with hedging. Part of the challenges here is that it can be very, very compelling applications of hedging, but is the street ready for that yet? And that's some of the way and things that Geoff Morphy and I have to weigh as we're sort of moving forward with some of the terrific ideas and advances that Jeff Gao has made here. So just going on, I'm gonna be a little quick here and going on to: what is our capital strategy? What are some of the elements that really drive it? Well, you know what? I'm gonna go right down to the bottom here.
We have a pretty simple thesis, and that is, if you're in a highly volatile industry, mandating an aggressive growth strategy, you need to have a conservative financial strategy to prosper over the long term. Pretty simple concept, but that's what dictates what our actions are every day here. It really makes a lot of sense. If you're gonna have an aggressive operating strategy, dictated by the industry or otherwise, you need to have a conservative financial position. We all know of many of our peers who are struggling for reasons by not observing that really, the key principle here. But in terms of the financial prudence and conservatism, that's key to us here. You know, Ben made the comment, and others have as well, about accretive, intelligent growth. Sounds pretty simple, but we are very, very disciplined in how to go about that.
One thing we do here is that we really have a very highly disciplined practice here, fact-based, analytically rigorous decision-making. Ben gave you a great example of that. As we're looking at our current situation, we're assessing opportunities for self-mining, potential opportunities for hosting. We look at some of the economics in the same fashion that Ben outlined this morning. That's part of the thinking as you determine and assess what our next steps are, given the environment that we see ahead of us here, overall here. That, in turn, leads to, of course, a lower cost of capital going forward. A key part of what we're doing here, naturally, is to minimize shareholder dilution. We are obviously, our goal here is to increase shareholder value here.
And again and again, we look at making sure that the projects in which we're involved in make sense, make an efficient return, far more and far in excess of the cost of equity that we and the rest of our industry faces overall here. The other point is, we're actually generating positive cash flow from operations here, well above our actual debt service requirements. We are actually gonna be paying down in full our debt in advance of the Halving, so we're gonna actually very well positioned for that, and I'll talk about that in just a minute. In so doing, we're able to use our ATM in truly accretive fashions. We have to be sure, before we spend money in the ATM, that that money is going to projects that are gonna return—generate a return well in excess of our cost of equity here.
And then lastly, again, just a comment about the appropriate financial leverage. You know, a year ago, we had $165 million of debt. Today, we're down to $11 million. In February, we're gonna have none. We're gonna be very well positioned for the halving on two fronts. One, we'll have more than ample liquidity, so that as long as it takes the process takes to work its way through in the halving, we'll be well positioned. But even more importantly, as opportunities present themselves, we can bring our operational expertise to make those businesses profitable better than others can here, and we're gonna have the financial resources to take advantage of that. So on that note, let me now actually turn this over to Jeff Gao.
You know, prior to joining Bitfarms, the most Spanish I'd ever had exposure to was Narcos Mexico. And as you know, most of that Spanish cannot be repeated in polite company. So it's inspired me to give Duolingo another try. I speak Australian, and they tell me it's close enough to American that it doesn't need any translation. So hello, everyone. My name is Jeff Gao. I'm the VP of Global Risk Management at Bitfarms. My background is in pensions, insurance, and investment, and retirement systems.... Prior to joining Bitfarms, I was developing portfolio allocation strategies to manage a company's Bitcoin reserves. And those ideas and conversations brought Geoffrey Morphy and I together, and laid the foundation for my joining the Bitfarms family.
My responsibilities at Bitfarms are multifaceted, but they're essentially to support the company in evaluating risks and opportunities. That includes developing new products and strategies to optimize how the company provides investors with smart sectoral exposure to crypto, and to do so in ways that control for excessive counterparty and execution risks that we see too often in our industry. Bitfarms is a very purposeful investment thesis, backed by a methodical approach towards strategy development and execution with active and continuous risk management. That investment thesis informs how we manage our mining activities, doing so in ways that support our Bitcoin exposure. What is problematic for crypto miners is that we are a high beta asset class, and that makes us, us even more volatile than Bitcoin. That's a problem we need to solve, and I think we have a solution for it.
We're going to solve that problem using a concept called Synthetic HODL, which has three essential characteristics. One, we want to give our investors leverage to the upside. We want exponential growth when the market takes off. Two, raising capital is costly, so we want to be responsible fiduciaries in the management and deployment of our scarce capital. And three, when the market turns against us, we want to limit our losses, and to do so without giving up that leveraged upside. Synthetic HODL is an innovative hybrid strategy toward Bitcoin accumulation that takes into consideration Bitcoin volatility and capital scarcity. To provide investors with effective exposure to Bitcoin, simply maintaining a Bitcoin reserve is necessary, but not sufficient. Adding long-dated call options into the mix changes that dynamic dramatically. The call option brings three desirable characteristics into the portfolio mix.
1, we cannot lose more than the premiums paid for the call. 2, we can tailor the structure to create nonlinear upside relative to owning a Bitcoin. And 3, the cost of the structure relative to owning Bitcoin is efficient use of scarce capital when, which minimizes dilution to the company. To give everyone an idea of the returns we can expect from Synthetic HODL, let's look at a Bitcoin call option that expires on the 28th of June, 2024. That's approximately 300 days from today, 288 days to be exact. This call option costs $3,500 and gives Bitfarms the right, but not the obligation, to buy 1 Bitcoin for $30,000. You can go ahead and now look at the risk-to-return ratio. This is the payoff profile for the call option introduced on the previous slide.
If Bitcoin rises from $30,000- $40,000, that is a 33% increase in price, but the value of the option has doubled. It's up 100%. And if Bitcoin was to rise from $30,000 - $60,000, that's a doubling in price, but the payoff from the option is eightfold. If we are bullish Bitcoin, but also concerned about a possible market downturn, then the call option is a great instrument for staying in the long game, but also knowing exactly how much we will lose if our thesis is wrong and the market turns against us. Here's how the risk committee pulls all of these parts together to optimize the portfolio mix under synthetic HODL. The red dotted line shows the payoff profile for two Bitcoins.
We assume that we pay $26,000 for each Bitcoin, which is roughly the current market price. In that case, if Bitcoin goes to zero, we lose $52,000. If Bitcoin goes to $80,000, we make $108,000. Question is: Can we do better than this? Let's suppose we sell one of our Bitcoin for $26,000, and we use part of the proceeds, we use $7,000 to purchase two call options. The payoff for this synthetic HODL portfolio, now with one Bitcoin and two Bitcoin call options, is the solid green line. If Bitcoin goes to zero, we lose $33,000, not $52,000. If Bitcoin goes to $80,000, we make $147,000, not $108,000.
So we lose less on the downside, we gain more on the upside, and we spent less cash constructing this position relative to straight Bitcoin HODL. Another way to look at the capital efficiency of synthetic HODL is the extent to which it alleviates our need to tap into our ATM program. Going to the halving and beyond, for every Bitcoin we replace with a Bitcoin call option, we would spend around $0.15 in the dollar for the upside and free up the other $0.85 for reallocation. We can either use that to fund growth capital expenditure or to strengthen our cash reserves. When Bitfarms looks at mining versus Bitcoin versus synthetic HODL, we are essentially reducing our capital allocation decision to one of portfolio optimization, with the goal of optimizing that risk-adjusted compounding growth rate for shareholders.
The investment ethos we adopt when making these strategic choices is informed by three canonical characteristics: risk mitigation, capital efficiency, and leveraged upside. To recap Bitfarms' fundamental rationale for developing Synthetic HODL. The diagram on the left illustrates the performance of a high beta asset against Bitcoin. The downside is amplified, and the potential losses are uncapped. The diagram on the right illustrates the performance of a Bitcoin call option, which gives Bitfarms the right, but not the obligation, to buy one Bitcoin. The risk to reward is asymmetric to the upside, as the losses are limited. It's a lot of information to take in, but I certainly look forward to everyone's questions during the Q&A. With that, allow me to hand over to my colleague, Marc-André.
Thank you, Jeff. Thank you, Jeff. Hi, everyone. Glad to be here today to speak about what makes Bitfarms different from an accounting and finance perspective. First of all, let me introduce myself. I'm Marc-André Ammann, VP Finance and Accounting at Bitfarms. I've joined the company in May 2022. I'm a CPA in Canada, and started my career as an auditor with PwC in Montreal and here in New York City. So then I spent the next 18 years in big public companies, including 10 years at Canadian National Railway. So, with the halving around the corner, let's have a look at what the finance team is bringing to our shareholders and what, what, what makes us different from the others. One place where we difference ourselves from the others is with our accounting and reporting.
Company-wide, we are eleven CPAs with deep knowledge of accounting, obviously, and great experience with public companies and the crypto industry. Accounting-wise, we really focus on the strict application of the IFRS principle, because it's really important for us to do what is right, no matter what the result is. We are the only public miners that has financial statement audited by a Big Four. And that's, that has been the case since incorporation five years ago. We started with EY, and it's been a couple of years that our auditors is PwC, which we have a great partnership, by the way.
With the level of scrutiny the industry is getting from the market, from the government agency, from the PCAOB, the Public Company Accounting Oversight Board, our accounting and financial statement has to be very accurate, if not almost perfect. So that's why PwC does not cut any corners in their audits and work with us, so we use a strict and conservative, safe application of IFRS principle. In addition to providing financial reporting that meet IFRS requirement, we make sure it also reflect and it present and faithfully reflect our operational performance in a clear, transparent, and straightforward manners. You guys know, every month, we release our monthly prediction report on the first business day of the following month, and we provide a lot of relevant information.
Then we have cost management. With the halving coming, cost control will be the name of the game. It's really important that we set accurate expectation and that we monitor them closely. As you know, we are SOX compliant, and we make sure to have a good handle on our costs with strong internal control. Something else we put in place is a dynamic budget process. What you want to avoid when you make a budget is that there's so many market turbulence that after two months, your budget is irrelevant and completely useless. For example, let's say I'm budgeting BTC price of $25,000 for the entire year. After two months, I'm at $40,000. Yeah, of course, I'll beat my budget, but it won't be because I, I'm performing better than my expectation.
So we made it dynamic so we can update the the market data that we have no control with, in order to review and monitor the result that we can control and improve. So with the processes, the the control and the tool put in place, we have, like I said, a good handle on our costs, and we'll make sure to remain as much efficient at the lowest cost possible. Counterparty risk. You obviously you can never eliminate fully your counterparty risk, but you can certainly mitigate them by working with strong, reliable partners, having safety nets, and continuously monitoring them. In terms of banking relationship, our main bank is Bank of Montreal. We have built a strong, strong partnership with them since 2019.
BMO, Bank of Montreal, is the tenth largest bank in North America by asset size. We also have a bank account with RBC, Royal Bank of Canada, which is the fifth largest bank in North America by asset size. I have to say, I think a great relationship with these banks in the crypto industry is really hard. Just opening a bank account with banks is really complicated with the, the fact that we're working with cryptocurrencies. It took us a year and a half, to put in place all the banking solutions and get being fully operational with BMO. So it's not. That's our reality.
Also, since this year, we started to work with Export Development Canada, EDC, which is a crown corporation helping Canadian companies of our size succeed on the world stage. Basically, we're using government capabilities to give us an advantage that others don't have. On the Bitcoin management side, we only deal with recognized custodian. Coinbase is our main custodian. We have also a wallet with Anchorage, and soon enough, we'll have a wallet with Fidelity. So only the most secured and the most recognized custodian. We even have a self-wallet solution, a self-wallet, where if there's anything coming up with these third party, we can easily transfer this in our self-wallet without affecting operation.
On our revenue side, we sell our hash rate to Foundry USA, one of the biggest mining pool in the world. And we sell our BTC to secured and recognized exchange like Coinbase. So by exclusively dealing with strong and reliable partners, we made sure to minimize as much as possible our counterparty risk and provide peace of mind to our shareholders. So, yeah, that was it for me. Thank you very much for your time.
Well now,
If I could ask you to rank them up in the order that you went. Mark, you're here. Mark, there.
Okay, we've allocated about a half an hour here. I don't know whether we'll need all that, but we encourage your questions. Quiz these people. They're used to it. I know I do it often. Tap into their minds and how they think. I think they like that. And then I'm going to follow up with my closing remarks, and then we can go and have some lunch and mingle and do things more on a one-on-one basis. So just that's the way the rest of the day looks. So, let's get underway. First question.
Hi, thanks again for having us here today. I'm Ed Schmitz from Northland Capital Markets, and I have a question for Jeff Gao. I know there's a lot of Jeffs up there.
The three Jeffs, yeah.
Three Jeffs. Jeff, on the synthetic model, do you ever consider writing calls against the reserves in periods of when you feel Bitcoin's in a sort of a trading range-
Yeah, um-
Or it will go lower?
So call writing is a monetization strategy. We can write it against reserves. We can use it as part of a structure for hedging. So if we go back to the heady days of Bitcoin, when it was $67,000, at that point, you know, with the benefit of hindsight, it would have been really good to write calls at, you know, $80,000 strike and sell puts on, and buy puts at, at, you know, $60,000, $50,000 strike. So it is a tool within a structure that you can use for hedging purposes. You can use it in call overriding structures for monetization purposes against reserve or against future unmined Bitcoin. It really depends on the strategic intent at that point in time. Or it can be, you know, selling a call that we bought back into the market as well.
A range of different options in which we can employ that tool, depending on the context in which it is employed.
Okay, thank you.
Yeah. As a follow-up on the synthetic model, have you figured out what percentage you want to maintain in the underlying versus purchasing call options for it?
Yeah, yeah. I'm gonna need a diagram for that. So, I'm just gonna go backwards, if you don't mind. Does this thing still work, or is it... It's probably this one.
The red.
All right. Okay. I'm really gonna have to fast-forward here. Okay. I'm gonna go to that chart where I showed the example of how to optimize the portfolio mix. And while I'm doing this, there's a chart that I was working on my PC, but I've been told that there's no technological solution to share today, so I'm gonna have to get you to visualize it in your head as I explain it. But we are moving towards Halving number four. So yeah, if you can, just go to that, you know, with a wonky line thing. We're moving towards Halving number four. So go back to November 2012, back when only nerds looked at Bitcoin. Go back to July 2016. Thank you, that one.
Halving number 2, and halving number 3 was 2020, middle of that year. But 2020 was special in that you had the Robinhood phone apps, you know, thing taking off, and you got middle of COVID as well, where people were just, you know, bored shitless, really didn't know what else to do. So you got all these factors mixed in there, plus the halving. So the way we wanna optimize this is, these options bleed time value, and the last thing we wanna do is to invest a whole bunch in long-dated call options, 10 months to expiration. That takes us beyond what is expected to be the April 2024 halving.... but only for prices to be range-bound and then rip in 2025, because we would then be exposed to none of that upside.
As part of that, it's about continuous and active risk management, which is to say: given the budget that we have, how do we maintain that continuous exposure? And so if you look at this chart here, there is a very specific region where synthetic HODL underperforms traditional HODL as you know it, and it is in that ±33% range. So we've got 30K as the midpoint. You go down to 20K, you're even with traditional HODL. Up to 40K, you're even. Anything below 20K, you outperform the market. We outperform our competitor. Anything above 40K, we outperform. So the question is, we invest a bunch in long-dated call options alongside physical HODL, and we have a 10-month trajectory. In that 10 months, do we expect Bitcoin to remain range-bound?
If so, we probably still want some exposure, but we don't wanna, you know, you know, put all of our basket into that. We might wanna do it in two tranches of 10 months and be able to stretch out that optionality budget over a 20-month or a 30-month trajectory. That decision, again, is going to be reliant on the advice that I get from other members of the risk committee. So it's a 7-member risk committee that makes this very special decision in terms of that portfolio allocation. Ben Gagnon, who you've heard from, very talented guy, is gonna have a, you know, an opinion as to what that ought to be. But once we figure out the type of exposure that we want us and our investors to have, then we implement it, and that informs as to whether that's at 80/20 or 70/30.
It's very hard to answer it at this point in time, but we are going to the halving, and we do know that if we look at the past three halvings, there is a delay before prices take off, and that's part... that's factored into our decision making.
Jeff updates that every week. Every Friday morning at 8:00 A.M., we get to go through.
You know, if I can just add a comment or two to that as well here, in terms of how we approach this. So the question was also: what's the magnitude of our involvement in this? And, you know, we, it makes a lot of sense conceptually. We've run through the math many different iterations, different ways, but we also know that we need to step a little carefully and look thoughtfully here. Part of the issue that comes into play is that we do have a retail base of investors. They may not fully appreciate some of the economics that we're sharing with you here. And they may say, "What? You're just, you're reducing our HODL, or it's not as big as it could have been otherwise?" And we don't wanna be in a position where we're penalized for that.
We wanna make sure that our message gets communicated very effectively here. The other point I just wanna make here, I know you might have alluded to this in your presentation, we spent six months putting the governance and diligence procedures in place here for what we're doing. We wanted to make sure that we had a very structured, disciplined program that even involves a review by the board. We won't engage in a single strategy of this nature without the board's review and approval. Those are some of the steps we have in here to sort of minimize some of the uncertainties and the risks.
Hey, guys. Brian Perrault from Needham, and thanks for having me today. Just one follow-up there. It sounds pretty dynamic, the sort of hedging strategy. I guess, what are some of the other inputs that kind of feed into your analysis in those Friday meetings? You know, halving, timing, and, you know, traditional cycles, kind of how it played out, but what are some of the other inputs that might kind of influence your decision making there week to week?
Well, okay. We probably need to pull a few more people into action here.
That's what we got mics for.
Philippe, why don't you jump into this one? Because you and your team do a lot of the modeling of this. If Ben's still on the line, he can jump into this, but like, generally... I'll start with a general statement. Generally, we're looking at this as a repeat of what we've seen in the last few four-year cycles. So, the halving is gonna take place mid-April. As Ben's talked about and others have talked about, we don't know where Bitcoin price is gonna be at that point, but if it's still sort of range-bound where we are now, things are gonna get really tight. Even if Bitcoin price goes to $40,000 for the halving, it's still gonna be tight.
There's gonna be a lot of blood on the street, with miners and hosts and energy, the arrangers, if you will. And, as we've seen in the previous halving periods, there's four, five, six months where there's an adjustment process. And while the Bitcoin price starts to ease up, there's nothing really dramatic. But generally, as we've seen in the past, five months-ish, and then there's a bull run, and, like, it just takes off. And, we don't think it's gonna change a lot. There's some macroeconomics winds, like with inflation and interest rates, that are affecting where we are right now, but, generally, that's the overlying premise. Philippe, do you wanna jump in next, as to sort of your modeling and, and how you look at that?
Yeah, and just clarifying, whether the question was specifically to the hedging program or to the overall operation?
You're saying it's kind of a weekly process of thinking it through, and I guess just curious, like, how bits of news flow might impact that... yeah, kind of over time.
Philippe, why don't you come up so you can get on the screen for the people at home? Yeah.
Okay. And I think to that specific point, I'll pass it on to Jeff Gao very rapidly to what we're concerned, but I'll just say that on my side, this particular program frees a lot of cash that's non-dilutive for doing growth.
... when you can preserve the upside of the Bitcoin, which is what we want our investors to be exposed to, yet you can sell a good portion of it, capture the cash, and go spend it into some growth. It's, it's very creative. So when it comes to market dynamics, Jeff and Ben are a whole lot more in tune. So Jeff, why don't you comment on-
Yeah.
What feeds into your analysis?
So in order to optimize that portfolio mix. By the way, one thing that was very disconcerting that Ben Gagnon said is: when it comes to purchasing miners, timing is incredibly important. As much as I take comfort in the expertise that is encapsulated within our management team, I don't think we build a business based on timing things correctly. I think we cannot control timing. We can control timing, but we can't time it exactly, and we certainly cannot control pricing. The only thing that we truly have control over is capital allocation. So, and I also deal with the insurance as well, on the Canadian side, and more recently in on the U.S. side.
When I look at the statement of values, they add up to 100% for a particular site, and I look at what percentage of that is in the miners, and the fact that, you know, to get alpha out of miners, you really have to time that correctly. That factors into my thinking in terms of, you know, you've got 100% of your budget in terms of how you want to invest, how do you wanna, you know, allocate that portfolio mix between mining, Bitcoin, and optionality? That influences that decision-making.
Great. My question is related to the HODL strategy. What other type of strategies has the team considered? Has Bitfarms previously engaged in lending? I can't recall. And you know, how far are we from, you know, the industry partaking in that type of strategy in the future?
Well, I'm the newest member of Bitfarms. In terms of historically what we've done, others are probably more experienced at talking about that. But, if you step away from the public miners and look at the crypto hedge funds, the use of derivatives and optionality as an overlay on top of a long-only portfolio, for example, is not uncommon. And if you step out of crypto altogether, and you go into broader equities, it is bread and butter. It's been there for decades. It's tried and true. What is special about Bitcoin, and there was a question previously, in the past round about, you know, the Bitcoin as a commodity, is that if you look at any other commodity, whether it's gold, silver, copper, or what have you, oil, gas, they don't HODL that.
There is a special characteristic with Bitcoin, where investors attribute value to us simply having Bitcoin on our balance sheets. The thinking that we want to apply is: Is there a smarter way to have effective exposure that is also continuous in a way that's capital efficient? So that's what goes into that HODL, synthetic HODL strategy. And optionality is a tool within that toolkit, and certainly, we want to look at other structures as well. And that's part of our innovation lab that, if you will, we have at this management level.
Hi, how are you? Thank you. You know, I guess I probably don't understand the synthetic market as much as I should. Any kind of high level around how deep the market is, i.e., you know, as I sit here today, it looks like our Bitcoin production should really start to ramp as we expand our footprint. You know, what is how big is that market? And really, has that been kind of a flattish derivatives market? Has it expanded over the last 12 months? I mean, you mentioned financial players. Are they coming into the market? Should we be and then what about, like, the counterparties when we enter into a transaction? Do we know who that transaction's with? You know, just these are some high-level, you know.
I'm assuming we're buttoned up here, but I just think some broader comments around that is probably pretty helpful, just, you know, given the strategy.
That's a very pointed question, and it's probably one of the biggest risk factors, counterparty risk. Who we execute with? And there's a range of, I guess, facilities that we can put in place to partially reduce that risk, but you cannot fully take it off the table. I mean, we would love the fact for someone like an Interactive Brokers to offer these types of instruments, or a Fidelity, are too big—truly too big to fail, but nobody in crypto is too big to fail. And the-
At least not yet.
No, correct. And it might be a while before we get there, but, you know, we're ready to go. So the exchange that currently has the deepest liquidity for crypto derivatives, especially options, is Deribit. And Deribit is an exchange where... I don't know if we're gonna get sued for saying this, but I, I'm not comfortable putting collateral on Deribit, if I can put it that way. So there are a range of options that we have available, and we've had very deep discussions, some of which we've already executed, agreements we've executed, others are in the final stages, where we can look at triparty custody, where we can look at deferred premiums and deferred settlement, where we can look at bilateral hosting of collateral, for unrealized profit.
Because, look, if we put on Synthetic HODL, and it's deep in the money, ultimately, it's about having more Bitcoin on our balance sheet, because we're gonna sell the calls, and what we, what are we gonna do with the cash? We're gonna buy more Bitcoin with it, ultimately. And that's how we leap forward and take over our, you know, be ahead of our competitors. We don't want all of that unrealized profit to evaporate because the counterparty has defaulted and gone out of business. The same thing when we hedge as well. You know, we've got all of that. It's one thing about Bitcoin in reserve because we can sell it, but unmined Bitcoin, it's very hard to forward sell that unless you use a derivative, which again, brings into effect this counterparty risk. So who we execute is extremely important.
That, I believe, is probably the biggest, relatively speaking, the biggest vulnerability in the strategy. Always comes back to the counterparties.
So Jeff, you talked about people you don't wanna work with. Who's on your do wanna work with list? And then as a second part, talk about what you expect to happen around the ETF approval process.
Yeah, I have zero insight into that second question. Regulatorily-
Mine must be negative, then.
Yeah. I'm not waiting for it to happen. All I know is that every time news comes out, it gets faded very quickly. So I'm very careful in terms of how we take that and how we read into it, and especially how we use that information, if at all, to position ourselves. On that first question... Sorry, are you able to repeat your first question?
Yeah. You, you're not in favor of Deribit. Who are you in favor of?
Okay, yeah. We're in favor of executing with counterparties who are risk neutral. So they're riskless principles, and their business is to intermediate between us and other counterparties. And as part of that intermediation, they have to provide a number of services: exchange default risk insurance, tri-party custody, deferred premiums, bilateral posting of collateral. Prime brokers are one of those, and certain types of OTC exchanges who have a special relationship with Bitfarms are those that we work with as well. But you don't ask, you don't get. So everyone we talk to, we say, "These things have to be on the table. If they're not, look, we love what you do, we know that you have a deep market, but we simply can't work with you." And that's the way it is.
How many of those firms have sort of met your criteria? And how many have you engaged?
I've lost count how many we've engaged, but what's surprising is, when the conversation goes dead, and we go elsewhere, eventually they come back. Very recently, serendipitously, they've come back and said: "Hey, look, we've thought about what you proposed, and, you know, can we do this?" In fact, I was on an email just then, replying to a certain counterparty that wants to, you know, now come on board and entertain some of the suggestions that we've had. So it takes time, but I think people are starting to wake up, that unless that they start doing this, they are not gonna become institutional.
I think it's in their interest to work with someone like a Bitfarms to do product development and use that as a flagship and a template for how they wanna engage others going forward.
Is there any circumstance where you might actually hold an options contract to its conclusion with, like, your, your long-term call? Could you hold it to termination, or would you just look at selling it?
Hold it to maturity?
Yeah, that is.
Yeah, that's certainly on the table. But the thing is, Bitcoin and crypto in general is such an immature, impetuous market that you get rewarded for monetizing things ahead of expiration. So we have... I mean, we purchased the optionality. We have no issues holding it to expiration. But if the opportunity presents itself, where returns intermittently are well in excess of what we're expecting, why not take some of the money off the table and buy Bitcoin and custody it? That's the whole point of the game anyway. So we might, you know, people might drop a gift in front of us prior to expiration, and we'll certainly take advantage of that. And that's why the analytics, Paul, you mentioned, it's actually run every day. And the risk committee meets on a weekly basis to do positioning assessment.
Thanks so much for indulging me, Jeff. Appreciate it.
Just Jeff, Jeff Gao mentioned the tri-party relationship.
That's right.
That's something that's, we think is valuable. It's not been immediately received by everybody, but as Jeff mentioned, they come around to it. And, and that's been important to us to get that type of relationship for making sure our interests are protected.
It's taken us a while to get those in place and work out all the details there.
Right.
I wanna just add a comment, sort of response to your statement, Greg. One sort of simplistic way, maybe overly simplistic, to look at what we're doing here with Synthetic HODL is, you know, what it does is, we are in essence, you could argue, you're selling one of your Bitcoin. You're applying 15% of that as the premium for the option, so you still maintain the upside and the opportunity there. And then in theory, that 85% of the balance can be used for your CapEx. So you're doing that rather than incurring an ATM with a 30% + cost of equity here. So when you think of some of those underlying economics, it actually can be very compelling. You're maintaining the upside.
So if you do go beyond that 30% range that he spoke to, obviously, you benefit from that. If it doesn't happen, if you don't have that level of movement here, yes, you will lose your 15% premium, but you'll have used the 85% of that money here, not at a 30% cost of equity.
Okay.
So-
You have an online question?
I got two questions online. So we'll do the first 'cause then Philippe can sit down. How is the visibility around power cost in South America compared to that of North America? And what do CapEx startup costs look like in South America versus North America?
The question was for CapEx and power price of energy?
Yeah. So Jeff and Mark can do CapEx, and you can do cost.
We can do it all.
If you will, we're pretty transparent about our cost structure in both hemispheres. We've got great power costs in Argentina that's fueled by what Damian's explained, the second largest shale gas, and we've got a very positive view. Same in Paraguay. Long-term are fixed at $0.039 plus VAT. That's great. So it compares favorably to what we have in North America. I think something that I'd like to mention or highlight about South America is just how resource-abundant the region is. Now, there are some challenges to go tap into that, and I think we've got one of the best team to execute on it. When it comes to CapEx, we also present a—like, we can show actual stats about it.
We have built now 60 MW in Paraguay and Argentina, and our cost to build is really similar to what we've built in Argentina of course in North America. Of course, we had to build a substation in Argentina. That's a different set. But when you look at medium voltage, low voltage, rack space, distribution and transmission of electricity, it's also very, very competitive.
Paraguay was turned out to be an example where we experimented with the 10 MWs. Not maybe an experiment, but certainly we were careful going into that region, and it turned out we could build that new warehouse structure in 3-3.5 months, and it was our lowest cost build anywhere. So highly attractive, and that gave us the confidence and the deeper relationships within the country to allow us to buy these new power purchase agreements, and now executing on the first 50 MW of those contracts. And shovel is quite literally going in the ground, like, this week. Civil work next week, and we fully plan to be 50 MWs operating late February, March, and at a cost factor that really can't be beat in really any of our other geographies.
Yeah, the numbers are pretty stunning, and-
Mm-hmm
... the public, it costs us just over $1 billion to build 10 MW within, I think it was a 6-month lead time from breaking ground to commissioning.
Mm-hmm.
One of the fastest, lowest-cost build we've-
Yes
... we've seen in the industry, really. And that was South America, so, further enhancing our bull stand on the region.
I know, and there, there's others out there that would probably comment on it's not a cold place like Canada. Like, they've got quite warm temperatures, and there's others that might be saying, "Oh, we need to do immersion and fancy systems." But using the wet wall, using the swamp wall, it works. We've been able to keep costs down there, and we just haven't really seen a retardation of the hash rate in that geography because of heat, because of the way we manage our air systems, our filtration. It works beautifully, and we're just gonna use more of that going ahead, and augmented with the new hydro miners as well, which will be hydro miners and hydro containers on that site.
And that's 20 MW in the Paso Pe site, and then the 30 MW, we really haven't talked about that a lot, but that will... The expectation will be a warehouse, and we still have to announce sort of what's going into the warehouse.
Okay, second question from online. How has your treasury and growth strategy changed since the purchase of the 1,000 BTC from last year?
Oh, much more discipline.
Absolutely.
Jeff, you want-
Nope, you hit the nail on the head. Actually, I think we were. I think there was a feeling among the executive leadership and the board that there was an opportunity here about a year and a half ago. I don't think it was, it was more emotional than it was actually more fact-based, analytically rigorous. I think clearly since then, you know, as you see with Jeff and Philippe and others here, we're a whole different organization. We have a whole different way of looking at that right now, and quite frankly, I don't think in the current environment, with our management team, would we have made that same decision.
That's right, and we heard it loud and clear from investors. They do not want us speculating in Bitcoin. They want us using our infrastructure and our costs of electricity-
Yep
... to mine Bitcoin, and the message was heard loud and clear.
Mm-hmm. Questions in the room?
How should investors think about the electricity assets in Paraguay and Argentina being jointly owned by another country? Is that something that investors should think about at all?
You know, it's not that much different from our other geographies. In Argentina, like, our power right now with our arrangement is from a private power producer. And as mentioned, Damian, Damian over there, like, they have substantial power that they... It's all utility-grade, and he can come up and talk about it. But I think they've got seven different sites. We're on one of them, and yes, they are very much government-controlled in how they do operations, but they produce the power, and we buy it. And opportunities in the future will be similar.
I had one aside where, you know, other opportunities that we're not ready to operate on, but could really derive low-cost power, is going out to the desert where some of that shale gas is directly, and go to the source of the natural gas, maybe partner with drilling company will only be too happy to drill the holes. And then whether we do it, whether somebody else does it, in terms of generating the power right from there with the gensets, and we'll set up right there. And that could be exceedingly low power in the future, but given the geography, not the geography, but the politics of the moment, we're not ready to do that.
We've learned our lessons from the first episode, that doing things in Argentina takes longer, and we have to take that into account. Paraguay, on the other hand, we now have two counterparties. The first one for the 10 MW is with CLESA. It's that 50-megawatt pocket, we take 10, 10 MW. Our relationship with them is great. That's privately owned, and they buy power wholesale basis from ANDE, which is the state-owned distributor. And what really excites me about Paraguay is our discussions with ANDE itself, and it's, it. We have discussions right at the top of that, that company, and, and it's a state-owned company, but, right at the top. And there's a real partnership that it's developing there that's exciting.
Because when we first started getting into that country, some of our concerns was that they really didn't have the capital for transformers and how to, provide us with the power on a consistent basis. That's been overcome for CLESA now. But we saw, a country that had electrical system that was described to me as being almost bankrupt, whereas now, on the back of these contracts and their long-term plan, and they've laid it out, like, each year through, I think I've seen 2031, where they are upgrading their high-voltage corridors, they are upgrading their transformers, and they're all doing it on the back of, of these, crypto contracts that they've awarded.
And their forecast is that they will be able to basically take themselves from almost bankrupt to a very viable provider of power with a strong grid for decades to come, which is gonna help their population. They're excited about it, so we're excited about building this 50 MW and actually having some joint sort of announcements, how we're doing this in partnership. And you heard the whole Bitcoin narrative of how we can improve grids and security. We're doing that in Paraguay. So this is a real two-way street, and this is gonna benefit the whole country, and we're excited about it.
Thanks a lot, Jeff.
Okay, any other questions? Oh, Kevin.
Hope the question's about mine.
Yeah. Thanks, Jeff. Could you give us a little insight on how you're working with ANDE after your commentary there on curtailment and the, you know, Bitfarms' ability to not only help them build a grid, but also support other enterprise?
It's still a work... It's still a bit of a, a work of art, and it's still in process. But when they carved out the capacity for the cryptocurrency, it's because they already had it there. It's reliable. And, like, the discussions that we've had is they've had to look at the hydrology of those hydro dams and find out sort of, I think it's lower hydrology in the summer and more in the winter, when they get more rain. But they know from 50-, 100-year modeling on that, the Iguazú, sort of, and Itaipu area, that sort of they know how much power they have minimum. So they have been very conservative in saying, "We can provide this power on a consistent basis." There is room, sort of seasonally corrected, for it to go into that stretch area.
They're not ready to go there yet. And if they go into that stretch area, maybe they can do sort of different combinations of maybe a lower cost, but you need to curtail more. This is all firm. Damian, do you want to come up and talk about it a little more?
Yeah.
Talk about it a little more?
Yeah, and when you look at that, because we've had, as Jeff said, several conversations with them, I think there's definitely an opportunity on potential curtail electricity in Paraguay. The 550 that they have on high voltage, that's 100% secured, no curtailment, but then they have pockets going forward with a certain degree of conviction that it's gonna be there. And then we may get curtail, but very little, and bring the cost down significantly. So I think that's... I mean, we didn't run our model assuming that, but that's part of the upside, and I think Philippe also talked about going forward, and that's why we're excited about Paraguay, also.
But the PPAs really talk about very little curtailment, unless there's an emergency situation.
Yeah.
How much more optionality does it give you to go beyond the 150?
I think the optionality is in additional contracts. Now, we don't want to bite off more than we can chew here. We got enough with 150 MW over the next 12-18 months. And it's high voltage, and there's costs, and it's $0.039 right now, which, you know, we're always striving for lower cost, but, those have been awarded. There will be other cryptocurrency companies developing some of that, and so far we haven't seen a lot of that action. And when the halving happens, as I've said before, opportunities will arise. And we bought the two contracts right now, very cost effectively. You know, next summer, we might be able to do some more, if we so choose.
I think a follow-up to when we were talking about opportunities in Argentina, and I think this is more costly, but long-term stranded gas there, it's a fantastic opportunity. It requires, as Jeff said, investing CapEx into generation assets. So we're dealing with limited resources right now, but I think that play going forward is very interesting as well.
All right, we've got one more question, and then we'll wrap it up.
So one of the slides you guys had, the power capacity growing from present about 500 MW. Philippe, I know we were talking a little bit about this earlier, and we got cut off, but I think the projections that the USA will grow from a 10% proportion to 30%. Just wondering what markets look interesting today? Would you guys be tapping into grid or behind-the-meter-type power? You know, what have you guys been considering?
That's in the US, right?
Oops. Oops! You threw me right off the stage there, Philippe. We'd like to have a bigger footprint in the U.S. That was always our intention. Texas was an attractive place, but I think the best contracts have already gone out of there. We like some of the deregulated states, but developing ourselves versus acquisition, we're constantly looking at opportunities, and we haven't found something that, really fits our disciplined approach yet and our criteria. But we're looking. We think our investors would be more comfortable with our company if we had more there. We're in various discussions all the time. Like, we've looked at a lot of situations, both assets and companies, and, you know, I think as we get closer to halving, we will see more. After the halving, we will see more.
That is one of the things which opportunistically we'd really like to do.
And maybe, maybe to add on just a little bit to that in some context. We've seen a lot of assets in the States developing in the past 2.5-3 years. We've seen a lot of assets fail in the US. I think it's fair to say that principal assets that we've seen failing were kind of the less efficient. I think you can derive a view that there's probably too many assets or, or too many sites that have been developed, and that makes for some site just not worthy of, of being operated going forward. So we need to remain disciplined in principle in the sites that we look. But as Jeff mentioned, growing our footprint in markets that are deregulated, that offer economic demand response, that is particularly strong here in the US, is incredibly attractive.
And the backdrop in the U.S., despite a lot of noise, is an excellent one. You know, there's a good mixture of blue states, red states. It's just open for business and a really good backdrop for an innovative industry and growing industry like ours. So yeah, we're actively looking for anything that would make sense for us to grow, and as we've described, operationally and also in screening sites, it's gotta be made of the right ingredients,
And really a perfect fit for that would be a good power purchase agreement with the characteristics that Philippe outlined. But somebody that's already gone at it and really sort of foolishly went at it and really did a crappy job at it, to be fair, and then we use Benoit and some of this team to go in there and fix it and make it really work. That would be a perfect situation for us. Okay, thank you all. I'm gonna just wrap up with a final remark, and then we can get to lunch, and then you can ask more questions individually to all this, but the panel can go and relax now and okay. Well, thank you for staying with us through the balance of the presentation.
As I mentioned, shortly, we'll go for lunch and offer more discussion, and you can get some one-on-one time with some of these special people. Some takeaways. As you can see, we have an excellent and deep management team, and we continue to look for novel and new ways to enhance what we're doing. We continue to deliver the most transparent, honest, and timely production of financial and operational information to investors. We have an excellent balance sheet and liquidity, allowing us to take advantage opportunistically of new situations. We have a low-cost structure, allowing for superior returns, cash flow, and scalability. We are geographically diversified and poised for more domestic and international expansion. We have built mechanisms to better mitigate and control risk and volatility. We have incredibly high standards in terms of controls, governance, ethics, and foresight.
We plan to be a leader in ESG and remain predominantly green-powered. We are shareholder and value-focused, with a very disciplined approach to raising and deploying capital. Discussion about our hosting option illustrates our core strengths, flexibility, and how to ensure we're always looking to our business options, flexibility, and addressing opportunity costs. We are exceedingly well prepared for the halving and plan to take full advantage of the industry upheaval. We plan to deliver high levels of growth and productivity, productivity and profitability in 2024 and beyond. We will deliver asymmetrical upside to investors both before and after the halving. Before we depart, I want to leave you with, with one final impression. Even though it seems like ages ago, 2021 was an incredibly exciting time for Bitcoin and the participants in the industry. We fully expect history to repeat itself.
As such, starting in late 2024 and continue well into 2025, and hopefully beyond, we will be in a bull run. Fingers crossed. As we said to investors and prospective investors at the time: Do not try to time the market. You need to be invested. Thinking back, there were many times that I would get a call from market regulators asking why your stock had advanced 10%, 15%, 20% in a single day. I like those days. There were many days when the circuit breakers would trigger, and our stock would be temporarily halted due to the 10% growth in the span of a few hours. There was a few days, 2 or 3, where that happened twice in a day. I like those days.
The bottom line, there are few other industries that are this new, novel, and can deliver these type of explosive results. We've already delivered strong year-to-date performance, and we expect this performance to continue in 2024 and accelerate significantly in 2025. Bitfarms is built to deliver. Thank you for coming.