Argo 2023 Annual Financial Report

LONDON, UK / ACCESSWIRE / April 25, 2024 / Argo Blockchain plc, a global leader in cryptocurrency mining (LSE:ARB)(NASDAQ:ARBK), is pleased to announce its audited results for the year ended 31 December 2023.

Highlights

• Total number of Bitcoin mined during 2023 was 1,760, or 4.8 Bitcoin per day.
• Revenues of $50.6 million, a decrease of 14% from 2022, driven primarily by a significant increase in the global hashrate and associated network difficulty level.
• Increased hashrate by approximately 0.3 EH/s with the deployment of ePIC BlockMiners at the Company's Quebec facilities.
• Reduced non-mining operating costs by 58% in 2023 compared to the prior year.
• Generated $7.2 million of power credits through economic curtailment at Helios.
• Mining margin of 43%, down from 54% in 2022. Similar to revenue, this decrease was largely attributable to the increase in network difficulty.
• Adjusted EBITDA of $8.3 million, compared to negative Adjusted EBITDA of $(46.7) million in 2022.
• Net loss of $35.0 million, compared to a net loss of $229.0 million in 2022.
• Reduced interest expense by 49%, driven by a strong focus on debt reduction.
• Reduced debt owed to Galaxy Digital from $35.0 million at 31 December 2022 to $23.5 million at 31 December 2023; total debt outstanding at the end of 2023 was $66.2 million.
• As at 31 December 2023, the Company had $7.4 million of cash; it also held 9 Bitcoin on its balance sheet and other digital assets worth the equivalent of 18 Bitcoin.

Post-period highlights

• In January 2024, the Company raised $9.9 million of gross proceeds through a share placing with institutional investors.
• In March 2024, the Company sold its data center located in Mirabel, Quebec for total consideration of $6.1 million. Net proceeds from the sale were used to repay the Mirabel facility's existing mortgage and to repay debt owed to Galaxy.

Q1 2024 Update (Preliminary and Unaudited)

• Total number of Bitcoin mined during Q1 2024 was 319, or 3.5 Bitcoin per day.
• Generated revenues of approximately $17 million.
• Average direct cost per Bitcoin mined was approximately $31,000.
• As at 31 March 2024, the Galaxy debt balance was $12.8 million (down from original balance of $35.0 million), and the total debt balance was $54.0 million.
• As at 31 March 2024, the Company's cash balance was $12.4 million.

Commenting on the results, Thomas Chippas, Argo Blockchain CEO, said, "Despite a turbulent market, we have worked hard to strengthen our balance sheet and reduce Argo's debt burden. We have reduced the debt owed to Galaxy by $22 million, or 63%, and we have also improved our cash position over the last several quarters. Operationally, Argo's hashrate increased by 0.3 EH/s during the year with the deployment of ePIC BlockMiners at our Quebec facilities, and we reduced our non-mining operating costs by 58%. We exited the Bitcoin halving with a stronger balance sheet and leaner operations, and we are optimistic about the ongoing growth and development of Argo with a clear objective of delivering shareholder value."

*The tables below reconcile Bitcoin and Bitcoin Equivalent Mining Margin to gross margin, the most directly comparable IFRS measure, and Adjusted EBITDA to net income/(loss), the most directly comparable IFRS measure:

The following table shows a reconciliation of Adjusted EBITDA to net income/(loss), the most directly comparable IFRS measure, for the years ended December 31, 2023 and December 31, 2022.

Inside Information and Forward-Looking Statements

This announcement contains inside information and includes forward-looking statements which reflect the Company's current views, interpretations, beliefs or expectations with respect to the Company's financial performance, business strategy and plans and objectives of management for future operations. These statements include forward-looking statements both with respect to the Company and the sector and industry in which the Company operates. Statements which include the words "remains confident", "expects", "intends", "plans", "believes", "projects", "anticipates", "will", "targets", "aims", "may", "would", "could", "continue", "estimate", "future", "opportunity", "potential" or, in each case, their negatives, and similar statements of a future or forward-looking nature identify forward-looking statements. All forward-looking statements address matters that involve risks and uncertainties because they relate to events that may or may not occur in the future, including the risk that the Company may receive the benefits contemplated by its transactions with Galaxy, the Company may be unable to secure sufficient additional financing to meet its operating needs, and the Company may not generate sufficient working capital to fund its operations for the next twelve months as contemplated. Forward-looking statements are not guarantees of future performance. Accordingly, there are or will be important factors that could cause the Company's actual results, prospects and performance to differ materially from those indicated in these statements. In addition, even if the Company's actual results, prospects and performance are consistent with the forward-looking statements contained in this document, those results may not be indicative of results in subsequent periods. These forward-looking statements speak only as of the date of this announcement. Subject to any obligations under the Prospectus Regulation Rules, the Market Abuse Regulation, the Listing Rules and the Disclosure and Transparency Rules and except as required by the FCA, the London Stock Exchange, the City Code or applicable law and regulations, the Company undertakes no obligation publicly to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. For a more complete discussion of factors that could cause our actual results to differ from those described in this announcement, please refer to the filings that Company makes from time to time with the United States Securities and Exchange Commission and the United Kingdom Financial Conduct Authority, including the section entitled "Risk Factors" in the Company's Annual Report on Form 20-F.

For further information please contact:

About Argo:

Argo Blockchain plc is a dual-listed (LSE: ARB; NASDAQ: ARBK) blockchain technology company focused on large-scale cryptocurrency mining. With mining operations in Quebec and Texas, and offices in the US, Canada, and the UK, Argo's global, sustainable operations are predominantly powered by renewable energy. In 2021, Argo became the first climate positive cryptocurrency mining company, and a signatory to the Crypto Climate Accord. For more information, visit www.argoblockchain.com.

Chairman's Statement

We began 2023 on the heels of a transformational and strategic pivot in our operations. In December 2022 we sold the Helios facility, which we designed, constructed, and energized over the course of 2021 and 2022. The transaction strengthened our balance sheet through $41 million of debt reduction and through a refinance of our remaining machine-backed loans with a new asset-backed loan from Galaxy Digital Holdings Ltd. ("Galaxy").

Argo maintained ownership of its entire fleet of mining machines, including roughly 23,600 Bitmain S19J Pro machines that were operating at Helios prior to the sale. Those miners remained in situ and continued to operate pursuant to a hosting agreement with Galaxy. Currently, approximately 2.4 EH/s of total hashrate capacity is deployed at Helios, and the machines continue to perform very well in the custom-designed immersion-cooled facility.

The hosting agreement with Galaxy allows Argo to share in the proceeds from economic curtailment, which occurs when Helios monetizes its fixed-price PPA during periods of high power prices. During the year, Argo generated approximately $7.2 million in power credits, with $3.8 million generated in the month of August during a state-wide heat wave. Not only does the ability to curtail operations benefit Argo economically, but it greatly enhances the stability of the Texas grid.

Throughout the year, the Company focused on three key pillars: financial discipline, operational excellence, and strategic partnerships for growth.

Financial discipline

After the sale of the Helios facility, the Company was able to significantly reduce its operating expenses. During the first quarter alone, Argo reduced its non-mining operating expenses by 68% compared to the run rate in the second half of 2022. The Company has been able to sustain these cost reductions, achieving a 58% reduction in non-mining operating expenses for the full year 2023 compared to the prior year.

The Company has also made progress in strengthening its balance sheet by reducing debt. For the full year 2023, the company reduced its debt by $13 million to $66 million. Most of the debt reduction was focused on the asset-backed loans with Galaxy through monthly amortization, supplemented by additional prepayments throughout the year. The prepayments were funded with proceeds of non-core asset sales and a portion of the proceeds from an equity raise completed in July 2023.

In addition, subsequent to year end, the Company paid down an additional $12 million using a portion of proceeds raised through an equity raise in January 2024, the proceeds of the sale of non-core assets, including the Mirabel facility, and $3 million through monthly amortization payments. As of March 31, 2024, the debt balance owed to Galaxy was $13 million, and total debt was $54 million.

Operational excellence

After selling the Mirabel facility in March 2024, Argo continues to own and operate its data center in Baie Comeau, Quebec. The Baie Comeau site is over 40,000 square feet and has 15 MW of 99% renewable power capacity sourced from the nearby Baie Comeau hydroelectric dam.

During the third quarter of 2023, the Company deployed approximately 2,750 BlockMiner machines from ePIC Blockchain Technologies, representing approximately 300 PH/s, at its Quebec facilities. This deployment increased the Company's total hashrate capacity by approximately 300 PH/s. As of 31 March 2024, taking into account the sale of certain prior generation machines that occurred in conjunction with the sale of the Mirabel facility, the Company's total hashrate capacity is 2.7 EH/s.

Additionally, the Company has the ability to expand its capacity at Baie Comeau from 15 MW to 23 MW. The local municipality has approved the expansion, and the Company is in the evaluation phase of this project.

Growth and strategic partnerships

The Company continues to explore opportunities where mining can be paired with stranded or wasted energy. There is tremendous potential for energy generators to utilize mining as a balancing and optimization tool, particularly in the energy transition where limitations currently exist in the ability to store renewable energy. Argo is evaluating several projects with companies across the energy value chain.

Financial results

Revenue in 2023 was $50.6 million, compared to $58.6 million in 2022. Non-mining operating expenses were $18.8 million, a significant decrease from $34.1 million in 2022. Adjusted EBITDA was $8.3 million, compared to $(46.7) million in 2022. Loss attributable to shareholders totaled $35.0 million. In 2023, total capital expenditures were $5.2 million. Our cash balance at December 31, 2023 was $7.4 million.

Operating results

With the deployment of the BlockMiners at its Quebec facilities, the Group's total hashrate capacity increased by 12% from 2.5 EH/s in June 2023 to 2.8 EH/s by September 2023. Argo's mining margin averaged 44% for the full year 2023, which is lower than the 54% mining margin achieved in 2022. The decrease in mining margin from 2022 was driven primarily by the 71% increase in average network difficulty in 2023.

Bitcoin macro environment

While 2022 was a challenging year for Bitcoin with several macroeconomic headwinds, 2023 provided a bit of a reprieve for miners. After starting the year at $16,616, the Bitcoin price experienced a rapid increase in March 2023 amidst a period of distress in the regional banking sector, climbing 21% during the month. Additionally, the price saw a steady increase during the second half of the year as speculation intensified about the impending January 2024 deadline for the approval of Bitcoin Spot ETFs by the US Securities and Exchange Commission (post the period end, the ETFs were approved by the SEC on 10 January 2024). By the end of 2023, the price of Bitcoin had increased to $42,208, a 154% increase for the year.

Another tailwind for Bitcoin miners was the growth of transaction fees from the introduction of ordinals and inscriptions. Transaction fees on the Bitcoin network more than quadrupled in 2023 compared to the prior year. There was a large but temporary spike in transaction fees in May, along with longer periods of elevated fees in November and December from increased ordinal and inscription activity.

The increase in Bitcoin price, combined with growth in transaction fees, enabled hashprice to climb from $60 per petahash per day at the end of 2022 to $98 per petahash per day at the end of 2023, which is a 64% increase during the year. The growth in hashprice was not as dramatic as the increase in Bitcoin price or transaction fees because it takes into account the network difficulty, which increased by 104% during the year to account for significant growth in the global hashrate.

Commitment to sustainability

Since inception, Argo has always maintained a strong focus on environmental sustainability. This is why we located our mining operations in Quebec, where they are powered by hydroelectricity, and the Texas Panhandle, where more than 85% of the installed generation capacity comes from renewable sources.

To our knowledge, we are the first publicly traded cryptocurrency mining company to publish a report in accordance with the Task Force on Climate-related Financial Disclosures ("TCFD") Recommendations and Recommended Disclosures (see page 32).

Leadership changes

On 30 January 2023, Chief Financial Officer and Executive Director Alex Appleton resigned from his positions at Argo to pursue other opportunities. After a formal recruitment process led by an executive search firm, the Board appointed Jim MacCallum as Chief Financial Officer effective 5 April 2023.

On 9 February 2023, Chief Executive Officer and Interim Chairman Peter Wall resigned from his positions at Argo to pursue other opportunities. Matthew Shaw became Chairman of the Board, and the Board appointed Chief Operating Officer Seif El-Bakly to serve as Interim CEO.

On 27 November 2023, after a formal recruitment process led by an executive search firm, the Board of Directors appointed Thomas Chippas as Chief Executive Officer and Executive Director. Seif El-Bakly returned to his role as Chief Operating Officer.

On 5 January 2024, Seif El-Bakly resigned from his position to pursue other opportunities.

Strategic focus in 2024

With the Bitcoin halving occurring in April 2024, the Company's priorities in the first quarter of 2024 continued to involve a strong focus on financial discipline, operational excellence, and modest growth in operations. We believe that our efficient fleet, stable and competitive power prices, and strengthened balance sheet make us well-positioned for a post-halving environment.

On behalf of the Board, I would like to thank all of our shareholders and stakeholders. I am excited for Argo to continue in its mission of powering the world's most innovative and sustainable blockchain infrastructure.

Matthew Shaw

Chairman of the Board

Independent Auditor's Report

We have audited the financial statements of Argo Blockchain plc (the 'parent company') and its subsidiaries (the "group") for the year ended 31 December 2023 which comprise the Group Statement of Comprehensive Income, the Group and Parent Company Statements of Financial Position, the Group and Parent Company Statements of Changes in Equity, the Group and Parent Company Statements of Cash Flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and UK-adopted international accounting standards and as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

In our opinion:

• the financial statements give a true and fair view of the state of the group's and of the parent company's affairs as at 31 December 2023 and of the group's loss for the year then ended;
• the group financial statements have been properly prepared in accordance with UK-adopted international accounting standards;
• the parent company financial statements have been properly prepared in accordance with UK-adopted international accounting standards and as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

DIRECTORS' RESPONSIBILITIES STATEMENT

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and parent company financial statements in accordance with UK-adopted international accounting standards. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit and loss of the Group and Company for that period.

In preparing these financial statements, the directors are required to:

• Select suitable accounting policies and then apply them consistently;
• Make judgements and accounting estimates that are reasonable and prudent;
• State whether applicable UK-adopted international accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
• Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are also responsible for ensuring that the Annual Report and financial statements taken as a whole, is fair, balanced and understandable and provides the information necessary for the shareholders to assess the Group's and Company's position and performance, business model and strategy.

Website publication

The directors are responsible for ensuring the Annual Report and the financial statements are made available on a website. Financial statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Group and Company's website is the responsibility of the directors. The directors' responsibility also extends to the on-going integrity of the financial statements contained therein.

Directors' responsibilities pursuant to DTR4 (Disclosure and Transparency Rules)

The directors confirm to the best of their knowledge:

• The Group and Company financial statements have been prepared in accordance with UK-adopted international financial reporting standards and give a true and fair view of the assets, liabilities, financial position and profit or and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group and Company; and
• The Annual Report includes a fair review of the development and performance of the business and financial position of the Group and Company together with a description of the principal risks and uncertainties that it faces.

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SOURCE: Argo Blockchain PLC