IREN Limited (IREN) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Iris Energy Investor Update. [Operator Instructions] I would now like to hand the conference over to Lincoln Tan. Please go ahead.

Thank you. Good afternoon for those of you in North America, and good morning for those of you in Australia, and welcome to the Iris Energy Investor Update. I'm Lincoln Tan, Senior Manager of Investor Relations. And with me on the call today are Daniel Roberts, Co-Founder and co-CEO; and Lindsay Ward, President. Before we begin, please note that this call is being webcast live with an accompanying presentation. For those that have dialed in by phone, you can elect to ask a question by the moderator after our presentation. I would also like to remind you that certain statements that we make during this call may constitute forward-looking statements. And Iris Energy cautions listeners that forward-looking information and statements are based on certain assumptions and risk factors that could cause actual results to differ materially from the expectations of the company. Listeners should not place undue reliance on forward-looking information or statements. Please refer to the disclaimer on Slide 2 within the accompanying presentation. Thank you, and I will now turn the call over to Dan Roberts.

Thanks, Lincoln. Good morning, good afternoon, everyone, wherever in the world you might be. Someone said to me the other day "Happy Anniversary." I had to do a double take and looked at them a little bit oddly. And they said, "12 months since you listed." I was like, wow. It feels like we're operating dog years or something because, gee, whiz, a lot has happened in that 12-month time period, but we're delighted to provide this update and talk to you all today. It's nice to get out of the slightly dry [ 6-Ks ] and legal releases we made to the market and actually give you a bit more of an insight into how we're thinking about the industry, the business, the platform. We're still here. We're still excited. And yes, really, really pleased to walk through this with you today. So to start off with, why don't we just step back, look, that's the disclaimer, which I think was already covered. If we go to a bit about the industry. So where are we? And I appreciate it's new for a lot of people. But people say that history tends to run or doesn't repeat. It tends to -- I don't know. It feels like this industry just repeats itself. I think I've told a number of you, Will and I have bought our first Bitcoin late 2013. A few months later -- this was on a runup to $1,000 at the time. A few months later, [ Gox], one of the early centralized exchanges, controlled 70%, I understand, of the industry trade volume, went under. Bitcoin crashed down to $5, $300. I sold them all for magic internet coin. And it just seems like every cycle, we see the same thing play out. We see these unregulated centralized exchanges with low regulatory oversight. I don't know how to say it, a lot of them misusing customer money, not making good decisions, blowing themselves up, rug pulling customer funds every single time. Hopefully, this time is the straw that breaks the camel's back and we see regulation step in, a little bit more oversight, but equally, the market will hopefully learn that trusting your assets with offshore unregulated entities may not be the best ideas and promised yields may have some more risk attached to them than you may think. The other thing that we see every cycle is the latest shiny bauble. Someone launches an ICO, NFTs, DeFi, like every cycle there is a narrative, every cycle there is a reason for people to pile in random coins, these random narratives. I think there's something like 25,000 coins. And every time so far, the rug gets pulled again. And people -- the tide goes out and people realize the lack of substance underpinning majority of these use cases. And that's not to be too negative on the asset class. I still believe there is something in crypto more broadly. But in terms of the value proposition, it's -- I struggled with it, and a lot of you know that. In terms of Bitcoin, it's fundamentally different. Nothing has changed in 13 years. It is the same asset for 13 years. Every 10 minutes, there is another block. There will only be 21 million coins, you can't stop it, you can't kill it. It is here to stay, yet the volatility persists. It goes up, it goes down. When it goes up 10 to 20x, it has these 80% drawdowns. Markets tend to overshoot on the way up, undershoot on the way down. We've seen that volatility. But in behind, nothing has changed. And when you look at the underlying fundamentals of what Bitcoin offers to the world, our conviction is only strengthened. In a world of currency debasement, in a world of censorship, the ability to self-custody a monetary asset is extraordinarily powerful. And we don't believe that, that is likely to change. The other thing that people often comment to us are, how is it meant to be a stored value if it's so volatile? I don't understand what trajectory people are hoping to see with an emergent organic monetary asset literally worth $0.01 13 years ago to $300 billion today. You look at the trajectory on that chart, on that slide, I don't expect -- I don't understand what people expect to see. There's going to be volatility along the way. If we then go to the next slide and say where is Bitcoin? What is it hoping to be? It's really hard to explain Bitcoin to people if they haven't taken the time to read monetary history. And I'm one of the first to admit I've never been a student of history. 5, 6 years ago, I did sit down, read a number of books and papers, and I'm happy to share details, go through the history of monetary assets, necklaces, beads, rhinestones, whale teeth, the bimetallic era that persisted for thousands of years. You work through the gold, demonetizing silver around 1870, the emergence of World War I, the pitfalls of gold, why we ended up with paper money. You map it through today, through that lens, you really start seeing what Bitcoin is here to do. But that challenges a lot of perceived views of the world, and it can be hard for people to wrap their heads around. So even if we just step back, let's just call it gold 2.0. It's better at being gold than gold is. It's easy to transfer. It's more divisible. It's more durable. It's scarcer, hard cap at $21 million, in comparison over the long term Bitcoin's -- sorry, gold supply is going parabolic, 1.8% supply increase year-on-year, gold is vertical. So it's better at being gold than gold is in a world where all these digital social networks are disrupting their physical equivalents, whether it's the likes of YouTube and Netflix versus Blockbuster, whether it's Amazon versus retail, like all these social networks. And you've got Bitcoin sitting here, which is at $17,000 today, to only reach gold parity is $600,000 a coin. If we fast forward 5, 10, 15 years, do we think that it's unrealistic for Bitcoin to get gold? Not really. So that's why we're still excited at the industry, our conviction is unfazed, and we're building. But what we are very accustomed to, having been in the sector for 9 years, is volatility. It goes up, it goes down and it goes up further than you think, and it tends to go down further than you think. And every decision we have made in this business is through that lens. As we move to the next slide, this is where we start migrating towards an update on our business. We have always made decisions through the lens of protecting the downside, maximize optionality on the upside because we fundamentally believe in the asset class, but don't get ahead of yourself. Don't get over your skis. Don't take unnecessary risk. Don't assume that the sun's always going to shine, that the sky is always going to be blue because things do go wrong. And we've seen a bit of a perfect storm over the last 12 months. And as a business, we've had to adjust to that. So as we look at this slide and it positions everything almost in the lens of past, present, future in a way. So if we start with the left-hand side and the risk-focused approach that I've alluded to, yes, we've been hit by a number of exogenous events over the last 12 months that we've had to react to, but we've structured the business, whether it's capital structure, whether it's construction contracts, in a way to minimize risk and exposure for our shareholders and the underlying business. As we've said before, our management team, our Board, their collective experience in delivering over $25 billion of energy and infrastructure projects. Collectively, they've seen everything that can go wrong. So we're not unaccustomed to challenges. It's how you deal with those challenges and come out the other side. If we step through into those line items individually, the limited recourse equipment financing, again, as I've said to many of you, we are the only company in the industry that I'm aware of that didn't give a parent company guarantee on these hardware equipment financing structures. We ring-fenced it in specific special-purpose vehicles with collateral limited to the individual computers themselves. Yes, it was a fantastic deal when we signed it. We signed 3 facilities totaling $110 million, nondilutive financing, got access to these assets, the call option on the upside of Bitcoin, but ultimately, the market went against it, and we were able to withdraw from those assets without any impact on the rest of the business and the platform. Would we have preferred it to play out differently? Absolutely. But given the cards we were dealt, we made optimal decisions along the way to handle that situation. The Bitmain and Childress CapEx. Again, like rewind 12 months ago, we're IPO-ing at $1.5 billion. We're building at 15 exahash, 500 megawatts of capacity, $1 billion construction program. We've mobilized global construction contractors. We've signed, at the time, was the biggest hardware supply contract with Bitmain in the history of the industry. Yet we fast forward month by month, week by week, the market deteriorates. Access to digital funding became challenging. Again, it was available. We consciously turned it down. We didn't want to sign us up to security arrangements. Plus, that could really turn against us if the market went south. And as the market continued to go south, that decision was vindicated. We had to stop making payments under the Bitmain contract. We had to terminate a number of the global contracts relating to Childress. And again, we structured those contracts, we structured those relationships in a way that minimized the fallouts. There's no recourse back to the broader business. There was no massive expense that we had to fill. We pivoted. We managed the relationships. We structured the contract in the right way, and we carried on doing what we're doing. Being vertically integrated, again, has assisted us. We've never missed a construction milestone. We have built everything on time. We've built [ 100 x 16 ] megawatts over the course of our history with that 30 megawatts at Mackenzie due to come online in the next couple of weeks, 100 megawatts in the last 12 months alone, and we haven't missed a deadline. And this goes to control of everything we do. We own the land. We own the infrastructure. We own the grid connections, the transformers, the substations. We self-delivered the majority of our projects. We control our own destiny. We limit exposure and risk to counterparties to control our own destiny and make sure that we are in control of as much as we can. Low-cost renewable energy. We still remember vividly 2, 3, 4 years ago, when we're running around talking to people in the industry, talking to investors, people saying, "How are you ever going to compete with people co-locating, with coal-fired power at $0.025 a kilowatt hour?" Fast forward, again, validation that targeting low-cost excess renewable energy is fundamentally the lowest-cost power you can secure. Almost by definition, there is no feedstock. Now that's not to say that we forecast COVID and invasion of Ukraine. It's not to say we forecasted commodity price inflation, but we understood there was a risk factor there, we understood that targeting marginal cost renewables was going to be the safest, lowest cost, most stable opportunity to secure power, and it has proven out to be so. In a world where power prices and commodities are skyrocketing, our power price hasn't been unchanged, zero effect. Every year in D.C. around April, there is a regulatory price adjustment where the price goes up or down 1% or 2%. That is it. We have been completely unaffected. And as a result, our position in the global cost curve is only sought to fall further and further. Finally, the non-HODL approach. Look, I'm as bullish on Bitcoin as anyone. If you haven't been able to tell that before this presentation, this presentation should really highlight that. Personally, I hold Bitcoin. I don't store a lot of my savings in U.S. dollars or Australian dollars. But as a business, it doesn't make sense from a risk perspective. We liquidate it each day. Our core expertise is delivering industry-leading data centers and operational cash flows, and we will continue to prosecute that. So that's a bit of a recap of where we've been. If we -- there are really 2 purposes of the next columns. One is survival, liquidity. Are we here to stay? Is there an existential risk? And what's the opportunity? Are we able to grow during the next cycle? And if we step through liquidity, we've got $47 million of cash in the bank as at 30 November and about $21 million of net CapEx to spend that will finish off the full 180 megawatts of infrastructure. That involves 160 megawatts of data centers and electrical infrastructure at British Columbia across 3 sites, and the first 20 megawatts at Childress in Texas as part of a 600-megawatt site. We've then got $75 million of prepayments we've made to Bitmain, pertaining to 7.5 exahash of that original 10 exahash contract I mentioned earlier. So roughly $10 a terahash of prepayments, where we're seeking to make the copayment in terms of topping up to market price and release those deposits over time. We've previously announced the equity facility that we expect to go effective in the near term. And then finally, we've released some additional liquidity or in the process of doing so by selling about 0.4 exahash of miners to bring in near-term liquidity and really bolster that cash position and make sure that we're well set from a working capital perspective going into the next period. In terms of the opportunity, to get back up to 5.4 exahash of self-mining requires $31 million. That's it. Plus shipping and taxes on that. But on the basis that we've got $10 a terahash deposits with Bitmain, we made an additional payment of $9 based on current market pricing at $19. That will give us access to 3.4 exahash and fill up the entire data centers. So that's the priorities we'll get onto. But in addition, we've extended all the CapEx in the time building out the high-voltage infrastructure for 600 megawatts at Childress. We've got around 18 exahash of relatively short-term expansion potential heading into the next cycle. We're building the first 20-megawatt data center, as I've mentioned, and we've communicated previously. That leaves 580 megawatts of electrons sitting there waiting on site with all the land ready for us just to build the data centers connected into the grid and plugging the computers. In addition, we've mentioned this previously, we've got over 1 gigawatt of development projects globally, where we've continued to move the ball along, different jurisdictions where we've selected very carefully based on market conditions, penetration of renewables, the volatility in the market, stability of law, a number of factors. And we've continued to sign up land options, progress connection agreements. In terms of megawatts, and we often speak about the MMM, money, miners and megawatts. Megawatts, I don't expect we're ever going to be short based on the development work the team has done over the last few years. So on that note, I'll pass over to Lindsay, who will give you a quick update and overview of that real asset base and the 180 megawatts of capacity that we've got. Over to you, Lindsay.

Okay. Thank you, Dan. I'll just take the opportunity now to give a bit of a detailed overview of our operating sites. As Dan has said, it's been a pretty big 12 months for us. It's less than 12 months ago we actually only had 1 operating site with Canal Flats in British Columbia, Canada. Fast forward to today, we've now got 3 operating sites in Prince George, Mackenzie and also -- sorry, Canal Flats. And we're building out an additional site in Childress in Texas. We are building out a material significant real asset platform across North America. We're really comfortable with the approach that we're taking. We've got 130 megawatts operating at the moment. We've just energized the 30-megawatt additional build at Mackenzie, which brings us to 160 megawatts of operating capacity. There's still some commissioning to do there, but we're very close to bringing the mines on there as well next week. And then we've got, as Dan talked about, we have another 20 megawatts at Childress. And so very soon, we'll have 180 megawatts of capacity available and an additional 580 megawatt capacity at Childress. So it does give us a great platform for growth as market conditions are laid out. The important aspect at Childress is that we have built a 600-megawatt connection to the 345 kV transmission line. It substantially reduces the cost risk and delivery of future expansion. And importantly, we continue to grow our team, both here and Australia, in Texas and also in Vancouver and British Columbia, because we were into a significantly sized operating business, we need to have the people to support that and position ourselves for future growth. I'll now talk about our operating sites themselves. So in Canal Flats. It is our normal site. It was a 30-megawatt site. It runs on 100% hydro electricity. The great thing about Canal Flats is it was established to run around about 0.7 exahash. It's been consistently running at about [ 0.87 ]. And I think that's just a testament to our team, our focus on productivity and focus on efficiency. It's all about finding those one percenters and bringing them to the table and looking at how can we expand on our operations and make them just that much more efficient. We've consistently been ranked one of the most efficient data centers in terms of Bitcoin mined per exahash and that's by independent industry analysts. And so we continue to improve across all our sites. And importantly, we don't just sit there and rely on the air cooling coming from the fans of the computers themselves. You can see in the picture there, the large fans sitting on the roof. And they automatically adjust the speeds in accordance with the ambient temperature. So they ramp up and down to optimize mine performance to increase, decrease the airflow in all its streams. And we've been operating really efficiently across all our BC sites in winter and in summer and not really impacting our efficiency at all. It's been a great -- again, a great credit to our internal design teams that are able to optimize our performance across different regions. We also have our fabrication facility at Canal Flats. We've got an in-house design and engineering team as well. They support all our sites. It's our center of excellence, and this allows us to ensure our projects have been brought in on time and at a lower cost. In terms of our second site at Mackenzie, it's an 80-megawatt site approximately 2.4 exahash of total capacity. We successfully commissioned the first phase, 9 megawatts scheduled in April of this year. We followed that up with a further 41 megawatts in August. And as of today, we just went live energizing our second transformer in the Mackenzie site. And again, that's 3 weeks ahead of schedule. We were thinking that was going to be more towards the end of December than the front of December. So we have brought each stage of the construction process there at Mackenzie ahead of schedule. And it's really a function of our internal construction team supported by key subcontractors that work together in a seamless team to just really drive great outcomes, and that's been driven by an attitude where if we set a deadline, we just have to hit it. And likewise, Canal Flats and Mackenzie also operates on 100% renewable energy. Our third site is in Prince George in British Columbia. It's a 50-megawatt site, and you can see in the pictures there, we had a basically a bare paddock in September. And now we've got a 50-megawatt operational facility operating there in Prince George. It's a great site. We brought a new operational team together and the really pleasing thing is we're starting to see them looking for opportunities to improve, bringing innovative ideas to the table, and we're able to implement them and maximize our efficiency. And again, with Prince George, being based in British Columbia, it's running 100% renewable power from BC Hydro. In terms of our fourth site in Texas, I'd like to spend a little bit more time on Texas because it is such a transformational site for our business. You can see the crater out there, the size of that site. That's just all the infrastructure being established to get a connection to the 345 kV line. We've been building the bulk substation, which is our 600-megawatt connection. And then we stepped that down for primary substation to 100 megawatts, and that allows us to build 5 buildings per primary substation. And so we've got a connection agreement. We signed that with AEP in January of this year. It brings our total power capacity available to 795 megawatts of capacity, and Childress is near a number of facilities. So it's a relatively low-risk connection site. And I think you've seen, with the 20 megawatts that will be coming on in early 2023. The building is well advanced. I'm actually at Childress at the moment, have been spending some time on site. We really got a focused team here that is driving really good outcomes and bringing that project to a conclusion. The data center design. It's our proven data center design. We brought it down to Texas. We've tweaked it for local conditions, and we're really looking forward to seeing that in action in early 2023. Dan touched a little bit on why Texas. I just like to reiterate. It's a great jurisdiction for us. It gives us geographic diversity from BC. There's a massive renewable opportunity in Texas. The renewable generators desperately need low [ cap ] where they're operating. That allows them to be generating at much higher capacity factors. We're able to come on and come off to meet those demand peaks and work with the -- and regulators to make sure there's available power when it's needed. And the other pleasing thing about Texas is there's a massive amount of renewables that have been permitted that are just waiting for the right price signals to come on board. And so that's going to ensure that there's a long-term low-cost energy available for our operation in Childress. I think just in closing, it's been a really good year for Iris. I really would like to thank the Iris team. We've got a team that comprises world-class engineers, asset managers, safety professionals, finance, support staff, all with an extensive background in infrastructure, energy, traditional mining, data centers and Bitcoin. We brought that team together very quickly across 3 countries in Australia, Canada and the U.S. And that's not an easy task, but they're gelled incredibly well and have worked incredibly hard over the last 12 months. We do have a laser focus on execution excellence, supply chain management. And that team's got decades of experience in delivering projects on time and generally on or under budget. And I think our team's capability and knowledge is certainly one of our competitive advantages. So thank you for the opportunity to give you an update on the operations today, and I'll now hand over to Lincoln.

Thanks, Lindsay. This slide just really outlines monetization pathways for the 180 megawatts of data center infrastructure that we've built. I think, more importantly, it highlights the strategic value that we see in that infrastructure. Now before we step through the table and illustrative economics, I think it's just very constructive to briefly touch on the 2 main pathways where we can monetize our infrastructure. So the first pathway is around self-mining. That's obviously been our focus since inception and remains our focus going forward. And this really just involves deploying our own money hardware into our own facilities to mine on our own accounts. And effectively, we are retaining 100% exposure to the Bitcoin price in the self-mining scenario. The alternative monetization pathway is hosting, where effectively we host mining hardware on behalf of third-party external clients in exchange for a margin. And secondly, this delivers us a more stable revenue line compared to self-mining because all of the infrastructure is effectively built, there's no additional CapEx for us to host third-party clients. And from a capital perspective, it's actually quite typical for incoming customers to actually fund a 2- or 3-month deposit. And from a market perspective, I think it's important to highlight as well that we are seeing and experiencing quite favorable market conditions at the moment around hosting, and we're seeing a lot of demand for high-quality infrastructure from a range of different counterparties. Just turning now to the table and the illustrative economics. So really this is us stepping through 2 scenarios across a range of different prices. In terms of what the business looks like post the 20-megawatt energization at Childress, total capacity is 180 megawatts, and we effectively have 2 exahash of hardware for self-mining, which basically leaves a residual 110 megawatts of capacity to be monetized through either hosting or self-mining. So the first scenario, at the top of the page, outlines a blended scenario where we self-mine 2 exahash, and then we host the original 110 megawatts at an indicative $0.02 hosting margin. And under the scenario, no additional capital was required. And as you can see, at a $15,000 decline price, the self-mining component contributes to about $14 million of mining profit and then the residual hosting contributes an additional $19 million of margin. If you stick down the page to the green shaded row, that outlines the scenario where we are at 100% self-mining operation, where effectively we deployed approximately $31 million of capital to acquire an additional 3.4 exahash of mining capacity. And that $31 million assumes that we are continuing to utilize and unlock the big prepayments that we have made. And as you can see, moving from left to right across the page, there is significantly more upside exposure to higher Bitcoin prices in the self-mining scenario. Just an example, at a $25,000 Bitcoin price, self-mining 5.4 exahash generates an illustrative $114 million in mining profits. And then finally, just at the bottom of the page in terms of our cost base, we are targeting approximately $2 million per month in sites and corporate costs. These non-electricity expenses primarily comprise payroll, insurance, site expenses and professional fees. So I think, ultimately, the takeaway here is, with the substantial asset base that we have built, irrespective of whether it's self-mining plus hosting capacity or whether it's a 100% self-mining operating model, we are able to cover our costs across a range of Bitcoin prices. And ultimately, it comes down to all of the rail infrastructure that we've built that actually provides us with the optionality to consider these 2 pathways in detail and ultimately make decisions around how we monetize that infrastructure to maximize long-term value for all of our stakeholders. I'm just going to hand over now to Dan to talk to some of the pathways in which we can achieve 5.4 exahash. Over to you, Dan.

Thanks, Lincoln. That's great. And maybe just backtracking on that slide, just to add a couple of comments. I think -- well, sorry, we have got 2 people working on the slides. Thank you. So I think if you rewind to the decision around the NYDIG facilities and the decision that Iris Energy made not to financially support and bail out those special-purpose vehicles, there was a lot that went behind that decision, as you can imagine. And again, I'll reiterate, it's not always reflected in these relatively dry and legalistic 6-Ks that come out to market. But I think this slide really should help people understand the decision-making process there. First of all, there is a glut of machines in this industry. There are so many assets that can't get plugged in because people haven't been able to build out the infrastructure. The hosting market is buoyant, hosted margins are positive. We are feeling really good about the ability to fill up our data centers with hosting if we want to. And I'm not sure that we want to, and I'll come back to that a little bit later on. You then look at the $31 million of additional funding to basically get back up to 5.4 exahash. Now contrast that to over $100 million of debt obligations and $7 million a month in principal interest that was due on those facilities. That takes our corporate overheads from $2 million a month to $9 million a month. But for us, the decision was really straightforward, really clean. It doesn't mean that it's easy. It hurts, like you sit, you hope for the best. You really want things to play out differently. But as that situation evolved, the numbers really told a very clear story. As a result, we've had a period of consolidation. We're feeling really positive. We've got $47 million of cash in the bank. We've got $21 million of net spend to finish off the full 180 megawatts of data center and electrical capacity. We've got strong cash flows coming off the 2 exahash of capacity that we do have. And then we've got enormous optionality to optimize decision-making around self-mining versus hosting. And to be clear, there is no silver bullet. I cannot give you a clear answer on where we'll be in the next week or even month or 3 months. Because like we have done the entire first 12 months -- the entire 4 years we've operated this business, we are going to optimize decision-making. Every day, let alone week or month in this industry is a new adventure. The facts change, the environment changes. You need to be dynamic, flexible and we like the things that we have. We've got a number of levers at our disposal to try and get to that 5.4 exahash of self-mining without having a host, but hosting is a backstop. If we need to do it, if we need to do it to survive, we need to do it because the market's deteriorated further, the data centers are there. They're ready. Come up with a computer, plug it in, pay us the margin and life goes on. But it's not who we want to be. So we're going to take our time, and we ask you to be patient with us. We've got the $75 million of BITMAIN prepayments which we can seek to monetize either for our own use or perhaps on selling units as we've done previously. We've got the committed equity facility with B. Riley, which we may use over time, subject to market conditions. And funding initiatives, we're still receiving term sheets. There's a lot of interest in this sector still in funding good businesses with good business plans. The issue for us is that we've got to make sure that the right funding products are taken on. We can't come this far, navigate all these risks, all these headwinds, the dynamic market that we have only to sign up another silly debt product now and put ourselves right behind and subject to some really unfavorable outcomes if the market goes further south. We believe we're really well positioned to ride out the current downturn in Bitcoin, and we're ready for the market to turn. And we're excited about the next wave up, whether that takes place in the next 3 months, 6 months, 12 months. We know the macro environment is volatile. Bitcoin is a volatile play on that volatile environment. Things can change really, really quickly. We believe we're really well positioned. Again, we're aligned. Will, myself, the management team and Board, we own 25% of the business collectively. We're here to protect the downside. We're going to take out insurance contracts by minimizing downside risk, but preserve as much of that upside as we can to the benefit of all shareholders. Again, thank you, Lindsay and Lincoln, for your overview. And thank you, to reiterate what Lindsay said to the broader team, it's been, frankly, an extraordinary 12-month period. The level of commitment, enthusiasm and passion from this team, I just don't believe it's been replicated very often in other industries or businesses. So it's a testament to their resilience, their hard work. And bring it on, 2023. On that note, I believe we've got some time for some Q&A, and I'll hand back to Lincoln.

Thanks, Dan. So let's just open up the lines for some Q&A through the conference call.

[Operator Instructions] Your first question comes from Josh Siegler from Cantor.

First -- my first question, I was wondering if you have a sense of timing on when the 0.9 exahash of miners that either in transit or pending deployment can be up and running? Of course, I understand 0.4 for that could theoretically be sold. But just curious on the timing of that.

I'm happy to grab this one. Those miners are in transit at the moment or in the warehouse, Josh. We originally shipped a number of units to Childress when the plan keeps changing. Was to build out 40 megawatts. So we're in the process of selling some of those units, which are already in country in Texas as well as move some of those units up to the facilities in British Columbia. The delay -- there has been a delay over the last couple of weeks has been around optimizing for liquidity and decision-making around how many units of those we wanted to sell to top up our working capital and how many we wanted to plug in, in BC. In terms of specific guidance on the date, I can't give that to you right this second, but we've got empty data centers to the extent we've got idle hardware, we're going to get it up there pretty quickly, and we motivate to pipe them in.

Understood. And then if I can ask a follow-up, I'm curious if you could dive a little deeper into the decision-making process around pursuing self-mining or hosting. I mean you guys presented a really good analysis of the cost and potential revenue upside. But are there any other factors you're considering when thinking about the direction to take the company?

Yes. It's a good question, Josh. And look, I must say a few weeks ago, we were like we've just got to host, right, batten down the hatches, let's get a revenue line, it's the data centers, make sure we ride out this bear market and make it into the next bull market and worry about it then. But as is our nature, that felt like the easy way out on a bit of a copout. And it feels like we're giving up a lot of the upside just by defaulting to that position. So we'd like to take our time. We've got $47 million of the cash in the bank, less the $21 million of expected CapEx. The money left over is almost equivalent to a full year of corporate overheads before you've got $1 of operating revenues. So we're not feeling the pressure to make suboptimal decisions. We do have a slide in the appendix, which people are free to peruse in their own time. That compares hosting self-mining. Our priority is self-mining. But if market conditions deteriorate or we're unable to secure that self-mining on terms and other conditions that we're happy with, and that goes to both risk and return, then hosting is absolutely there as a backstop, but we don't believe it's the optimal use of our infrastructure base for the long term for our shareholders.

The next question is from Reggie Smith from JPMorgan.

This is Charlie Pearce on for Reggie. Thinking about that $31 million total you mentioned to getting to that 5.4 exahash of self-mining. What are you thinking about access to debt going forward? You've mentioned the term sheets are still coming in, but do you anticipate that STD bailout impacting cost of capital moving forward? Of course, it was great that you're able to only use those miners as collateral in the past, but do you anticipate future debt requiring a corporate guarantee?

Thanks, Charlie. I appreciate the question. Look, it was a lost on us, the fact that if we were to default or not for now. And we shouldn't use the word default. Because at the end of the day, we didn't default. It was the SPVs in the special-purpose vehicles that couldn't service their own obligations. We just happened to own shares in those SPVs. The only proactive decision we made at the business was not to use shareholder money to bail out a lender that was underwater. So as you say, it was structured to protect our shareholders very deliberately. It was a lost on us that the existence of how that process played out could affect our access to funding going forward. But ultimately, we have to make the right decision and deal with the consequences. It's really hard to quantify whether it will have an effect in the long term. All I can say is we have received term sheets, during and subsequent to that process and other financiers actually asking us why we would even entertain restructuring the loans when the lenders were underwater. So yes, the market, particularly in this sector, is probably becoming accustomed to different capital structures and ways of financing. But I think in mainstream institutional financing, as you alluded to, people are a little bit more rational, see the numbers, see the different deals people do and understand, well, that's not our fault, that's the market fault that the product was signed. And at the end of the day, we can hold our heads high knowing that we approached the lenders months and months before the issue kind of manifested itself in a default and really try to work with them to see whether there was a win-win outcome. Unfortunately, there wasn't in any circumstance.

Great. Understood. And then digging in a little bit more on hosting. How long do you think it would take to get a hosting partner's machines in facility once you decided to go down that path? And then just kind of as a follow-up to that, given efficiency and, I guess, operational excellence, could that demand a premium above that $0.02 per kilowatt hour that you are baking into those forecasts right now?

Look, it's -- how long is the piece of string to some extent with how quickly you can fill the facilities up, but you probably go out tomorrow and let some crypto grow in your data centers, put these machines in and mine Bitcoin, but it's not who we are. It's not how we want to operate. We've been having conversations with potential counterparties for months now, but we're only going to do it if it makes sense for us, it makes sense for them and is in the long-term interest of our business. And again, stepping back to where we are today, I think we've got time. Let's really try to get that self-mining capacity back despite it being a bear market, despite it being hard work and with the chips stacked against us from a macro perspective. But let's try, we've got the time. And then we're very confident that we can fill up the data centers. In terms of upside to that $0.02 margin, look, it's -- again, it's not all about the margin. It's about risk terms of the contract, level of prepayment, security. Again, we're going to be focused just as much on the downside and the risk, what if the customer defaults, what if they don't make their electricity payment, what if there's a dispute, et cetera, and the margin is an important part of that commercial decision-making. Look, anecdotally, it feels like hosting rates have been around $0.07 to $0.08 a kilowatt hour in the last cycle, $0.02 margin on our circa $0.045 cost of power would be $0.065. So I may not surprise you that the presentation has erred on the side of conservatism. In that regard, again, anecdotally, I heard someone say Core Scientific a recently increased their hosting rates to $0.099 per kilowatt hour, but don't quote me on that. I don't want to fact-check that. But at the end of the day, there's an abundance of hardware, there's a surplus of units that need a home. We've got the home, which is the strategic advantage and what we've really sought to protect. In terms of a premium per se on efficiency and uptime and reliability, yes, very possibly. We had 1 prospective customer to a site visit earlier this week. And like most people that come to our facilities, they're blown away with the quality, the cleanliness, professionalism, et cetera. So I don't think it'll hurt us.

[Operator Instructions] There are no further questions on the phone. I'll now hand over for webcast questions.

Just turning now to some questions that are coming through the webcast. One question, just an observation that there hasn't really been a return on cash throughout the Bitcoin life cycle, and the entire mining sector is trading at liquidation value. How should we value Iris' intrinsic business value and IP?

How should we value Iris and Bitcoin mining? It's a question that's perplexed me at times over the last 12 months, I submit. I think in terms of a real rate of return on cash throughout the Bitcoin cycle, I'm not really sure about that comment. If you go back over the last 4 or 5 years and map out data points for each purchase of hardware and what the implied yield on that hardware was at any point in time, it averages out will be about 124% cash-on-cash return, and this is on the assets themselves. By the time you amortize the cost of the data center infrastructure, of the land, the capital involved and electricals, et cetera, that 124% drops to around 60% to 80% cash-on-cash return. So to suggest that there hasn't been a real rate of return, I'm not sure I necessarily agree with that. When you can build long-term infrastructure that's going to be here for decades and then you're buying chips on our sub-12-month payback and then exposed to upside in the hashed lag during bull markets, and yes, you're exposed. So if the market comes off, it's going to be harder to get that yield in that period of time. But I think the risk return of the underlying cash flows is still super attractive. And finally enough, this industry is very unique as compared to other commodity industries for a lot of reasons, but the one I call out here is there's a CapEx hedge. So people say, when Bitcoin is up, hardware prices go up. Because, again, the manufacturers tend to back solve the price of these chips to deliver that average 124% annualized term. So when Bitcoin mine profitability is low, the chips are low. You can see 12 months ago people are paying $55, $65 a terahash for chips. We signed our 10 exahash contract at $40, which again was a degree deal at the time. Today, it's $19. And the secondary market is even lower than that. But the funny thing is the implied yield of $19 is actually only around 80% to 90% sitting here as of this morning. So in a market that's got a bit of a glut of hardware, I don't feel like the asset market is running away from us anytime soon, and we can be patient, we can optimize, we can wait, see if the macro turns, see if the Bitcoin market turns, see if we can monetize some of those prepayments and access that self-mining to fill it up. In terms of the liquidation value of the business, I don't think about that like we're not liquidating the business. We're feeling good working for the long term to generate some pretty good profits out of this infrastructure and keep growing.

Thanks, Dan. The next question is around spot energy prices and observation from a listener that energy prices are trending higher around the world. How are we going to manage that risk? Interested in your thoughts on that one.

If you want to do this slide, Lincoln, I'm happy to talk always, don't want to hold the microphone.

Sure. Happy to talk through this one. In terms of the infrastructure that we've built the 160 megawatts of that in British Columbia, which, as Dan mentioned earlier, it's a regulated market. There's a price reset every April. And typically, we see the energy price go up or down 1% or 2%. So extremely stable jurisdiction. It's strategically located in areas where there's excess renewables. So from a British Columbia perspective, we're very much insulated from that volatility we're seeing in other parts of the world. And in terms of offshore, this project where we are building an initial 20 megawatts, we'll release further details around the details of how we will procure power, et cetera. But I think it's really important to highlight that the projects located in the Panhandle region of Texas, where it's an abundance of renewables there versus transmission capacity, there are significant parts of the day where energy prices are extremely negative. There are mechanism we would look to participate in around demand response programs, load curtailment, potentially hedging out some of that power price exposure. Basically, all of these various tools will allow us to manage our power price exposure in Texas at the time when the projects become operational. There's another question coming through about the BITMAIN deposits, and this is about the mechanics of that conversion and whether final resolution needs to be had with respect to the lending facilities. And then finally, in terms of how much capital is required to unlock some of the deposits into rig. So I have a crack at this one. I think important to highlight that the SPVs that relate to the lending arrangements are completely different to the separate 10 exahash contract, of which we have $75 million of prepayments against. So I would think of them as it's quite separate initially exclusive. And as we've demonstrated them over the last few months, we've been able to work constructively with BITMAIN to unlock some of those deposits over time. And from just an absolute dollars perspective the way the commercials of their contract work, there's the cap price of $40 a terahash and market. So as Dan mentioned, the market price for new hardware is circa $19 a terahash. So given our $10 per terahash deposit, that's a world where we just top up that incremental $9 to unlock capacity. And in this presentation, we've flagged and indicated $31 million to unlock 3.4 exahash through a combination of new capital as well as utilizing those prepayments that we just talked about. And finally, I think we've got time for one last question before we close up. What are our thoughts on the global hash rates? Why have we not seen a drawdown like previous cycles? Is there a global cost curve like we've seen for traditional mining assets? And where does Iris fit into all of this?

I'm going to handle this one, Lincoln. -- question without notice, if we happen to have that slide showing cash rate and price, over the last couple of years, it will be really cool to share it. [indiscernible]. In terms of while that's loading, that is perfect. Absolutely perfect. Okay. So first of all, there's no global supply cost-curve report that you can commission. It's not like aluminum smelting where you go to Wood Mackenzie, pay them $50,000 and they give you this nice tidy report that outlines every facility, every cash cost, et cetera. We're dealing with an emerging asset class. It's private. You don't need to love logistics the same way you do with aluminum. The level of transparency is lower. But what we have observed, and I think we've said this to people in the past is, during the last cycle, during the depths of the bear market, we saw mining profitability or mining revenues every time they hit around $0.05, $0.06 a kilowatt hour, you saw the hash rate start to drop off. And high-cost miners drop out of the cost curve, implying that there was a lot of power at that level, and that was generally around where hosting rates were at that point in time. As I mentioned earlier in the presentation, during the last cycle, that hosting rates have been increased to $0.07 to $0.08 a kilowatt hour. And a large part of that is because of mining profitability and the inability to build out all this infrastructure in time and at scale to support the computer network. And this is part of that whole hash rate lag effect. And we've got another slide which we should share in due course, which really underpins part of relining this business up, which showed every single Bitcoin cycle and what the hash rate did in parallel to that Bitcoin price cycle. During the early ones, the price ran parabolic, the hash rate moved parabolic in parallel because it's just people on their laptops and computers. But every cycle Bitcoin got bigger, we got longer and harder to scale the real-world expertly. You can't click your fingers and come up with gigawatts of electricity, billions of dollars of CapEx, possible years of capital investment programs, manufacturing of chips, transformers, et cetera. And I think if we step back and look at this chart on the screen, it really shows what we've seen over the last couple of years. If we go back to around October 2020, we can see around that point the hash rate and the price was largely in equilibrium and mining profits were essentially normalized. Bitcoin then runs 5x, 6x, runs up to 60 K, what does the hash rate do? It can't respond. It's inelastic. You can't click your fingers and come up with tens of gigawatts of power and infrastructure. But what we've seen over the last 2 years, and it's taken 2 years for the hash rate to finally catch the price and normalize those returns at around that kind of $0.08 per kilowatt hour revenue line. And you can see the price coming down, the hash rate linear escalation left to right. So now that we've seen that normalized, we've seen that downside adjustment. And yesterday, we saw the difficulty level go down 7.3%. So those high-cost miners are starting to drop out. And a couple of months ago, people were asking me, well, why haven't we seen high-cost miners switch off [indiscernible]. And to my point was, it was still profitable to mine that $0.08 a kilowatt hour, it is still profitable to mine with less-efficient hardware. But as we saw Bitcoin drop from 20 down to 16 to 17, it's really kicked a number of those high-cost miners off the edge. And you can see that evidenced through the global hash rate now coming down. As I said yesterday, the difficulty went down 7.3%, which was the largest downward adjustment since China banned Bitcoin mining last year. Already this [indiscernible] in the first 24 hours, and it's a low sample size shows that the hash rate may continue to fall. Now again, if Bitcoin pops, then you expect more of those machines to come on, if Bitcoin drops further from here, that's just going to put more pressure on the next quartile of the cost curve and people that can't pay their power bill. So if you look at our cost per Bitcoin mined, which has been around $8,000 to $9,000 a coin over the last 3 to 6 months, that is only going down as Bitcoin price goes down and these high-cost miners switch off and essentially give us their coins each day. So we're feeling in a really good position from a cost curve in terms of quantifying it and giving you a cost quartile, cost debts out, it's really hard given the nature of the industry. I think that might be up out of time, Lincoln. I think thank you for everyone dialing in giving us the opportunity. Really pleased to, as I say, you can get out of a legalistic and relatively dry 6-Ks and SEC releases and actually show you how we're thinking about the industry the business. We're still super excited. We appreciate all of your support. It's been a rocky 12 months. Here's to 2023 giving us a few more tailwinds. Please reach out if you've got any questions. We're doing a number of launches, fireside chats, panels, group presentations, not just on Iris, but also Bitcoin and crypto, more generally. We're very happy to help share our experiences, our perspective. So please don't be afraid to reach out. We'd be delighted to engage further.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.