Keel Infrastructure Corp. (BITF) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Bitfarms Transformative Fleet Upgrade Conference Call. [Operator Instructions] Please also note today's event is being recorded. At this time, I'd like to turn the floor over to David Barnard with LHA Investor Relations. Sir, please go ahead.

Great. Thanks, Jamie. Good morning, everyone, and welcome to Bitfarms conference call to discuss our 2024 transformative fleet upgrade plan. With me on the call today is Geoff Morphy, President and CEO; Jeff Lucas, Chief Financial Officer; and Ben Gagnon, Chief Mining Officer. Before we begin, please note this call is being webcast live and accompanying presentation. To watch along with the slides, you can log into our website at www.bitfarms.com under the Investors Presentation section. If you prefer to listen to the call in your smartphone, you can also download the presentation from there as well. I would like to remind you that this morning, Bitfarms -- actually it was yesterday, issued a press release announcing the fleet upgrade plan and related 2024 guidance. Turning to Slide 2. I'll remind everyone that certain forward-looking statements will be made during the conference call and that future results differ materially from those implied in these statements. The forward-looking information is based on certain assumptions and subject to risks and uncertainties. And I invite you to consult Bitfarms MD&A for a complete list of these. Also during the call, reference will be made to supporting slides, and you can find the presentation on our website again under the Investor Relations section. The company will also refer to certain measures not recognized under IFRS and that did not have a standardized meaning prescribed by IFRS and therefore, may not be comparable to similar measures presented by other companies. We invite listeners to refer to yesterday's press release and the company's third quarter MD&A for definitions of the aforementioned non-IFR measures and the reconciliations to IFR measures. Please note that all financial references are denominated in U.S. dollars unless otherwise noted. During today's call, CEO, Geoff Morphy, will provide an introduction; Chief Mining Officer, Ben Gagnon, will review the upgrade plan; and CFO, Jeff Lucas, will follow with financial commentary. Geoff Morphy will return for some closing remarks after the Q&A. With that, I'll turn to Slide 3 and 4. It's my pleasure to turn the call over to Geoff Morphy.

Thank you for joining us today. During 2022 and 2023, we built our world-class scalable infrastructure in preparation for the next halving. With the market now offering the most attractive equipment pricing since 2020, we have begun to implement a transformative fleet upgrade that supports optionality and a well-defined pathway to 17 exahash per second that can be achieved in the second half of 2024. As we have reiterated many times, Bitfarms is very deliberate in choosing accretive growth opportunities. Our consistent, disciplined and long-term goal-oriented decision-making strengthened our financials and positioned us such that 2024 will be a year of growth and transformation. I'll start by highlighting the 4 reasons why we are so excited about this purchase and why we are now investing heavily in growth. First, high efficiency. The T21 is the newest miner available from Bitmain and has some cutting-edge capabilities. These miners are the most powerful air-cooled Bitcoin miners ever produced. We have placed a firm order for nearly 36,000 of them. To add context, these miners collectively are capable of producing up to 8.4 exahash per second, over 1.5% of the current network hash rate at an incredibly efficient 22 watts per terahash, significantly lower than the current network hash rate, which is in the mid-30s watts per terahash. Second, halving-ready. These miners will be delivered between March and May of 2024, specifically timed around the halving. As such, over the next 6 months, we expect to nearly double our hash rate to 12 exahash per second and improve our energy efficiency 29%, to 25 watts per terahash. Third, capital-efficient. When deployed at full power, these miners will be one of, if not the most capital-efficient and cost-effective miner purchases on a per terahash basis seen by the Bitcoin mining industry through the first 11 months of 2023 and likely even longer. In our opinion, this order has the most attractive expected payback period for new miners that we have seen since 2020. Fourth, flexibility and upside. We created the flexibility to fully benefit from today's advantageous pricing. By locking in pricing with an option to purchase 28,000 additional T21 miners, we are positioned to nearly triple our hash rate to 17 exahash per second during 2024 with the same attractive economics as a 36,000-unit purchase order. With that, I will now turn the call over to Ben Gagnon to go over the transaction details and economics in more detail.

Thanks, Geoff. So happy to be here talking about the purchase today. Starting off on Slide 6. Many people may be asking, why the T21? Well, as Geoff has stated, the T21 first announced only a few weeks ago had some amazing unique features not seen on other miners, including its sister product, the S21. Yes, it's the highest new efficiency miner from Bitmain. But more importantly, the T21 is the highest voltage and most energy dense air-cooled miner that Bitmain has ever released, and is powered with a completely new 3-phase, 415-volt power supply unit. That is rated up to 6 kilowatts. This is particularly important to Bitfarms as many of our farms were designed around air cooling and miners that are significantly smaller and more energy dense than S19 or S21 miners. The energy density of the T21 enables us to get a significantly higher utilization out of our assets than the S21, and is nearly a plug-and-play upgrade, significantly reducing ancillary CapEx. The energy density is also incredibly meaningful when it comes to overclocking. Yes, you can overclock any miner, but it usually requires third-party firmware, which invalidates warranty. It may require further investment in custom power supply units, and it often results in significant hardware failures when the equipment is pushed well beyond its engineered limits. By comparison, the T21 is the first air-cooled miner from Bitmain that is specifically engineered around a wide variable operating load with native support for overclocking over 5 kilowatts. This is expected to drive rapid improvements in performance and cost savings out of the box while maintaining full warranty coverage of our equipment, not something that would be applicable when using immersion to overclock comparable S21, XP or J Pro miners. The combination of this new high-efficiency PSU and the high energy mode makes the T21 the most powerful air-cooled Bitcoin miner ever made and the most cost-effective choice for an upgrade or a new build. Turning to Slide 7. As we have consistently communicated, we purposely leapfrogged the XP generation because we felt the price premium associated with the XPs was too high. The expected payback on an XP purchase was far outside our target payback period for new miner purchases and that we anticipated better upgrade opportunities around halving. This slide demonstrates this by showing the relative cost per terahash and the total computation Bitfarms could achieve with pro forma upgrades to XP, S21 or T21 miners. The T21 is clearly the most cost-effective and most meaningful upgrade possible, but the cost efficiency of the T21 and this transaction goes well beyond the sticker price. First, on a per unit basis, the T21 costs 18% less than most XPs purchased this year, and 5% less than the recently announced S21 purchases and is capable of producing significantly more hash rate than either miner while maintaining one of the highest levels of energy efficiency of any miner on the market. Second, the exahash rate that comes from high energy mode effectively reduces the per terahash cost by approximately 19%. Third, with approximately 42% more power consumption and 22% more hash rate per miner with a high energy mode deployment, the total quantity of units needed to fill our farms and utilize our megawatts is reduced by approximately 1/3, resulting in a similar pro rata reduction in shipping, logistics and duties, which result in millions of dollars in estimated savings. Fourth, 68% of the miners will be deployed in existing facilities, significantly limiting infrastructure CapEx to grow our hash rate. And fifth, we have locked in this pricing with a miner option that gives us the right but not the obligation to buy an additional 28,000 miners in 2024 to grow our exahash to 17, and improve our energy efficiency to 23 watts per terahash, but also significantly reducing our capital obligations associated with those 28,000 miners. Turning to Slide 8. I will now go over the scale and the scope of this order. Not having seen a miner investment like this since 2020, I'm really proud to say we've taken full advantage at scale with our largest purchase of Bitcoin miners ever for up to 63,888 Bitmain T21 miners. This is a sufficient quantity to upgrade 10 of our 11 farms and fill all of our contracted megawatts to be developed for 2024. The transaction is split into 2 parts. First, the main purchase of 35,888 T21s to be delivered between March and May. This is specifically designed to ensure our halving readiness. The second part is a miner option that locks in this advantageous pricing for an additional 28,000 T21 miners in 2024. With this option, we have not only secured the lowest effective cost per terahash we have seen in 2023, but we have extended it throughout the entirety of 2024, giving us long-term price visibility and derisking future growth at some of the lowest hardware prices seen in years. We secured this option with just a 10% nonrefundable deposit. That is applicable to the purchase price in full, resulting in no call premiums if the option is also exercised in full, significantly reducing our upfront capital obligations by about 90% associated with the securing these 28,000 miners and our growth pipeline. On top of all of that, we have the flexibility to effectively cash settle in the money options by reselling the miners in the future. This is not something that we are planning to do, but we have the flexibility to do it and is another example of how we are constantly working to provide more capital-efficient upside to our investors. This purchase of nearly 64,000 miners is unique in both scale and scope, affording Bitfarms a unique and unparalleled upside to improving mining economics. As illustrated on Slide 9, with the exception of the recently upgraded Magog site, which will remain as is, the T21 purchase will impact every farm in operation and every site under construction, driving transformative increases in both hash rate and energy efficiency across our entire portfolio. While most of the miners will be used to upgrade our existing farms, the vast majority of organic growth next year is expected to occur in Paraguay. While the main purchase will nearly double our hash rate from today to 12 exahash and dramatically improve energy efficiency to 25 watts per terahash, ensuring our halving readiness, exercising this option in full would nearly triple our hash rate from today, and further improve our overall energy efficiency to just 23 watts per terahash, which we believe would make us one of the largest and most efficient Bitcoin miners on the planet. On top of all of that, it would also drive an increase in our sustainability energy mix to approximately 85%, and rebalance our portfolio so that no single country contributes more than 50% of our hash rate or revenues. With more hash rate coming from LatAm operations than North American ones for the first time in Bitfarms' history. Notably, the U.S. remains a disproportionately small representation of our portfolio but a highly strategic market for us. And we continue to evaluate opportunities in the U.S., especially deregulated markets that would enable us to integrate energy trading into our portfolio. Shown on Slide 10, in order to facilitate the T21 upgrade, we will be de-racking a large number of miners, namely our fleet of M31S and M30S. Under the full 17 exahash plan, we would derack over 46,000 miners capable of producing more than 4 exahash. These M30S provide Bitfarms with further strategic flexibility to pursue a wide variety of initiatives to further grow our hash rate by 4 exahash to 21 exahash with minimal CapEx and minimal impacts to our overall energy efficiency, such as redeploying the fleet into high curtailment or energy trading markets and/or into strategic joint ventures with low-cost energy producers like those that utilize flare gas, methane capture or micro hydropower and can deliver lower cost electricity with greater amounts of downtime and could potentially -- or the M30S could also potentially be an additional source of financing for T21 plan. While these miners are still profitable, this deracking and upgrade to T21 is crucial for us to ensure our halving readiness. Halving readiness, something I've said many times today, what do I mean by that? Well, moving to Slide 11. Here's where we are today. 6.3 exahash, 35 watts per terahash and a direct operating cost per terahash of about $0.035. This is a solid margin with roughly an $0.08 hash price. But were the halving to happen right now, hash price would be cut to $0.04 per terahash. With our inexpensive power price and the high energy efficiency from the planned T20 upgrade in the first half of 2024, we expect we will reduce our direct operating costs to just $0.025 per terahash. We believe that this hash price -- we believe that hash price would incur major resistance starting in the $0.04 to $0.045 range, and that at $0.025, we are well below the level of safety. This positions us to likely be in the lower 1/3 of miners globally on a cost basis, and this is what we mean by halving readiness. But we are not stopping there. We are looking beyond the halving with a clearly defined but flexible path forward that not only gets us ready for the halving but positions us for a transformative growth beyond that to 17 exahash with the exercise of the option, and 21 exahash with the option and the redeployment of our M30S fleet into a potential energy trading scenario or similar. This strategy gives us the firepower and flexibility to outperform and react to virtually any market conditions and is a total game changer for the company. That it. I'll hand the call off to Jeff Lucas to review the capital requirements, financial impact and the accretiveness of this upgrade and expansion plan.

Thank you, Ben. As Geoff mentioned earlier, we have been preparing for further opportunistic growth, deleveraging our balance sheet while building cash in Bitcoin and treasury throughout 2023. As we have reported during our November 7 third quarter earnings call, at September 30, we held cash of $47 million. And as noted in our October production update, at October 31, we held 760 Bitcoin valued at $26 million. With the funds from our financing announced this past Friday, November 24, with generated gross proceeds of $44 million, we have sufficient liquidity to fully fund the purchase of the 36,000 Bitcoin -- Bitmain miners, all of which are currently scheduled for delivery in the first half of 2024. This is in addition to the purchase option on the 28,000 additional miners, which we are securing with a 10% deposit. Other than the capital required to complete the current construction of the 50-megawatt warehouses at Paso Pe, Paraguay, there is minimal additional infrastructure investment to house these 36,000 miners. So in summary, our current financial position is sufficient to deploy the miners and achieve 12 exahash per second by the end of the second quarter 2024. As described earlier, our 2024 plan includes optionality should we elect to make a firm purchase order commitment for an additional 28,000 miners, which will bring our hash rate to 17 exahash per second. We thus have set a strong growth path for the first half of 2024, and we have the ability to move quickly to implement a more aggressive path with the industry conditions warrant and the economics of doing so makes sense. Turning now to Slide 14. I'd like to take a moment to review the corporate economics of the upgrade plan. First, I want to emphasize that this is a highly accretive transaction for Bitcoin. For incremental capital deployment of about $100 million, we plan to increase our hash rate from 6.3 exahash per second to 12 exahash a second. This represents a cost of about $18,000 per petahash. I'll note that a common use valuation metric for public miners is enterprise value per exahash. While this metric can vary among miners, the average is about $66,000 per petahash. The $18,000 marginal cost per petahash for deploying these miners in comparison to valuation metrics show just how accretive this project will be to Bitfarms shareholders. By extension of the industry metric, we are creating $350 million of value for a capital investment of $100 million. We will now review the potential benefit to our mining cost structure and the profitability of our mining operations. To facilitate an apples-to-apples comparison, we'll show the cost structure on a pro forma basis with our actual third quarter 2023 results. You will see that this fleet upgrade will lead to dramatically lower production costs, which is even more important consideration to the upcoming halving expected in April 2024. Assuming all 35,888 miners are installed and operating, on a pro forma basis, our direct cost of production would have been $12,100. That's $4,800 lower than the $16,900 as reported in our third quarter results. Further, at 12 exahash with all 35,888 miners in operations, our pro forma quarterly production would have been 2,654 Bitcoin versus the 1,172 we reported. And our all-in cash cost of production per Bitcoin would have been $14,800, that's $7,900 lower than the $22,700 we reported. In addition, as we discussed in the past, our direct costs in February 2022 includes a 15% value-added tax in Canadian energy as a result of recent legislation. We believe we ultimately may be exempt from this incremental tax. Without this tax on a further pro forma basis for the third quarter of 2023, our direct cost and all-in cost of production per Bitcoin with been $11,400 and $14,100, respectively. Naturally, with the lower cost of production, we expect to realize higher mining margins and cash flow from operations. Referring again to pro forma figures based on our third quarter results, gross mining margins would have been 56% in comparison with 38% reported. And adjusted EBITDA would have been $35.7 million or $36 million, about $29 million higher than the $6.9 million reported. Under current mining economics, our projected payback period on these new miners is well under 1 year. Moving on to Slide 15. In conclusion, we show a comparison of our targeted hash rate for 2024 in relation to the published 2024 target of our largely publicly traded peers. You can see a miner upgrade program will place us among the top 5 largest miners. And just as important from a B2C cost basis, our direct and all-in cash cost will be among the lowest of the public [indiscernible] miner. With that, I'll turn the call over to the operator to begin the question-and-answer session.

[Operator Instructions] Our first question today comes from Josh Siegler from Cantor Fitzgerald.

Congrats on this news. It's very exciting and looking forward to tracking this progress. For my first question, I was wondering if you've actually gotten your hands on the T21 and how do you expect them to perform in all your different geographies? You have some hot geographies, some colder ones. I'd love any insight into the T21 on that.

Ben, why don't you take that one. Yes.

Yes, I'll take that one. Yes. We're going to have our first sample unit here in a couple of weeks. So we don't have one on hand right now. The big thing here is that this is using some really powerful technology here on the power supply unit. And the power supply unit is, generally speaking, what goes wrong in miners. The higher voltage power supply unit and the higher efficiency here should eliminate a lot of issues that we usually have. And really, there's no issue with the amount of energy density in terms of the hardware. It's really about what the hardware is designed for. So with a MicroBT, it's about half the same size as an S19, but it's running twice as much -- or it's running the same power, so it's like twice as much energy dense. There's no problem with handling the heat with the energy density. It's about whether or not the hardware was designed for it. And the important thing about the Bitmain T21 it's specifically designed around operating between 5 and 6 kW. So we've got a lot of flexibility there in that operating range and the hardware specifically designed to operate at these higher levels.

Got it. That's helpful. And then when we're talking about the growth optionality, right, the optional order, how would you be thinking about different funding strategies to pursue that? I was curious whether you would further tap to HODL? Or would still be open to equity and debt financing?

So the answer actually is yes to all the above. We want to maintain flexibility in terms of how we choose to finance that. That will certainly depend on where the markets are, the capital markets at that point in time as well as the value accorded to our Bitcoin. So quite frankly, Josh, every -- the options that you just mentioned are the ones that we're going to consider. But we're not in a position right now, although we certainly have ideas as to how exactly we're going to -- or how precisely I should say we're going to fund that. I do want to add, by the way, that we are and will, with this upgrade here, be generating more cash flow from operations. Needless to say, you can get up to 12 exahash, that's not going to be sufficient to meet the cost of this option here. But we do feel we have a lot of options. And we find this again very attractive, given the extent of the investment required for additional petahash versus the valuations in the marketplace.

And our next question comes from Chase White from Compass Point Research.

So just to be clear, the 12 exahash guidance, is that assuming you're going to use all 36,000 miners and -- at that point? Or does that assume that you developed ultimately Iguazu or the Iguazu -- like does that need the extra 28,000 miner option, if that makes sense? I'm just trying to get a sense of like what's actually planned versus what is optionality.

Yes. Happy to jump in here. It's a good question. So the simple answer is that every site in Quebec with the exception of Magog is getting upgraded. And the 35,888 miners is going to be deployed in order to reach the 12 exahash. The Iguazu comes in with the miner option upgrade for the 17. So we will be using about 50 megawatts at our Paso Pe construction in Paraguay in order to reach the 12. And in order to reach the 17, we'll need that 70 megawatts in Iguazu as well as deracking the remaining M30S fleet that would be in Argentina and Paraguay at that time.

Got it. That's really helpful...

By the way, Chase, just to add a comment if I can here. This is Jeff here. The beauty of this project that we have underway here is that there's really almost no risk associated with the infrastructure side. We've already got the infrastructure in play. So we have a clear plan for it. And that's what makes such a great opportunity for us and so opportunistic.

I'm Geoff Morphy, and I'll add one more thing. In the Paso Pe site, we had previously not provided guidance or information around 30 of the 50 megawatts at that location. Today, we're saying that we're filling it with these air-cooled miners to fill that facility. So that's incremental upgrade. And we've also believed that we can increase the air-cooled capacity there by another 20 megawatts through an amendment to the power purchase agreement. So we're very excited about the Paso Pe side, and what it can deliver to us over the first 3 and 6 months of next year.

Got it. That's very helpful. Then in terms of the CapEx needs to adjust for infrastructure to completely -- complete the development of Paso Pe and then the Iguazu site and also Baie-Comeau, how should we think about that and the cadence of that spend?

So let me give you some numbers here then I'll hop out, some of which we've already previously disclosed here. Right now, for the Paso Pe, that project is pretty far along. We estimate we have an additional probably maybe $15 million to $16 million of CapEx to build out Paso Pe, which, again, is certainly part of our existing liquidity plan. I want to point that out. Iguazu, we have not mentioned amount here. That would be a sufficient capital, probably a little more than what we've conveyed for Paso Pe, but certainly would manageable within our expectations as well.

Got it. And Baie-Comeau? Probably very minimum, but just curious on that one, too.

Yes. That is minimal at this point going forward. Actually, we've got a less than $5 million of capital expenditure mandated for that. And I'm not quite assured that we'll need that full amount.

And our next question comes from Bill Papanastasiou from Stifel.

Just wanted to circle back on the T21 purchase option. Can you share some more color in terms of the pricing? I just want to confirm that you guys have locked in at the same price of $14 per terahash?

Yes, absolutely. And we want to confirm that, too. We have absolutely locked in the same $14 a terahash throughout the entirety of 2024 for 28,000 T21 miners.

Okay. Great. And then just following the fleet upgrade, how should we think about the Bitcoin treasury strategy going into the halving? How is management considering that play out, given this recent equipment purchase order as well as the uncertainties revolving around the halving event?

So while we contemplate continuing to build on a HODLing, we do want to point out here that it's -- from my standpoint, it is an efficient use of source of capital for us vis-a-vis alternative source available to us. So as we are indeed growing the business and expanding our hash rate here, we recognize that for us, in our trend here, we get a higher return and better appreciation certainly from effectively deploying these miners and more certainty than we get certainly with building up our HODL. But in summary here, we do view our HODL here as a portion of our liquidity here going forward. We are prepared to tap into that as it makes sense for us to meet our capital requirements going forward here. But outside of that, we are going to look to continue to build our HODL position.

Okay. Great. And congrats on the purchase order.

And our next question comes from Kevin Dede from H.C. Wainwright.

Congrats on the announcement, very impressive analysis surrounding the investment. I'm curious Mr. Morphy, you mentioned shipments starting in March and concluding in May. Has Bitmain given you more insight on maybe the allotment you see? And maybe Ben can add to how he sees those machines coming to Quebec and South America and the deracking process. How should we think about the escalation of 6.3 to 12 through the March to May timing.

Kevin. All of that has been very carefully calibrated with our internal resources and our infrastructure team on what can be done with the Quebec facilities and as the Paso Pe facility gets completed on construction, both the first phase for the full completion of the first 50 megawatts and now the next 20 megawatts. But one of the international issues that in terms of timing that we had to play with was the Chinese New Year in February. But apart from that, equal deliveries, and I'll pass the call over to Ben to elaborate on that more because a lot of time we spent on that planning.

Yes, absolutely. Thanks, Geoff. And good question, Kevin. Basically, we're going to be starting off in terms of the deployment because this is going to affect the 10 sites we mentioned and the new sites under construction in the full plan. We'll start off with deploying miners in the Paso Pe, Paraguay site first. So the first deliveries are going to be shipped to the new infrastructure, which will help to drive up our hash rate and our performance earlier. And then as that -- after Paso Pe is filled up, we'll begin upgrading the Quebec site. We'll go one by one through those different sites. And we'll just be upgrading them. We've got a solid plan laid out rolling through the different sites, but it's Paraguay first and then all the Quebec.

Do you want to...

And then all the Quebec sites will come after that.

Okay. Can you give us a little more color? I mean should we just think about that -- those 35,888 miners coming in, in equal amounts each month?

Correct.

Okay. They haven't started manufacturing them or you're convinced that they've got the chips coming from TSMC to meet your manufacturing requirements?

They have not started manufacturing at scale, but they have the initial miners out, right? So they do have their miners that they have produced for all their own internal valuation purposes. So these miners have been produced, but scale production is, I think, just starting about now.

All right. Ben, you spent a lot of time on density. I don't know that I'm convinced. Can you help me understand that -- my understanding is your fleets are 2 phase, you got to go to 3 phase, which I would think would require a change in the PDU. And then what assurances do you have that with this increase in power density, you're not going to have the same increase in heat density that your facilities will now have to deal with?

It's a great question, Kevin. So as many people might be aware, a lot of our sites are MicroBT sites. If you're familiar with the MicroBT miner and a Bitmain miner, a MicroBT miner is physically half the size of an S19 equivalent. And it consumes even a little bit more power than an S19. So it's not about the miner itself, it's about how it's designed, right? Right now, in the space of a T21, which we'll be deploying, we're actually consuming more power with the MicroBTs that we have on rack than one T21, which will be replacing those units. So there shouldn't be any issue with heat density. But for us, there was a logistical problem with the size of our facilities and our racks, which were customized for a miner that is physically half the size of a Bitmain unit that if we didn't have that same energy density and we wanted to deploy those miners on rack, we'd only be able to get about a 65%, 70% utilization out of most of our sites. We just wouldn't be able to draw enough power out of our sites with the facilities designed the way that they are now. So in order to accommodate with the smaller size of the MicroBT, we really needed to have a higher power density unit. And that's why it's so important to us. This is not as important if you say you're looking at a new build where you have a little more flexibility in terms of the physical footprint. But for our sites in Quebec especially, which are designed around a MicroBT entirely, that was a limitation.

Okay. The 10% deposit for the 28,000 has been paid or will be paid? Where are you in the payment schedule? And what did you have to put down for the initial 35,888 machines?

Both miners will required -- go ahead.

Go ahead, Ben. No, Ben, you proceed.

Okay. Both the 35,888 and the 28,000 miner option required a 10% deposit. The 10% deposit on the main purchase has already been paid, and the 10% on the option is scheduled to be paid on Thursday.

Great. Well, congrats.

No problem.

Our next question comes from Lucas Pipes from B. Riley.

My first question is just in terms of ancillary costs with this development. I appreciated all the details in response to the prior questions, but I wondered if you could maybe put a dollar amount to the installation costs.

Ben, do you want to handle that one or do you like me to cover that? You can be more detailed on that.

Sure, I can. And actually, this is a good chance for me to finish up on Kevin's question before, which I did miss because he had a question about the PDUs. Really, the PDU is what we do need to change. Our current PDUs are incompatible with the 3-phase power supply unit that's on the new T21. So we will be making a PDU upgrade. However, at every site other than 2, that is the only change that needs to be made. We are taking opportunity of this PDU upgrade also to upgrade to smart PDUs, which will give us a lot more functionality and automation in our sites. It was kind of the last powerful tool that we haven't employed at our sites at scale to date, and we're going to be able to do it with this. We have a budget to do that of, I think, $6 million, including all labor, all the equipment and all shipping logistics and duties in order to do that facilitation upgrade.

That's very helpful. And in terms of Argentina, the way I understood it is that this is scheduled for the second half of next year, and it would follow the deliveries to Paraguay and Quebec. Is there a consideration around the recent election results? Or is it really just kind of your internal cadence being optimized with that schedule?

Lucas, it's more about the internal cadence on this one. Yes, we did slow down and consciously decided that there was going to be no more expansion at our Rio Cuarto site in Argentina until we knew the outcome of the election results. We now know the outcome, but I think we're still would like to see how things settle out. It looks very positive. But the real opportunity here in the short run was taking advantage of this equipment, upgrading our facilities in Quebec, which is basically a plug-and-play and quite simple, actually, and cost-efficient. And then also filling the voids in Paraguay with our runway for new developments. So Argentina will happen, just it's going to take a little more time, and it's -- as you said, it's the cadence. Ben, do you want to add more to that one?

Yes, absolutely. Quebec was the low-hanging fruit because it had our M31S fleet and our oldest miner. So in terms of having a meaningful upgrade, Quebec was lower-hanging fruit. Secondarily, we are also trying to reduce our operating cost per terahash. It's something that we've talked about many times. We don't control our revenue. We only control our cost. And we're trying to bring our operating cost down to that $0.025 that I manage. With Argentina's electricity prices being lower than most of our other sites in our portfolio, we don't actually need to install these new high-efficiency machines to have that $0.025 direct operating cost per terahash. We're already achieving those high levels of cost efficiency because of the electrical efficiency. And so there's really no need to rush an upgrade there in Argentina.

Got it. That's very helpful. Then going back to my first question on the cost. The $6 million, what would be the best way to model that just kind of spread it equally between first and second half or tie it to miner deliveries?

Sorry, I didn't really hear that question. Maybe it's a Jeff Lucas question or he can repeat it.

It's a Jeff Lucas sort of budgeting question.

No, actually, I'm sorry. [indiscernible]. I had a problem on new [indiscernible] here. But on -- no, actually, we have planned that expenditure actually happening over the next couple of months here really in the first quarter of 2024. That's how we factored it into our numbers here. And that's included, by the way, in the liquidity numbers which I spoke too earlier.

Super. Okay. Great. And congrats on the announcement.

Thanks, Lucas.

And our next question is a follow-up from Josh Siegler from Cantor Fitzgerald.

Yes. Just real quick, Ben, I'd like to dive a little bit deeper into the high-energy mode offered by the T21s. Specifically, do you expect lower depreciation since you have been installing third-party hardware? Just any insights on that would be helpful.

Well, depreciation, I mean, we're going to keep with our normal schedule. It's probably a question for Jeff Lucas. I don't expect there to be any faster degradation of the equipment, though, if that's the question because this is the first miner that's specifically designed around operating at those higher levels. Usually, the problem that comes from operating miners at higher energy is that the equipment is not designed for it. If your equipment is designed at 3 kilowatts and you're running at 4.5, it's very likely that you're going to have problems. But when your equipment is designed to run at 5.5 to 6 kW and you're running at 5 kW, you've got a pretty solid margin there.

By the way, let me add to that, Josh, at that point, we have a very conservative depreciation treatment here, probably the most conservative in the industry here. And by way of reference here, in the first year, we've actually fully depreciated 1/3 of the value of the miners. And by the end of the second year, we're over 60%. And for our standpoint, that's seems realistic and practical, and we don't envision changing that.

Okay. That's helpful, guys. Congrats again on the announcement.

Ladies and gentlemen, at this time, we'll end today's question-and-answer session. I'd like to turn the floor back over to management for any closing remarks.

Thank you, Jamie. We've been anticipating the opportunity for vigorous growth and especially excited about the industry and our upgrade plan going into and after the halving. While numerous opportunities have existed, performance and return thresholds were not sufficient, and we knew we needed to remain disciplined. This opportunity with high-performance miners, superior pricing along with an expedited deployment schedule with low risk checks all the boxes. Bitfarms remains as one of the most highly productive and geographically diverse pure-play Bitcoin mining companies in the world. And this accelerated phase of expansion promise to deliver dramatic growth in our hash rate, vastly improve fleet efficiency, lower cost of production and the ability in about 6 months to once again attain production levels placing us amongst the largest publicly traded mining companies in the world, albeit with better performance metrics and our proven uptime performance record. Thank you all for attending today's conference call. We look forward to updating you with our monthly reports as well as our other developments, and at our Q4 and full year conference call in March. Thank you.

Thank you all.

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.