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

Good afternoon, everyone, and welcome to our virtual fireside chat with Bitfarms. I'm Mike Colonnese, I'm managing director and senior crypto analyst here at H.C. Wainwright. We are very excited to have Ben Gagnon, newly appointed Chief Executive Officer; and Jeff Lucas, Chief Financial Officer, join us today. Guys, great to have you, and really appreciate you taking the time.

Thanks, Mike. Great to be here.

Glad to be here.

And Ben, we love the H.C. Wainwright swag and shout out there, so nice jacket.

I purposely made sure to include both company logos here in the video screen.

That's great. That's great. Love to see it. Well, to the audience here today, we have a really great agenda for you. This is the first opportunity investors will have to hear directly from Ben since being appointed CEO last week. We expect today's event to run for about an hour. And if time permits at the end of the call, we will pull questions directly from the audience. And if you like to schedule a follow-up one-on-one meeting with management after today's event, please either e-mail me or Tracy Krumme directly, and we're happy to coordinate any follow-up meetings after today's discussion. As a quick intro to Bitfarms, without stealing too much thunder from Ben and Jeff here, Bitfarms is a large-scale Canadian-based Bitcoin mining company, with owned and operated data centers spanning across 4 countries in North and South America and was one of the first miners to go public, listing on the Toronto Stock Exchange back in 2019 before listing on the NASDAQ in 2021. Bitfarms is one of just 10 Bitcoin miners that has over a $1 billion market cap currently. Importantly, the company initiated a transformative fleet upgrade and growth strategy last November and is currently on track to more than triple its operating hash rate in 2024 to 21 exahash a second, while simultaneously improving overall fleet efficiency by 40%. These are remarkable targets that are far from being priced in the shares. And in our view, the stock continues to be heavily discounted here to peers. And this near-term growth that we're speaking to is largely de-risked and funded, which Ben and Jeff will share with you more momentarily. As such, we have a buy rating on the stock, and we view the company as one of the most attractively valued Bitcoin miners in the space today. As mentioned, we have newly appointed CEO, Ben Gagnon, on the call. I've known Ben for several years now and can tell you that he has tremendous Bitcoin mining experience and is one of the most knowledgeable management team members in the sector as it relates to mining economics and strategy and really deploying highly efficient Bitcoin mining data centers. So we're really excited to have Ben share his strategic vision for the company after taking over as CEO and to hear his views on expanding into new business lines, potentially synergistic opportunities such as AI that's been getting a lot of buzz these days. We'll also take a deeper look at the company's mining operations, power costs and growth plans for 2024 and beyond.

So with all that being said, let's jump right in. Ben, Jeff, for those on the call who are new to the story, I think it'd be great to kick off the conversation with an intro on Bitfarms and really an overview of your mining operations.

Yes. Great. Happy to do that, Mike. And you gave a great overview already, so I'll keep it rather brief. We're currently powering approximately 2% of the Bitcoin network across 12 sites spread across 4 countries with, I believe, 8 or 9 different electricity providers. We're a vertically integrated owner and operator of high-quality, geographically distributed and cost-effective energy assets. And Bitcoin mining has been the bread and butter of this company for many, many years. We are known as fantastic operators in the space. We have all of our own internal electrical engineering, design, construction and management of our own facilities. We build out and manage our own internal management software, which helps improve operational performance and improve profitability. And I believe we are very, very well positioned in terms of the strategic growth initiatives that you outlined. We've put forward a transformative fleet upgrade here at the end of last year, which we believe is one of the most compelling upgrade stories in the market right now. Nobody is really promising the same relative improvements across both hash rate and energy efficiency that Bitfarms is guiding on this year. And we have the track record behind us in order to execute and the best operations team in the business in order to get things done.

That's a great overview, Ben. And I can attest that here at the bank, we cover virtually all the publicly traded Bitcoin miners. And on a relative basis, Bitfarms certainly does have the largest growth trajectory as it relates to both hash rate and fleet efficiency improvements, which I think, again, is not fully appreciated by the market. And I'd also highlight that I've had the opportunity to visit your farms out in Canada and really tremendous operations and really speaks to how you're able to constantly stay at the top of the ranks as it relates to operational efficiency and realized hash rate levels because as we know, it's not just how much hash rate you have online but how much coin you're able to mine off of your fleet. So that's a great start. And Ben, as we talked about, you were just appointed CEO last week. Congratulations after 5 years with the firm. And most recently, you were serving as Chief Mining Officer. So what can investors expect with you now at the helm? And how does your strategic vision for the company differ from that of your predecessor?

Thanks, Mike. At least for the immediate goals that we've outlined for 2024, the 21 exahash and the 21 watt per terahash efficiency, those goals don't change. We're going to be continuing on that same growth path that we outlined. And I was the architect of that original growth plan last year, and we're going to continue to execute on that. Really, where investors can start to expect some changes is how we're going to grow beyond the 21 exahash because we're not going to stop at the transformative fleet upgrade that we're performing right now. We're going beyond that. And we're going to have a huge focus, I think, next year on continued growth, especially with an emphasis on U.S. infrastructure and U.S. deployments. We have a very well geographically distributed portfolio of assets. But I think the one area where our portfolio is lacking maybe some exposure is in the United States. And that's one of the areas that we're going to really, really focus strongly on our growth. And you can see that just over the last couple of weeks, we announced our first large U.S. expansion in Sharon, Pennsylvania. We've got 120 megawatts of power capacity we've contracted out for there that we're going to be building out. And we're looking at many, many other opportunities in the United States as well to continue to expand and develop our U.S. exposure. And beyond that, the other part of how we're thinking about growing as a company is continuing to expand and to diversify our business into other areas in synergistic business lines that don't really pivot us away from Bitcoin mining but actually make us better at Bitcoin mining. So some of those areas that we're looking at are energy generation, energy trading and heat recycling and heat repurposing, waste management as well as the very, very big one right now, which is HPC and AI. We believe that these different business lines could play a very important role in our portfolio of energy assets in order to help us maximize the value of all the assets in that portfolio for shareholders.

That's great. Really interesting stuff there, and we'll come back to some of that a bit later. But I also wanted to highlight too, Ben, from my conversations with the rest of the management team and other contacts at the company, seems like there's a lot of enthusiasm and excitement now with you at the helm of the firm and really the strategic vision going forward. So that's always good to see some of the intangibles that investors don't necessarily see on the other side. So that's all great. And then if we could just focus more on the 2024 growth plans, right? So last November, you announced a transformative fleet upgrade and growth strategy for 2024. If you could just walk us some of the -- through some of the key elements of that strategy and provide an update on your progress to date. I know we're talking about 21 exahash by the end of this year. Do you still feel good about that target?

Yes, absolutely. We're still on track to receive 21 exahash and 21 watts per terahash by the end of the year. This is going to represent the largest growth in the company's history. In order to do this, a lot of different things had to come together. And the biggest one of it was timing the machine purchases and the upgrades properly. So last year, we were very patient in terms of upgrading to the right machines at the right prices at the right time. And so while I think a lot of the industry was aggressively expanding into the XP generation of machines, which had a high efficiency, they also came at a cost that we thought was a premium that we thought was too expensive and didn't really match our portfolio of assets. When we looked at how we can maximize those values, the T21 series that we are now the largest purchaser in the world globally really, really matched our sites because they have much better cost. They had much better efficiency, much better performance. They have a lot of flexibility in how they're designed. These units are designed to operate anywhere between 3 KW and 6 KW, which as a company gives us a lot of operational flexibility in terms of how we use those machines and how we can squeeze more economic value out of them. And what we did was we took this order of T21s, and we matched it to both our sites that we have currently as well as the sites that we had in our growth pipeline. And so very importantly, about 70% of the miners that we purchased are going to replace older, less efficient miners in existing facilities. This means that we've been resulting in really, really cost-effective growth because we are able to build out these sites and upgrade these sites in an almost plug-and-play manner. Really, we're only swapping out one single piece of equipment in most of the farms that we're operating, most of the data centers we're operating, and that's the PDU itself. The PDU is getting upgraded to something that's a lot more energy efficient, which helps us to manage costs and improve performance. And we're able to drive the energy density at those sites quite profoundly. So it helps to manage the costs. The other thing is the 30% of the other miners that we purchased are going into new construction sites, and we're largely doing that in Paraguay. The reason why we're doing that in Paraguay is because we've got very, very efficient time lines. We're able to build out a substation and energize it in about 11 months or less. Whereas in the United States, it would take about 18 months to 24 months. And so in a fraction of the time that it would take us to expand and deploy those miners in the U.S., we're able to do it in Paraguay cost-effectively with renewable hydropower, cost-effectively with $0.04-ish rates on hydropower. And we're able to be online and ready before this bull run really kicks in later on this year that's widely anticipated. And that gives us the best ability to capture rising Bitcoin prices with the Bitcoin miners and the growth in the hash rate that we're deploying right now.

That's great. So we have a 2024 growth plan that's, like we said, largely de-risked. You have 70% of the miners being shipped to existing facilities, very minimal CapEx lift there. And then for the remaining portion, a short time to deployment within the Paraguay region. So really interesting there in terms of level of visibility and conviction around the 21 exahash this year, which still sounds well on its way to be achieved. Beyond 2024, you recently introduced 2025 guidance, which calls for over 35 exahash of total capacity across the portfolio by the end of next year, which would firmly position Bitfarms as one of the largest miners in the industry at that point, and I would believe about 6% of the current network hash rate, if my numbers are right. So the question is what gave you the confidence to initiate 2025 guidance at this juncture? And what factors do you believe, at Bitfarms, you have the most visibility over to really achieve that target for next year?

Yes, it's a good question. I think there are 3 primary things. One is we've got good visibility on our growth for this year, which sets us up for all the growth that we're looking at next year. I think secondarily, we've got really good visibility on megawatts and further expansion opportunities in the United States that are actionable for the next year time frame. Like I mentioned, we just announced the Sharon site. We're looking at many, many other sites in the United States. We've got a very active corporate development team who's constantly evaluating new opportunities and new expansion sites, greenfield, brownfield, turnkey. We're looking at everything that is cost-effective expansion opportunities. And then the third thing is that we're continuously seeing a more and more efficient miner model lineup coming in. So every single time there is an upgrade or a new line of miner models, it becomes easier to reach those exahash targets because you're requiring less and less megawatts in order to hit those targets. And maybe fourthly, I'd add, which maybe should have been the first point, is that we've got an excellent team here in place that's able to execute on the operation here. Already so far this year, we've received, de-racked and installed more than 30,000 -- sorry, 39,000 miners. This is a tremendous undertaking. I mean each one of these miners weighs approximately 40-ish pounds, either spread across lots of different sites with lots of different team managers and employees. We are dealing with a mass, mass movement of miners. And in fact, we even became DHL Canada's largest customer because of all the volume of freight that we're moving this year. We had the President of DHL Canada in our office a couple of months ago because he didn't understand how any company was out there trying to move such a volume of freight in such a small period of time to so many disparate locations. But that's what we're undertaking here, and we've got a tremendous team who is capable of executing and has a track record of doing it.

And I wanted to drill down a little bit more on the new Sharon, Pennsylvania site, which has up to 120 megawatts of power capacity. And as you mentioned, Ben, really is the first large development site in the U.S. for Bitfarms. So what attracted you to the Pennsylvania market specifically? And it really sounds like any additional expansion from here could potentially happen in the U.S.

We really like the PJM market. So the Sharon site is located in Pennsylvania, which is part of the PJM market. It's the largest wholesale electricity market in the United States. It's deregulated. It's spread across multiple states, so it's not subject to the same kind of stroke-of-pen risk that something like ERCOT in Texas is subject to. And it gives you a lot of flexibility as somebody with that access to that power in terms of how you use it. The proximity to metropolitan areas means that it could be good for HPC and AI. It means that there's lots of talented labor for us to tap into to build and operate those sites. There's energy trading programs involved, so we can use it for energy trading and management of our energy costs on the Bitcoin mining site. We could also use it for things like expanding into the energy generation side. There's all sorts of different things that we could do there on the PJM grid, which is really unique to PJM. And I think one of the big things here too is also that the temperatures and the climate in PJM in Pennsylvania are a lot less harsh than Texas, right? So we're able to build and operate sites for lower CapEx costs and higher efficiencies than we would otherwise with the same technology deployed in Texas. There's a lot of [ local ] flexible power there that's good for multiple different applications. It's not just Bitcoin mining or energy trading but also that HPC and AI front that's attracting a lot of investor interest right now.

Got it. Got it. And up until this point in the conversation, we've really talked about growth and scale. But arguably, just as important is really a miner's profitability, which really comes down to power cost and fleet efficiency. And Bitfarms is on track to materially improve upon both of these metrics this year. So how should investors think about the trajectory of power cost for you going forward as you continue to build out some of these new sites? And for context, for those on the call, Bitfarms reported a blended average power cost of $0.041 a kilowatt hour last quarter. And if we exclude VAT taxes and tax recoveries for the Canadian operations, it was really $0.037. And based on our estimates, that's below the average for the public miner space. So curious to get your views on the trajectory of power costs, which are already at an attractive rate currently.

Yes, it's a great question, Mike. Obviously, the power cost represent one of 2 major key variables for us as a business. We, as a business, don't control our revenue. And it's not just Bitfarms. It's the entire industry at large, right? The Bitcoin price and the network hash rate determine our revenue. What we are in control of as a business are our cost. And when you look at what are our 2 levers for controlling costs, there's energy and there's energy efficiency. Energy efficiency is always a moving target. New miners are coming online. New miner models are coming out. What is a competitive energy efficiency level is something that's constantly shifting. What's not constantly shifting is the competitiveness of energy pricing. And this is one of the big areas of why we're so excited about PJM because PJM now gives us the ability to take greater control over our energy costs. We can do things like hedge out our power for certain periods of time, whether that be a day, a week, a month, years. We could do that. We can trade on the energy. We can curtail. We can do demand response. It gives us as an operating company significant levers of control over that key determining variable energy cost. And so that's part of the big reason why we're very, very interested in PJM and further expansion in the United States. I think what investors can look to is as we expand into those regions, we're going to have more tools available for us to be even more competitive on energy pricing.

Let me add a little bit of color to that, if I can, Mike in terms of Ben referenced the hash price, which is how we look, on a terahash basis, at our cost here. And the -- by far, we've got relatively stable electricity prices. You point out $0.041. And given the fact that we're actually coming into the winter, we're actually sort of working through the winter period right now in Paraguay, which is about 20% of our capacity. We are going to see perhaps a very modest increase in the energy prices overall. But what's particularly important here is recognition, as Ben pointed out, that last year, our efficiency was about 38 watts per terahash. We're around 25 today. And by the end of the year, it will be about $0.21. So when you think about that in the context of hash -- on a terahash basis, last year, we were around $0.038 per terahash. This -- right around now, at currently, we're about $0.026. And by the end of the year, it will be $0.021 to $0.023. So from an energy standpoint, obviously, it's a dramatic improvement overall going forward. So we kind of use, as a basis here, a relatively conservative basis. But roughly, we assumed $0.05 per terahash or a little better than hash price, excuse me. We're a little better than that today, given the strength that we're seeing this morning and the price of Bitcoin here overall, but generally, when you consider that $0.021 to $0.023 for electricity versus the $0.05 hash price. Secondly, obviously, with the threefold increase in our hash right here, we're going to have a larger share of the overall network. That means we'll have a larger number of coins that we're mining, over which to spread our fixed costs. And whereas that might be $0.012 in the past for the fixed cost portion per terahash, now it's going to be down to around maybe $0.004 to $0.005. So overall, you're looking at a cost here really to mine Bitcoin, all-in cash costs are roughly about $0.027 to $0.029 here. That, at a $0.05 hash price, equates to about a 45% to 50% margin. So overall, we feel like this puts us in a very strong position from a cost standpoint and very competitive.

That's great. I appreciate that color, Jeff. And definitely, healthy economics even with hash prices trending near historical levels right now for Bitfarms here, so that's great to see. And I wanted to drill down a little bit more, Ben and Jeff, on some of these synergistic opportunities here. Historically, Bitfarms has been a pure-play Bitcoin mining company, but you've been talking about exploring some of these other opportunities to really diversify your revenue. AI was one of the business lines you mentioned. I'm curious if you could provide a little bit more color on that, what your strategy could look like here. I know it's been a buzzy hot topic lately for investors. So it'd be great to hear your perspective and what Bitfarms' approach would be to attempt to address this market.

Yes, absolutely. I mean when you look at what is our portfolio of assets, the primary unit is the energy and the megawatts, right? We're measuring and managing a portfolio of high-quality energy assets, energy contracts and energy infrastructure. One of the best ways to monetize those is through Bitcoin mining. There's numerous reasons why that's a great way to monetize those assets. One, we don't have to worry about customers and sales. We don't have to build out a sales force and have that full overhead expense and the unknown about the ability to sell our products. It's completely commoditized. The second thing is it provides us with upside exposure to Bitcoin prices. And if we time out properly in the cycle with our growth and our miner purchases, we can achieve very, very compelling economics and very, very compelling returns on invested capital. The benefits of HPC and AI and these other business lines is that they can provide us with a more diversified revenue base that doesn't mean that we're entirely subject to Bitcoin price. HPC and AI is a very high-demand customer with very, very large revenues and margin per unit of megawatts, per megawatt hour or per kilowatt hour, and these are high-value revenue streams. So when we have stable contracts with less volatility, that can be a very, very nice component of a portfolio of energy assets and a tool in our belt for monetizing those energy assets. I wouldn't actually view these -- I won't view these 2 as competing necessarily. In some ways, these are just different tools in our bucket in order for us to, as portfolio managers, maximize the utility and value of all of those energy assets in that portfolio. And same thing with the energy trading aspect of this. This is not something that is fundamentally different from Bitcoin mining. It's something that blends in with the Bitcoin mining to give us greater control, greater flexibility and stronger operating margins with better returns on invested capital. So when we're looking at these areas that we can expand into synergistic business lines, we're not looking at areas that are foreign to us and not taking advantage of our core competencies and strengths here as builders, operators of high-quality energy assets. We're looking at the technologies and the solutions in these business lines that will get the most out of our core competencies, the most out of our team and deliver the most value for shareholders. And so from that perspective, all of these different technologies are very, very interesting and compelling. And we are looking at all of them as we continuously evaluate what's the best way for us to be monetizing these energy assets in our portfolio.

And can you talk through some of the infrastructure-related and cost differences of building and operating a Bitcoin mining data center versus a data center that would support some of this high-density AI compute?

For sure. The infrastructure and the cost profile is fundamentally different. Just to give you a rough ballpark, we have rough construction costs about $300,000 per megawatt. When you add in the cost that we paid on the T21s of $2,660 per unit and you calculate out how many miners we need per megawatt, our build-out cost for our Bitcoin mines with the new T21s is approximately $1 million a megawatt, give or take. When you're looking at the construction cost for HPC and AI, just the infrastructure component alone is closer to $8 million to $10 million. There's a lot of variables that can push that down or up, but $8 million to $10 million is a good ballpark because you have to deal with a lot higher quality in the facilities. We have to have -- as an HPC data center, you have to have things like energy redundancy, which is pretty expensive. A lot of the times, if you're looking at like an AWS, you're saying, why is this so expensive? Well, it's because if for any reason, Twitter or Instagram went down for one second, you would lose customers, people would be angry and you have an issue. Bitcoin mining doesn't function that way. And so we can save a lot of cost in our data centers for Bitcoin mining that really can't be saved in an HPC data center. That's why the costs are so much more expensive. When you include the hardware itself, the HPC compute that is being used for AI, that $8 million to $10 million can blow up to $30 million to $40 million pretty easily if you're using the newest GPUs from NVIDIA and kind of the best technologies that are available today. So you're looking at upwards of 30 to 40x more per megawatt installed. But it's a very, very different return profile. You're looking at something with effectively no volatility. You're looking at something that's not subject to Bitcoin prices. And so this is a way that you can assure a certain base load, if you will, of cash flow as a business, which gives us and should give investors a lot of comfort when they see those kinds of models. But it's a stability aspect in terms of the revenue. The Bitcoin mining, I think, still provides a very compelling return on invested capital because it does come at significantly lower cost, and it does provide that upside exposure that HPC and AI doesn't. So when you look at it from that perspective, these are 2 businesses that, yes, they do consume large amounts of energy and they do have a very big appetite for it. But the way that we build it out, the cost profile for building it out, the kind of revenues and the exposure profile that you get from both different deployments is very different. And that's why I think it makes more sense to have a nice blend of both. You have a stable base of revenue from some of the HPC and AI, but you still maintain a lot of the upside exposure and cost effectiveness and efficiency of the Bitcoin mining deployments.

That's great color, Ben. I appreciate all that. And I'm sure the audience did as well, especially again with all the buzz going on about AI and Bitcoin miners pivoting and using power assets to really take advantage of the opportunities in that market. Now switching gears. There's been a lot of news flow and press around Riot's hostile takeover attempt of the company, which really all began back in May when Riot initially announced that it made an unsolicited proposal to acquire Bitfarms for $950 million, which the Board rejected. Since then, Riot has accumulated a 14.9% stake in Bitfarms and is trying to shake up the Board, nullify your shareholder rights plan, in an attempt to acquire the company. So can you provide investors on the call with an update on Riot's takeover attempt? And what impacts, if any, this has on your growth strategy or ability to explore some strategic alternatives such as merger or a sale of the business, should you decide to take one of those routes?

Yes, absolutely. Just to start off, it is -- it would be inappropriate for me to comment on ongoing legal matters. But what I will say is that for the vast majority of people in Bitfarms, this is not impacting us on a daily basis. We have very, very capable third-party legal and financial advisers, and this is largely being handled at the adviser and the Board level. To a certain extent, there are senior executives involved, but it's very, very minimal. We are focused on growing the business and executing on our growth plans. And that's the best thing that we can do as a company. We are not letting Riot slow us down in order to us achieve our 21 exahash target. And we're not letting them slow us down when we're looking at growing beyond the 21 exahash to 35 exahash. This is the best thing that we can do for shareholders, and this is entirely what we're focused on. I would also say that I think the reason why Riot is interested in us is the same reason that you pointed out. At the beginning of the call, Mike, you pointed out that we have an incredibly attractive valuation relative to the industry. And one of the largest players in the industry is also confirming that with their interest in us. This is something that, for us, as long as we continue to execute on delivering our growth plan and continuing to expand our company and providing clarity on what our growth plans are beyond the 21 exahash for 2025, I think we're going to rectify that valuation. And I think we're going to really, really drive a lot of value for shareholders here.

And Bitfarms, I would say, has one of the most unique treasury and capital management strategies of the public miners. So maybe Jeff, this one would be for you. If you can familiarize investors on the call with your HODL approach and capital management policy and how those work together to drive accretive growth for shareholders?

Sure. So as Ben has pointed out here, we have a very expansive growth plan in place here and also a pretty dramatic improvement plan. I mean we're doing 3x our exahash growth here, and we're improving our efficiency by almost 45%. So needless to say, that's not inexpensive here. So the goals that we have from a treasury standpoint are twofold, one of which is to make sure that we have sufficient resources for the growth, these efficiency improvements. And then secondly is really to minimize or reduce our cost of capital here. Those are the 2 underlying premises underneath our Synthetic HODL. So in essence, what we are doing here is, on the one hand, we want to try to maintain the upside potential of having a HODL in place, while at the same time having the cash flow from operations from excess Bitcoin that's mined here to use to really fund our growth going forward. Generally, in our industry, I think you could see that the cost of capital, at least the cost of equity, is anywhere from 25% to 40%. So clearly, using your excess cash flow from operations is by far the most efficient and least expensive way of funding that growth going forward here. What we normally do here is with the excess cash flow from operations in the form of Bitcoin, we will generally sell that Bitcoin. We'd use about 85% to 90% of it to fund the growth of the business, again, far more cheaply than if we had to raise equity just to fund that. And the other 10% to 15%, we use to buy our long-dated call options. That's actually worked out very, very handsomely for us going forward here. It's dramatically reduced our cost of capital, has given us the financial resources to really fund our growth going forward. As a matter of fact, where we are today, we have fully funded our 21 exahash and for the miners and the infrastructure build-out that we have and then some, even some of the resources that we need to fund the additional buildup that we're doing in anticipation of 2025. So overall, it put us in a very strong position and a very cost-effective position as well.

That's great, Jeff. Not many miners can say a fully funded growth plan that's on target for tripling of prior year's hash rate in addition to some of that fleet efficiency improvement we discussed. So really, really great to see the story panning out here. And if we can look outside of organic growth for a moment, curious to hear your views on how the M&A environment has evolved post halving? And what is Bitfarms' level of appetite to engage in M&A here based on some of the deals that may be coming across your desk?

Yes, it's a great question. We've got a very, very active corporate development team. We're actively seeking out cost-effective sources of power all over the world. And so we've got a very, very keen eye for what we think is going to provide long-term strategic value and will be a good fit in our portfolio. I think we're interested in all sorts of opportunities to drive and maximize shareholder value, whether that be organic growth opportunities or inorganic growth opportunities through M&A. And we're actively involved in multiple conversations coming in from all different angles. We have investors calling us from basically every single kind of counter-party that you could imagine, who's interested in our high-quality portfolio of energy assets and what that may mean and what kind of value might be there. So we're actively involved and we're going to continue to focus on how we can maximize value for shareholders, whatever way that is.

Got it. Got it. And if we could just discuss the ASIC market for a moment. So Bitmain has essentially dominated the industry for years now, but we're starting to see new entrants come into the space with their own chips such as Bitdeer and Block to name a couple. Ben, what's your outlook for mining equipment as it relates to competition, pricing and efficiency gains from here?

It's a good question. We are at the cutting edge of chip design technology. When you look at how this industry has evolved over time, we really started at the low end. Like we started with consumer-grade CPUs and moved up to GPUs, and we kept getting more and more specific and more and more efficient because we're driven by an economic incentive that demands efficiency and demands the highest-quality performance. And so when you look at where chip design is right now, Bitmain and the leading manufacturers, they're usually out there producing chips on the newest technologies and process nodes at TSMC and Samsung before most of the major international conglomerates are. They're out there and producing on the 3-nanometer process node before Intel is because the reality is that economic incentive is so pure that they are going to be able to monetize it regardless. With Intel, they've got to build up whole business lines. They've got to do marketing materials. They've got to make sure it integrates with hardware and it has backwards compatibility. There's a lot of complexity with developing a consumer-facing product for something like a PC. But when it comes to Bitcoin mining, this is the bleeding edge of computing technology and efficiency. You're going to see that, that is going to remain in place. Nothing is going to supplant Bitcoin mining chips at the forefront of where that technology is. And what we're seeing is we're seeing continuous improvement. We're already at the point, which is mind boggling, we're already at the point where the chips themselves, the logical gates within the chips, they have to bend the laws of physics because the electrons that sit in those logical gates have a natural orbital path of about 5 nanometers. And now we're [ opting ] in logical gates that are spread out every 3 or 3.5 nanometers. So we have to compress an electron beyond where it naturally wants to run and to operate. It's an amazing level of technology that we have here, and that's just going to continue to improve because of the economic incentive. What we see is that as we continue to expand our facilities and as we upgrade our miners and drive that energy efficiency, that energy efficiency is obviously a key part. But as we said earlier, it's one of 2 key parts that we look at, managing our efficiency and managing our energy cost. Those 2 things go hand in hand and will remain that way.

Really fascinating stuff. And your passion for the industry clearly comes through, Ben, with your understanding of the ASIC industries and chip design and all that. So that's all good to see. And I wanted to go back to my comments earlier. As I mentioned in my prepared remarks here, the shares of Bitfarms right now is really trading at a discount to peers. And in our view, one of the, if not the most attractively valued mining stock in the market today for investors. So I guess from your standpoint, Ben and Jeff, what do you think the market investors are missing and why such a disconnect between valuation and fundamentals?

So let me comment on that because I've been spending a fair amount of time talking to investors here. So first of all, we and our Board are really singularly focused on maximizing shareholder value. We think about that literally 24/7 here. And we had given a lot of consideration as to why indeed are we undervalued relative to our peers. First of all, there's a lot of noise going on with Riot and matters like that. Secondly, one thing that we learned when we were actually in Europe meeting with investors about 2 months ago is the uncertainty as to who's going to be the next CEO is a big factor. And that's obviously been resolved. And so we're very happy to have that behind us. And I'll add that one of the great benefits of having Ben is while his title is new, his experience and involvement with the company is not. He's been with us for 5 years. He knows all of us. He's been really the architect, as he pointed out, with a lot of this, a lot of what we've done here for growth and profitability and efficiency improvements. And most importantly of all, he knows us and how we can execute to achieve that here. So that's going to be a big source of relief, I think, as investors become more up to speed on what we're doing here and what we're achieving. But the other point to keep in mind here is that we've actually enjoyed great advantages by being geographically disparate, being in Latin America and being in the United States and Canada here. But clearly and understandably, investors have a lot more confidence in activities in North America than they do in South America here. And so what we've experienced, we've learned from investors is that while they're very excited and optimistic about what we're doing in Latin America, they have a bit of a show-me attitude here. They feel that there's a little bit of uncertainty here, being in a far off land here, and gives them a little less initial confidence than they might have in the United States deployments here. And so as we are delivering on our numbers here and achieving this performance and improvement here overall in hash rate, these are the elements that are going to lend to much more attention and a much greater confidence in what we're achieving for the company overall. So our expectation is and what we're driving towards is that as we do indeed meet our goals here and our targets we've communicated here, that, that level of confidence will certainly increase by investors. And they will start taking a much more active role in our company.

So that discusses some of the question around why an investor would select owning Bitfarms shares perhaps over one of its peers. And then the next logical question for investors on the call would be why should they own stock in Bitfarms versus Bitcoin directly or one of the spot ETFs available in the marketplace?

Yes, it's a great question, Mike. And I think the reality of that is that when you look at how investors view the Bitcoin mining space and Bitcoin miners as a play, they're looking for outperformance. Nobody is buying a Bitcoin miner today because they expect the price of Bitcoin to go down or Bitcoin to stay flat, right? What they're expecting is that, hey, Bitcoin price is going to go up and this Bitcoin miner is going to outperform because their Bitcoin mining operations are going to capture the upside from rising Bitcoin prices through rising mining economics. That's what we've seen in the past historically. And I think that's what's still going to play out in the future, especially with this next coming bull run. And so what we think and what we're trying to do here is we're trying to deliver higher-quality exposure to Bitcoin, with an emphasis on our performance. We think that we can do that with our cost-effective growth here. We have some of the best cost on a marginal basis. For marginal terahash that we grow in the industry, we implement very cost-effective and strategic growth. And that is what enables us to capture that rising economics. We're well placed in advance of the widely anticipated bull run. And as that occurs, we're going to be there to capture that upside and deliver it to shareholders.

And Ben, I know you're really plugged into the analytics as well. So I'd be curious to get your views as we look out through the remainder of this cycle for Bitcoin, your outlook for both the network hash rate and how that could potentially build from here as well as Bitcoin prices. I know it's always a touchy question, so I won't hold you to a price target. But just trajectory-wise and sort of your high-level thoughts on both of those metrics would be great.

Yes. It's really hard to give any sort of accurate estimate rolling forward on what's going to happen. There's many variables at play, Bitcoin price, the cost of energy in different areas, the efficiency of the machines, the price of the machines, the availability of capital, the cost of capital. There's a lot of things that go into determining how fast the network is growing and when it grows. But what you can do is something that we did is you can look back across all historical halving epochs. And you can look at what are the trends that you see every single cycle because make no mistake about it, Bitcoin operates in cycles. We have 4-year cycles here for halving. We've got clear economic cycles that play out every single time. And while history is no guarantee of what's to come in the future, it usually rhymes. And what we've seen in the last 3 halving epoch cycles from the first month that we've entered into this new era of Bitcoin mining block rewards to the peak of that full market cycle, we've seen an increase in hash price between 300% and 400%. That's happened between 12 and 18 months. And that's happened in each of the last 3 halving epochs. Again, history is no guarantee of the future. But if that were to happen in this situation, then what we would be looking at is a hash price that could go upwards of $0.15 to $0.20. Currently, we're at a hash price of about $0.045 to $0.05, based on wherever the Bitcoin price is today or at this moment of this call. And that has a very, very tremendous impact in terms of how fast we can make a payback with all the investments that we have and growth that we're making right now. We're looking at every single time we make a Bitcoin miner purchase, we have a strict investment criteria. And one of those criteria is we need to know that, that price of the miner that we're buying has an estimated payback on spot economics between 6 and 9 months. If it's any faster than 6 months, it's a big red flag that there's something wrong with the deal because this is a highly commoditized space on the hardware. And if somebody is offering you something that's too advantageous, that's because there's something wrong. We've seen that numerous times before when new manufacturers enter the space, promising items that they can't deliver. We've also seen it with brokers who will promise something and never actually ship the units. We -- this is something that the industry needs to be very, very smart about how they invest and how they allocate capital. If it's beyond 9 months, that means that your probability of getting a good return on your invested capital is a lot lower. And so we look for that 6- to 9-month window. And if we find that properly, with these halving cycles that have historically played out cycle after cycle after cycle, what that means is that 6 to 9 months can shrink down very, very quickly. And in that 12- to 18-month bull market cycle, you could get a payback on that machine multiple times over because the value of the mining economics is increasing at such a rapid rate. The other thing that will happen is the miners trade as a present value of the future expected cash flows of the Bitcoins that they generate over time. And so as the value of the mining economics go up, the value of the machine goes up as well just like the value of the Bitcoin mining public stocks go up as well. This all tracks in tandem with the natural economics that happen here in the industry. And I think it's very, very important to know that because we did an analysis of every single Bitcoin miner purchase we've had since the beginning of the company's history until now. And we looked at what is the price of the machine, what is the machine that we actually plugged in, who made it, when did we plug it in, how much revenue did it generate, what did it cost us to generate, what was the breakdown rate of those machines, what was the repair cost of those machines. And we put it all together in this blended cost. And what we found is that more than any other variable, the timing in which we bought the machine was the most determining factor in terms of the return on invested capital. It wasn't the manufacturer. It wasn't the model. It wasn't the price. It was the time in which we bought it. And we timed our fleet upgrade that we announced last year with that cycle in mind. So we believe that we caught some of the best prices that the industry is seeing. Just before we bought those T21s, people were buying XPs for $24 a terahash. The new miners from Bitmain are, again, over $20 a terahash. We locked in all that growth at $14 a terahash. And the miners that we bought also have 2 operating modes, a normal mode and a high-energy mode, so we're able to get more out of those machines also reducing that cost per terahash and improving our returns on invested capital. That's the really, really key determining factor here for us and all Bitcoin miners. And I think that we've played that very, very well.

It certainly is. And definitely, one of the more challenging pieces, right, timing the market right, effectively deploying capital. And that really drives returns for shareholders at the end of the day, in addition to having attractive power costs and really strong fleet efficiency. So it's always great to get your views, Ben, on the market and how you guys are thinking about some of these macro elements to the industry that will impact Bitfarms and its peers' economics going forward. So that wraps it for our questions. Taking a look if we're having any questions come in from the audience. In the meantime, Ben and Jeff, any thoughts or follow-up remarks that maybe we missed upon that you'd like investors to know on the call?

I think one thing that I would like to point out, Mike, is just over the last 2 weeks, I've been having a lot of calls, both internally with everybody in the company as well as externally with investors and analysts, the community at large. The energy that is currently surrounding this company right now is very different than the energy that's been surrounding this company over the last couple of months. There is a very new found sense of optimism and excitement internally and externally. It's almost palpable. The company, I think, now is really, really motivated. And the team is really, really aligned with everything that we're doing here. They're excited about the new trajectory. They're excited to having an operator in place. I came 9 years ago. When I started in this space, I was racking machines, and I was building machines, and I was programming the sites. There was no software back then and I had to program everything myself. So from the low-tech technicians who are dealing with the machines, pulling them on racks and off racks, like they understand I've been there. They understand I understand that process, all the way up to the senior management team. I think everybody is very, very excited about the new direction that this company is in. And it almost feels, although we're still staying with, of course, our same 2024 growth plans, in many ways, it does feel like a new business.

Let me echo that enthusiasm because I see that among the folks I work with every day as well. When you reflect upon how we got to where we are here, in the past 2 years, we've been really sort of moving from an entrepreneur organization to one that's really professionally run and very scalable. We're now at a very, very exciting inflection point because all these growth opportunities that have been identified and we are pursuing here can come to fruition. And we've got the organizational infrastructure in place to really achieve that. It is indeed a very, very exciting time here for us.

Indeed. Well, I really appreciate the conversation today, both Ben and Jeff. I thought it was very enlightening. And hopefully, the investors on the call got a lot from it as well. I just want to highlight next week, Jeff Lucas will be at the Bitcoin conference as will my team and the rest of the research team here at H.C. Wainwright. So if you like to set up any meetings at the event, we're happy to do that as well. And Ben and Jeff, do you know where both you guys will be at for investors to come find you?

Jeff, do you know?

Well, yes. We actually have a room, and we encourage you to come by. Come and pay us a visit. And we're also actually even having a sort of a cocktail reception at 3 o'clock on Thursday afternoon. So if people want to reach out to us, do reach out to Tracy Krumme and express your interest. And I would love to have you join us.

That's great. Well, again, I appreciate your time and appreciate the audience's time for attending today's event. Have a great day, everyone.

Thank you, everyone, for attending.