The Argo Blockchain share price has plummeted after the company announced a failed financing deal that may force it to pull back or curtail operations. The cryptocurrency mining industry has suffered as the price of coins fall and energy cost squeezes bottom lines.
Argo Blockchain [ARB.L] shares have lost 72.2% of their value in the last month with shares now sitting 92.4% lower than they did at the beginning of the year. The bitcoin miner received several analyst downgrades recently after news emerged that the company’s plans to raise £24m through equity funding collapsed.
As the “world-leading cryptocurrency miner” according to its web site, Argo is particularly vulnerable to the headwinds facing the industry, which led Jefferies analyst Jonathan Peterson to downgrade the stock from his previous ‘buy’ rating down to ‘hold’. Aside from the pressures on Argo’s profitability, he cited diminishing crypto prices, a growing hashrate network and increased electricity prices as reasons for his wary outlook.
The company, which had a strong year in 2021, has struggled recently as bitcoin prices have deflated and higher energy costs materialise. At the end of 2021, the company only had £126,000 in cash reserves and sat on a considerable debt pile of £27m in comparison. The proposed equity issuance would have gone someway in safeguarding the company’s current operations.
Failed financing deal shocks share price
The proposed equity deal would have promised strategic investors 87 million shares in the London-based bitcoin miner via a subscription for ordinary shares – equivalent to 15.5% of the company. However, it Argo Blockchain noted in a press report that “the company no longer believes that this subscription will be consummated”.
While Argo is still exploring other financing possibilities, it has reiterated that there is no assurance it will be making any further agreements. If financing is not successful, the company would become cash flow negative and would have to scale back or even cease operations as a result. The group has already made some steps to maximise liquidity and preserve cash in the short term. It has sold 3,843 new mining machines in a sale that rose approximately £4.8m.
Argo is not the only crypto miner facing cash issues. Core Scientific [CORZ], also a leader in crypto mining, announced that it had planned to skip payment on promissory notes and may file for bankruptcy. The shares have lost 98.7% of their value since the beginning of the year. Confirming fears in the sector, bitcoin miner Compute North, filed for bankruptcy back in September.
An impressive set of 2021 full-year results
The recent turmoil comes as a surprise when considering the strong results Argo posted for 2021. The crypto miner grew revenue by 291% to £74.2m while earnings before interest and tax ballooned 594% to £52.9m.
Bitcoin hit an all-time high greater than $68,000 in November 2021 after the cryptocurrency saw widespread adoption and investors began taking it more seriously. The strong results allowed Argo Blockchain to step up its expansion of operations.
In March of 2021, the London-based company announced it was buying a 320-acre plot of land in Texas, on which it planned to construct a new 200-megawatt cryptocurrency mining facility. The location was chosen for its comparatively low electricity costs and was “designed to house one of the largest immersion-cooled mining operations in the world,” according to Argo.
The company began operations in the facility in May of this year. While the operation has contributed “$17m to the local tax base”, according to county judge Kevin Brendle and reported by the Texas Tribune, it seems not to have done much for the company’s bottom line.
Challenges mount for crypto miners
The rising prices of cryptocurrencies in 2021 enticed many new crypto miners into the space. Miners compete to verify new blockchain blocks and receive cryptocurrencies in return. With more competitors having entered the sector, however, the price of crypto coins has fallen, which has led miners fighting harder over a prize that has lost a considerable amount of its value.
Adding to this pressure the computing power required to mine the coins has increased by 57% in the last year. This, alongside rising energy costs, has put considerable pressure on mining companies that have already seen their top line hurt by falling crypto prices. Argo has already announced that these two factors combined led energy costs from its Texas facility to rise nearly three times the average price of August.
Compounding the industry challenges, Ethereum has become almost obsolete after the Ethereum merge, in which it changed the transaction verification system it was using. This had led companies that mined Ethereum to shift capacity towards Bitcoin mining, adding even more competition for the currency.
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