After Helios Sales Update, Argo Blockchain Analyst Remains On Sidelines

H.C. Wainwright analyst Kevin Dede maintained a Hold rating on Argo Blockchain Plc ARBK, given the uncertainty in Argo's prospects. Yesterday, Argo Blockchain announced the sale of its Helios facility, an 800MW ERCOT grid connection that houses a 200MW immersion bitcoin mining building operating only since May 2022. 

The deal includes the elimination of all current Argo debt, Dede measured in the $143 million range at the end of the June quarter, in exchange for a $65 million value for the facility and a $35 million bitcoin mining equipment secured loan from the purchaser, Galaxy Digital Holdings Ltd BRPHF. 

For Galaxy, the purchase provides an opportunity to secure a brand new immersion bitcoin mining facility that reduces its dependence on external hosting arrangements while providing a runway for mining expansion. 

Argo's case is a bit more cut and dry. The deal preserves the current operating structure of the company, relieves the debt burden, and prevents bankruptcy filing. 

Furthermore, Argo's fleet of 23,619 Bitmain S19J Pro machines, generating 2.36 Eh/s, continue to run with minimal disruption in the Dickens County, Texas, facility that, until the recent mining downturn, had been the heart of Argo's ambitions. 

Also, Argo intends to concentrate business efforts on its two Quebec facilities that generate 140 Ph/s of bitcoin and an unknown amount of Zcash mining under a total of 20MW of low-cost hydropower—Argo's total bitcoin hash rate sits at 2.5 Eh/s. 

In its bitcoin mining operations, Galaxy has hugely competent personnel under Amanda Fabiano, a long-standing, highly respected crypto thought leader. 

Given that the 40 employees currently at Helios are slated to remain in their positions, Dede had reasonable confidence that Helios' productivity should stabilize and improve once Galaxy establishes a PPA with a power provider in Texas. 

Argo painted a clear balance sheet picture once the deal gets over. Argo's debt obligations with NYDIG should be satisfied through the conclusion of the Helios sale. 

And while Argo's balance sheet view is now more precise, the company's income statement remains far less transparent. 

Argo has not disclosed its hosting costs, which Dede suspects remain variable given Galaxy does not yet have a PPA in place for the Helios facility, nor does the analyst have insight on the new cost of debt. 

Argo said it also has room to expand its two Quebec facilities. Dede had not visited either but had spent a day at Helios. Based on that experience, Dede would expect Argo's Canadian operation to meet sophisticated industrial standards. 

With a narrow view of Argo's P/L and no September quarter numbers filed at this juncture, Dede remains more comfortable on the sidelines. 

Once September figures are released and the company can offer a baseline for hosting cost calculations, Dede intends to revisit investment rating.

Price Action: ARBK shares traded lower by 15.80% at $0.85 on the last check Thursday.