Argo Blockchain PLC Announces 2022 Full Year Results

LONDON, UK / ACCESSWIRE / April 28, 2023 / Argo Blockchain plc, a global leader in cryptocurrency mining (LSE:ARB)(NASDAQ:ARBK), is pleased to announce its audited results for the year ended 31 December 2022.

Operating highlights

· Increased hashrate capacity by 55% from 1.6 EH/s at the end of 2021 to 2.5 EH/s at the end of 2022

· Energized the Helios facility in Dickens County, Texas and commenced mining operations on 5 May 2022

· Executed an agreement with ePIC Blockchain Technologies ("ePIC"), as amended, to purchase BlockMiner machines for use with Intel's Blockscale ASIC chip (2,870 machines expected to be deployed in Q3 2023)

· Completed a swap agreement with Core Scientific ("Core") for S19J Pro machines representing approximately 970 PH/s, which ended the Group's hosting agreement with Core in place of self-mining operations at Helios

· Released the Group's 2021 Sustainability Report and maintained climate positive status by producing no Scope 1 emissions and offsetting all Scope 2 and Scope 3 emissions through renewable energy credits and verifiable emissions reductions

Financial highlights

· Total number of Bitcoin or Bitcoin Equivalent ("BTC") mined during 2022 was 2,156, a 5% increase compared to the BTC mined in 2021, despite an increase in global hashrate and network difficulty

· Revenues of £47.4 million ($58.6 million), a decrease of 36% from 2021, driven primarily by a significant decrease in Bitcoin price and an increase in the global hashrate and associated network difficulty level

· Adjusted EBITDA of £1.0 million ($1.2 million), down from Adjusted EBITDA of £55.0 million ($74.2 million) in 2021

· Mining margin of 54%, down from 84% in 2021. Similar to revenue, this decrease was largely attributable to the decrease in Bitcoin price and an increase in network difficulty, as well as significantly higher than expected power costs in Texas

· Net loss of £194.2 million ($240.2 million), driven primarily by the change in fair value of digital assets, impairment of assets, and losses associated with our divestitures

· Total number of BTC held at 31 December 2022 was 141, of which 116 were Bitcoin Equivalents

Sale of Helios & Hosting Agreement with Galaxy

· On 29 December 2022, theGroup completed a series of agreements with Galaxy Digital Holdings Ltd. (TSX: GLXY) ("Galaxy")

· As part of the agreements, Argo sold its Helios facility to Galaxy for £53 million ($65 million), Argo refinanced existing equipment financing loans with a new asset-backed loan from Galaxyfor an amount of £28 million ($35 million), and Galaxy agreed to host Argo's mining machines at Helios("the Transactions")

· TheTransactions improved the Group's balance sheet and liquidity by reducing total indebtedness by £33 million ($41 million) and improving its cash position. As of 31 December 2022, after accounting for theTransactions, the Group's total debt was approximately £63 million ($76 million), and debt, net of cash, was £46 million ($56 million)

· Argo maintained ownership of its entire fleet of mining machines, and Galaxy is now hosting the fleet ofapproximately 23,619 Bitmain S19J Pro machines at Helios under a two-year hosting agreement

· Under the hosting agreement, Argo has access to the electricity price that Galaxy obtains through its power purchase agreement, and Argo pays an incremental hosting fee based on its actual electricity usage

Board and Senior Management Changes

Subsequent to 31 December 2022:

· on 30 January 2023, Chief Financial Officer and Executive Director Alex Appleton resigned from his positions to pursue other opportunities. After a formal recruitment process led by an executive search firm, the Board appointed Jim MacCallum as Chief Financial Officer effective 5 April 2023

· on 8 February 2023, Sarah Gow resigned as non-executive director of the Company for health reasons; and

· on 9 February 2023, Chief Executive Officer and Interim Chairman Peter Wall resigned from his positions to pursue other opportunities. Matthew Shaw became Chairman of the Board, and the Board appointed Chief Operating Officer Seif El-Bakly, CFA, to serve as Interim CEO. The Group will provide an update on the CEO recruitment process in due course

Q1 2023 Update (Preliminary and Unaudited)

· Total number of Bitcoin or Bitcoin Equivalent ("BTC") mined during Q1 2023 was 491, or 5.5 BTC per day. This is a 5% increase in daily BTC compared to the same period in 2021, and it is a 8% decrease in BTC production compared to the prior quarter. The decrease compared to Q4 2022 is primarily due to an increase in the network difficulty

· Generated revenues of approximately £9 million ($11 million) with a mining margin in the range of 45% to 50%; mining margin increased from approximately 35% in Q4 2022 due to higher Bitcoin price and lower electricity prices in Texas

· Average direct cost per Bitcoin mined was approximately £10,000 ($12,000)

· Average all-in costs (power costs and hosting fees) at Helios was approximately $0.05 to $0.055 per kilowatt-hour

Outlook for 2023

Renewed Focus on Quebec

· Going forward, in the near term, Argo will be focusing on improving operational efficiency at its Quebec facilities by optimizing its mining fleet and utilizing excess capacity at these sites

· Both data centers have access to 99% renewable electricity generated from hydropower at competitive prices

Deployment of ePIC BlockMiners

· The Group is expecting the delivery of 2,870 units of ePIC "BlockMiner" machines beginning in early Q3 2023

· These new BlockMiner machines, representing an incremental 300 PH/s of hashrate capacity, will be deployed at the Group's Quebec facilities

Commenting on the results, Seif El-Bakly, Argo Blockchain Interim CEO, said, "Having navigated challenging market conditions in both the crypto sector and the global economy in the second half of 2022, Argo has emerged stronger and in a much more solid financial position.

Following the build of Helios and the strategic transaction with Galaxy, we have streamlined our operations to maximize efficiency and increase our hashrate while maintaining our mining capacity thanks to our Hosting Agreement. On the basis of these foundations, we continue to work diligently on the next stage of Argo's growth and development, with the goal of delivering long-term value to our shareholders."

*The tables below reconcile Bitcoin and Bitcoin Equivalent Mining Margin to gross margin, the most directly comparable IFRS measure, and Adjusted EBITDA to net income/(loss), the most directly comparable IFRS measure:

Inside Information and Forward-Looking Statements

This announcement contains inside information and includes forward-looking statements which reflect the Company's current views, interpretations, beliefs or expectations with respect to the Company's financial performance, business strategy and plans and objectives of management for future operations. These statements include forward-looking statements both with respect to the Company and the sector and industry in which the Company operates. Statements which include the words "remains confident", "expects", "intends", "plans", "believes", "projects", "anticipates", "will", "targets", "aims", "may", "would", "could", "continue", "estimate", "future", "opportunity", "potential" or, in each case, their negatives, and similar statements of a future or forward-looking nature identify forward-looking statements. All forward-looking statements address matters that involve risks and uncertainties because they relate to events that may or may not occur in the future, including the risk that the Company may receive the benefits contemplated by its transactions with Galaxy, the Company may be unable to secure sufficient additional financing to meet its operating needs, and the Company may not generate sufficient working capital to fund its operations for the next twelve months as contemplated. Forward-looking statements are not guarantees of future performance. Accordingly, there are or will be important factors that could cause the Company's actual results, prospects and performance to differ materially from those indicated in these statements. In addition, even if the Company's actual results, prospects and performance are consistent with the forward-looking statements contained in this document, those results may not be indicative of results in subsequent periods. These forward-looking statements speak only as of the date of this announcement. Subject to any obligations under the Prospectus Regulation Rules, the Market Abuse Regulation, the Listing Rules and the Disclosure and Transparency Rules and except as required by the FCA, the London Stock Exchange, the City Code or applicable law and regulations, the Company undertakes no obligation publicly to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. For a more complete discussion of factors that could cause our actual results to differ from those described in this announcement, please refer to the filings that Company makes from time to time with the United States Securities and Exchange Commission and the United Kingdom Financial Conduct Authority, including the section entitled "Risk Factors" in the Company's Registration Statement on Form F-1.

For further information please contact:

About Argo:

Argo Blockchain plc is a dual-listed (LSE: ARB; NASDAQ: ARBK) blockchain technology company focused on large-scale cryptocurrency mining. With mining facilities in Quebec, mining operations in Texas, and offices in the US, Canada, and the UK, Argo's global, sustainable operations are predominantly powered by renewable energy. In 2021, Argo became the first climate positive cryptocurrency mining company, and a signatory to the Crypto Climate Accord. For more information, visit www.argoblockchain.com.

Chairman's Statement

2022 was a year of transformation for Argo Blockchain. In the first half of the year, we completed the development and construction of the Helios facility in Dickens County, Texas. We energized Helios in May 2022 and began mining operations, and we increased our total hashrate capacity by more than 50%. However, we faced numerous headwinds as our business model was challenged by sharp declines in Bitcoin price, increases in the global network hashrate, increases in energy prices, and macroeconomic and geopolitical factors. At the end of 2022, we made the strategic decision to sell the Helios facility and use the proceeds to reduce debt on our balance sheet. Following the transaction, we have strengthened Argo's management team, renewed our emphasis on financial discipline and operational excellence, and crafted a strategy to resume our growth. With these steps, we are in a much better position to improve our mining operations, grow the business, and weather the crypto winter.

2022 in Review

Our main focus in 2022 was to complete the build out and energization of the Helios facility. In Q1 2022, we raised additional financing in the form of secured debt from NYDIG to complete construction at Helios. On 5 May 2022, we successfully energized Helios and commenced mining operations. With 180 MW of capacity and utilizing 100% immersion-cooling technology, the Helios facility is one of the largest and most technologically-advanced Bitcoin mining facilities in the United States.

In the same month, we began taking delivery of the new Bitmain Antminer S19J Pro machines that we ordered in September 2021. We installed the new machines in monthly batches and grew our total hashrate capacity by more than 50% from 1.6 EH/s in April 2022 to 2.5 EH/s in September 2022.

As we brought operations online at Helios, we began to transition away from our hosted operations at facilities owned by Core Scientific ("Core"). Between May and July 2022, we completed a machine swap with Core, whereby new-in-box Bitmain S19J Pro machines were delivered to Helios in exchange for Core taking over our existing fleet of Bitmain S19 machines hosted in its facilities. This machine swap mitigated the logistical challenges and downtime associated with unplugging and shipping the mining machines from Core's facilities to Helios. After completion of the machine swap in July 2022, 100% of Argo's mining machines were operating in our own facilities.

One of the attributes that made the Helios project an attractive investment for Argo was its location in the Texas Panhandle, where more than 85% of the installed power generation capacity comes from wind and solar. Not only is this strategy consistent with our stated goal of using renewable sources of energy to power our mining operations, but Texas has long been known for having low-cost electricity due to the high percentage of renewable power on its grid.

Several external factors, however, resulted in elevated electricity prices during Q2 and Q3 of 2022 when we were commencing operations at Helios. Russia's invasion of Ukraine and the subsequent sanctions on Russian petroleum exports disrupted the energy markets. This, along with unusually low stocks of natural gas in US storage facilities, resulted in a historic spike in the price of natural gas. While Texas has a large amount of renewable energy generation, it also has a significant amount of natural gas-fired generation. The increased natural gas price also caused an increase in electricity prices, making it cost prohibitive to sign a fixed price power purchase agreement ("PPA"). This had a negative impact on our mining performance and profitability.

Additionally, the global network hashrate continued to increase throughout 2022 despite the material decline in Bitcoin price. The depressed price of Bitcoin and the elevated global hashrate caused hashprice, the primary measure of mining profitability, to reach all-time lows in Q4 2022. The low hashprice and elevated power prices significantly reduced Argo's profitability and ability to generate free cash flow. During Q4 2022, we evaluated several strategic alternatives to restructure our balance sheet and improve our cash flow.

On 28 December 2022, we announced a series of transactions with Galaxy Digital Holdings, Ltd. ("Galaxy") that strengthened our balance sheet, improved our liquidity position, and enabled us to continue mining operations. As part of the transactions, we sold the Helios facility and real property in Dickens County, Texas to Galaxy for £54 million ($65 million) and refinanced existing asset-backed loans via a new £29 million ($35 million), three-year asset-backed loan with Galaxy. The transactions reduced total indebtedness by £34 million ($41 million) and allowed us to simplify our operating structure.

Importantly, we maintained ownership of our entire fleet of more than 27,000 mining machines. Pursuant to a new two-year hosting services agreement with Galaxy, our 23,650 Bitmain S19J Pro mining machines at Helios will remain in operation at that facility. Under the hosting agreement, we have access to the base power rate that Galaxy obtains through its PPA, and we pay them an incremental hosting fee based on our actual electricity usage.

The hosting agreement with Galaxy allowed us to keep our mining machines operating at Helios and mitigated any mining machine downtime from the sale of the Helios facility. Furthermore, we believe that the immersion-cooling system we developed and implemented at Helios provides for a superior operating environment for our mining machines.

After the year end, we completed the transition of operations at Helios over to the Galaxy team, and we have been working closely with them to optimize our mining operations and performance.

We continue to operate both data centers that we own in Quebec, Canada. Our Baie Comeau site is over 40,000 square feet and has 15 MW of 99% renewable power capacity sourced from the nearby Baie Comeau hydroelectric dam. Our Mirabel facility, located adjacent to the Mirabel airport near Montreal, has approximately 30,000 square feet of mining space with 5 MW of 99% renewable power capacity sourced from Hydro-Quebec. We also operate a cleaning and repair center at Mirabel, along with servers and computing equipment for proof-of-stake activities and other blockchain infrastructure needs.

Going forward, in the near term we will be focusing on optimization by improving the operational efficiency of our Quebec facilities and utilizing excess capacity at these sites. Both data centers have access to 99% renewable electricity from hydropower at competitive power prices. Additionally, we are expecting the delivery of 2,870 units of the ePIC Blockchain machine (known as the "BlockMiner" machine), in early Q3 2023. These new BlockMiner machines, representing an incremental 300 PH/s of hashrate capacity, will be deployed at our Quebec facilities.

Financial results

Revenue in 2022 was £47.4 million ($58.6 million) compared to £74.2 million ($100.2 million) in 2021. Adjusted EBITDA was £1.0 million ($1.2 million) compared to £55.0 million ($74.2 million) in 2021. Loss attributable to shareholders totalled £199.5 million ($246.7 million). In 2022, total capital expenditures, net of disposals, were £5.4 million ($6.7 million), with nearly all going towards Helios infrastructure construction and the purchase of mining machines.

Operating results

In line with Argo's expansion of mining operations in 2022, the Group's total hashrate capacity increased by more than 50% from 1.6 EH/s in April 2022 to 2.5 EH/s by September 2022. The Group also has 280 Megasols of Z-cash mining capacity on Equihash. Argo's mining margin averaged 54% for the full year 2022, which is lower than the 84% mining margin achieved in 2021. The decrease in mining margin from 2021 was driven by the decrease in the Bitcoin price, the increase in energy costs, and the increase in global hashrate (and associated increase in network difficulty).

Bitcoin macro environment

The decrease in the price of Bitcoin throughout 2022 was accompanied by a change in monetary policy by central banks and a significant drawdown across all digital assets. In March 2022, the US Federal Reserve raised interest rates for the first time since 2018 as it began to address rising inflation. Assets that were considered higher risk, including high-growth technology stocks and highly-correlated digital assets, including Bitcoin, saw outflows as investors factored in higher forecasted interest rates and reduced market liquidity.

In May 2022, the collapse of the Luna/UST stablecoin caused turmoil in the crypto market into turmoil as forced liquidations continued to put downward pressure on digital assets. Several high-profile collapses subsequently followed, including hedge fund Three Arrows Capital, Celsius, and most significantly FTX and Alameda Ventures. In the midst of this crypto downturn, the price of Bitcoin reached a low of less than $16,000 in November 2022.

Despite the 77% drop in the price of Bitcoin from its all-time highs in November 2021, the network hashrate continued to increase for the twelfth consecutive year. Additionally, even though Bitcoin miners like Argo faced increased network difficulty and lower profitability, they continued to validate transactions and secure the network; in total, ~53,000 blocks were mined in 2022, generating over ~$10 billion in aggregate revenue for Bitcoin miners.

Commitment to Sustainability

Since inception, Argo has always maintained a strong focus on environmental sustainability. This is why we located our mining operations in Quebec, where they are powered by hydroelectricity, and the Texas Panhandle, where more than 85% of the installed generation capacity comes from renewable sources. Since 2021, Argo has been committed to achieving net-zero carbon emissions. The Company has also released a full climate strategy and became the first Bitcoin mining company to announce climate positive status. We achieved this through our use of renewable energy to power mining operations, and by offsetting more scope 2 and 3 greenhouse gas emissions than we emitted in both 2020 and 2021. We are in the process of accounting for our greenhouse gas emissions for 2022.

To our knowledge, we are the first publicly traded cryptocurrency mining company to publish a report in accordance with the Task Force on Climate-related Financial Disclosures ("TCFD") Recommendations and Recommended Disclosures.

Leadership changes

In February 2022, Argo expanded its board by appointing Raghav Chopra as an independent non-executive director. In March 2022, the Company hired Seif El-Bakly, CFA as Chief Operating Officer.

Following the end of the period, on 30 January 2023, Chief Financial Officer and Executive Director Alex Appleton resigned from his positions to pursue other opportunities. After a formal recruitment process led by an executive search firm, the Board appointed Jim MacCallum as Chief Financial Officer effective 5 April 2023.

On 9 February 2023, Chief Executive Officer and Interim Chairman Peter Wall resigned from his positions to pursue other opportunities. Matthew Shaw became Chairman of the Board, and the Board appointed Chief Operating Officer Seif El-Bakly to serve as Interim CEO.

Strategic focus in 2023

With the completion of the Helios sale to Galaxy at the end of 2022 and the leadership changes in Q1 2023, Argo is entering a new chapter in its story. As 2023 progresses, we are focused on growing our business with a strong emphasis on operational excellence and financial discipline. Specifically, we intend to:

· Optimize our mining operations across our Quebec facilities and the Helios facility

· Control operating expenses and maximize cash flow

· Strengthen the balance sheet

· Explore organic and inorganic growth opportunities

On behalf of the Board, I would like to thank all of our shareholders and stakeholders. I am excited for Argo to continue in its mission of powering the world's most innovative and sustainable blockchain infrastructure.

Matthew Shaw

Chairman of the Board

Independent Auditor's Report

We have audited the financial statements of Argo Blockchain plc (the 'parent company') and its subsidiaries (the "group") for the year ended 31 December 2022 which comprise the Group Statement of Comprehensive Income, the Group and Parent Company Statements of Financial Position, the Group and Parent Company Statements of Changes in Equity, the Group and Parent Company Statements of Cash Flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and UK-adopted international accounting standards and as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

In our opinion:

· the financial statements give a true and fair view of the state of the Group's and of the parent company's affairs as at 31 December 2022 and of the Group's loss for the year then ended;

· the Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards;

· the parent company financial statements have been properly prepared in accordance with UK-adopted international accounting standards and as applied in accordance with the provisions of the Companies Act 2006; and

· the financial statements have been prepared in accordance with the requirements of the Companies Act 2006

DIRECTORS' RESPONSIBILITIES STATEMENT

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and parent company financial statements in accordance UK-adopted international accounting standards. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit and loss of the Group and Company for that period.

In preparing these financial statements, the directors are required to:

· Select suitable accounting policies and then apply them consistently;

· Make judgements and accounting estimates that are reasonable and prudent;

· State whether applicable UK-adopted international accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

· Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are also responsible to make a statement that they consider the Annual Report and financial statements taken as a whole, is fair, balanced and understandable and provides the information necessary for the shareholders to assess the Group's and Company's position and performance, business model and strategy.

Website publication

The directors are responsible for ensuring the Annual Report and the financial statements are made available on a website. Financial statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Group and Company's website is the responsibility of the directors. The directors' responsibility also extends to the on-going integrity of the financial statements contained therein.

Directors' responsibilities pursuant to DTR4 (Disclosure and Transparency Rules)

The directors confirm to the best of their knowledge:

· The Group and Company financial statements have been prepared in accordance with UK-adopted international financial reporting standards and give a true and fair view of the assets, liabilities, financial position and profit or and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group and Company; and

· The Annual Report includes a fair review of the development and performance of the business and financial position of the Group and Company together with a description of the principal risks and uncertainties that it faces.

GROUP STATEMENT OF COMPREHENSIVE INCOME