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Hut 8 Mining Corp
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Good morning, and welcome to the Hut 8 Third Quarter Earnings Call. My name is Brandon, and I'll be your operator for today. [Operator Instructions] Please note, this conference is being recorded.I will now turn it over to Shane Downey, and you may begin, sir.
Thank you, Brandon. Good morning, ladies and gentlemen, and welcome to the 2021 Third Quarter Earnings Call for Hut 8 Mining Corp. I'm joined this morning by Jaime Leverton, CEO of Hut 8.I'd like to start just quickly by acknowledging what's most important for today, which is Remembrance Day here in Canada, Veterans Day, for our American friends as well as everyone overseas. We're certainly very grateful for sacrifices of those that came before us and that's ultimately what allows us to be other today and discuss something like Hut 8's and our contributions to the future of our digital economy.Overall, we were very pleased with the strong operating results during the third quarter, with improvements in Bitcoin mining economics and our strategic capital investments. Hut 8 remains well-positioned for continued growth. I will run through some short disclaimer language and then jump into a summary of our Q3 results. I will then turn things to Jaime, who'll have some commentary, and then we'll open it up for Q&A.In addition to the press release issued earlier today, you can find our financial statements and MD&A on both SEDAR and surely on our website at hut8mining.com. Unless noted otherwise, all amounts referred to are denominated in Canadian dollars. I'd like to remind you that comments made during this call may include forward-looking statements within the meaning of applicable securities legislation regarding the future performance of Hut 8 Mining Corp. and its subsidiaries.These statements are current expectations and, as such, are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. These risks and uncertainties include, but are not limited to, the factors discussed in the company's annual information form for the year ended December 31, 2020.At this time, I will walk through our financial highlights for Q3 2021. We achieved a third consecutive quarter of record revenue, driven by strong mining activity and Bitcoin price. The total revenue for Q3 2021 was $50.3 million compared to $5.8 million in the prior year quarter. We earned $47.9 million from mining activities as we mined 905 new Bitcoin at an average of approximately $50,000 per Bitcoin. This compares with 372 Bitcoin at an average of approximately $14,000 in the prior year quarter.Our hosting line of business also generated $2.4 million of revenue compared with $0.5 million in the prior year's quarter. Hosting benefited from onboarding a second customer in late May of this year or as the prior year's quarter with the initial launch of our hosting business. Cost of revenue for Q3 2021 was $21.2 million compared with $11.1 million in the prior year quarter. The increase is the result of higher site operating costs, mostly electricity, and an increase in depreciation expense.The increased depreciation expense was driven by the addition of mining equipment over the past 12 months, partially offset by a revised estimated useful life of the company's infrastructure assets from 4 to 10 years, which was made in Q2 of this year. Site operating costs increased due to Hut 8's continued expansion, specifically the addition of miners to our fleet.Specifically, I note that in absolute terms, site operating costs were depressed in the prior year quarter when due to poor Bitcoin mining economics, the company ran much of our mining fleet in "eco mode" so as to reduce power consumption. The cost of mining each Bitcoin for Q3 2021, excluding depreciation expense, was approximately $17,700 compared with approximately $20,300 in the prior year's quarter, reflecting the investments in more efficient mining equipment that we've made over the past 12 months.I also want to bring emphasis to the fact that our cost to mine figures are fully loaded costs, inclusive of electricity, T&E, and associated fees as well as personnel, network monitoring, and equipment repair and maintenance costs. General and administrative costs were $10.8 million compared with $1.3 million in the prior year period.After excluding non-cash share-based compensation expense of $2.8 million and nonoperational sales tax expense of $4.0 million, G&A expense was $4 million for the quarter compared with $0.7 million in the prior year period. This increase stems from the strategic investment to building out a larger and deeper pool of executives and managers, professional fees associated with various capital markets initiatives, and the new management team's commitment to best corporate practices as well as higher insurance and investor relations costs.The sales tax expense referenced previously relates to amounts we expect ultimately to be refunded by Canadian tax authorities but have been fully provided against given collection uncertainty. The $4 million quantum is larger in the third quarter of 2021 due to sales tax import duties associated with our significant mining equipment purchases.In terms of finance income, we currently have Bitcoin lending arrangements with both Genesis and Galaxy. The income earned from our Bitcoin lending arrangements are reported in finance income. These lending arrangements were renegotiated during the third quarter of 2021, resulting in a revised annual borrow fee of 2% for Genesis and 2.25% for Galaxy, which in the case of Galaxy is paired with a USD 50 million undrawn credit facility. These lending arrangements allowed the company to generate additional fee on cash flow while supporting our HODL strategy. We earned $0.8 million of finance income during the quarter and $2.1 million year-to-date from these lending arrangements.We've recorded net income of $23.4 million for Q3 2021 compared with a net loss of $0.9 million in Q3 2020, driven by gross profit of $29.1 million, reflecting the significantly improved Bitcoin mining performance. Given the movement in the price of Bitcoin, for year-to-date Q3, we recorded a $53.1 million unrealized gain on digital assets, all of which has flown through other comprehensive income net of tax expense of $6.5 million. We then recorded the recovery of this deferred tax expense through our P&L. Altogether, this results in $85.1 million of comprehensive income on a year-to-date basis.Hut 8 achieved adjusted EBITDA, a non-IFRS measure of $30.7 million for Q3 2021 compared to an adjusted EBITDA loss of $2.6 million in Q3 2020, driven again by Bitcoin mining profitability in the period, as previously discussed. From a balance sheet perspective, our balance sheet remains healthy. We raised approximately $220 million, USD 172.5 million in a September 2021 common share offering. This brings total gross capital raised year-to-date to approximately $413 million.The proceeds from this latest raise will continue to be invested in the growth of the company through the acquisition of mining equipment, including the recently announced 12,000 new MicroBT miners for delivery throughout 2022 as well as ongoing development of our recently announced third mining site in North Bay, Ontario.Our Bitcoin holdings are marked at fair value and totaled $263.8 million, reflecting 4,729 Bitcoin as at September 30. This balance consists of 2,729 Bitcoin held in custody and 2,000 Bitcoin subject to lending arrangements with Genesis and Galaxy. We continue to emphasize our HODL strategy and did not sell any Bitcoin during the quarter. To update these Bitcoin figures further, I note that we recently surpassed 5,000 Bitcoin held in reserve. As of November 10, 2021, we held 5,053 Bitcoin, reflecting a market value of approximately $430 million.With that, I will turn things over to Jaime.
Thanks so much, Shane. I'd also like to take a moment to acknowledge Remembrance Day. In fact, I am speaking to you today from Ottawa, our nation's capital. On this day, we remember the sacrifices made by so many great Canadians to give us the opportunity to be here today, and we are so grateful to live in a country that gives us the freedom to pursue our dreams. We honor and remember the legacy of those who fought during World War I and World War II, today and every day.As Shane discussed, this has been a tremendous few quarters for Hut 8, and I am very proud to see our vision of transforming this company from the scrappy small-cap that it was into the multibillion-dollar global leader in digital asset mining and technological innovation that it is today. I would also be remiss not to offer my gratitude to our incredible team and the continued support from our partners and shareholders who have truly made this journey possible.Every story -- every success story is a tale of constant adaption, revision, and change. Transformation is a process, a journey of discovery. Q1, Q2, and Q3 were about restructuring and changing some of the ways we traditionally did things from negotiating our new strategic power relationships to forming new partnerships with mining equipment manufacturer, MicroBT, to seizing opportunities and buying new equipment at competitive prices, all while consistently growing our stack of Bitcoin on our balance sheet.As we look to the future, we are focused on continued execution, scaling, and growth. We now have over 5,000 Bitcoin on our balance sheet, and we'll continue to strengthen our position as market leaders, holders, and mentors of the reserve currency of the future, Bitcoin, and now Ethereum. We strive to deepen our relationships and operations across Canada, from Alberta to North Bay, operating cutting-edge and profitable compute centers and continuing to expand this business with an innovation lens on everything we do.We are not just miners, we are business building technologists. We are believers in decentralized systems, open access, and financial inclusion. Through innovation, imagination, and passion, we are helping to power the fourth industrial revolution to create value for generations to come.And with that, I will turn things back to Brandon to open it up for questions. Thank you so much.
[Operator Instructions] And on the line, we have Joseph Vafi.
Jaime, Shane, great results here in the quarter. Just could we get maybe just a little bit more update on the North Bay build-out? I know in the press release and what you've said previously that you think that will be operational here by the end of the year. Do you have an idea at this point of how much capacity will be up and running by the end of the year? And then if you could -- I know it's a little early, but maybe a high-level view of how that site continues to develop in 2022. And then I have a quick follow-up.
Sure. Thanks, Joe. We -- the site's progressing well. We do expect it to be powered up by the end of December. But I would forecast middle mining capacity before mid- to late January.
Okay. And are you planning on putting the newly ordered miners in North Bay or is there going to be -- which machines are going to be going into North Bay?
Yes. It will be the new MicroBT equipment that goes into North Bay. And we still have some older equipment in Medicine Hat and Drumheller that will be upgraded with the first deliveries of MicroBT coming in November. And then the balance of that order will shift to North Bay to power up the first 35 megawatts.
Right. And you're clearly generating some income now on your HODL, those 2 relationships with Genesis and Galaxy have been ongoing for a little while here. Just wondering if you have thought about expanding out the lending at this point, given performance there, given kind of maturity, financial markets around digital assets, or is there another reason that you're just HODLing those other 3,000 Bitcoin kind of in reserve more or less at this point?
Shane, do you want to take that?
Yes. Sure. I'm happy to start. I think, listen, the key point and key theme from our perspective is sort of fundamentally that we view our Bitcoin held in reserve, and it's not only our most valuable asset today, but very much our most valuable asset in the future. And so we're extremely mindful of the risks that we take associated with that Bitcoin. So but I think a fundamental strategy being to hold in custody, where it's safe and secure is -- sort of speaks for itself in many ways.And then being very strategic and very intentional with the counterparties that we've engaged with thus far, as you pointed out correctly, Joe, Genesis and Galaxy, we view both as important partners for us and very well-established in the space. So that's the primary theme, I would say. And then certainly, to reiterate that we are, all that said, mindful of making our Bitcoin work for us as best we can. And so that's something we continue to evaluate and maybe -- and position us as our stack grows over time to continue to think creatively.
Great. Then maybe just one more quick one. You did make some material orders here for the MicroBT machines. But I think that you still do have some balance sheet capacity in terms of cash. Is there a plan for that cash at this point or are you just working on this build-out and being mindful and opportunistic on continuing expansion?
You definitely answered your own question there, Joe. We continue to be mindful and opportunistic as we've been throughout the year.
We have [ Chris Brendler ] on line.
Folks, congrats on the nice results. I am going to start with just a numbers question, maybe for Shane. The gross margin came up a little bit more than you're expecting and nice cost per coin that we're calculating here. So I just want to know what's driving that since we don't really have the third site online yet and should it continue even before sort of Ontario is operational just to see the cost per coin to come down? Is it more driven by the global hashrate? So potentially, it could go back up before the January launch?
Yes. Great question, Chris. And you -- again, I think you correctly alluded to, not unlike Joe before you to several of the relevant points. So fundamentally, improvement throughout certainly year-over-year, but more relevant, I would contend is just sort of quarter-over-quarter. Improvement in our average cost of mine fundamentally is a function of a gradual improvement of the average efficiency in our fleet, so reflecting that earlier this year bringing on some new MicroBT miners we ordered through strategic -- order with Foundry.And then of course, those coming online throughout the year and then in sort of mid- to late Q3, the -- at least the beginning of getting our new NVIDIA CMPs online and hashing. So to be clear, the contribution from those chips in Q3 would have -- really was quite minimal, but it will ramp up here as we continue to get those brought online here in Q4. So first and foremost, I would point to increase in average efficiency of our fleet. And then you correctly alluded to the sort of hashrates -- the global hashrate and network difficulty. We, of course, had significance and sort of unprecedented downward movement in difficulty adjustments throughout the early summer as the China ban on mining came to hold.And broadly in line with expectation, we've certainly seen a significant increase in hashrate through really the back half of the summer and throughout the fall, which, of course, will sort of be a counteracting force in terms of decline mining economics. So yes, I think that aligns with where you were sort of suggesting. And the balance of the year, I mean, we'll -- in terms of what we're able to control. Jaime alluded to in her comments, the strategic initiative that was undertaken in her early weeks really to secure more attractive and additional power. So that's on its way shortly in terms of our relationship with Validus and North Bay.And then bringing additional miners online. So we're -- we've been at the very early stages here in October and now early November in receiving deliveries of MicroBT orders from our 1 exahash order that was announced back in the summer, all of which is broadly speaking, on schedule. And yes, I think the -- maybe the other point to make there is that we get very much into -- that's all the good news piece. And of course, the on the ground practical reality is that we've got our team working basically 7 days a week here, going through the exercise of unplugging older miners, getting our new miners plugged in, whether that be MicroBT that are beginning to arrive and for the last while with an emphasis on the NVIDIA CMPs.And so that does -- at the end of the day, constitute some periodic downtimes or when you think about -- think about it on average, that we will have some downtime in Q4 that will exceed what we would have had in Q2 or Q3. So that's part of the process. Q4 will definitely be an evolution for us as we get in this -- all these new kits brought online. And then, of course, North Bay, well, it will be a bit more of a sort of a straightforward exercise of just net incremental additions of mining rigs. Maybe I'll pause there off. Jaime, if there's anything I missed.
No. I definitely think you covered it, Shane. Thanks for the question, Chris.
No, that's great. I do have another question. 11,000 MicroBT top line models still expected to be delivered before year-end or hopefully close to it. Given the premium, this is on space to plug these things in right now, do you -- would you consider unplugging and replacing some of your fully depreciated equipment to get those online or are you planning on putting them in Ontario and waiting for that to be online just to continue to have the most machines running as possible?
No. Initially in Medicine Hat and Drumheller, we will take the balance of the B8s offline, and they will be entirely MicroBT or the newest generation of Bitfury equipment, which is Clarke. That's what we'll be running at those 2 sites. And we expect by the end of this year that the B8s will not be powered up.
Okay. Great. And one final one. Sorry, if I missed it. You don't have any results for October yet or any comments. The only comments that we made for October were with respect to -- I mean, updated Bitcoin balance as of today, which Shane gave you at 5,053 Bitcoin on balance sheet as of end of day yesterday as well as the commentary around all of the NVIDIA equipment is now on-site and 95%, I believe, is the number of machines that are up and hashing as of today as well.
Up next, we have George Sutton.
Jaime, I look forward to reading your book adaption, revision, and change: a journey of discovery. It should be interesting. So with that in mind, we are obviously -- you have pursued self-mining given how profitable that is right now. At the same time, hosting is becoming increasingly lucrative as well. I'm curious if there has been any revision in your thought process of more aggressively self-mining less aggressively going after hosting opportunities?
So it's a real fluid state of consideration for us. We look at the market, we look at the economics, not just in the immediate term but we try to think kind of 6 to 12 months out. And I mean, the nice thing about our business and how we're continuing to drive growth and scale is we do have some ability to be fluid as we grow. And so I think I can't answer at question specifically around any fundamental changes, except to say that it's fluid, and we're constantly evaluating and reevaluating that mix.
Okay. So as you are growing rapidly in terms of your capacity, obviously, there's a lot more than just the miners and actually having the facilities to grow, but it's all the other things, the transformers, the things like PVC pipe. I'm just curious how far out you feel you are in terms of securing things like that, that are obviously important in the equation?
Yes. So the vast majority of those long lead items are already physically on-site in North Bay, not just for the first 35 megawatts, but we also did preordering for expansion beyond that. So we feel really blessed that we were well ahead of those long-lead items.
Got you. And then last question. The lending arrangement, the new lending arrangement, has that given you the ability -- is there any constraints on your side in terms of how much you could be providing to that arrangement?
With respect to Galaxy and Genesis?
Yes. I'm curious, your ability to give them more, is there any constraint on that side or is it really your own internal view of how much you want to do in each case?
That has been our view. I actually don't know the answer from a Genesis, Galaxy perspective. We started with 1,000 Bitcoin with each counterparty. And that's kind of what we're comfortable with. I don't know, Shane, if you have anything to add.
Yes. I mean, yes, just very quickly, I would say, we would certainly need to engage with each group around increasing that from, say, 1,000 to 1,500 or something. So like they're -- from their perspective, as you can imagine, they would view that sort of -- their arrangement with us ultimately is a commercial one. And so it's a function of sort of the supply-demand dynamics on their side of the equation. So it is something we need to engage with them. But I think for the time being, we're quite comfortable with the arrangement.
Up next, we have [ Kevin Chappell ].
Can you hear me?
Yes, you're clear.
Okay. Great. I wanted to ask a question about your company versus the other miners. Where would you kind of rank your company as far as there's a lot of talk about who is producing the most Bitcoin, who's the largest miner? I guess, generally, you're considered in the top 5, I would guess. But I mean, are you the largest, do you think or is that your goal to become the largest? I don't know if that's a fair question or not, but I was curious.
Well, I think we do have a theme today with our people asking questions, answering their own questions at the same side. We're certainly among the largest. And I think it's really subjective going forward as far as like how do you view largest and how do you compare one against the other? We're not -- we're certainly not all the same. We have -- there are sometimes very large and sometimes more subtle nuances between our businesses and ultimately, our go-to-market strategy. So I don't think -- certainly, I wouldn't view -- be in a position to do an apples-to-apples comparison between the miners. And really, that's for our analysts and our shareholders to assess really for themselves based on what they think about the market and what they value in a minor structure.
Up next, we have Mark [indiscernible].
Actually, my original question was about the rest of the miners there for the rest of the year, but it pretty much got answered. So maybe I could maybe make a little comment or request there just regarding current hashrate. I know we're about 1.37 from Bitcoin mining and at 1500 gigahash. But I just found it a little hard to find the up-to-date hashrate, like I know the contracted hashrate is advertised, but maybe the -- it's for the investors there to have an updated hashrate. I know I heard on an interview with a different CEO, he was talking about a live hashrate, but he had the technology through pools to pull that data. And I know that might not be something you can do. But maybe a more up-to-date hashrate there.And then can you give retail investors a bit more information, the value of themselves compared to the other companies, like MARA. I know I've taken a lot of different metrics when I'm comparing with you. And I guess, I have a question I just thought of there as well. Is it much of a hurdle? I know the way you record your Bitcoin it's -- expensive all in, or whatever, so it seems quite a bit higher than the competitors, but for anyone who's done their duty, they know kind of your accounting style. And I know that's what the institutions that are looking for. But do you find it much of a hurdle on the retail side, getting that point across that your expenses are a little bit higher, but for good reasons?
I think -- I certainly think it's been a journey of education. But for the most part, I do think our investor base, both institutional and retail understands that our metrics are not -- can't be directly compared to the way others report their metrics. And it hasn't been a problem. It's just been a journey of, I would say, education. And the investor base, from my perspective, has done an incredible job of doing that homework effectively?
Yes, that's great.
And then with respect to your hashrate question. I mean, that is our existing live hashrate is the 137 plus the gigahash as we reported.
Yes. That's perfect there. And I guess one other thing on the -- I was just taking a look at the Fintel site and seeing the 76 institutional holder. I don't know if that's still correct, but 73 out of 76 are long, which is amazing. I guess it's kind of an odd question, I don't know if Sue is on the call, I joined a little late. But she was alluding to who one of her potential personal heroes as an investor. I don't know if that's something you guys didn't disclose or you're waiting for them to kind of make that announcement or if it's kind of a treasure hunt for us, retail investors, to figure out who that is?
Well, not sure who her hero is. I'll have to ask her. I believe that the updated 13F are expected tomorrow, but I'm not 100% sure. So I will check in with Sue, but I believe that's the next update there. And obviously, it's nothing that we would ever share. You need to look at public filing for that information.
Up next, we have Kevin Dede.
Could we get a little bit more on the North Bay site? 35 to start. Is that one still able to go to 100? Do you still have -- I mean, I know that press alluded to an option in Alberta. And I'm wondering if some of the logistic issues that held that back are being rectified.
So that wasn't so much of logistic issues in Alberta. Unfortunately, Kevin, it was the COVID-19 situation in Alberta that puts them into a severe and prolonged lockdown. And at this point, we are incredibly pleased with the progress that we're seeing in North Bay and the incredible support that we're getting from local and municipal government. It is a site that's expandable up to 100 megawatts potentially even further. So as that site gets built out, we will assess where we think makes the most sense to put the next 35. So that decision hasn't been made, but we have -- we definitely have optionality, and that's one of the beautiful things about our partnership with Validus. They have so many options as far as sites go that we get to be fluid as we make those decisions.
All right. So correct me if I'm wrong here, Jaime, but your -- Validus is converting natural gas to electrons for you, but I got the impression that there are other power options in North Bay. Can you talk a little bit about that?
Well, I'm definitely not a power expert, Kevin. But it's a -- I believe the technical term, it's a combined cycle plant. So it is a mix of natural gas and steam. And then we are also working into our data center directly, some geothermal, and there are certainly conversations that I can't speak to the technical details with respect to where they're looking at also including hydrogen in the plant. But suffice it to say, it's an incredibly efficient plant, and they are driving at some really incredible innovation around how we maximize the efficiency and minimize the carbon output at that site.
How are your miners coming to you from China? Are you are [indiscernible]? I bet -- it's funny, but there's 100 [indiscernible]. That's my question.
They are flying in is the answer.
Okay. Can you talk a little bit about the Genesis and Galaxy deals? Why were the returns reduced and were you offered any, I don't know, some sort of compensation for accepting a new deal?
I will -- Shane's going to answer that. I can hear him breathing.
Sorry, Shane.
Good question. Quite simply and quite sincerely, both counterparties reached out and we're seeking a renegotiation of terms on a market basis. And frankly, the phone ringing from both groups within almost a week of each other, really wasn't a big surprise. And so, no. Ultimately, this -- it's a market rate. I would say we had an awareness going in that 4% yield was not likely going to be where we stood with these folks for the long haul. And don't get me wrong, I'd love to earn 4% on our Bitcoin loan as opposed to 2% or 2.25%.But the very positive aspect of this that I do think on a call like this is most relevant is one should really be thinking about this as indicative of discount rates applicable to the broader sector. And so what it speaks to from the Genesis and Galaxy perspective, I think, I can't speak for them, obviously, is an increasingly liquid environment around -- from their perspective, borrowing and lending of Bitcoins. So that manifests itself for Hut 8 in a lower annual balancing percentage. But yes, the sort of the very optimistic view that sort of -- certainly but I'd take personally is that it speaks to the ongoing maturation and the depth of liquidity in the Bitcoin market.
I -- just help me understand a little bit better, Shane. It just seems counterintuitive, right? Because I would think that the trading demands put more demand for Bitcoin, right? I guess that it just seems a little upside down to me.
Yes. I think there's more demand seems sort of likewise to me. It seems like a sensible assumption to make. The other side of the Bitcoin here being the supply of Bitcoin available. And that, as we've seen a real increase and if you look at -- this is outside of sort of my area of expertise and outside of our sort of domain as a company, but Bitcoin adoption has continued to really ramp over time over the last sort of several months, both institutional and retail. And so that is -- a significant percentage of those folks are not entering into the Bitcoin space as traders, but rather as HODLers really. And part of that hollow strategy for some portion of those folks is making Bitcoin on available on various yield platforms.There's countless out there, I think, now that are targeted at a retail audience. So it's -- I think those combinations of things that makes it sort of the evolving -- the evolution of the supply-demand dynamic. So I would maybe also add, like I don't anticipate because I don't see it being sort of sensible and realistic landing point over the long-term for sort of the kind of return we can expect from a counterparty like Genesis and Galaxy to like further move downwards significantly. Like maybe a little bit of change in and around the 2% range, but I don't see it dropping down to 50 basis points or something. That I just don't think is going to make -- that doesn't make sense for us. I can say that sort of unequivocally. And -- but I don't think it will end up making sense in the market sort of dynamic either. That's just not going to be a viable spot for anyone.
So I think last time we talked about this a little bit. You mentioned that you were still sort of hunting around for opportunities where you felt that you weren't going to jeopardize your holdings but might be able to reap higher yields. Have you made progress in that search?
Well, I think I addressed this. Excuse me, I'm just getting some water. I think I addressed this as best as I can earlier. Well, we definitely made some progress in terms of continuing to have, what I would characterize as a really constructive, engaging, interesting dialogue with a host of groups, a host of partners, or potential partners. As you can imagine, I think we're one of a very short list of some corporate entities that are in certainly in North America but it was on the radar of institutional borrowers and lenders and then the Bitcoin and the digital asset space more generally. We're known for the size of our self-mined Bitcoin stack, and there's been lots of great discussions. But yes, I think the theme remains what I was saying before that we remain fairly conservative around the kind of risks we're sort of willing to take with our Bitcoin stack.
Okay. Jaime, just to go back to North Bay. Are you still -- I mean, is the plan still to rubber-stamp the modular data center that you folks have perfected over the years in the deployment, or are you thinking about building a sort of a bigger building?
No. In the case of North Bay, Validus is actually building out a more permanent structure that we are leasing from Validus. So we're not bringing our owned infrastructure there. It's actually a Validus building that we'll be moving our equipment into and leasing.
Are you confident that they're proficient enough for the thermodynamics as not to melt all your fancy machines? I've seen that happen a couple of times.
We are confident, and we're very, very actively engaged in the build and design, and testing process. So it's -- again, one of the nice things about this partnership is we work very, very closely together to make sure that everything is checked and triple checked by both parties. And of course, we're working with our traditional design and engineering firms in this space as well.
Right. So that building must be up, right, in order to be feeling comfortable that you're going to have machines running it in January?
Well, it's actually -- the building that's being put in place is a fabric type of construction, which has been ordered and is being constructed, but it hasn't yet been erected at the site and it's not a lengthy process to stand it up once it gets to site.
So in order to sort of get to the -- or at least what I've seen is that current and contracted capacity of 4.5 exahash, does that include more of those buildings?
It would. Yes. We would need that -- to get that total 4.5 powered up, we will need another 35 megawatts stood up.
Up next, we have [indiscernible].
Jaime, real quick on the freight of the flights coming in, is these chartered flights, are these -- because MARA's chartering flights to bring in their machines because they've got a bunch of them coming in. I know you're flying things in, so you guys seem to have that under control, basically?
Yes, absolutely. We've got equipment coming on-site this week. We've had MicroBT equipment from our Q4 order is arriving on site. We don't personally charter the plane, if that's what you're asking. We go with a legit company.
That's just it was, just a question I'm going to make a statement and then a question. I'd like you to try to answer. I am involved in and know all the -- a lot of miners, been there in the game, Bitcoin miners for quite a while. MARA is going to go to 10 exahash and their philosophy is basically -- don't put money into infrastructure because of the value of the Bitcoins and so. They're going to be worth so much so they're deploying pretty much all their capital, just mining Bitcoins and build up their stash or hollow, whatever you want to call it. And I know you guys have a more balanced approach because you've been through the last downturn and survived the bankruptcy, a lot of other companies didn't.So now you've got a balance in there. But I think a year from now, the mining market is going to look a lot different. There's going to be one company that's going to be 10 exahash, I believe. And Riot's going to be in the somewhere kind of like -- almost like the Riot-type business model except you have more diversified forms of whatever. I think you -- basically, my concern's, I own the company, I think you guys are going to get varied in terms of the market valuation compared to, I think, the Amazon that's going to be in this industry. Can you address that and maybe give me a little comfort after owning a lot of your stock?
I'm really not sure how best to answer that. You've answered the question. You've given the answer in the asking of the question in that we are -- that we have a different business strategy than MARA in that we own our own infrastructure. We like to control our performance directly with our own staff and equipment. We like to be able to directly manage our margins and be able to power up and power down and really control everything end-to-end, so that we're in the best possible position regardless of market dynamics because we control our own destiny through the process. And again, our diversification strategy is an important one for us, and we're very conservative in when and how we deploy our balance sheet. You know that we have an incredibly conservative depreciation schedule for our miners. And we intend to be here for the long haul as we have been since late 2017.
Well, my main concern is that I think maybe you're a little so conservative on the -- on increasing your Bitcoin Mining segment as quickly as possible because there are a lot of players that are coming online. There's a lot of money out there for this -- they'll give -- you know you can get money for this stuff. So I think you guys really, a year from now, based on what I see, you're going to be stable financially.These miners are all pretty much well-capitalized and stable and diversifying some income sources except MARA, which I think is going to -- I think you have a business plan that you ought to really consider that segment of your business, you ought to consider being a little bit more aggressive because 12 months from now on this conference call, I think valuations are going to be disproportionately not in the favor of Hut, which I own a lot of, like I said. I own more Hut than MARA, actually. So just a statement, just a comment. I'd like sort of keep it there.
I think one of the things that really needs to be considered closely is ultimately with the hashrate coming online and the margins being compressed and making sure that the balance sheet and the business models are able to perform under all the market conditions that this industry faces. And I think it's best to leave it at that. Ultimately, it's up to our shareholders to analyze the space and the business models and the management teams and make their determinations, but it's -- we are very confident in our strategy and ultimately protecting shareholder value over cycle.
I like that. I like it a lot. Thank you then. Now one thing I want to say, you guys have heads and shoulders above everybody as you've got a female CEO, and she's better looking than everybody else.
Well, thank you so much. You have yourself a great day.
Up next, we have [ Dylan Fong ].
I just had a few questions in relations to the NVIDIA CMPs. What was the -- what's your strategy in regards to after Ethereum goes proof of stake?
Look, I think we can debate that if and when it goes proof-of-stake. But we've addressed it in the past and I'm happy to do so again, which is one of the beautiful things about mining using these CMPs, is we can pivot to ultimate blockchains. There are a ton of other blockchains we can mine, if and when Ethereum makes a move to proof-of-stake.
Do you anticipate the same efficiency that you would be getting there, or are there plans to mitigate if you do have to go to another blockchain? Because in your statement, you're getting extremely high efficiency off of these units.
Yes. That's all about the power profile. The efficiency doesn't change based on the blockchain that it's being applied to.
Okay. So you anticipate a full ROI on these units?
Yes, we do.
Okay. And then, just one last question. What do you guys do with your old equipment? Do you guys sell that or do you just mothball it?
Historically, we would sell it in the secondary market, but at the present time, our B8s, we are not selling. We are looking for opportunities to bring them back online at low costs with low-cost power. So, we are -- that's our current view as we think that they're better kept in our fleet, and we're looking for opportunities to bring them back online.
Up next, we have [ Philip Nicolas ].
Some of my questions was already asked previously. So I will just focus on the second piece I had here. Are you guys considering, for efficiency sake, staking some of your digital assets now that you guys will be likely holding some Ethereum as well?
So we have not yet made a determination to hold Ethereum. All of our -- the Ethereum we mine is actually converted into Bitcoin and paid directly as Bitcoin from the pool. That's part of our relationship with Luxor pool. If and when that changes, we will obviously let the market know.
Up next, we have [ Robert De Luca ].
A question -- some of them have already been answered. But the 4% down to 2% you're getting from Galaxy and -- question, it's a stupid one maybe. But the return you get, is it based as the price of Bitcoin goes up, does your return increase, or is it based on a set value of the Bitcoin that you set? Do you understand the question?
In short, it's a function of the price of Bitcoin.
So as Bitcoin goes up, your 2% obviously is worth more, you're getting more for it. Okay.
Correct.
And secondly, your cash on hand, the -- is that they -- do you barely take the money off for the deposit for the last batch you purchased or is that -- or is it all paid for already, or is there more going to come off of that? More cash as we pay for that?
So, you're referring to I think our most recently announced purchase with MicroBT of 1,000 miners...
Yes.
That will be delivered per month, throughout 2022. So we've made an initial -- sort of in the very normal course, an initial deposit on that. And then the balance will be paid, I think, a little bit later this year, and then throughout the first 2/3 I would say of 2022.
Okay. So it's starting to come off the cash. Okay. And I guess for Jaime, question is, I'm going to shoot off a few things here and if you can answer any of them, I'm going to put them under opportunities. Abu Dhabi Conference, anything going to come out of that? Kevin O'Leary situation, maybe in combining the company, mergers, acquisitions, any comments possible out of any of these things I've said?
No comment. I mean it's obviously public. Kevin has spoken highly of us in the past. He's a fellow Canadian and a friend. And we've always appreciated his commentary and support. We had an incredible series of meetings in Dubai and Abu Dhabi and we're really pleased to continue to expand our network and our profile globally, and certainly we'll continue to do so. And then we've been transparent but we're looking at and we'll always look to be opportunistic, not just for organic growth but inorganic as well, but nothing. No further comments.
Up next, we have [ Brian Hannah ].
Can you hear me?
Yes. You're clear, Brian.
Perfect. First of all, thank you very much for the presentation today. Really impressed with the progress so far. And I guess the question I have is that, right now it looks like the total contracted hashrate is about 3.5 exahash. I guess that's what I've seen so far in terms of purchases already made and miners coming in. So I know that you have a goal right now of 6 exahash for mid-2022. And I guess my question is, in terms of bottlenecks, like do you find right now that it's an issue of getting more miners, do you have enough land as it is right now to make that expansion, or what's kind of holding you back, I guess, if there's anything from reaching that 6 by mid-2022 and like what do you see going forward after that?
Yes. So our total current and contracted exahash, including the gigahash converted into exahash, is right around 4.5, which includes some of the older equipment that will come offline, but then we're looking at opportunities to bring it back online. And as we've done all year long, we've made -- we've been very strategic, very opportunistic in deployment of capital into mining equipment. As you know, it's -- the supply chain is tight. We are in a situation where the semiconductor shortage affects our industry as much as any other industry. And it's very important for us to deploy capital where we're confident in the IRR on that deployed capital.So spot pricing of equipment today is well over a $100 terahash level, which is not a level that we think is comfortable from a deployment of capital perspective. And you can see in our -- in the transactions that we have done, the MicroBT order that we made most recently, we were able to secure at the $50 at terahash range and it's delivering in January. So we will continue to be very opportunistic and thoughtful as we deploy capital, but the constraint right now very much is in the mining hardware supply chain certainly for the first half of 2022.
Got it. And then the last question I think I have now is, so I know you have this -- you have a big partnership right now with Validus. You have the plant come up in North Bay, but I saw a recent update from Validus themselves that they're looking at another plant in Northern Ontario, like I think the Kapuskasing region...
Kapuskasing.
I'm not sure of the exact name.
Yes. That's right, Kapuskasing.
Yes. Is that something that you see as -- is that something that you could go with going forward? Is that like are you looking at that as like a fourth plant or is that I guess too early to tell, it's just Validus increasing their own capacity?
That is Validus increasing their own capacity. I mean they continue to also look at their own expansion and they're very opportunistic as well in the deployment of their capital. Kapuskasing is a potential site for us. It's quite a bit further north than the North Bay site. So from a geographic perspective, we're really comfortable in North Bay and we haven't yet decided where the next 35 will go, but -- look, we're focused on North Bay for now would be my answer.And Brandon, we're coming up to 11:11, and I'm sitting in a location that's right next to our Parliament building, here in Ottawa. At 11:11, there will be a moment of silence, and then we will start to hear some cannon fire. So, I think, it would be safest, Brandon, if we just take one, or maximum 2 more questions so that we do not -- we can take our moment of silence at 11:11 and then not be interrupted by cannon fire.
Sure. Absolutely. Next question will be from [ Greg Lee Park ].
Jaime and Shane, just wanted to touch base. I think first off, hands-off, hats-off to you both for locking down the supplier and the power negotiations that you guys have done, really outstanding. And also, I agree with your point of trying to hold onto your B8, because realistically you are competing against everybody else. And as soon as you plug-in a machine, it's already losing its value in -- because other people are bringing theirs on-board. I was wondering why you're holding back on like taking the B8s offline. Is that a capacity issue, or just -- I just want to get some insight on that.
As new MicroBT equipment comes in, we upgrade the B8s, and then, we will be all MicroBT going to North Bay.
Okay. And that's -- the other thing, I was wondering if you have considered holding Ethereum, given that it's maybe a little less stable than BTC, but it seems to be outperforming recently.
Well, we're certainly absolutely thrilled with the investment that we made in the NVIDIA machines and the performance and the profitability we're getting mining Ethereum. But again, continuing to settle and hold Bitcoin. And we're always looking at the market and assessing, but at this point we do not have an intention to hold Ethereum. We will continue to settle directly in the Bitcoin market.
Excellent, and finally, you've talked about North Bay. You're bringing 35 watts online and a possibility to extend past 100. I'm wondering what the Alberta is sitting at just on unused capacity?
Our sites in Alberta are maxed out. The Medicine Hat is maxed out at 67 and Drumheller's maxed out at 42. There's no further expansion available in -- at either site, we're at full capacity. And then Brandon, last question.
Last question is a follow-up from [ Chris Brendler ].
I just -- give me just one -- it's just going to be a quick thought on the state of Bitcoin mining. We've seen a lot of capital come into the space, And I just wanted to see if you had sort of a top-down view based on your conversations on what we expect from Hut 8 as they try to keep pace as capacity starts to ramp up here.
I'm not sure that I have anything to add that we haven't already covered in this call. We'll continue to focus on opportunistic, profitable, gearing, and growing and diversifying of the business.
Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.