Stronghold shifts focus from bitcoin mining to selling power as it restructures debt

Quick Take

  • Bitcoin miner Stronghold announced a series of deals that cut down its debt by more than half. The deals involved returning about 26,200 mining machines to lenders.
  • The company said that it will be shifting its main focus away from bitcoin mining and into selling power to the grid in the next few months.
  • The miner fell short of analyst expectations for the second quarter with $40.2 in net loss and $29.2 million in revenue.

Bitcoin miner Stronghold announced in one swift move on Tuesday that it restructured its debt and decided to shift its focus to selling power over mining bitcoin.

The company eliminated $67.4 million in outstanding debt with NYDIG by returning about 26,200 mining machines. It also restructured a loan with WhiteHawk, converting it to a 36-month term and adding up to $20 million of additional borrowing capacity.

The debt restructuring was announced as the miner posted a net loss of $40.2 million and a 1.7% fall in revenue in the second quarter ($29.2 million) compared with the previous one. Analysts surveyed by Factset were expecting an $8.4 million net loss and $30.3 million in revenue.

The company, which owns and operates two waste coal plants in Pennsylvania, now plans to sell a majority of its power generation to the grid at least in the next few months.

"We can pull from the grid when prices are lower than our variable cost of power and we can sell power to the grid when grid prices are more attractive than bitcoin mining economics," CEO Greg Beard. "Most recently the latter has materialized."

The company didn't expect the power business to be a "meaningful driver of value" for at least a couple of years, it said during the call. But while bitcoin mining margins were "fantastic" last year, it has seen bitcoin prices go down and power prices go up since.

While the capital from WhiteHawk can be used to buy mining rigs, the company is not in a rush to fill the slots left open by the debt restructuring, Stronghold said during the earnings call.

"When we think about spending our dear investor capital to buy miners today we're going to prudently think about opportunities, we're going to stand back and look for pain points and we're going to frankly reflect on the lessons from the last nine months," said Chief Financial Officer Matthew Smith.

Beard stressed that vertical integration has always been a "foundational piece" in the company's strategy. "Looking ahead, we aim to capitalize on our dramatically improved liquidity position to prudently invest in our bitcoin mining fleet when dislocations between price and value might arise," Beard said in a statement.

As part of the restructuring, the company has also amended convertible notes and warrants from May 16, 2022 to reduce the principal amount outstanding by $11.3 million in exchange for reducing the strike price on outstanding warrants from $2.50 to $0.01. The company has the option to fully extinguish the notes with equity over the next few quarters.

The company had already indicated in its last earnings call that it would consider selling its power to the grid if a market downturn made selling power more economically viable. "If bitcoin falls below $22,000 on average, we will pivot to selling power to the grid, which distinguishes us from most other miners," Beard said then.

Stronghold had initially scheduled its second-quarter earnings call for last Thursday but postponed it, telling The Block in an email that it was "making a significant announcement that needed a day or two more to finalize." The company ultimately delayed reporting its earnings three times before today. It said in a filing with the U.S. Securities and Exchange Commission (SEC) filing from Tuesday that the delay was mainly due to ongoing negotiations with its lenders.

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