HIVE is the first cryptocurrency mining company in North America to go public with major assets, provable cash flow, and a road map for massive expansion.
With $40 million in cash, HIVE Blockchain Technologies (HIVE-TSXv) will pursue a strategy of aggressive growth with the planned acquisition of more data centres from Genesis Mining in the future.
Genesis is the largest cloud Bitcoin miner in the world with 700,000 customers. Genesis Mining owns 30% of HIVE and is obviously transferring assets to the public company to raise money to expand in a big way, and quickly.
But a clean balance sheet is not a high priority.
Olivier Roussy Newton is a director of HIVE, who is also an advisor to Genesis Mining on new business initiatives. Last Wednesday, I interviewed him on the phone while he was in Munich. Newton says:
“A lot of the institutions that were part of the 30 million-dollar deal were quite adamant that we need to grow as fast as possible. We agree, Genesis agrees. We’ve been fortunate enough to have existing data centers available from Genesis to purchase. But I think going forward we’ll be aggressively pushing to get as much capacity under the Hive corporation as possible.”
Newton is referring to the bought deal private placement worth $30 million Canadian that closed recently. Twenty million common shares were sold to private investors at $1.50 each with a hold period expiringFebruary 12, 2018.
Partial proceeds from the sale will be used to fund the acquisition of a second data centre in Iceland.
With only three days passed into the IPO, the company had so many bought offers at an attractive valuation, that they went ahead with the deal to buy another data centre.
‘We’re looking at places where we can deploy a lot more megawatts of capacity, and that can be conducive to scaling up further,” says Newton, who also mention they are looking at other Nordic countries, but not Canada at present.
“We had unique opportunity to acquire cash flow positive facilities in the Nordics, we will explore Canada at a later date. But we have solid pipeline in the Nordics for time being.”
HIVE is adopting the same strategy as other aggressive hi-tech companies such as Amazon—growth growth growth. It will make interpreting the balance sheet and income statement a bit tougher come reporting time.
HIVE will not disclose key metrics at the next quarterly reporting such as total hash power of its data centres (hash is the raw computing power used to mine Ethereum).
Without knowing the total hash power of the data centre, nor the amount of ether that is being mined on a monthly basis, it will be near-impossible for public investors to estimate the cash-flow potential of HIVE’s data centres.
For example, a reasonably tech-savvy investor could use a formula for estimating cash flow such as: Hash power X Mining Difficulty X price of Ethereum = Monthly revenue. But those details will not be made public for now.
Newton is aware that the reporting for the first few quarters will be challenging:
“Being the first publicly listed miner globally, we have to come up with the reporting standards that make sense. Obviously, Genesis being a large partner of ours is also a private company, so we have to respect their requirements on us.
“There’s a certain amount of transparency that we can disclose. But eventually over time I think as we figure out how to educate the market and investors, we’ll try and be as transparent as possible. With a gold mine you don’t disclose everything you’re doing. We just need to figure out what our trade secrets are and what is our competitive edge to disclosure,” says Newton.
HIVE also plans to hold onto the coins is currently mining, as they feel the $30 million in the bank is enough cash to cover operating expenditures and future acquisitions for now.
This is a very defensible strategy. Long term, Ethereum will go up or go down but it won’t stay the same price. If it goes down by a significant amount and stays there, then HIVE may struggle to survive, let alone buy more data centers. You could argue you might as keep the Ethereum and wait for institutional money to enter the market:
Says Newton: “…Personal funds are being invested on behalf of individuals. There’s really no funds managing other people’s money at play. Hive is one of the first (public) vehicles where they can look to see that happen. I think it will be quite interesting.”
However, no sale of Ethereum = no revenue or cash flow. And remember, there is no plans to issue guidance on how Ethereum was mined in the quarter. So the quarterly report could be a very rude shock for investors expecting to see a cryptocurrency money-making machine.
What may happen is that HIVE may have to report accrued assets (the Ether) in dollar terms and then diligent analysts will have to work backwards to guess-estimate the mining capacity of the data centres.
So as the quarterly draws near (reporting date will be sometime in November), it will be interesting to see if investors either dislike the numbers and the opaque reporting, or be excited to see the growth potential of HIVE in the fast-growing cryptocurrency mining sector.
Ross
Disclaimer: I hold shares of HIVE
