Canadian mining firm Hut 8 Mining has published its financial statements and results for 2018. Hut 8 announced a net comprehensive loss of $136 million, adding to the list of companies negatively affected by the best market, in a press release on May 8, 2018.
Results and Loss Profile
In the announcement, Hut 8 gave investors financial data for 2018, some qualitative results, and their expectations for the market and their own operations going forward. In 2018, Hut 8 mined 5,592 BTC for a total revenue of $49.4 million and an earnings before interest, taxes, depreciation, and amortization (EBITDA) of $19.3 million with a margin for EBITDA at 39 percent.
The company had a $136.6 million net comprehensive loss owing to a write-down of equipment due to swift increases in wear and tear, as well as the devaluation of Bitcoin mined from the price at the time of mining to fair value.
In Q1, the company raised $70 million worth of equity from various investors in the public market as well as raising debt from a $16 million private loan offering from Galaxy Digital, who also recently announced a loss for 2018.
Black box centers shot up from seven facilities to 85 over the calendar year while also adding capacity to their mining operations, visible from their hash power increase from 56 PH/s to 784 PH/s.
In an effort to move to a more cost-effective business model, Hut 8 has entered agreements with City of Medicine Hat to procure 63 MW of off-grid energy and this has already been integrated into the company and is included in their total energy capacity of 95.2 MW.
While the company has not hinted at anything, investors can expect more energy agreements going forward as they lock in lower per unit costs of electricity. The company also resorted to laying off employees to maintain some degree of financial health in light of mounting operating losses.
Expectations and Industry Dynamic
As a mining company, their sales and profitability are dependent on two key factors: BTC price and cost of electricity. In an environment where BTC fell nearly 75%, Hut 8 was bound to declare a large loss, so this is hardly a shock to the market. Other than hardware, electricity costs are the main input for mining; securing cheap electricity will be key for Hut 8 going forward to limit increases in power costs.
Mining rigs are subject to rapid wear and tear which means we will see high capital expenditure as the company continues to add capacity. To account for this high wear and tear, management depreciates equipment on a straight line basis for two years which in turn will lead to high EBITDA margins and lower operating (EBIT) margins.
This company is a fundamental play on Bitcoin’s price; with high bitcoin price, they will see high revenues and vice versa. In a bull market, one can expect their revenues to take off, but profitability cannot be guaranteed as their cost inputs will have to be managed as well.