The shares of embattled crypto mining firm Argo Blockchain rose 120% in London after a sale and refinancing agreement with Galaxy Digital Holdings.
Argo’s stock rose to roughly $1 as investors welcomed news of a $35 million refinancing arrangement and a $65 million data center sale to Galaxy. The company’s stock fell 92% in 2022.
Argo Outwits the Grim Reaper, But Only Just
This $100 million lifeline comes a little over two weeks after the firm told the London Stock Exchange that it was in talks to sell some assets and take out a loan against its mining equipment to help revive its balance sheet.
The clock was ticking on a potential bankruptcy filing after Argo announced in Oct. 2022 that an attempted $27 million fundraising from a “strategic investor” had fallen through. Despite raising $5.6 million from selling 3,843 Bitmain mining computers, Argo warned that the failure to secure additional financing would render it cash-flow negative. It would then be unable to continue operating at full capacity. A worst-case scenario would see it cease operations.
The sale of its $65 million facility means Argo’s focus will shift to its hydro-powered facilities in Canada.
Bear Market Magnifies Insolvency Risks
While Argo seems to have escaped the falling knife, increasing electricity prices and Bitcoin’s plummet from an all-time high in 2021 squeezed the cash flow of several mining companies in 2022, rendering them unable to service debt. Companies accrued high levels of leveraged debt during previous crypto bull markets.
Hashrate Index pegs the liabilities of public crypto mining firms at around $4 billion. The 25 miners have a debt-to-equity ratio of approximately 1.8, which is considered high for the risky Bitcoin mining industry.
Mining companies like Argo Blockchain help secure the bitcoin network by acting as decentralized clearinghouses for Bitcoin transactions. They use powerful computers to compete to solve a mathematical puzzle and broadcast a block of transactions on the Bitcoin network.
One of the biggest public miners, Core Scientific, filed for Chapter 11 bankruptcy last month after it could not pay tens of millions monthly to service its $1.3 billion debt. A voluntary bankruptcy filing buys insolvent companies breathing room to restructure their debt obligations while attempting to turn a profit. In extreme cases, a company will liquidate.
Previously one of the largest hosting companies in the U.S., Compute North filed for bankruptcy in Sep. 2022. It later filed a 363 bankruptcy sale to liquidate its assets to repay debt.
Other notable firms like hosting company Greenidge have avoided bankruptcy by allowing lenders to assume ownership of mining equipment.
While Marathon Digital has $851 million in liabilities, it seems unlikely to go bankrupt since its liabilities consist of convertible notes that do not pressure the company’s monthly revenues.
However, Hashrate Index says that unsustainable debt in the mining industry will result in further capitulations and restructurings.
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