CleanSpark Is Making Nice Progress, But Bitcoin Remains The Better Buy

CleanSpark (NASDAQ:CLSK) has been a volatile stock to say the least. It’s up nearly 75% since my original “Buy” write-up in March and up 20% since I took it to “Hold” in June. However, it’s also down -40% from its July 17^th intraday high of $7.599. Let’s catch-up on CLSK stock.

Company Profile

As a refresher, CLSK is a Bitcoin miner that owns and operates its own facilities. It doesn’t lease its space to any outside miners. Its main campus is located on over 16 acres in Georgia. It also has a co-location agreement with Coinmint for miners in New York.

The company doesn’t hedge its holdings, nor does it regularly try to trade Bitcoin. However, it will sell the Bitcoin it mines to help fund its operations and grow. Management has said it doesn’t use any specific algorithms or programs to decide when to sell any Bitcoin.

Expansion and Fiscal Q3 Results

One of the big themes in my earlier write-ups was CLSK’s continued race to increase its efficiency and improve its hashrate. To remain competitive, this is something all Bitcoin miners must do. On this front, the company has been progressing nicely.

CLSK has been in the process of expanding both its Washington and Sandersville campuses in Georgia. In mid-July, the company announced that phase 2 of its Washington mining campus was online. The expansion adds power capacity of 50 megawatts from more than 15,000 machines, of which 10,500 were in operation at the time of the announcement. The expansion will increase its computing power to 8.5 exahash per second (EH/s). The company has a goal to get to 16 EH/s by year-end.

Meanwhile, the company acquired two turnkey Bitcoin mining facilities in Dalton, Georgia in June for $9.3 million in cash. CLSK said the deal adds 1 EH/s to the company’s hashrate, as it will add 6,000 Antminer S19 XPs and S19J Pro+s that it purchased earlier this year to the facility.

CLSK also continues to purchase computer power picking up 12,500 brand new Antminer S19 XP bitcoin mining machine for $40.5 million in early June. The price came out to $23 per terahash, which was an increase from the $13.15 per terahash it paid in February. While the company said the deal was at a discount, prices have since come down after its purchase. While the February deal was a great one, CLSK would have been better off waiting a month to buy new machines.

On its fiscal Q3 earnings call, CEO Xachary Bradford said:

“I want to take a moment and announce that we have fully funded our growth to 16 exahash. This includes machines, materials and everything else, nuts to bolts that goes into building a world-class Bitcoin mining facility and bridging the gap to 16 exahash per second. This creates certainty for our shareholders around our future and puts any questions to bed about our path to 16 exahash per second. We are building transformational infrastructure with almost 90,000 machines deployed and another 60,000 on hand or pending delivery for a total fleet of approximately 150,000 state-of-the-art miners, all fully funded. We are operating over 9 exahash per second, and over the next half of the year, we expect to add an additional 7 exahashes per second after energizing the expansion of our data center in Sandersville, Georgia. That expansion, I again would like to state is fully funded. I know this has been an important question for many of you. There is no longer any uncertainty about when we will have the funds in hand to pay for the expansion and the miners. That day is today. Our track record speaks for itself.”

Being fully funded for its growth this year is important for a couple of reasons. One, it removes any uncertainty that the company would be able to get funding in a world of high interest rates and more scrutiny among lenders. It also allows the company to build-up its Bitcoin holdings and not have to sell them right away to fuel any growth.

With its Washington campus expansion online, CLSK can now focus on its larger Sandersville expansion. The expansion is expected to take Sandersville from 80 megawatts operating capacity to 230 megawatts, a huge jump. The company will be waiting on the Municipal Energy Authority of Georgia to complete a nearby substation to help power the plant, so the timing for it to be up and fully running will be a bit out of its hands.

For CLSK’s fiscal Q3 results, the company saw revenue rise 47% to $45.5 million, just below the $45.71 analyst consensus. EPS was a loss of -12 cents, better than the -17 cent loss analysts expected.

Gross margins improved from 48% to 55%, helped by lower power costs. Its all-in cost of power for proprietary mining sites was $0.041 per kilowatt hour.

Adjusted EBITDA came in at $13.3 million, up 160% year over year.

At quarter end, the company had $22 million in cash, $18 million in debt, and 529 Bitcoin valued at around $14 million.

Bitcoin traded between $20,000-31,000 for most of Q3, and the average revenue per Bitcoin mined was $27,982. It is currently trading just over $27,000.

The direct cost to mine one Bitcoin at its owned facilities was $11,467.

Conclusion

With a mining cost of nearly $11,500 per Bitcoin in Q3 and nearly $10,500 per Bitcoin in other expenses not including D&A, CLSK is getting about $5,000 in profit per bit coin it mines. With its expansion and increased hashrate, CLSK should be able to reduce its costs, but energy costs are a big input, and those costs have been going up not down.

However, with a Bitcoin halving projected for around next April, the price of Bitcoin will have to get to over $40,000 just for the company to be around breakeven on mining. As reminder, the Bitcoin block reward will be cut in half to 3.125 Bitcoin from 6.25 Bitcoin when this event takes place. Theoretically, the price of Bitcoin should rise 50-100% from today’s levels just to make mining worthwhile, and anything under $40,000 for an extended period after this event would likely cause many smaller miners to go by the wayside.

Ahead of the halving event, it seems the more prudent move is holding Bitcoin over the miners, such as CLSK. Bitcoin prices must move a lot to make mining feasible, so while the miners could be a juiced way to play a Bitcoin price increase, they also carry a lot more risk and Bitcoin prices will need to double just to keep their economics the same.

As such, I continue to recommend buying Bitcoin directly over CLSK or any other miners. I like what CLSK is doing to prepare for this event, but Bitcoin is the better value.