Riot Blockchain is one of the largest North American-listed miners, with its flagship Whinstone site in Rockdale, Texas.

I was fortunate to recently catch up with the company’s chief executive officer, Jason Les, and spend time discussing the current talking points from an investor’s perspective. The interview transcript below is edited for clarity.

When reviewing Riot Blockchain’s Bitcoin mining performance over the past 12 months you will notice that since June, output has reduced in comparison to other North American miners like Hive Blockchain (HIVE). Can you explain the reasons for this?

“The answer is twofold,” Les said. “Firstly, there has been a continued rise in mining difficulty. Secondly, the Whinstone site continues to curtail energy during peak dometic usage.”

It’s been well publicized that Riot Blockchain currently has one of the cheapest energy costs, having signed a fixed power purchase agreement (PPA), contracted to April 2030.

“During Q1 2022, the company achieved a net power rate of 2.9c KWh,” Les said. (This rate takes into consideration all the components: fixed block, real-time, demand response, curtailment, etc.)

Why were September’s mining values low?

September – in comparison to previous months and in terms of production – was a poor month, with 355 Bitcoin mined from an operating hashrate of 5.6 EH/s. However, the monthly update did mention that September was the last month of the year where the company would be participating in the ERCOT 4 Critical Peaks (4CP) program, which effectively means the less load contribution you use during peak usage periods, between June and September, the more you save in the preceding year.

“The company could have done a better job of explaining this particular issue in a little more detail,” Les said. He went on to say “participating in the 4CP program will not bring immediate benefit in the same period, but by participating, the company does not have to pay transmission fees for the next period, which amount to approximately $0.005/kWh.”

This adds up to a significant amount, considering how Riot Blockchain responds to these events with 500 megawatts (MW) of operating power.

How much USD did Riot earn for energy credits in 2022?

During the first half of 2022 Riot Blockchain benefited significantly from selling blocks of energy back to the grid.

“Riot Blockchain received $5.7 million in energy credits,” Les said.

Any credits calculated are received the following month. For example, if a company has a monthly energy bill of $5 million and has an energy credit from the previous month of $2 million, it pays the balance of $3 million.

Les went on to confirm that in July and August “Riot received $9.5 million and $3.5 million respectively in energy credits.”

Although there were not as many opportunities in September, Riot will save a considerable amount in energy costs next year by participating in the 4CP program.

What is Riot’s immersion strategy?

With the first of two 100 MW buildings completed, and the second nearing completion, Les reaffirmed the immersion-first strategy: “Our goal and strategy in implementing immersion-cooling technology is primarily to prolong the life of machines.” He went on to add, “The company wants to be comfortable with the setup and understand the efficiencies achievable before we are in a position to issue any meaningful data with shareholders.”

One clearly misunderstood point with regard to the technology is that underclocking can actually provide greater efficiency. “Riot Blockchain can actually mine Bitcoin, with immersion-cooling technology, using less energy,” Les said. However, Riot is focused on determining the optimum hashrate it can achieve.

Tell me about the next site in Navarro County, Texas.

The discussion then focused on the plans to build a one gigawatt (1,000 MW) site in Navarro County, Texas, and how this was going to be completed in the current bear cycle.

“Riot Blockchain estimates that the total costs to complete the first 400 MW phase of the Corsicana expansion will be in the region of $333 million, which is scheduled to be invested over the remainder of 2022, 2023 and the first quarter of 2024,” Les said.

The future capacity will be expandable by a further 600 MW, taking the total to 1 GW, via the 345 kV Navarro switch that is located approximately 1,250 feet away from the site.  How do you plan to fund this?

“Riot is very well capitalized for this early phase of Corsicana,” Les said. “The company has a strong balance sheet with $270 million in cash and no long-term debt, and with miner prices currently dropping, the company has also benefited from credits from its supplier, which have reduced the requirement for further miner cash outlays, until the end of 2022.”

Groundbreaking recently occurred at the new site in Navarro County, Texas, as can be seen below.

Recent articles have highlighted the amount of stock compensation currently being awarded to a number of Bitcoin miner directors, including Riot Blockchain. Can you elaborate on this any further?

Les understood there was shareholder anxiety at the amounts awarded and explained the process, also highlighted in the Form 8-K issued to the SEC on Aug. 16, 2021.

“As CEO, I will receive a maximum total of 525k total performance RSU Awards Target during the period to end 2023, if the company achieves 1.5 GW of infrastructure with hosting or self mining deployed, and $500 million in adjusted EBITDA,” Les said.

The Form 8-K also states that stock compensation will be issued in increments for every 100 MW and £50 million adjusted EBITDA achieved. Assuming that Riot Blockchain achieves those targets, shareholders will hopefully be invested in a company with a share price reflective of these two achievements.

With our interview coming to an end, I had 10 minutes to cover a number of quick questions which have been condensed and edited for clarity.

The Ethereum Merge and impact on Bitcoin?

The barriers to entry into Bitcoin mining would be a struggle, and I believe Ethereum miners would probably utilize their GPUs to seek alternative revenue streams.

Is the hodl strategy viable?

Riot Blockchain has been selling around 300 Bitcoin per month, throughout the year to cover the cost of their expenses. The company reviews the decision each month, to determine the best strategy.

Is Riot currently in the market for distressed assets?

As a company, we are always evaluating the market space, but you must understand we currently have a massive expansion model, focusing on economies of scale.

Is hosting still currently profitable?

Riot Blockchain received a significant amount of energy credits throughout 2022 with the 10-year fixed price energy agreement in place. When the company purchased Whinstone in May 2021, it took on a number of legacy hosting contracts, and when they are due for renewal, the company will always look to negotiate the terms of the agreement, to ensure they are good for Riot Blockchain.

What is your view on Bitcoin moving forward?

Bitcoin has been cyclical and this currently feels like all the cycles before. There will always be macroeconomic events happening within Bitcoin and outside the space.