In August, the North American public miners will release their quarterly financials for the period of April 1 to June 30, 2024. Notably, a halving event occurred, marking a significant milestone in Bitcoin's lifecycle, as mining rewards were reduced from 6.25 to 3.125 BTC per block.
Riot Platforms was the first North American public miner to release its financial results, followed closely by Marathon Digital. This article examines the financial performance of each company. As more results are released this month, the second quarter of 2024 will reveal the substantial impact of the halving and the decline in Bitcoin's price since March 31, 2024. These factors present significant challenges even for the most efficient mining companies with access to inexpensive energy.
Additionally, it is important to note that the Financial Accounting Standards Board (FASB) has updated its guidelines for holding digital assets on the balance sheet. Companies are now required to measure digital assets like Bitcoin at fair value, with value changes recognized in earnings. This shift from the previous cost-less-impairment model enhances transparency and reflects real-time asset valuations, aligning accounting practices with market realities.
In the first quarter of 2024, Bitcoin opened at $42,265 and closed the quarter at $71,333, benefiting miners in two significant ways. Firstly, revenues recorded in the statement of operations increased substantially. Secondly, the amount of Bitcoin held in treasury appreciated by over $29,000.
Riot Platforms and Marathon Digital both experienced unrealized gains, amounting to $157.7 million and $340.8 million, respectively, which contributed to their strong net income positions.
However, in the second quarter, the block rewards’ halving and the subsequent decline in Bitcoin's price to $62,678 resulted in unrealized losses for miners holding Bitcoin. This downturn significantly impacted the financial positions of both companies, contrasting sharply with the profits achieved in the first quarter. Riot Platforms reported a loss of $84.4 million, while Marathon Digital reported a loss of $199.6 million.
Considering the results for the first half of 2024, both companies performed better overall, with net incomes of $127.3 million and $137.5 million, respectively. When evaluating 'free cash flow,' which accounts for only the cash costs of the business while excluding non-cash costs such as depreciation, stock compensation, and unrealized gains/losses, both companies maintained a positive cash flow position for the first half of 2024.
It should be noted that Riot Platforms failed to achieve ‘free cash flow’ during the recent quarter, effectively overspending by $4.5 million. This is in part due to the legacy hosting customer disputes currently going through the litigation process in response to Riot Platforms issuing contract termination documents in the first six months of 2024.
Further costs were also incurred in the purchase of 61 million shares in Bitfarms (BITF), at a cost of $133 million, during the first half of 2024. On a positive note this investment had provided an unrealized gain of $24.5 million as of June 30, 2024.
Gross Mining Margin and Cost to Mine 1 Bitcoin
After each Bitcoin halving, the time and cost to mine 1 Bitcoin significantly increases. Miners must seek the lowest cost of energy and utilize the most efficient mining machines available to minimize their expenses. The table below highlights the total 'cash costs' to effectively mine 1 Bitcoin for each company, based on operating costs for the first half of 2024.
Riot Platforms, with operations based in Texas, benefit from energy strategies such as power sales and demand response credits, which effectively lower their power costs. During this reporting period, they achieved over $19 million in credits, resulting in a mining margin of 65%. Marathon Digital, although transitioning towards an infrastructure ownership model, still has many of their mining machines in hosted facilities, achieving a mining margin of 41%.
Other operating cash costs, such as general and administrative expenses, including salaries, marketing, professional fees, and other costs and income such as interest payments, resulted in operating margins of 43% for Riot Platforms and 14% for Marathon Digital.
In terms of the total cash cost to mine, Riot Platforms effectively produced 1 Bitcoin during the first half of the year at an average cost of $47,474, compared to Marathon Digital's average cost of $54,362.
1. Riot Platforms Operating Cash Costs have been apportioned to reflect the cash costs associated with self mining - 85.21%.
Balance Sheet Strength
The Bitcoin mining industry is still in its relative infancy, with Hive Digital (HIVE) being the oldest publicly traded miner in North America, set to celebrate its seventh anniversary in September 2024. Given the volatile nature of Bitcoin prices, it is crucial for mining companies to maintain a robust balance sheet, particularly post-halving when mining rewards are halved and there is no immediate assurance of a Bitcoin price increase.
Both Riot Platforms and Marathon Digital exhibit significantly strong balance sheets. They were the first two American Bitcoin miners to formally list their shares on the Nasdaq exchange, providing an advantage in raising capital, far more easily when compared to their peer miners.
The Current Ratio (Current Assets / Current Liabilities)
The current ratio allows for easy comparison with companies in the same industry, providing investors and analysts to assess how well a company manages its short-term resources in relation to its peers. A score above 1.0 suggests there are sufficient current assets that can be liquidated over the next 12-month period to meet all short-term liabilities. In terms of this ratio both Riot Platforms and Marathon Digital have a substantial amount of current assets to cover their current liabilities with scores of 7.65 and 3.75 respectively.
Debt to Equity Ratio (Total Liabilities / Total Shareholder Equity)
The debt to equity ratio is crucial for Bitcoin mining companies to ensure financial stability, manage risks from volatile Bitcoin prices, and maintain operational flexibility. It enhances investment appeal, supports operational continuity during downturns, and enables balanced growth through prudent financial management. Riot Platforms and Marathon Digital have low debt levels relative to their total net assets, at 5% and 18% respectively, providing essential strength in navigating early financial challenges post-halving.
Enterprise Value / Hash Rate
Enterprise Value (EV) offers a more comprehensive valuation of a company by considering market capitalization, cash and cash equivalents, and debt on the balance sheet. The EV calculation also includes the value of Bitcoin held in the treasury.
To further refine this valuation, EV can be divided by the current and future hash rate to indicate a value per EH/s. For Riot Platforms, with a current installed hash rate of 22 EH/s, the hash rate is valued at $81.3 million per EH/s, with an end-of-year target of 36 EH/s potentially reducing this to $48.3 million per EH/s.
For Marathon Digital, based on a current hash rate of 30.5 EH/s, the value of their hash rate is $126.9 million per EH/s. If the company achieves its end-of-year target of 50 EH/s, this valuation would be $80 million per EH/s.
Summary
The first two quarters of 2024 have yielded mixed results for Riot Platforms and Marathon Digital. Historically, Bitcoin prices have tended to rise by the third or fourth month post-halving, and that timeframe is now approaching. This cycle is unique due to increased Bitcoin adoption and the significant impact of the eleven Bitcoin ETFs approved by the U.S. Securities and Exchange Commission (SEC), in January.
As North American miners integrate more efficient machines and the global hash rate continues to reach new highs, miners are hopeful for an increase in hash price to secure reasonable profits from Bitcoin mining.
