Stronghold Digital Mining has become the first American crypto miner to file for an initial public offering. The firm will join the NASDAQ index with the ticker SDIG.
The Bitcoin miner aims to raise $100m through the listing, with its almost 5.9 million shares priced at between $16 and $18.
B. Riley Securities, Inc. and Cowen will be acting as joint book-running managers. Meanwhile, Tudor, Pickering, Holt & Co. are serving as lead managers.
What is Stronghold?
Stronghold Digital Mining is, as the name suggests, a cryptocurrency mining company. The outfit is focussed on Bitcoin and operates from an environmentally-beneficial coal refuse power generation facility in Scrubgrass Township, Pennsylvania. The business is headed by Gregory Beard and William Spence.
One of the things that makes the company unique is its environmentally conscious strategy. The outfit’s mining operations are powered through the reclamation of coal refuse sites across Pennsylvania. Coal refuse is a harmful byproduct of the state’s historic coal-mining operations. The substance creates a number of issues if left in piles, such as water and air pollution.
Stronghold removes coal refuse from piles and burns it in an emissions-controlled manner at its wholly owned generation facilities. Through this strategy, the company says it has restored around 1,000 acres of once unusable land in Pennsylvania. Additionally, the practise means Stronghold benefits from renewable energy credits and coal tax credits from the state of Pennsylvania.
How does Stronghold make money?
Stronghold currently operates approximately 1,800 crypto asset mining computers with hash rate capacity of approximately 85 petahash per second (PH/s). The company uses these miners to provide Bitcoin mining services to third parties and to operate its own Bitcoin mining equipment, eventually exchanging the cryptocurrency for US Dollars. Though Stronghold is focussed on Bitcoin, the business said it may utilize its miners for other crypto assets depending on market conditions.
Crypto mining businesses are not new, but the company claims that owning its own source of power has helped it to produce Bitcoin at one of the lowest prices among its publicly traded peers. Including the impact of incentives, power generation at Stronghold’s Scrubgrass plant costs $18 per MWh. The company estimated that its competitors pay between $22 and $40 per MWh.
Stronghold’s most recent annual results, which covered the 12 months ended 31 December 2020, show an operating loss of just over $2.4m. Operating expenses of $6.6m, driven by operations and maintenance costs of $3.3m, overshadowed revenues of $4.1m.
Revenue appears to have grown in 2021, with the company’s first quarter results showing a 334% increase in operating revenue compared to the same period 12 months prior as it rose to $3.8m. However, total operating expenses still outweighed this, coming in at $5m. Stronghold stated that it may continue to run at a loss as it establishes its business model.
Stronghold growth potential
A key facet of the company’s expansion strategy is the acquisition of additional environmentally-beneficial power generation assets.Stronghold has already entered into a definitive agreement to purchase a second coal refuse power generation facility. The company expects to close this transaction in the next four months.
Furthermore, it possesses a non-binding letter of intent to purchase a third coal refuse power generation facility. Additionally, Stronghold is bringing in new mining machines. The crypto miner said it had have recently executed purchase orders for the acquisition of miners.
While it noted that some of its competitors struggle to obtain mining equipment due to strong demand and pre-sold supply, the company is confident it can leverage the breadth of its relationships to quickly expand its mining capacity. The company said it expects expansion in its crypto asset mining operations to approximately 57,000 total miners, representing over 5,300 PH/s, by the end of 2022.
Looking ahead, the company also emphasises its desire to build constructive relationships. Stronghold explained that it prioritises long-term partnerships and equity alignment. For example, its anticipated partnership with a Bitcoin mining and data center operator provides for sharing of the economic rights to cryptocurrency produced by the partnership. Stronghold explained that this would motivate the partner to manage mining operations to achieve maximum efficiency.
Is Stronghold a good investment
Investing in Stronghold appears to be a mixed bag. On the one hand, the business appears to be smartly run, with an emphasis on building meaningful partnerships. It also has a clear pathway to growth that the IPO can help it achieve. Stronghold also offers a chance for environmentally-conscious investors to get in on the cryptocurrency hype.
However, the downside to the investment is how firmly Stronghold relies on the price of Bitcoin. Cryptocurrencies are volatile investments, with Bitcoin’s value having varied between the ranges of around $11,000 and $63,000 in the last year alone. The currency looks strong right now, but that can change in a heartbeat. Stronghold’s strategy of hedging fiat currency to hedge some of its exposure to Bitcoin will partially mitigate this.
Even so, Stronghold still represents an exciting but risk-filled investment.