By M. Marin
Mawson Infrastructure Group (NASDAQ:MIGI) is a rapidly growing vertically integrated digital infrastructure provider that conducts several lines of business related to digital mining, hosting and asset management in the U.S. and Australia. The company is positioning itself to benefit from from what it expects to be substantial growth of cryptocurrency and interest in mining digital coins. MIGI currently operates Bitcoin mining and related facilities (illustrated below) in the U.S. in Georgia, Pennsylvania, Texas and Australia and is evaluating expansion opportunities in additional markets.
The company's goal is to facilitate and promote the worldwide transition to an economy built around digital currency and to do this in a sustainable green energy way. MIGI is a net zero carbon Bitcoin operation; some 75-80% of the company's energy is non-carbon emitting and MIGI uses carbon credits to offset the other roughly 20-25%. MIGI's technology enables low-cost Bitcoin production and on-demand deployment of infrastructure assets using sustainable energy infrastructure and next-generation mobile data centre (MDC) technology.
Mawson's predecessor company, Cosmos Capital Pty Ltd, was established in Australia in 2019. Through a reverse merger, Cosmos became publicly traded as Mawson Infrastructure Group, completing a Nasdaq uplisting in 4Q21.
The Crypto Market
Cryptocurrencies continue to gain traction and increase in valuation. Introduced in 2009, Bitcoin was the first decentralized digital currency. It was worth roughly $0.003 in early 2010, according to Coinmarketcap.com data. By September of 2017, the Bitcoin / dollar exchange rate had climbed to over $4,000. It is now nearly $32,000, although the valuation has been volatile, falling more than 50% from the recent 52-week high of about $67,000 in November 2021. Despite recent volatility, the valuation and perceived potential of both Bitcoin and blockchain technology have generated substantial interest. Mawson believes MIGI shares represent a way for investors to gain exposure to the space, as the company advances its growth strategy.
Mawson Digital Asset Mining: Net Zero Carbon Strategy
Bitcoin mining uses specialized computers that can generate trillions of hashes – digital fingerprints or unique identifiers – per second to discover new blocks, verify transactions and add them to the Bitcoin blockchain. Blockchain is the underlying digital architecture that supports many digital cryptocurrencies including Bitcoin. It is a decentralized and encrypted ledger that offers a secure method to store records and other information in a way that can be verified. Each block in the blockchain contains a hash and timestamped batches of prior transactions, as well as the hash of the previous block. The hash connects the blocks and prevents any block from being altered or inserted between two existing blocks. Each new block reinforces the verification of the previous block and therefore enhances the security of the overall blockchain.
Bitcoin mining requires substantial energy to mine new coins. While estimates vary, the U.S. electricity load used for crypto mining is expected to reach nearly 10,000 MW in the next five years, according to some forecasts. In Texas, which is becoming a key state for crypto mining and where MIGI is establishing a mining facility in partnership with Texas Pacific Land Corporation (NYSE:TPL), an estimated 5,000 MW of new demand is expected to come online by 2023, according to Data Centre Dynamics.
The energy intensive nature of crypto mining sets MIGI, with its net zero carbon strategy, apart from many other miners. In addition to using primarily renewable energy, earlier this year MIGI also partnered with Voltus, a leading distributed energy resource (DER) software technology platform, to deliver up to 100 MW of energy resources to the PJM Interconnection electricity grid in 2022. PJM is a regional transmission organization coordinating wholesale electricity in all or parts of 13 states and Washington, DC.
Mawson is developing a new 100 MW Bitcoin mining facility in Midland, Pennsylvania and expects to make the capacity available to PJM's grid operators through the Voltus platform as a grid balancing resource. The company anticipates using similar curtailment deals at additional facilities. MIGI has also executed a 5-year Power Purchase agreement with Energy Harbor for 100% carbon-free energy at this facility.
Mawson Infrastructure & Hosting creates another revenue stream…
Because crypto mining is energy and computing intensive, many smaller miners do not have the resources necessary to conduct mining operations. Mawson's subsidiary Luna Squares provides wholesale hosting solutions for mid- to large-scale mining operations at sites throughout the U.S. In addition to the current sites noted above, Luna Squares also continues to seek new venues and to expand its existing facilities. For example, MIGI is expanding capacity at the Sandersville, Georgia facility to 230 MW and at its other locations to support its growing operations and pipeline of customers seeking co-hosting services. Importantly, MIGI has locked in long-term access to the Luna Squares' Georgia facility. The Georgia lease expires in 2038. The facility primarily utilizes nuclear and hydro energy sources to maintain the company's target of 75%/25% non-carbon emitting energy/credits.
The company believes Luna Squares is positioned to become a leader in energy efficient hosting infrastructure designed for the operation of blockchain-based high performance computing, which MIGI intends to use both for hosting third-party customers and its proprietary Bitcoin mining. The Luna Squares platform is scalable to enable fast deployment of new customer facilities. MIGI has also secured additional sites, as noted, and is in the process of constructing these.
… and the Hosting Business continues to grow
MIGI continues to add miners and mining pools to its hosting platform and has a solid pipeline of new customers to host. At year-end 2021, MIGI had five hosting customers. By the end of April 2022, the company was operating more than 36,000 ASIC (Application-Specific Integrated Circuit) Bitcoin miners at its U.S. and Australian facilities, representing a 63% sequential increase compared to March 2022. MIGI also recently has signed several new hosting co-location agreements, including one for approximately 100 MW with Celsius Mining LLC (which also enabled MIGI to secure a $20 million debt facility) and one for approximately 12 MW with Foundry Digital LLC. Luna Squares' total hosting co-location business was roughly 116 MW contracted at the end of May 2022, up from 2 MW at year-end 2021, and the pipeline continues to grow, according to management. The company targets 220 MW for 2023.
Mawson Digital Asset Management
MIGI is the largest shareholder in Cosmos Asset Management, an Australian-based digital asset investment manager that offers investors access to new digital investment opportunities. Cosmos has also partnered with Purpose Investments to provide new investments in the digital asset ETF category in the Australian market. For example, earlier this month, Mawson listed its proprietary Cosmos-Purpose Bitcoin Access ETF, which was the division's second product. The Cosmos Global Digital Miners Access ETF was introduced in Australia in October 2021.
2022 expansion goals …
MIGI has multiple expansion goals for 2022 to grow its business and ensure sufficient capacity for its proprietary mining operations and its growing pipeline of co-hosting customers. MIGI's goals include:
➢ Doubling the hosting co-location business
➢ Continuing expansions of GA, PA, TX & Australian Bitcoin mining facilities
➢ Evaluating opportunities to add new Bitcoin mining facilities
➢ Maintaining Bitcoin production cost containment efforts
➢ Maintaining a strong ESG focus (in addition to the net zero carbon strategy, MIGI participates in a community engagement program near its Pennsylvania facility)
MIGI has been opportunistic about purchasing mining equipment and believes that it is a pioneer in creating efficiency in digital asset creation transactions by leveraging leading edge computing technology. A strategic relationship with China-based Canaan, which provides supercomputing solutions and cost-efficient cryptocurrency mining architecture, enables Mawson's mining facilities to scale-on-demand. Management views this as a competitive advantage as the aggregate value of crypto increases.
… including expanding mining capacity and growing the hosting customer base
An Exahash (EH) is a measure of computing power; higher levels of EH enables miners to produce higher numbers of daily Bitcoins. The company expects its Bitcoin self-mining to reach 4.0 EH by 3Q22 and targets 5.5 EH online by early 1Q23. This estimate represents an increase from the company's prior EH expectation.
The company intends to grow its EH capacity by expansion at existing locations and opening new ones, as noted. In 1Q22, MIGI announced the expansion of its Sandersville, Georgia Bitcoin mining facility to 230 MW. Mawson has an existing 26-year lease at the Sandersville, Georgia site, as noted, with the option to buy the approximately 16-acre property underlying the facility. The facility is expected to become fully operational with the additional 150 MW online in 3Q23. Once fully operational, the expansion is expected to accommodate up to 7.5 EH of operational capacity.
Mawson intends to develop a new 120 MW facility in Texas and has signed a 5-year lease, with the option to extend for a total of 15 years. The facility is targeted to be operational in 4Q22 and to accommodate up to 4.0 EH of Bitcoin mining operational capacity. MIG intends to utilize Carbon Credits and Renewable Energy Credits (REC's) for this facility and to participate in curtailment programs to support its Net Zero carbon strategy and ESG focus. Mawson has collaborated with JAI Energy and Texas Pacific Land Corporation (TPL), one of the largest landowners in Texas, on this project on a revenue sharing basis.
Another goal is to more than double the hosting co-location business, with about 116 MWs contracted in the pipeline, as noted, and to continue ongoing expansions of the Georgia, Pennsylvania, Texas and Australian facilities. Concurrently, the company intends to continue to seek opportunities to add additional Bitcoin mining facilities at new locations.
Management has extensive experience
James Manning, MIGI's CEO and founder, has more than 15 years of experience across technology, accounting, logistics and property development and previously managed large projects in various industries, including construction, financial services, technology and cross-border logistics. Chairman Greg Martin is former CEO of Australia's largest energy company. The company believes the expertise management collectively has developed enables Mawson to grow its various revenue streams.
Insiders (the board and management) own about 24% of MIGI shares, which management believes aligns the company's interests with those of public shareholders. Moreover, the company also aims to provide investors transparency of its operating performance with monthly updates of key operating metrics.
MIGI Revenue Growth, as EH and Hosting capacity Increase
In 2021, the company delivered revenue of $43.9 million compared to $4.4 million in 2020, which represented an 886% year-over-year increase. On the higher revenue base, Mawson's gross profit was $34.0 million compared to $1.3 million in 2020.
The company has maintained this momentum in 2022. In 1Q22, revenue came in at $19.4 million, representing a 178% year-over-year advance compared to $7.0 million in 1Q21. Although revenue was roughly flat sequentially compared to 4Q1, the primary reason for this, according to management, was the steep drop in the price of Bitcoin noted earlier, which offset the substantial increase in MIGI's self-mining operations. Revenue in 1Q22 included about $0.5 million from Hosting Co-Location operations. This category is expected to grow as the hosting business continues to add new mining customers. Gross profit and EBITDA were $11.0 million and $4.5 million, respectively in 1Q22, up 138% and 160% compared to 1Q21.
The company has increased its Bitcoin self-mining operational footprint significantly over the past several quarters, producing 459 Bitcoin in 1Q22, which was 272% above 1Q21 levels (123 Bitcoin). Based on the current network capacity and a Bitcoin price of about $30,000, MIGI estimates that it is positioned to produce about $88 million in annual revenue.
Risks
Among the risks to investing in the sector is the potential for increasing competition as new entrants, attracted by the rising value of Bitcoin and other cryptocurrencies, launch mining activities. Moreover, regulation and taxation represent additional potential risks. Given the expanding cryptocurrency market, it is also generally expected that regulators could impose or tighten regulations and potentially reexamine how Bitcoin is taxed.
Conclusion
Mawson is growing rapidly as the company positions itself to benefit from rising interest in Bitcoin. MIGI's Bitcoin mining footprint is diversified and growing. Mawson's subsidiary Luna Squares provides wholesale hosting solutions, creating another revenue stream. The company believes Luna Squares is positioned to become a leader in energy efficient hosting infrastructure designed for the operation of blockchain-based high performance computing that MIGI intends to use both for hosting third-party customers and its proprietary Bitcoin mining.
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