Argo Blockchain (LSE:ARB), when it listed, was the biggest joke ever. Seed money that was not locked in and sitting at a massive profit meant that the price crashed from 18p to as low as 3p. But Argo Blockchain is a joke no longer.
Cheapest company on the market
Argo Blockchain is currently the cheapest company on the market in terms of cash flow, although, admittedly, that is solely contingent on the price of the commodity it mines: Bitcoin.
Tuesday’s RNS saw an agreement to increase its electricity supply by 357pc, with the share price taking off. Although electricity does not equal machines, it does allow Argo to expand its mining capacity to up to 15,000 more machines. This is big.
If you do not know exactly what that might mean for Argo Blockchain, let’s run a quick ruler over the numbers. In July, the company generated 163 Bitcoins, or £1.36 million of cryptoassets. It had a mining margin of roughly 80pc, which is reasonably high.
At the end of Q4, the company is currently on schedule to increase its mining capacity by 296pc from its current run rate. That is exciting. And it will be even more exciting if Bitcoin stays above $10,000 consistently. Argo is profitable at on operational level at around $2,500 if we take the operating costs from May (though these were reduced afterwards!).
If mining capacity will increase by 296pc. then it must be almost quadruple current levels (100% increase is double etc). 163 Bitcoins multiplied by four is 652 Bitcoins. At $10,000 we’re looking at $6,520,000, or £5,372,317 at today’s spot prices. With a mining margin of 80pc we get to £4,297,853. This is not net profit, but operating profit or gross profit (I would assume electricity would be in the mining margin and so an operational cost but say gross profit to be conservative). Wherever it fits, it is a lot.
Current economic condition
Right now, the global equities climate is not looking so good. The narrative of Bitcoin has been that in a recession or economic slowdown there would be a flight to cryptocurrencies. So far, we have seen a rise in gold and the price take out multiyear highs. The trend could be changing.
Chart taken from SharePad, for a free trial click here
Bitcoin is also making moves, but this ‘asset’ is a lot freer in its movements and gyrations.
It is very volatile, and recently hit $14,000, and a few weeks later around $9,600. That has also been reflected in Argo’s price, as can be seen below.
We saw the price test the breakout level of 9.5p on Tuesday and the price has come off due to profit takers. There is also a resident seller, who I have heard is Frank Timis – a 13pc holder. There are constantly 100,000 shares being printed as sells for the last few weeks.
However, there have been no notifications of a seller. If they have crossed a threshold, then they have broken the rules by not notifying, but let’s be honest, there are zero consequences and of course the incentive to get a much better price than telling everyone to front run your trades.
Opportunity
If you think Bitcoin is here to say, then Argo Blockchain is (in my opinion) the horse to back.
“Argo considers that this continues to demonstrate the Company’s efficiency and cements its belief that it is one of the most efficient crypto miners in the market”
The new electricity contract likely means more machines (and more Bitcoins mined) are on the way. I don’t hold a position in this stock yet but I will do eventually. Once the seller clears, then if Bitcoin continues its upward trajectory, Argo Blockchain will surely follow.
You can hear more from Michael by downloading his fantastic free book ‘How to Make Six Figures in Stocks’. This can be downloaded from his website – https://www.shiftingshares.com/
