Yet Another Value Podcast - TeraWulf's $WULF Patrick Fleury on everything you need to know about bitcoin mining

Episode Date: April 12, 2024

Patrick Fleury, CFO of TeraWulf Inc. (NASDAQ: WULF), joins the podcast to discuss everything you need to know about bitcoin mining. TeraWulf owns and operates vertically integrated, environmentally clean bitcoin mining facilities in the United States. For more information and to subscribe to TeraWulf, please visit: https://www.terawulf.com/ Chapters: [0:00] Introduction + Episode sponsor: Santangel's Review [1:34] Patrick Fleury's background / difference between oil and gas mining to bitcoin mining at TeraWulf [6:10] Defining hash rate and hash price [12:48] Halving [14:10] ROI for every new bitcoin miner they build [19:04] Cost of capital / power costs [24:33] Economies of scale and growth for growth's sake [28:05] ROI on a 20-year investment in bitcoin miner (when considering halvings happen every 4 years) / cooling / low cost mining strategy [33:41] What happens if bitcoin price drops (from mining operation perspective) [38:13] Why issuing shares and directing all cash flows to pay down debt the best use of capital? [40:15] Valuation and where Patrick thinks bitcoin miners should trade / replacement costs on assets in the ground [45:38] Mining facilities, power, AI plays, turning over to HFC and AI machines / power capacity, source of power [54:43] Nautilus facility / bitcoin mining tax / expanding internationally [100:16] Capital allocation [1:01:36] M&A / value discrepancies / final thoughts Today's episode is sponsored by: Santangel's Review Finding the right hedge fund cap intro event isn't just about the size; it’s about the value it brings to your time. This month's sponsor, Santangel's Review, offers something unique for fund managers and allocators. Founded in 2010, Santangel’s hosts three Cap Intro Roundtables each year - two in New York City and one at Fenway Park in Boston. These events stand out for their focus on quality over quantity, attracting some of the most prestigious endowments, foundations, and family offices worldwide. The secret sauce: Santangel’s spotlights undiscovered talent. Managers you don't necessarily see at other industry conferences. Attendees take part in eight one-on-one meetings, intermixed with ample networking opportunities. In an industry built on relationships, Santangel's fosters some of the most valuable connections. Just go to Santangels.com— S-A-N-T-A-N-G-E-L-S dot com to learn more and request an invitation. If you’re a manager or allocator who is serious about maximizing your time, you'll want to be a part of the Santangel's Roundtable. Click here: https://santangelsreview.com/

Today's episode is sponsored by Santangil's Review. Finding the right hedge fund cap intro event isn't just about the size. It's about the value it brings to your time. Santon Joel's review offers something unique for fund managers and allocators. Founded in 2010, it hosts three cap intro roundtables each year,

two in New York City, and one at Fenway Park in Boston. These events stand out for their focus on quality over quantity, attracting some of the most prestigious endowments, foundations, and family offices worldwide. The secret sauce, Santon Jules, Spotlights, Undiscovered's talent. managers you don't necessarily see at other industry conferences.

Attendees take part in eight one-on-one meetings, intermixed with ample networking opportunities. In an industry-built-on relationships, Santangels foster some of the most valuable connections. If you're a manager or allocator who is serious about maximizing your time, you want to be a part of Santangil's Roundtable. All right, hello, and welcome to yet another value podcast. I'm your host, Andrew Walker. If you like this podcast, it would mean a lot if you rate, subscribe, review wherever you're watching or listening to it. With me today, I'm happy to have on the CFO of, Tara Wolf. Patrick. Patrick, how's it going? Great. Thanks for having me on, Andrew.

Thanks for coming on. I'm super excited for this podcast. But before we get started, let me just remind everyone, nothing on this podcast is investing advice. That's always true, but maybe particularly true today. You know, Tara Wolf is a Bitcoin miner. We're going to be talking nonstop about Bitcoin mining. That obviously carries extra risks, extra things to consider all that sort of stuff. Terra Wolf's on the smaller side for a public company. So while we're going to be talking about Bitcoin mining, you should just be, you should just be aware of that fact. And Patrick's obviously the CFO of Terawolf. So, I mean, Patrick, you're the CFO of Terawolf, a Bitcoin mining company.

I have been just absolutely obsessed with Bitcoin mining recently. So I've reached out, started talking to you guys and you agreed to come on to kind of do an overview of Bitcoin mining and maybe a little bit on Terowulf. I guess I'll just start. Like, my background is I have been a long time kind of cryptosceptic, but I got really interested in Bitcoin miners. I think a lot of my audience is probably a little. little bit on the Bitcoin skeptic side, as I told you before, some are probably hardcore libertarians

like you'll prime my Bitcoin for my cold dead hands. But maybe just to start, you know, we could quickly define like Bitcoin mining. What is the similarities and difference between this is kind of basic between I hear mining. I thought, you know, people going with picks and shovels so hit the Bitcoin out of a mountain. Obviously not that. What are the similarities in difference between oil and gas? Because I know you've got some background there as well. Yeah. Well, let me start by saying, I'm in the same camp as you, Andrew. And prior to being a CFO of a Bitcoin mining company, I was a private and public credit and equity market investor for almost 20 years. So most of my experience is on the institutional investing side in commodities. And so I, just like you and your audience, I really didn't know much about Bitcoin only a couple of years ago. And the team that took Harold Public, the management team, was my management team that managed a bunch, a fleet of independent power assets for me during my tenure at Blackstone. So I was at Blackstone for the

better part of a decade. And Paul, Nazer, Kerry, Stephanie, that team managed a multi-asset portfolio all over the United States of power plants. And so similar to you, I was a Bitcoin skeptic. I am now a believer, but differently, terrible functions differently than almost every other public miner out there in that I do believe it is a true commodity, and I'll explain why, but we monetize our Bitcoin every day. So I am just like a oil and gas business or a copper miner or a coal miner in that I mine a commodity and then I turn around and sell it. And so I can mine it today at about 25,000 and it's on the screens today at 72. So I just sold some of our Bitcoin this morning. So I'm making, you know, call it roughly a $40,000 profit and I'm mining 12 to 13

Bitcoin a day. Now, the nice thing about Bitcoin mining other than oil and gas or copper mining or coal mining is I'm not sending, you know, laborers into harm's way. The nice thing nice thing is, you know, we have a very sizable site, two of them actually, but the first one is in upstate New York, about 30 miles east of Niagara Falls at the location of a retired coal plant. And we have multiple buildings there that house about 50,000 miners. And these are, you know, computer, the old desktop square computer shaped assemblies. And we mine, you know, we mine Bitcoin by plugging those into the network. maintaining the network and keeping our capacity online throughout the day.

And the only thing we're doing is really taking power off the grid. And most of our power, 95% of our power is actually from Niagara Falls. So zero carbon hydroelectric power. We take that power, convert it to Bitcoin, which is obviously a international commodity. So we take a stranded local resource in hydroelectric. power that otherwise would effectively go to waste, pull in that power, convert it from power to Bitcoin, and then sell our Bitcoin. And really, we have three costs in our business. They are the cost to purchase power, which we then convert to Bitcoin, the cost to run the public company,

which we call just SG&A, selling general administrative expenses. And then we have site-specific costs, which are the about a dozen or so folks that we have at our site that make sure all of our computers or ASICs are running, you know, that all the site is functioning properly. They're plowing the site with a snow plow if they need to, but it's a very simple business and like any other commodity business I've ever invested in it. So I hope that addresses your question. No, that's great. And I just want to mention it before we dive too far in. You guys are unique and that you guys have the cost of mine calculator on your investor relations website. And, you know, a lot of the terms and stuff we might throw out can be a little jargony. There's no one else who's got that out

there. I know a couple of sell sides firms look at what you guys put out and we're like, we were publishing stuff like that too, but you put it in the public side. People who are curious about all these input costs and the different things, they should go look at it because it's really useful and it's really interesting. And we'll talk about the having that's coming up. That's kind of one of the things. I just want to quickly, like, so the interesting thing. about Bitcoin mining, one is if you and I were oil and gas, right, we would, if we wanted to pump out more oil and gas, we would go, you know, we'd hire more workers, we'd hire more drillers, we'd have to buy more land, all this sort of stuff. The strange thing about Bitcoin

mining is, Bitcoin is, it is limited, right? There are, right now, it's 6.5 Bitcoin's come out every, what is it, 10 minutes or whatever. And after the having, it'll be 3.25 or whatever it is. So we can't go buy new miners and create more. Bitcoin. What we do is we buy, you know, an extra X-a-hash of miners or something, and that gives us 1% more theoretical earned Bitcoin or whatever because, you know, the network goes from 600 to 6001. We own about 1% more of it. It just kind of strikes me as strange. And I want to dive into lots of things there, but I don't know, let's start with this. Can you define hash rate and hash price? Because those are two of the most important things for looking at a Bitcoin

miner. Yeah. So I think sticking with your oil and gas analogy, because I think it's really good And let me address your earlier point and then your later point. But the reason we put out our cost to mine the way we do and show every single cost is because as a long-term commodity investor, oil and gas companies, when they give you guidance, they tell you how much capacity they're going to have on for the year. And then they tell you all of their costs in dollar per barrel. So you can quickly say, okay, oil today is at, you know, 86 bucks. And I know that their cost. to produce oil is 40. So I know they're making $45 per barrel of free cash flow. We are taking the exact same approach in our business. I want you to think about it like an oil

and gas business because same thing. I'm telling you my capacity today is 8x a hash. It's going to 10 and you can pick whatever price you want to pick for the price of Bitcoin and I'm giving you every single cost in my business, which today is 25,000. If the network, and I'll address network cash rate a minute. If network cash rate doesn't change when we go through the halving, my cost literally doubles overnight. So the simple math is I go from 25,000 a Bitcoin today of total cost to 50,000, right? So I'm still free cash flow positive because the price of Bitcoin is 72,000, but literally overnight my cost doubles. So, but back to your analogy, like I think of network cash rate similar to the oil and gas market as the total capacity that the network has

online. And so similarly, I'll make the analogy to, say, OPEC, so when oil prices drop, you know, from $85 to $25 a barrel, right, OPEC takes millions of barrels offline. And what happens, right? Prices kind of start to balance because supply demand comes back in a check, and then all of a sudden you start pulling barrels out of inventory, and the price shoots back up. The same exact thing happens on a minute-by-minute day-by-day basis in Bitcoin mining. So the total capacity online in the world at any one point in time is network cash rate. That number today, I think, stands at about 630XHash. So that's the total computing power online. And then the amazing thing about Bitcoin mining is, you know, unlike OPEC where they have to host a meeting and everyone has to

agree to cuts, right? Network of cash rate is really dynamic. It moves around every single day. And you can see, based on, you know, particularly weather in the United States and, namely in Texas, you know, when you have really hot weather in Texas, the hash rate comes down very quickly. So it responds very quickly to economic changes, namely the price of power in the U.S. and in other regions. So it's very similar to oil and gas. I think, honestly, Andrew, that's the best commodity analogy. And then to your point, I mean, hash price, like I think of hash price as, you know, in oil and gas. It's like your oil or gas, like, crack spread, right?

It's how you can pull a barrel of oil out of the ground with a fully loaded cost for your company at 40, and it's trading on the screens at 85, and so you're selling it and making 45 bucks. It's the exact same thing, like hash price is effectively what is your margin, as a producer of Bitcoin. And so it's funny because I think we'll ultimately get to a place where hash price is a very common term that everyone uses. Right now, I find people are more focused on like cost per coin, which effectively gets you to the same place.

But it's a little bit harder, I think, for folks to understand hash price yet. But my hope is ultimately we get there. And all of us, all the Bitcoin miners, have a standardized way of showing you, here's like our cost on a daily basis. And so, you know, I've been asked, Andrew, to your point, like, we do have that calculator on our website, you know, could you change it to, you know, hash price? And I think we actually may do that. We may add a hash price calculator as well.

It's effectively the same thing. But I think hash price is a little bit more dynamic because, as I. pointed out, the daily move up or down in network cash rate has a big impact on my margin. So the one big difference between Bitcoin mining and oil and gas is my margin actually can expand two ways. One is network cash rate stays the same, but Bitcoin price goes up. My margins expand. But network cash rate can actually drop and Bitcoin price stays the same and my margins expand as well. So that is the one peculiar thing about Bitcoin mining versus other commodities. So anyway, I'll stop talking and let you take it from that.

No, no, this is great. Again, I'm like so fascinated and curious by this. As you're talking to all my questions, I just want to throw a thousand at you. Let me ask you this. So let's quickly define the having because the having is, it is such an important concept, especially for the miners. Literally your rewards are going to get cut almost in half. So do you just quickly want to define the halving and why it matters for minors?

Yeah, sure. So every four years in Bitcoin mining, the block reward, which happens every 10 minutes, gets cut in half. So we've had, since Bitcoin's inception, we've had three of these events. Right now we are mining 6.25 Bitcoin every 10 minutes. The network automatically adjusts difficulty, which is how difficult it is to mine, to try to keep that 10 minute block. And so every four years, we effectively achieve a halving in the block reward. So like I said, right now we're mining 6.25 Bitcoin. I think the halving is projected right now for around April 19th.

And so literally, April 19th, we go from mining 6.25 every 10 minutes to 3 and an 8th every 10 minutes. And so literally my revenue effectively gets cut in half at that point. and or the other way to think about it that I, the way I think about it, because it's what's in my control is my cost effectively double overnight. So the first thing I was really interested in is when you guys, right now you guys have almost eight X hash operational that you control. I think it's actually kind of more than that because Nautilus y'all own 25%. And I think Talon owns 75%. So it would probably be more at your facilities, but you guys own eight X hash. And correct me if I'm wrong on any of that.

But you're going up to 10. someone like Riot, I think Riot's at about 12, and they've got a plan to get to 50 X a hash by the back half of next year, right? So when you guys are, when you, when Riot or anyone, you're adding all this X a hash, basically because you're not building new sites, you're basically buying new miners and installing them in your new sites. A minor is a three to five year investment. You've got the halving coming. Like, how are you thinking about the return on investment for every new minor you're building? Yeah, it's a great question. And, And that question has a bunch of different pieces to it.

So let me take the last piece first, and then I'll work my way back. So we run, you know, again, I come from TradFi. So to me, it's very simple. It's just numbers, right? So before we purchase a minor, we run a simple NPV analysis, net present value. And the inputs to that analysis are very simple. It's Bitcoin price, future Bitcoin price, and network. cash rate, right? Those are two things that, you know, I have a harder time predicting. But then

the other two pieces I know, they are, what's the cost of the miner for me to buy, right? I know what that cost is today. And then what's my power price? So those two are in my control. I know my power price. I know the cost to go buy a minor. The price of Bitcoin and the network hash rate, those are uncertain, but I can get a general sense based on Bitcoin futures, generally based on where economics are. Back to your point, Andrew, people ask me all the time, where do you think where cash rate is going? Where do you think Bitcoin price is going? I have no idea. But what I can tell you is if you look at normalized hash price over time, that tends to be in the $60 to $70 per pet a hash per day zone. And so we are way above that right now. But like any commodity business, you go through

periods of over-earning and under-earning. We were way below it about a year ago, right? When Bitcoin is You're above it right now. As you and I are speaking, it's around 100 to 110. But if you just did the math, it's going to have in 20 days and then it'll be, you know, it's kind of be at 55 if nothing comes out. So you're above it right now. You're definitely having supernormal profits. I guess here's my question. Let me finish that point. So back to your point. So what I tend to to do is I when we project out we kind of normalize around that 60 to 70 per petahash per day okay right after some peer like right now if I was modeling it yeah I'd say yeah I'm over earning for probably another you know week or two before they're having but then over time right over the next couple months that

should normalize back to that 60 70 so I run that NPV and unless that is significantly in the green wedge then we don't buy minors now that is different though than my peers a lot of our peers and I'll tell you simply why they sort of are in this like empire building growth at all costs and most of that growth comes through dilution by issuance on their ATM we are a unicorn in the bitcoin mining space and here's why and i think you and your investors should love this is we collectively as a management team board and insiders own about 40% of the equity of the company so i am not interested in growing unless it is accretive, and to your point, unless that NPV analysis is massively in the green and positive. So that is a very big difference between us and I think some of the other

bigger companies out there, and is probably the principal reason why we're not 20 or 30x ash today because we are very disciplined about where and when we issue equity. Today's episode is sponsored by Santangelo's Review. Finding the right hedge fund cap intro event isn't just about the size. It's about the value it brings to your time. Santinjol's review offers something unique for fund managers and allocators. Founded in 2010, it hosts three cap intro roundtables each year, two in New York City, and one at Fenway Park in Boston. These events stand out for their focus on quality over quantity, attracting some of the most prestigious endowments, foundations, and family offices worldwide. The secret sauce, Santinjol's spotlights undiscovered's talent.

Managers you don't necessarily see at other industry conferences. Attendees take part in eight one-on-one meetings, intermixed with ample networking opportunities. In an industry built on relationships, Santangels foster some of the most valuable connections. If you're a manager or allocator who is serious about maximizing your time, you want to be a part of Santangelo's roundtable. So I want to come back to that. You actually hit on just about everything I want to talk about. But let's talk 60 to 70 cents in kind of the hash price is what you're modeling on a normalized basis. And can I just said, you said historically it's been there, which I agree.

People can go look, I think there's like a Luxor tech or something, it's got a long-term sharp. People can go look at, you can go look and spend around 60, 70 cents. I just want to ask why, you know, like I would think Bitcoin mining ultimately is, as you said, it's a commodity business, so it should trend towards kind of the cost of capital. Is there some type of cost capital or something for the average miner that tends towards 60 or 70 cents? Or is there anything else anchoring it there? Because this is a new industry.

So there's a lot of things that it could be. Yeah, look, that's a good, great question. I think the answer is no. I mean, we've gone back and looked and generally, again, like any commodity business, right, oil and gas. You go through periods of over-earning and under-earning, right? But the reality is, like any commodity business, there is a true marginal cost curve in Bitcoin mining. And that marginal cost curve is largely based on what is your power cost, right? So when we look at that and plot out where we think that marginal cost curve, that is, that's what gives us confidence

in sort of that 60 to 70 longer term, that over time we should normalize around there. What do you think the marginal cost, the marginal power costs of not your, we'll talk about you in a second, but of the average minor out there, what do you think the marginal power cost is? I think it's probably around five, six cents. Five or six cents. Okay. And I will note, I was going to, one of my questions on KPIs and it's crazy looking at you got, not you guys, but just Bitcoin miners in general, because power costs like if I was looking into oil and gas company, the most important thing would be how much does it cost you to drill oil, right? And when you look at all of your competitors, I won't name any by name, but some of them will get asked on their earnings calls like, hey, what are your power costs? And they're like, oh, well, you know, it kind of. So it's, by the way, I have a real, and I'm, you know, not going to make any friends by saying this. But my view of that is if you're the CEO or CFO of a multi-billion dollar company and your number one input cost is power, if you don't have the answer to that, you should be fired. I mean, literally, that makes no sense. And by the way, the only reason you're, there's two, I've been an investor long enough.

There's two reasons why you would, you would, as a CEO or CFO, not answer that question. One, because you don't want to because it looks really bad, or two, because you're stupid. And so I don't think it's the latter. So I think they are purposely obfuscating what their power cost is, because I've seen it happen in oil and gas. I'll give you a great example. The 2010s, right, the first quarter that Chesapeake oil and gas came out and posted a free cash flow negative quarter, their business was over. The capital markets shut them down. And then the company ultimately filed for bankruptcy. So, you know, I don't, by the way,

I don't wish any ill will on any other miners, but I want legitimacy in the space. And so if you are going to self-declare yourself an industry leader, then you got to lead by example. And leading by example means telling people what your number one input cost is. Most of the people listen, not watch this. So I would just say, I was smiling, nodding along, and I agree. It's not because they're stupid. It's because they realized. Just quickly, you have two sites, right? One, Lake Mariner, upstate New York, basically all hydro.

One located, Nautilus, I'm sorry, Nautilus, Texas, right next to nuclear facility. Why don't you just quickly, what can you disclose about your power costs? Yeah, sure. So it's very simple. Our power, our actual realized power costs for 2023 was three. 3.2 cents. So we have five-year contract for fixed power at 2 cents at the nuke in Pennsylvania. That contract runs through 2027. And then our power cost up at Lake Mariner, we guide to 4.5 cents there. We realized 3.8 cents there in 2023. I think, you know, there's a lot of conservatism in that 4.5 cent guide. I think we'll

probably be closer to four cents long term. But those are our power cost. And that's, it's as simple as that. And by the way, the difference I want to make, there's a big difference here. Nautilus is behind the meter. When I say behind the meter, what that means is we take, we are cited at the nuke on the property of the nuke, and we take power directly from the nuclear station. So why is that different? Well, at our site in upstate New York, we are pulling power off the grid. When you pull power off the grid, you pay for basically three different things. One, the commodity itself, right, which I'm paying to the power generator, two, the transmission, which I'm paying to the local utility, and three, I'm paying taxes on that consumption in New York State. So it's really important when folks are

asking other companies, what is your power cost? Just like when you're asking an oil and gas company, you know, what's your cost to get, you know, the oil out of the ground, that they're including every single cost. So the numbers I'm giving to you are fully loaded. It's the commodity. It's the transmission. It's the taxes. It's everything. So that is, you know, where we are. So you mentioned Chesapeake in 2010s, and obviously you've been involved in one of the guests. Here's my worry. Like you guys, I think people can get an understanding. You guys are one of the lower cost providers here, right? There's a, I think the minor mag has all the publicly traded guys, they estimate their, they estimate your power costs. And you guys are either

the lowest or second lowest, right? And people can hear why. It makes sense. You're basically co-located right next to a nuclear power facility. That's about the best consistent power you can get. My worry is you were in oil and gas, 2010s, 2012. You remember the shale boom, right? All these guys could issue tons of equity. They built out all this equipment. The equipment goes to the moon. There's all this capacity. And then eventually all of it comes online and we're blooded with oil and oil goes from 100 to 20, right? And now in this case, again, because Bitcoin's so unique, you can't like, because you, because you, we go from 600 X-a-Hash to 6,000 X-A-Hash, it can't really affect the price

of Bitcoin, but what it can do is send the difficulty to the moon, and then everybody's mining nothing and all the Bitcoin miners are making nothing to, like I kind of worry that you've got this huge rush. And I mentioned earlier, riots going from 12 to 50, marathons going from 25 to 50. Like all these guys are putting on so much X hash. And I kind of worry that you've got this situation where because all these guys have high stock prices, they issue a lot of equity. And the reason they're doing it is ostentably to bring a lot of capacity online. And in six months and 12 months, all this capacity is going to come online.

And unless Bitcoin goes to 200,000, we're going to be sitting here with all this capacity. Every reason to say, oh, shit. Like, you know, it used to be 60 or 70s was the hash price. but we've got so much capacity, it's 35. It's 35, right? Like, we're driving everything below the marginal cost of capital for years. So that's my worry. I guess I wanted to get your thoughts on that. Yeah, look, it's a great point. So I think there's two pieces there. Like, this is the true economies of scale business, right? So having big industrial-sized sites is really important. But I have to tell you, like growth, just for growth's sake in this business, makes zero.

cents. So you can use my online calculator, right, and put in three cent power versus six cent power post-having. It's going to show you it's like an over 20,000 per Bitcoin differential in the price to mine. Right. So every cent of power cost is extremely meaningful here in a couple weeks. And so I think what you're seeing, right, is some of the big companies, you know, trying to sort of hide that by just growing for growth sake. And what I would call, I think Paul Prager, our CEO has said it like, I mean, these are more lifestyle companies for the management teams. And I saw that in the oil and gas space than they are real economically viable entities. And so I think valuation in this space right now, right, is, it reminds me of like telecom in the 90s or power in the 2000.

It's based on capacity, which is absolutely crazy, and a lot of people are going to get hurt. I love that telecom in the 90s where it was like, hey, how much fiber you have? And then all the fiber got built and like, hey, we've got enough fiber for the next 20 years and nothing to fill it on. It's very similar. And like there's just very wide discrepancies in all of the valuations here. Let me ask another one on return on investic capital. So we talked about you buy a minor, right? You buy a minor depreciated over three to five years for people to know.

minor, you can basically think a GPU, right? And of course, over three to five years it depreciates because, A, it might burn up, or B, in five years, all the GPUs are going to be five times more efficient. So we can do that. The other one that's really interesting to me is when you all of you guys are basically at data centers, right? Like, that's the core of what you're building. If you're going to bring a lot of these, if you're going to bring a new data center online, that's a 20 to 30 year investment. And you and I have talked about the hash price now and the hash price post-having Well, the halving happens every four years. So if you're going to bring a 20 to 30 year data center on,

we need to think about the next four havings, right? So you guys, to my knowledge, are not bringing a new data center on currently. You might take out your partner in Nautilus at some point. And I know you guys are doing a little bit of Brownfield expense. So when you think about that, how do you think about the ROI of a 20-year investment where you're going to have four halvings in the, you know, unless Bitcoin really moons, the cost to mine Bitcoin is really going to change over. that time. Yeah, well, let's take, there are two pieces to that. So let's talk about the minor

life, right? Because I think this is important. So right now, we depreciate our minors over four years. I do that because that's kind of my best guess. It's like, this is a very nascent industry. I don't have a lot of statistical evidence that that is in fact correct. So, but there's two pieces to that. There's economic obsolescence. And then there's actual like machinery obsolescence, right? And so I think economic obsolescence is really a function for a minor of your power cost. Because to your point, if you have low cost power, that minor can survive through multiple halings. But if you have high cost power, it's not going to make it. You're going to have to upgrade. So that's number one. Number two, the average life of a minor, like I can tell you

that at my sites, like I'm mine in the Northeast, where it's very temperate. I'm doing air cooling versus peers that are in Texas where it's extremely hot and they're doing immersion cooling, right? For those that don't know, it's basically you drop a minor into an oil, sort of viscous oil liquid that kind of keeps them cooler. Can you drink the liquid? I think I saw one analyst drink the liquid. He said it looked like Mount Dew. I don't think it tasted good, but he was like, it is safe to drink if you want to. remember that correctly? I wouldn't do it, but it's me personally. But, you know, in Texas, if you've ever been there, and I've been there for both power plant development and oil and gas,

due diligence, but it's hot, it's humid, and it's dusty. And so I just think the average life of a minor in an immersion function is going to be in a hostile operating environment, right, where it's hot, it's humid. That's going to be less than a minor in a much more temperate zone that's air cooled. And so I think my minor were depreciating them over 40 years, but I'm doing that because that's my best guess for Gap. But I think the reality is they're probably somewhere between five to nine years, right, of actual minor life before they're either machine is obsolete or they are economically obsolete. So you guys are one, as we mentioned, one of if not the lowest cost publicly traded minor at least, right? You've got a great power. Does it make more sense for you

to go and buy the absolute newest models to mine your coins? Or does it make sense? I've seen low-cost players before. It's, hey, because powers are main input, we go buy the stuff that doesn't work on the high-cost power. We go buy the older miners and we buy them for an absolute song and we run them for the last two years. What makes more sense for you guys? I know minor costs fluctuate pretty quickly. So maybe you're doing it every day. But is there either strategy that like really plays into your strengths? Yeah, look, I think it's more, frankly, financial prudence. And what I mean by that is just like GPUs, right, we've seen minor efficiency

massively increased, right? Over the past three years, we've gone from a J-Pro that has like 100 terahash per unit. Now we're at S-21s that have 200, right? So we've basically, the efficiency is as kind of, you know, effectively doubled. Yeah. And so, like, the way we. view it is I want to have a diversified fleet and I want to kind of leg into that slowly. What I don't want to do is announce some huge purchase, right, of, for example, S-21s, because I think

it's the most efficient minor and then have, you know, a new minor come out that's basically like 50% more efficient in a couple months. So we take a more measured approach of like, let's have a diversified fleet and kind of like blend into it. And then I really, I think about where we will ultimately get to is we'll probably have multiple sites and it will be exactly like a power company where you have your base load site. And that's my Nautilus site where I've got two cent power. I've got my most efficient machines and they are cranking 99.9% of the time. Right.

And then I'll have my, you know, higher price like peaking site where I've got some older machines, higher priced power. And then when Bitcoin price goes to the moon, you know, it's economic to maybe turn on there for a couple months a year and that's it. I mean, I think ultimately that's kind of how the whole space will play out. What happens if, so right now Bitcoin's at 70, right? You guys are one of the lowest costs of mine and your cost to mine. I'm using costs of mine instead of having, but your cost of mine is 25K.

After the halving, it goes to 50K, right? Bitcoin four months ago, if you and I were having this conversation, was 35,000. Bitcoin goes to 35,000 in six months, right? All of this X a hash has come on. The hash rate has gone from 6 and should 800. Obviously, like, I'll play out the first order. There has to be retirements. Like, nobody's going to run 800 of X a hash if Bitcoin's at $300,000.

But how do you think that plays out with all this capacity coming online? Because there is this like ephemeral. Everyone points to, oh, it used to be after the having, all the high cost guys are going to retire their equipment. But a lot of new costs is coming online. So how do you kind of think that would play out if you saw Bitcoin price take a drop after the having and after all the supply comes online? Yeah, that's a great question. So the way it's designed, which is, I think, genius, right, is, again, what you just said, like, we're at 25,000 today. If network cash rate does not move, so it's at like 630 today, right, then my cost would literally double. So I'd go to 50,000 overnight. The reality is we think there's probably 50 to 100 X a hash of like pretty old machines running at a high power price on the network. And so I would I mean, we're kind of expecting somewhere between 5 and 10% of network cash rate that drops kind of very soon thereafter. So that would bring our sort of marginal cost, you know, probably into like the high 30s.

So we'd be somewhere between like 35 and 40,000. So I think that's practically what really happens. But a lot of it depends on Bitcoin price, right? Does Bitcoin price stay here? Does it fall? What happens? But the beauty of, look, I think Andrew, coming back to the oil and gas analysis, because I think it's a great one.

What I expect will happen is just like Chesape, some of the biggest companies in the space, if network cash rate doesn't drop, they are going to post free cash flow negative or pretty close to it quarters, and then the capital markets will do their job, and they'll say, oh, my God, and they'll shut them down. So I think it will take the retail market

and institutional markets now, which are invested in a lot of the miners, a couple quarters to see kind of what their financials look like. And just like any other commodity business, if you're not making money, then your cost of capital is going to dramatically change. And that will limit the network cash rate growth. All of them are going to put, everyone's going to post incredible results for Q1 because Bitcoin went from 35 to 70 and all the Xash that's coming online at the end of the year hasn't come on. And, you know, the having hasn't happened. All of them are going to. But it is crazy. Go back to just Q4 of last year.

really six months ago, Bitcoin goes from like 20 to 35. Don't quote me on that. But it goes up quite a bit, which should be great for them. And many of them are negative EBDA. If you strip out, a lot of them are doing the whole little thing where they hold Bitcoin on their balance sheet. And now you're allowed to fair market value gain that into your EBIT on. They love that. But if you strip that out, which I think you're an oil and gas person, if you kept oil on your balance sheet and we're marketing it up, it'd be crazy. Don't even get me. I mean, I've been, I've been, you know, kind of carrying this torch for a while. I mean, I think the hodal strategy is literally that it was a brilliant marketing ploy when the first Bitcoin miners came public. Right? Because

there was no other way to get it if you were a public market investor. But now, but now to hold a commodity on your balance sheet that you think should be higher in the future. I mean, and you're effectively giving management teams a license to gamble with your money because they're diluting you to keep that. And not only that, but the guys that do have an on balance sheet. A lot of them have it on balance sheet because they know they're going to be free cash flow negative post-having. And so when the market sees that they have to start monetizing hoddle just to maintain their current operations, like it's just game over. And to me, like now, you own a Bitcoin miner because I can, just like any other commodity business, I can mine it

cheaper than you see it on the screens and I can return that cash flow to you in debt repayment, organic growth, or dividends and buybacks. And so I'm excited. like we are going to get through our debt here pretty quickly and then like I said we own 40% of the equity so I would love to do a dividend or a buyback or something with our excess cash flow because we're still going to be generating a lot of free cash flow let me go there so you guys we're talking it's Monday April 7th is it April 8th you guys actually just this morning and y'all had hinted this was coming you announced you paid down another was it 30 million 40 million of the time you were in the oil and gas company every

Bitcoin miner, like I look at this as you're producing a commodity, lowest cost player wins. Every Bitcoin player has decided, for some reason, we have to have absolute no debt, absolutely no debt, which I could understand. You know, we went through crypto is extremely volatile. I get it. But everyone's decided that. You guys have decided that. Your debt, last I looked, 11.5% interest rate, right, versus your equity. You guys have been issuing shares and generating free cash flows play all this debt down.

management here owns 40% of the equity. I want to go into equity valuation a second, but I just want to ask, why is issuing shares and just directing all the cash flows to pay down this debt? Why is that the best use of capital here? And why don't Bitcoin miners run with a little bit? Because every oil and gas person would run about one times levered, right? Yeah. Look, I agree.

I think as this industry matures and as hedging products become more viable, just like an oil and gas, I think you'll definitively have reasonable amounts of debt return. But I think until that develops more and I don't have the counterparty risk that that would force me to have right now, it's hard for us, I think, to hedge effectively like the oil and gas industry does. Because the oil and gas industry, right, like they'll have debt, but they'll hedge out a certain amount of their production so that their debt is protected. Right. And there is like, the issue would be you guys selling Bitcoin futures would be tough because you don't know how much Bitcoin you're going to mine because of all the hash rate

stuff we talked about. There are starting to be, again, Luxor, I think two weeks ago introduced hash price futures, which, you know, that can be interesting when the Bitcoin miners can start hedging the hash rate and say, all right, like there's a little spike. We can hedge into this and we can really run this as we're the local. Let me ask another question. All right. You guys are 40% of the company. You obviously have background in oil gas. You're extremely intrinsic value focus. How do you value, how can an investor, and we don't have to talk to Terrell Wolf in particularly, but how can an investor value one of these companies, right? Because can't be EV's EBDA. If we look at 2023, EVs EBTA, not great. If we look at Q1, it's going to be off

the charts. It's really tough to get a mid-cycle number. So how should an investor, if an investor's day, you know, Terry Wolf said like 235, if they wanted to come and say, let's try and estimate the fundamental value. How should they start looking to do that? Yeah, look, I think it's got to be, it's a great question. I think it's got to be, I do think it's got to be enterprise value to EBDA, but normalized EBITDA, right, and it's got to be enterprise value to free cash flow or free cash flow yield, right? So like in my experience, right, when you can't value a business, so take like coal companies, for example, you know, institutional player, no one wanted to, everyone's like, I want to step away from coal and not interested. Well, that being said, their free cash flow

yields went to like 20, 30 percent, and then all of a sudden institution said, you know what, this is too good to ignore, I got to get back into this space. Right. And so you've seen the sort of pea bodies, the warriors, the arches, like, their free cash flow yields have kind of stayed in and around like 15 to 20 percent. And so, you know, whatever, you want to call it a sin business, whether it's like coal or tobacco or or cannabis, I don't know, whatever. I mean, free cash flow is always king. Like you get people into businesses when they see a massive free cash flow yield, assuming that it's relatively sustainable. So I think when I when I look at, whether we should be issuing shares to grow, I look at EV to EBDA and I look at EV to free cash flow, and I try to calculate, is it accretive for us to issue shares at this level or not? That's what I look at on a daily basis. So, and again, I don't want to have you give forward guidance

because we're not trying to do MNPI on a podcast here. But I guess if people are looking at it, they can go look at the hash rate index, the cost of mine that you've got on your website, they can estimate that, they can put in their BTC price, the hash rate, and they can do that. What do you think, if I did all that, and I came out with a kind of normalized earnings number, where I put in kind of where I think the hash rate is, all that sort of stuff, what do you think a Bitcoin miners should trade at in terms of EVT, Bidah, just on a normalized, not on a

peak or trial number. Yeah, that's a great question, too. So look, again, I come back to my training as an institutional investor. my view is Bitcoin miners are very similar to refineries, right? Refinaries have like major turnarounds, but we kind of have that through to your point of like replacing the fleet every maybe four or five years. And so I think it's a refining business where you're a price I am a price taker, right? The difference is I control my power cost and I control my my SG&A. You're a complexity, you're a 14 complexity refinery that's on the golf.

coast with easy access to, you know, that beautiful sweet crude versus some, I won't call anyone out, but, you know, if you're in a regulated market in front of the meter in Georgia, you might be, you know, you might compare that to the Alabama refinery. That's kind of, you know, trying to get the most pricey stuff. So, yeah, that's an interesting way to put it. Yeah. So I think if you look at refineries, like 10 to trade, you know, three to eight times EBITDA kind of peaked at trough. And then they also, you know, in times of crows. crazy upside or downside, they'll trade on replacement costs, right? And so when I look at, to your point, like, we're building infrastructure that's like 20 year type infrastructure. Miners, I think,

you know, depends on the life and your power cost and where you're mining. So I look at it, I'm like, okay, over time, the two things I look at are EB to EBITDA and then replacement costs. Like, you know, we've put hundreds of millions of dollars in the ground a value that, you know, you can kind of go and calculate. Because our infrastructure, it's basically $500 to $600 a kilowatt to build. We've got roughly 200 megawatts online, right? So that's $100 to $120 million. And then we've spent a bunch more on mine. So you can very easily calculate my cost to build and my replacement cost, right? And so I think those are the two metrics that I think of. Well, I'll just say, what do you think your replacement costs of your assets in the ground right now are?

So like I said, so we have 200 megawatts online, right? We have another 35 coming online. So call it roughly 250. And at $500 to $600 a kilowatt, right, that's quick math, $150 million, roughly, for infrastructure. And then, you know, for the miners that we've put in the ground to fill that, I mean, you know, that's at a lot. least another couple hundred million bucks. So, you know, you're talking about probably $350, $400 million. I'm just in my head spot checking the numbers. I mean, I think Marathon's done a series of deals that value probably power infrastructure that I think would be

worse than yours at about 400. So I think the number you gave there is pretty reasonable. You mentioned, you've mentioned two of my favorite sectors, coal and refineries where I've done a lot of work. So refineries, you know, right now there's this big thing where people are taking a lot of refineries and switching them to renewable facilities. Miners, you could see something, right? There's all this talk about people taking minors and switching them to AI plays, high-functioning HFC plays. We haven't seen tons of it.

I think Core Scientific announced to deal with CoreWeave. I think that's the only one we seem so far. But I would not be surprised. And I just want to, I would not be surprised if we saw some of it. I think it's overplayed for a lot of reasons, but I think some facilities are, I think. So I just want to pause and ask, whether it's terrible. or the industry in general, I think I'd be interested in both. What do you think about the possibility of taking some of these big facilities,

lots of power in place already, and turning them over to, you know, HFC, the demand from Amazon, open AI, whatever, is off the charts. What do you think about that possibility? Last thing, I say that on refiners because they take assets there that, as you said, trade for three to seven times EBITA, they turn them into a renewal facility. A lot of renewal facilities go for 10 to 15. I could see you take a refiner that should trade for five times even on. You turn it into, hey, we've got a 20-year contract with Amazon.

That's a 15 times, you know. So I rambled. Please go ahead. No, look, it's very real. I mean, look, our partner, Tallin, right? I mean, I'll tip my hat to their former CEO, Alex Hernandez. He had the vision years ago, right, to build a Bitcoin mine and data center site at their nuke. And, you know, it took them, you know, a couple of years.

but they just sold it for $650 million to Amazon. Why don't you just give the megawattage on that so people can, in their mind, think about the megawatt value of that? Right. So, I mean, Amazon bought, I believe it's about 950 megawatts of power. And by the way, they didn't pay for the power. This is just the site and the right to purchase power directly from the nuke. right so for the site for the you know uh transmission um which is simply you know runs basically a couple miles from the nuke um and the substations and the land they paid 650 million dollars right so that as talent announced that was two and a half facts what talent put into it so and we were

talking earlier about bitcoin matters being worth four to 500 per kilowatt if i'm doing the math my head right that's approaching 700 per kilowatt now and that again that goes to this is right at a nuke behind the meter, similar to what you guys have at Nottles. I mean, Nautilus is the sister facility to this. So you would imagine premium for that. So yeah. But I think, but but to your point, it is very real. I mean, I will tell the one of, one of the guys that works for me, it called me up the other day and had a household name on the phone and said, hey, I've got this, you know, household name and they want to know what it cost to shut down all of our Bitcoin mining and put in, you know, HBC and AI machines. And I, I, I

I wouldn't have believed, unless I got on the phone and had the conversation, I, you know, I wouldn't have believed it. So we, we have, why wouldn't, why didn't you? What's the hold up? If he was asking, I mean, what's the break, what's the price for that? I mean, there's not. And again, where I was just going with this is at Terrell Wolf, we, yeah, do we believe in Bitcoin? 100%. Otherwise, we wouldn't be in the business. But we also own 40% of the equity of the company. So I will do whatever is the most value of creative to do at our sites. And if that means taking, you know, our 300 megawatts remaining at Lake Mariner and, you know, doing a deal with a household name for, you know, high power of compute and AI functions. I mean,

we'll do that because, Andrew, as you point out, I mean, those businesses trade at 20 to 25 times EBITDA. You know, I just told you, I think over the long run, you know, I think our business probably should be, you know, kind of in that three to eight times EBITDA as a Bitcoin miner. So, if it's much more value of creative to do, then we'll do it. Would Lake Mariner be a facility where you could do HFC AI type compute? 100%. We have, I mean, we have everything they want. We have access to cheap zero carbon power. We have 1,200 acres of land. We have access to water, which is probably most important because it's a retired coal plant. We still have a permit to pull hundreds of thousands of gallons from Lake Ontario. So that is the

of trifecta of what all of these basically, you know, names. Does access to bandwidth not matter? It does, but we have broadband. I mean, we have great broadband at Lake Mariner as we're Bitcoin mining. So that's become less less less I mean, as you know, the old data center game used to be, you need to be, it was all latency. Well, that doesn't matter anymore because now they can run, you know, LLM models at night. It doesn't matter when they run.

So I think, you know, the cloud game and latency game is all played out and all those sites are taken. Because one of the things I heard was from people who said, hey, sure, you know, theoretically these Bitcoin miner sites would be great for AI, right? Like you've got a lot of power going in. And as you saw with the Amazon Talon deal, like there just aren't a lot of facilities that can pull this much power. So these Bitcoin miners, like they've kind of in some ways stumbled into things that may have much better alternative use cases if Bitcoin. doesn't say at 70,000 with hash rates at 100, right? But a push, a common pushback, it is, hey, you know, a lot of these are built in former coal mining towns or really small rural towns. And yeah, it would be great, except A, you don't have guaranteed power, right?

Every now and then you're going to have power pulled, and that's a disaster for AI. Yeah, AI needs to be running 99.99% of the time. And B, AI really does demand a lot of bandwidth. And if you're in a small rural community or, you know, really far out there, you don't have the bandwidth to get the data back and forth, but you're thinking either A, bandwidth is kind of, I'm hearing obsolete things, or B, Lake Mariner has plenty of kind of, like, I say bandwidth, people probably think my Ethernet plug them, but it's like big pipes, like really come in. You think Lake Mariner's fine are that, or do you think bandwidth is overrated? Yeah, no, we check all the boxes, and there are very few sites left in the U.S.

that have cheap, large, and zero carbon power. I want to, like, we have been pounding the table on, you know, source of power matters. Like, we have a commitment to largely zero carbon and renewable power. That matters. I mean, we're building a solar facility at Lake Mariner as well. So that ultimately, in the few hours a year, we're, you know, we're not getting, you know, directly hydroelectric from Niagara, we can be solar. So we can be 100% zero carbon.

But I think as, you know, the household names that we all know and see, it really matters what their power source is. Because as you know, these are power hungry facilities. And politically, that next leg of growth for them is going to be hard. And so to the extent that they can do it and publicly get out there, that it's zero carbon power, then it makes a big difference. I also think, too, there's tremendous synergy inciting, co-locating Bitcoin and HPC and AI facilities. And why, to your point is, Bitcoin facilities, I can turn down my entire facility at Lake

Mariner in two to three minutes. So literally, 160 megawatts comes offline. almost instantaneously. As you mentioned, you can't and don't want to do that a lot of times with high power compute and AI. And so having them co-located is really valuable because you can provide that demand response to the grid and be responsive. And so we kind of see a lot of value going forward and perhaps, you know, as we expand into other sites, co-locating and keeping those two things together so that you add that extra flexibility for the grid. Today's episode is sponsored by

Santangil's Review. Finding the right hedge fund cap intro event isn't just about the size. It's about the value it brings to your time. Sandton Joel's review offers something unique for fund managers and allocators. Founded in 2010, it hosts three cap intro roundtables each year, two in New York City

and one at Fenway Park in Boston. These events stand out for their focus on quality over quantity, attracting some of the most prestigious endowments, foundations, and family offices worldwide. The secret sauce, Santangel's spotlights undiscovered's talent. Managers you don't necessarily see at other industry conferences.

Attendees take part in eight one-on-one meetings, intermixed with ample networking opportunities. In an industry-built-on relationships, Santangels foster some of the most valuable connections. If you're a manager or allocator who is serious about maximizing your time, you want to be a part of Santangil's roundtable. Let's see, you guys own 25% of the Nautilus facility. Talent owns the other 75%.

Again, this is, tell me if I'm right, this is the sister site to what Amazon just bought from town. What do you think makes the most sense for that facility in the long run? Do you think it's you guys taking 100%? Do you think it's, hey, Amazon, you've got a limited demand. Maybe this doesn't deserve to be a Bitcoin miner. It doesn't seem like you owning 25%, them owning 75% makes sense the long run.

How does that play out? Yeah, look, you mentioned in the beginning. You don't want to get into any MNPI. So I'll casually dodge that. But look, I think you have Tallinn, if you follow, right, has been liquidating. They just sold off assets in Texas. They sold, you know, the data center to Amazon, right? Like, they are slowly selling down.

And so, you know, we obviously, Amazon very eager to expand operations. So, look, I think stay tuned. And as I've said before, we're very value focused and want value accretion. So I think whatever we end up doing there, I think, you know, both us and the shareholders will be happy. let's see i just you've got a lot uh what bitcoin mining i think there's always been i think this is the second time the Biden administration's tried to do this but there is they've got a proposed bitcoin mining tax uh you know i i will say i think it's a little misguided but do you guys worry about a bitcoin mining tax getting put in place because that would really change the incentives

of this it's a great question you know and i'm probably the wrong person you know we have folks full-time, right, on the payroll that focus on political and regulatory affairs, right? So I'm not going to address that, Andrew, because I'm kind of, you know, that's fine. That's fine. But what I would say from a financial perspective is I'm not worried about it, because if it's a tax that everyone has to deal with, then I'm the lowest marginal cost producer. So I just, I get, what it's going to do, it's going to take the marginal cost to produce a Bitcoin for the entire space higher. And yeah, I, I do. I, I just, I get, it's, what it's going to do is going to I do hear you on that, but my worry is, you know, I, this actually blends into another interesting question.

Like, all the publicly traded guys are all focused almost purely domestically, right? And all of them talked about, most of them have talked about expanding internationally, but it is surprising to me how focused domestic, how domestically focus is. And I do get there is, hey, we own the assets, we get the benefits of it. There, there's great power production here. But, you know, I would have guessed like going and sourcing it somewhere overseas in a lower cost country with, lower-cost labor, lower-cost land. There's a lot of stranded energy assets out there. Like, I just didn't surprise how domestic focus it is.

In a Bitcoin mining tax, I do hear you, it hit everybody their current assets, but it would probably just push it overseas much in the same way. I think, what, in 2016, China banned Bitcoin mining. So there used to be a lot of Bitcoin mining in China. It just all goes away. I think capital will flow pretty quickly away. Now, you might have a downside where your facilities are great, so you can sell them to HFC even faster, but that is one thought.

Yeah, look, I agree. I mean, I think roughly 50% of the network cash rate online right now. So call it, you know, 315XHash out of the full 630 is domestic and largely in the public minors in the U.S. So it definitely will impact, a tax would impact marginal cost. But look, I think there's a reason why we're all focused domestically. You've got rule of law in the U.S. You have a huge political push for more intermittent resources on the grid. So wind power, solar power.

And, you know, I think Bitcoin mining, right, behind the meter at a wind plant, at a solar plant can massively help by giving them a set revenue stream, right, develop more of those facilities. And so I get to tell you, it's a long time. Again, I've only been focused on Bitcoin for about, you know, two and a half years. But I'll give you a good example, right? Some of our peers are going into South America. You know, I, as an investor, I had a claim against the government of Argentina for four years.

And I took it all the way to the World Court. It's called Ixid. And we won. And I had a $210 million claim against a wrongful repossession of a water utility by the government of Argentina that I then tried to collect for years and ultimately collected pennies on the dollar. So I can tell you, having had that experience, I don't care how good your Internet. national asset is, it's good until it's not and there's a regime change and then you are in trouble. Patrick, yeah. I'm just cracking up because on this podcast, you've mentioned coal and the most popular podcast this year we've done has been having a, I'll say, coal expert on

and we riffed through all the coal companies. You mentioned refineries, which is my personal favorite sector. And then you just mentioned a claim against Argentina, which some of the most popular podcast we've done is Burford, a publicly traded lit finance company has a claim for Argentina nationalizing YPF. And those are some of the most popular podcast we've done. So you have hit on three of the most popular topics with I am almost positive. You didn't listen to the back catalog of 236 episodes or something. There's a reason I have no hair because I've gone through all those industries.

Let me. So again, you guys are 40%. You talk about being very sensitive to best returns. You talk about wanting to do a dividend, a stock buyback. Right now you're issuing shares and using. I mean, you guys do a lot of free cash flow. I think it's like five or six hundred thousand a day. Now the halving's coming.

So that will change. right now you're paying down debt. Where would it make more sense to stop paying down debt and start buying back stock or stop paying down debt and just issue a dividend and stay one X levered? Yeah, look, I think our goal, you know, the biggest asset of our company right now is our free cash flow generating ability. So I'm going to take that and I'm going to pay down all of our debt. We are very close to being kind of fully funded for our business plan for this year,

as we've announced, and we have building four coming online in the middle of this year. The only thing we haven't announced is a minor purchase to fill that building, but otherwise, you know, we're in a great spot. And as I mentioned, I'm very strategic about when I use the ATM. We have a lot of our peers are systematic. They're like 10 to 20 percent of average daily volume every single day. We are very strategic and only use it when we think it is accretive. So I would just tell you that I think we're going to, you know, if economics kind of hang where they are, I think we'll be through our debt, have our debt repaid, you know,

end of third quarter, early fourth quarter. And, you know, I would expect that at that point, you know, any and everything is on the table with regard to or using free cash for organic growth, using it for dividends, using it for buybacks, you know, it's all available. Last one, and then I'll kind of rough this up. I've seen a lot of your peers talking about, hey, now, it might not matter if Bitcoin's where it is and how. Hash rates are where they are right now. But a lot of your peers are talking about, hey, on the back end of the halving, you know, hash prices are probably going to come down.

Of course, they come down by half. And we might see a lot of the higher cost players exit the space, and there might be the opportunity for consolidation. And we've always heard about the opportunity for consolidation in the Bitcoin mining space. And to my knowledge, I mean, again, I'm newer to the space. I don't think there's been any, like, large scale M&A. Do you guys, I guess, do you have any appetite for that?

And do you think the scale really matter in this industry? because I could see it go two ways. Like at the site level, obviously having a 200 megawatts site, you basically have the same cost as 100 megawattsite and it produced twice much. But does it matter like, hey, I'd rather have five 200 megawatts sites than three 200 megawatts sites. So I'll just ask that on kind of M&A opportunities. Well, good question. So scale, just like oil and gas, scale matters because we have fixed costs, like our fixed SG&A. So our SG&A, I give guidance, basically 27 to 28 million a year. But like 15 million of that is literally like I can't, no matter what, it's a public company cost. Like I can't change it. Right. And so I think scale does matter because on a cost

per coin basis, the bigger you are, like the lower that sort of fixed amount of SG&A that you can't get rid of is. And so when I look at growth though, and there's a, you know, I would say like, I mean, we've been involved in a lot of M&A discussions. public to public. And to me, the value there is, I look at some of my peers, and I don't understand how, but they have, you know, 50 to 80 million dollars in SG&A. And so if, if, you know, I mean, simple math, right, if you're trading at 10 times and you can do like a stock for stock deal at a low or no premium, and you can take out 50 to 80 million dollars, that's 500 to 800 million dollars of value that you can create on a deal. So look, it's not for lack of trying. I just think the

issue is, and I'll give you my perspective, I don't want to put words in anybody else's amount, but my assets, like I have among, as you pointed out, the lowest power cost. So I don't want to grow by buying somebody else that has a bad power cost because we're about to go through the having and power is even more important. And so the reason, the thing that's so peculiar to me, As you look at Terowulf and where we trade, like if you go look at our Bloomberg consensus estimates for EBITDA next year, it's like $96 million, right? 96 million, let's just round it to 100 to make it easy. And then my market cap today, again, Bloomberg, $670 million, add another $75 million debt.

So I'm at $750 total enterprise value with $100 million of EBITDA. So I'm trading at seven and a half times EBITDA. The biggest guys in the space are trading at like $6.5. 16 times EBDA. And I'm almost, even though on 8X hash and they're much bigger, I'm actually almost as profitable as they are. So, Andrew, I would ask you this question is your smart guy. If you're the CFO, one of the bigger guys in the space, wouldn't you say, I'm going to go buy Terrell Wolf? Because I can use my currency at 16 times EBITDA to buy a company trading at seven and a half times EBITDA. And the reason they're not doing that is because I would laugh and say, I'm not taking your equity because I think your business is about to get demolished. post-having, you're not going to make any money. Well, this is why I ask, because that actually, that's really one of where I kind of wanted to go with it. I generally, I know, I'm not sure if this is right or not, but I've generally looked at valuing

the companies as on their X-a-Hash instead of on an EB-T-EBDob basis. But that doesn't make any sense because not all X-Hash is created equal. Well, so, you know, that's where the quality of, I look at it on X-Hash, and then I kind of go and say, oh, well, I think these guys have better, but when I'm doing that, like, I'm looking at one of your peers right now. They're trading for approaching $200 per Exahash, and I've got you guys that kind of under $100. I'm like, oh, well, I think Wolf has much, much better assets than these guys because their power prices are probably 33% lower. But I wonder a similar thing.

Like, if I was them and my shareholders are paying for, my shareholders are clearly want me to grow at any cost because they're funding these massive ATMs. And I mean, the ATMs across the sector are pretty crazy. I'd be like, hey, maybe the best way instead of issuing the stock is to go buy Wolf. or buy, there are a couple others that, what originally attracted me to the sector was the valuation discrepancies are enormous. And I understand some of these are semi-meam stocks. But as you said, some of them are trading for 20 times EBDA. Well, other guys with maybe better assets are trading for eight.

And it's kind of crazy. If I were them, I think I'd be looking to do a stock-for-stock deal. I don't know. I also hear you on, I don't want to take a competitor's overinflated stock. But, you know, you could just go to them and be like, hey, we're pretty small bite-sized, some cash, some stock, and issue as much stock as you want on the heels of this. And yeah, I think that would be kind of interesting. Yeah, look, so I think there's, and I'll bring back to oil and gas, right, 2010s, there were

a hundred public companies, right? And all of them were management teams like preserving an option. And then finally investors were like, look, if you're not making money, you got to merge and take out all these SG&A costs. Same thing happened in the oil field service space too, right? You had consolidation. So, look, that is inevitable to me. And I think it probably is more likely to happen on the.

back of the halving when you mentioned the 2010s oil and gas and your competitors making 50 million doing 50 million investment it also strikes me as in the 2010s in 2012s the competitors were just getting paid on ebidot growth right and what's the best way to grow ebidah plow cap x into stuff hell or high water right because your ebada is going up if you're paling cap x and a lot of your competitors are getting paid on ebada and bitcoin mining i can get any bitcoin miners ebada up if i wanted Now, I'm going to spend a billion dollars in CAPX. Is it going to be a good returns? I have no idea, but my EBITDA is going up for sure.

So a lot of them are getting paid on EBITA. And when Bitcoin goes from 15 to 75K and you're spending 400 million CAPX, yeah, your EBIT is going to go up quite a bit. This has been awesome, Patrick. We've done a lot. I'd encourage people to go, if they're interested in the sector, read the earnings call, but really play around with the cost to calculate thing on your website was just so insurmmental for me for thinking through, again, there's a lot of moving things here, and it is

different than oil and gas company. And it was just so insurmental to me in terms of starting to think about anything you want to leave the listeners with? No, I would just say, you know, I'm very accessible. I'll give you my email is Flurry, F-L-E-U-R-Y at Terrellwolf.com. If you have any questions, email me. I'm happy, you know, I'll get back to you as soon as I can, trying to educate, you know, more folks on the space. I think that's helpful. I know you guys, I saw, uh, Sorry, your CEO's name. Is the name Patrick as well? Paul, Paul.

Paul, I saw he was on the mining power podcast, and I think this is a little bit of a different one. He was yelling at people. Hey, everybody else issued it. But I've actually really enjoyed him. And no, hopefully this is going to be a different audience, but I really enjoyed this. This was awesome.

Thanks so much for coming on. And maybe we'll have to do another one post-having or once you guys, post-having, we'll talk about it. Thank you for having me, Andrew. It's pleasure. Thanks, Patrick. A quick disclaimer. Nothing on this podcast should be considered an investment advice.

Guests or the host may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.