Earnings Call Transcript - MIGI Q4 2022

Operator, Operator

Greetings. And welcome to the Mawson Infrastructure Group Fourth Quarter and Year End 2022 Earnings Results Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tim Broadfoot, Chief Corporate Officer. Thank you, Tim. You may begin.

Tim Broadfoot, Chief Corporate Officer

Thank you, and hello, everyone. Welcome to Mawson Infrastructure Group, Inc.’s annual and fourth quarter 2022 earnings call. Joining me today on today’s call are our Founder and CEO, James Manning; our COO, Liam Wilson; and our CFO, Ariel Sivikofsky. We look forward to taking you through the investor presentation today. Firstly, I need to bring to your attention a short disclaimer around forward-looking statements. Please be aware today we will be making forward-looking statements. These statements are based on current expectations and assumptions and are subject to risks that could cause actual results to differ materially from those expected. We may also make forward-looking statements as part of our Q&A at the conclusion of this presentation. We will also discuss certain non-GAAP financial measures about the performance during today’s presentation and Q&A. You can find the reconciliation of GAAP financial measures at the end of our presentation, which is available on our website. Please be sure to refer to the cautionary text regarding forward-looking statements contained in this presentation on slide two, as well as the risk factors in our annual report on Form 10-K filed on March 23, 2023, under the subheading Risks Relating to Our Business. With that, I will hand it across to our CEO, James Manning.

James Manning, CEO

Thanks, Tim, and welcome, everybody. Q4 was a transitory period for Mawson as we closed the sale of the Georgia facility to CleanSpark and moved all our assets into our Pennsylvania facility expansion. During this time, our industry, in particular and the economy more broadly faced some macro headwinds. Mawson has converted these headwinds with a continued focus on our diversified and total revenue model, particularly trade revenue shares; one being self-mining; two being hosting collocation; and three, our market-leading Energy Markets program. I want to provide significant support to the company’s revenue and price profit through Q4 and through 2022. Some key highlights from the period include the closing of our Georgia sale for over $40 million; completion of the build-out for Phase 1 of Midland, PA to 120 megawatts of capacity; securing some additional sites for growth, including firming up our 120-megawatt facility in Sharon, PA; and entry into a binding sale agreement for the Texas facility for $8.5 million, enabling us to continue our strategic focus on the PA region. With that summary, I am going to hand over to Ariel Sivikofsky, our CFO, to run through the financials for the year.

Ariel Sivikofsky, CFO

Thanks, James, and thank you to everybody who has joined the call. Touching on some highlights of the full year results of 2022, Mawson has generated record revenue for the year-to-date of $84.3 million, up 92% year-on-year; gross profit of $36.6 million, up 8% year-on-year; non-GAAP EBITDA of $30.4 million, up 70% year-on-year; and Bitcoin produced for self-mining increased 66% to 1,343 coins. Importantly, with the largest depreciation shared afforded to us, we have almost no tax burden in this EBITDA number. Pleasingly, our hosting colocation business also generated solid growth, rising 1,464% from 2021 to $13.3 million in 2023. In addition to this, Mawson had a new source of revenue in 2023, being the Energy Markets program that generated $13.7 million in revenue at a gross margin of 91%. Mawson received $20.6 million of proceeds from the sale of the Georgia facility in quarter four, with additional share-based payments hitting the balance sheet subsequent to year end. These funds have been partially used to reduce debt, as shown on the balance sheet with debt reduction payments of $11.93 million in quarter four. Some other balance sheet highlights from the quarter include; an addition of $11.3 million in assets associated with energy contracts referred to here as derivative assets; a $3.2 million increase in marketable securities; and a $5.4 million increase in assets held for sale. At the end of 2022, our net assets were $76.1 million, based on shares on issue as at March 6, 2023, of $14.1 million, our net assets per share sit at $5.34 per share versus a share price of $2.50. Turning to our income statement, some other highlights from 2022 versus 2021 include a 37% reduction in our selling, general and administrative expenses from the first half of 2022 to the second half of 2022, a $12 million increase in year-on-year in hardware sales to $14.2 million in 2022. Critically and with the challenges of 2022 behind us, Mawson is focused on ensuring that we have a strong balance sheet for 2023. Through strategic asset sales, increases in our operations, and the capital raise in 2022, we are well placed to grow in 2023. I will now hand over to Chief Operating Officer, Liam Wilson, to provide an operational update.

Liam Wilson, COO

Thanks, Ariel. As James touched on earlier, Mawson has developed a diversified and highly flexible operating model. Through 2022, we saw this model pay dividends as extreme weather events, coupled with global social issues, caused power prices to peak worldwide. Our infrastructure-first approach was highly favorable through 2022. Due to these events and the operating model, Mawson had the ability to adapt in 2022, which included an average of 0.8 exahash online for the year, with the top of 1.63 exahash online for self-mining reached in June 2022. We look forward to our self-mining ramping up significantly through Q2 and Q3 as our 120-megawatt Midland, PA, facility and the first 12 megawatts of our 120-megawatt facility in Sharon, PA, come online. We are actively watching the market for purchasing opportunities to add to and upgrade our self-mining fleet. The second arm of our diversified model hosting continued to pay dividends during 2022, which further justified our mining hosting split, a record $13.3 million of hosting revenue was earned through 2022, which run at a 24% margin. Mawson views hosting as stable revenue and an option to hedge against full Bitcoin exposure and we will continue to look for favorable and appropriate hosting partners in the future. Our third revenue stream, the Energy Markets program, was a resounding success story of 2022. $13.7 million in revenue was earned during a period when our competitors would have otherwise been offline. This program ran at a 91% margin. On top of this, our grid stability contribution was significant, particularly during the pre-holiday period winter storm that hit across the U.S. In Q4, Mawson exited the Australian facility at Condon. This decision was made so that Mawson could focus all of our attention on Pennsylvania and Ohio. We firmly believe the climatic conditions in these areas are perfect for mining and hosting. They also provide the opportunity to participate in the Energy Markets program. With regards to the climate, winters are cold with some rare freezing events, summers are mild with very few extremely warm days. What you are left with is highly favorable air-cooled mining weather for 99% of the year. Mawson now has its eyes firmly on what can be achieved in 2023 and this is underpinned by our secured energy pipeline. Our infrastructure-first model and existing strategic relationships have given Mawson first access to multiple attractive sites and we look forward to announcing further growth in the near future. We will continue to search for deals and develop sites, which we believe will be highly lucrative for either self-mining, hosting, or a mix, and we will look to add to our Energy Markets program where applicable as well. Mawson’s ESG program is something we are incredibly proud of and we will continue to look for opportunities to further the program through 2023. Our proximity to the Beaver Valley nuclear station is a strategic advantage and we are very proud of our 100% nuclear certification. During 2022, we were welcomed to the Midland, PA, community and we are extremely proud to have contributed to the arts, education and healthcare facilities with grants. On top of this, we have been active supporters in the Sandersville community prior to our sale for three years and have recently become involved in the Sharon, PA, community. With that, I will pass back to James. Thanks, James.

James Manning, CEO

Well said, Liam. Continuing on an important part of our success today and in the future is our employee and team. Our operational team is led by our COO, Liam Wilson, driving the operational performance of the company. Craig Hibbard, our Chief Development Officer, is overseeing the development of our portfolio facilities in the United States. We then have our corporate team consisting of Tom Hughes in General Counsel; Tim Broadfoot, our Chief Corporate Officer; Dan Tuzzio, our Chief Technology Officer; and Ariel Sivikofsky, our CFO. This team brings a wealth of experience, knowledge, and know-how from many industries that give ultimately sales now and into the coming years. With this combination of personnel and structure, we are confident and excited to take on any challenges in 2023. Finally, we want to discuss the market price of our share versus several other metrics. 2022 for Mawson shareholders observed a material decline in the share price. Having taken into consideration the current market price versus our peers and other external factors such as Bitcoin, we prepared the final slide to help everyone reflect upon the value proposition we at Mawson see in the share price. In summary, 2022 was a pivotal year for the Mawson team. We simultaneously expanded our large-scale low-cost Pennsylvania facilities, which today stand at 240 megawatts of capacity or approximately 8 exahash of computing power. We also completed the sale of one of our non-core facilities to CleanSpark for approximately $40 million. We intend to expand our Pennsylvania facilities with self-mining and hosting throughout 2023 and into 2024, and we look forward to sharing more information on this expansion in early Q2 this year. With that, I just want to take a moment to thank shareholders for their continued support of Mawson and we look forward to answering any questions and giving you updates in the future. Thank you.

Tim Broadfoot, Chief Corporate Officer

Thank you, gentlemen. With this presentation now complete, we wanted to take this opportunity to thank all of our employees, suppliers, and shareholders for their ongoing support in 2022 and into 2023. We will now answer any questions.

Operator, Operator

Thank you. Our first question is from Josh Siegler with Cantor Fitzgerald. Please proceed with your question.

Josh Siegler, Analyst

Yes. Hi, guys. Thanks for taking my question today. I think for my first one, I’d love to get an update on what you are seeing in terms of hosting demand and the progress you have made in finding a hosting partner moving forward? Thank you.

James Manning, CEO

Hi, Josh. Good to hear from you. I might pass that one to Liam, who’s sort of been dealing with the day-to-day hosting inquiries. He would be best positioned to answer that.

Liam Wilson, COO

Thanks, Josh. Thanks for the question. I guess the simplest answer is, there's a ton of inquiry coming through. We are seeing plenty of the large miners looking for hosting now that the other facilities in the market have dropped off through 2022 and we are seeing plenty of new demand for hosting come through from players that we previously hadn’t heard of before. So in short, there’s a large pipeline of hosting customers ready. Regarding us nailing down a hosting partner, we are going through some pretty stringent day-to-day discussions with a number of parties at the moment and we hope to be announcing some exciting news on hosting in the near future, but we are in the final stages of that now.

Josh Siegler, Analyst

Understood. That’s helpful color. And then I’d love to circle back to the build-out of Sharon, and kind of what CapEx are you assuming will be required to finish construction of that site?

Liam Wilson, COO

James, do you want to take that?

James Manning, CEO

Hi, Josh. Yes. You are more than delighted to hear that.

Liam Wilson, COO

Thanks. Josh, the first 12 megawatts for that facility are already fully funded. So that’s the first six NDCs, the transformers, and all the polls and wires to get that online. The balance of the 108 megawatts, we will be looking for a partner to execute that site.

Josh Siegler, Analyst

All right. Understood. Thank you.

Operator, Operator

Thank you. Our next question is from Kevin Dede with H.C. Wainwright. Please proceed with your question.

Kevin Dede, Analyst

Hi, James. Thanks for taking my call. Your objectives look pretty appetizing and I was wondering what all was behind them? We are at 50 megawatts now, hoping to go to 4.5 exahash and then 8 exahash on a mix of self-mining and hosting. Can you give us a little more detail on how you expect that mix to break down?

James Manning, CEO

We currently have 50 megawatts online, and within the next 30 days, we anticipate reaching 120 megawatts. It's important to note that the 50 megawatts does not fully reflect our capacity at the Midland facility, where we have the infrastructure for 120 megawatts. We are currently in the commissioning phase, and as we start operating the equipment in the coming weeks, we expect to come to market. The containers are on-site, the substation is complete, and we are testing the systems. Therefore, aiming for 120 megawatts online is a more accurate representation of our progress. In addition, we are finalizing the construction of the Sharon project, which is also fully funded, bringing our built-out infrastructure total to between 132 and 135 megawatts. This gives us a solid foundation for future infrastructure development. On one of our slides, we mentioned that we have some other sites with low capital expenditure, where we can quickly add nearly 50 megawatts with minimal investment. We have secured these sites with several letters of intent and binding agreements, ensuring we are well along the path to having the necessary infrastructure. What remains now is deciding between self-mining and hosting, as we aim to optimize profitability and manage risk. We are looking for reliable partners in hosting who consistently meet their financial obligations and contribute to any capital expenses, or otherwise, we will evaluate our self-mining options. This is a careful balance that we will manage based on the readiness of our facilities, our capital expenditures, and the associated costs of additional infrastructure or mining rigs. We have also moved equipment from Australia and Georgia, gearing up to approach the 2 exahash mark. As we activate our existing facilities, we will assess additional gear and how to mix our operations moving forward.

Kevin Dede, Analyst

Very helpful, James. Thank you. Would you mind going through, I guess, sort of two different calculations? One is the choice to sell out of Texas versus buying two facilities in Ohio and the other is balancing energy sales versus consumption for mining and hosting?

James Manning, CEO

Yeah. I am really happy to go through both of those. So, maybe last year, as a group, we did a soul-searching and strategy session. And as a company and as a Board, we established a clear strategy about where we wanted to be located, what we wanted to be focused on, and how we wanted to operate the business. The big outcome of that was we really wanted to be focused in a region. We did not want our executives traveling all over the U.S. and managing multiple sites, which required multiple days of trips between each one. So we decided we really like Pennsylvania. We like the PJM energy market; we found the pricing there to be competitive with the Texas market and it has huge climate benefits. The idea was, although we would originally committed to going to Texas, we decided we want to lead the Texas market. We realized that we could sell those Texas assets in the market and refocus our energy really up in the Ohio and Pennsylvania region, where our power is competitive and the climate is a little bit more forgiving. So that was the real focus of why we wanted to move ultimately up into that region. So does that answer that portion of your question, Kevin?

Kevin Dede, Analyst

Yeah. That helps a lot, James. Thank you.

James Manning, CEO

And what was the other component, sorry?

Kevin Dede, Analyst

As you consider Pennsylvania and the development of sites in Ohio, how should we evaluate your prospects and decide on your allocation? You will have about 240 in Pennsylvania and approximately 50 in Ohio. How will you balance the power usage between your energy market strategy and your host and self-mining strategy?

James Manning, CEO

So, I guess, ultimately, we are always optimizing that for the greatest gross profit margin. So because we don’t have a hurdle strategy. We sell our Bitcoin. Everything we do, we are about maximizing profitability ultimately. And so if it is most lucrative ultimately to be selling energy back to the market, we will look to do that. If it is more lucrative to mine Bitcoin, we will be doing that. We have an internal model and algorithm, which we look at daily, which ultimately helps drive that decision. So I know that’s not great from a modeling perspective for you, Kevin, but what we are looking to do is ultimately be as profitable as we can as a business. So we really make the jump between Energy Markets revenue mining or hosting ultimately to make the most margin as possible.

Kevin Dede, Analyst

Okay. Just peeling the onion back a little bit on Josh’s question on hosting partners. Could you give us an idea of what you are looking for, and I guess, sort of your expectations for your partners’ flexibility given the flexibility that you want to have in making that energy consumption decision?

James Manning, CEO

Yeah. It’s a great question. Most of our contracts are open book cost plus power contracts. So that has some huge advantages because we are not exposed to price risk like you saw other companies where they had unprofitable power inputs with fixed price power. I think you have seen some other hosting companies come across with similar arrangements where they are committed to a cost per kilowatt hour of power and their prices spiked, and many of them subsequently failed, ultimately. We have always been transparent in our pricing model, so we do a cost plus model where we charge for infrastructure recovery, we have got a margin component for the business, and then, obviously, power is power. We are very transparent with our customers on that. We think that’s while they are our customers, we think that forms a partnership type arrangement, where they get the benefits of seeing it. Wind power spikes; typically, people don’t want to be operating because they are on a cost basis. They are very happy to turn off. That’s built into how we see what our margins are as part of what we consider our margin to our customers. We think they are important parts of our contract negotiation and making sure the relationship is right ultimately. It’s about getting that mix right with our customers because they don’t want to pay high power prices and we need to manage that.

Kevin Dede, Analyst

Okay. Yeah. For fear of hogging the call, James, last question, given your and Liam’s view of the climate in Ohio and Pennsylvania, I get the sense that you are not going to explore immersion and dealing with those few hot days or am I not making the right assumption there?

James Manning, CEO

Look, we have got a viable emerging product. The reality is on a cost per megawatt basis; it doesn’t compete to build this stuff out at the moment, and until those economics change, especially with what have historically been through 2022 depressed oil prices, it’s very hard to make the economics stack. I think if you are sitting in half of climate, then you have to explore that, and there’s a very logical reason to do that. It’s about balancing OpEx and CapEx; given where we are, we are pretty comfortable with that OpEx to CapEx balance. I’d also say that typically, when you see the hottest days in somewhere like PA or Ohio, you wake up and realize that they are also the highest pricing of power, so switching off for those few hours in a day for the few days in a year makes a lot of economic sense as well. Overall, we just don’t see, given the region and climate we are operating in, that it makes a huge amount of economic sense to pursue that.

Kevin Dede, Analyst

Perfect. Yeah. Thanks for that color. I appreciate it, James.

James Manning, CEO

Not a problem.

Operator, Operator

Thank you. I don’t have any further calls left. I apologize, but I have a couple more questions that came in, as well as some email questions.

Unidentified Analyst, Analyst

Hello. You guys hear me okay?

James Manning, CEO

Great to hear from you.

Unidentified Analyst, Analyst

Yeah. So, first, congrats on closing out the year very strongly with, obviously, a lot of moving pieces. I just want to clarify a few things. You talked about the Texas agreement of $8.5 million. Did you talk about the closing expectations and time of that? Is that within a few months or a few weeks? How should we think about that?

James Manning, CEO

Yeah. I think we would expect that to close in April at this point in time.

Unidentified Analyst, Analyst

Okay. So that $8.5 million of cash that it’s obviously not reflected in Q4 yet, but it will be on most likely a second quarter, sounds like. And just clarification on the CleanSpark earn-out shares, other than what you show on Q4 2022, there were other considerations received in Q1 2023 in the form of stock. So either you sold them and they became cash, or they sit as stock on your balance sheet as of now, is that a fair assumption?

James Manning, CEO

Correct. I am happy to confirm that we have sold the vast majority of all those CleanSpark shares.

Unidentified Analyst, Analyst

Okay. So basically, there is a pretty substantial strength in form of cash on the balance sheet that is not even showing in Q4 yet, so...

James Manning, CEO

Yeah. The position strengthened between, I guess, December 31 and today; we are in a much stronger position overall.

Unidentified Analyst, Analyst

It's great to hear that. My question is about your targets. You're aiming for an average capacity of 200 megawatts, moving from 24 on self-mining and from 0.8 to 0.7, and in terms of revenue, from $43 million to $200 million or specifically $199 million just this year. Could you explain how you plan to achieve these significant increases?

James Manning, CEO

Sure. I will let Liam take this one.

Liam Wilson, COO

Sure. Thanks, Bert, for the question. The first thing to consider is that Mawson's Midland facility is about to turn on another 70 megawatts. Currently, we are operating at 50 megawatts, but in a few weeks, we realistically expect to reach 120 megawatts and then quickly move to 132 megawatts. The ramp-up will be rapid over the coming period. After that, we will focus on the sites mentioned in the presentation, along with several others where we have varying levels of commitment. Importantly, all the sites that Mawson considers do not require substation work. We prioritize sites like these because they significantly reduce capital expenditure and the time needed to get facilities operational. For some facilities, the timeline from the initial walk-through to getting power online is around 90 days. This is how Mawson can achieve what might seem like impressive numbers. Once we initiate the 70-megawatt expansion at Midland and the 12-megawatt expansion in Sharon, you will see Mawson rapidly deploy numerous other facilities that do not demand extensive capital or significant time to complete.

Unidentified Analyst, Analyst

Perfect. Thanks for that clarification. And I am also assuming that you are between what you ship from Australia and what you have on hand, you are sitting on a fairly sizable amount of exahash that you can immediately or in a very short period of time connect in Pennsylvania here in weeks or months. Obviously, your hosting partner is already ready and able to come up on their end. So you have visibility into how you are growing both sides of that business, at least in the kind of short order; is that a correct assumption?

Liam Wilson, COO

Yeah. That’s correct. As we have somewhere in the vicinity of 1.5 exahash to 1.6 exahash of equipment ready to go, to be turned on, that self-mining gear and then we have the remainder of our hosting partners, the balance of their gear ready to go as well. So, we have got hitting that initial number for Mawson, I think it was 4.5 exahash. We don’t feel that’s going to be a struggle at all?

Unidentified Analyst, Analyst

Okay. And another question here, obviously, last year, you created a brand new business with a 91% margin. I forgot the revenues in the $12 million to $14 million range, which is very substantial that gives you the flexibility. Does the Ohio sites that you are talking about going to be in part of the similar plan as well or not necessarily?

James Manning, CEO

I will take that one. Yes, the Energy Markets revenue has been a phenomenal success for us, with $4 million in revenue in December. Ohio will have a similar program, and we are really excited about that. The short answer is yes. More importantly, we are going to build out our infrastructure from 50 megawatts to 120 in Midland and 132 in Sharon coming online soon, which will allow us to grow that revenue stream significantly. There is a substantial opportunity for the Energy Markets revenue to increase as well.

Unidentified Analyst, Analyst

Yeah. I mean that’s exciting. I am just looking at your deck, you guys just put out talking about 400 megawatts. I mean, that’s eight times the size of, if you get there on what you had and you were able to generate $12 million or so of EBITDA. So that’s certainly exciting. My last question is another slide that you put in on your deck that I am just looking at, talking about the discount to your net asset value. Obviously, by selling the sites that you are not using and converting that into your core competency, you are navigating that very successfully. But what I didn’t realize is that the stock was $15 equivalent when Bitcoin was basically where it was today. I imagine that was on its way down from the mid-$60s to $30s when market sentiment was lower versus you have a completed flip of a positive market sentiment right now. So long, I mean, it’s a long question, but what in your opinion is creating that disconnect? You have some analyst coverage already that were on the call today and they do a great job following you. What do you think is a disconnect on everything else being equal, Bitcoin pricing at $30,000 and you are sitting at an 80% discount to that or 70% discount to that on your share price today?

James Manning, CEO

Thank you, Bert. It's a lengthy question and I believe there are many complex answers, some of which I might not fully grasp. Overall, 2022 was challenging for us, with significant concerns regarding our hosting partnership with Celsius. However, they have consistently made their payments on time, and we have ensured food security. While many were worried about this aspect, it has proven to be less of an issue than anticipated, and we remain in good standing operationally. I do acknowledge that our miners faced difficulties last year, and unfortunately, we found ourselves in a part of the market that is not favorable. This situation doesn’t seem to accurately reflect our true value, indicating a substantial discrepancy between our perception of value and market valuation. The discount to our net tangible assets highlights this issue. We have managed to build more infrastructure with less capital compared to most others in the industry. Our capital stewardship has been strong, and we have fulfilled our commitments, yet we haven’t seen the expected increase in our share price as a result. Had we raised a comparable amount of capital to our peers, I believe we'd rank among the top two companies today. You have identified a real challenge, but we are not in control of the capital markets. Our focus must remain on maintaining a profitable business model, maximizing our capital returns, and optimizing our balance sheet to achieve the best profitability possible.

Unidentified Analyst, Analyst

Sure. Understood. And obviously, you guys have a high level of inside ownership as well. So certainly, you have skin in the game. But keep up the great work and it’s pretty exciting what you have planned for 2023 and execution should take care of hopefully, the share price and value for shareholders. Thank you. That’s all I have.

James Manning, CEO

Thanks, Bert.

Operator, Operator

Thank you. We have one more from Kevin Dede, I believe. Kevin, you may proceed with your question.

Kevin Dede, Analyst

Thank you. Thanks for taking me back, James. I appreciate it. I want to get back to your infrastructure-first strategy in your view of development and sale. And I think this came up in discussion a couple of times last year as you guys worked through the Georgia facility sale. I am wondering how close you are keeping that to your strategic thinking at this juncture or whether or not maybe you are shifting back to what I perceived as the original Mawson when it was Cosmos where you were building to take over the world. So maybe you could kind of reset our thinking there?

James Manning, CEO

Yeah. Thanks, Kevin. I think, look, we are doing a little bit of both. What we recognize is we are very good builders, ultimately. We understand how to build the infrastructure. We understand how to build it at scale, build it efficiently, have a good cost per megawatt. In many senses, we think there’s an opportunity as part of our hosting business to expand that business, as well as where we see strategic opportunities to either partner with hosting customers or sell and manage those sites for a profit. Importantly for us, we recognize where we are in our capital stack and where we are in the market. So we can only do so much. But I think we are very well regarded within the industry and a lot of counterparties would like to deal with us. So we see good deal flow and good site flow. We have the ability to take some of those on, potentially build, identify contracts, develop them, and then move them on. That is an attractive option for us as well, where we can do it for a customer or do it on our own balance sheet and recycle some of those transactions. We are very much looking at all angles, ultimately, Kevin. But the focus is on building a larger sustainable business with recurring revenues. You don’t get recurring revenues ultimately just selling sites. So it’s about doing a combination of the hosting, the mining, and the energy program, and then optimizing the portfolio as we go. As we acquire some of these sites, maybe we identify some sites in the portfolio once built would be better operated by a third party and we can focus on the next site that we identify. We are very realistic about what we can build and run, given our capital structure. We are probably the largest or one of the largest high concentrations of management team that owns a high concentrated share of ownership in the business. Because of that, we are really focused on that return on capital and return on equity. We very much don’t want to see any dilution for the sake of capital growth. So we are very focused on making sure we have the right return profile.

Kevin Dede, Analyst

Great answer, James. Thank you.

James Manning, CEO

But that is…

Kevin Dede, Analyst

Thanks for taking the time. Yeah. Yeah. It was a great answer with the focus on return on capital. I appreciate hearing that.

James Manning, CEO

Perfect. I have just got a couple of written queries. I am just going to take a couple of those before we wrap up. I know we are getting a bit longer than too from a time perspective. So I have got the first one here, I have got from Dave. You have a large amount of infrastructure capacity in Pennsylvania. What’s the total amount of exahash you could have across these sites, assuming you use the latest generation assets? My math has it at over 8 exahash based on the latest generation in NXP. I might let Liam run that, and thanks, Dave, for your message.

Liam Wilson, COO

Thanks, James. Thanks, Dave, for the question. For 132 megawatts, we can expect to have just under 39,000 units operational. If you’re using an XP, that would translate to 5.4 exahash on the 132 megawatts. Looking at the two public sites in Midland with a nameplate capacity of 240 megawatts, we would be just under 71,000 units and at 9.9 exahash if using the XPs. If we use a standard S19, it would be 7.8 exahash, or 9.9 with the XP. So, we estimate approximately 71,000 units at our sites currently.

James Manning, CEO

Great. Thanks, Liam.

Liam Wilson, COO

Thanks, James.

James Manning, CEO

Next one is from Josh. I read in the analyst report, CLSK has a ROFR on MIGI USA assets. When does this expire, i.e., how long do they have on this, my memory, it was 12 months from September this year. Given the recent M&A in the space with how they operate, could this become relevant? Thanks. I might take that one. Yeah. There was a structure with a first right of refusal with CLSK over select assets in the USA. Some of them are just coming up to expiry and some have a longer tail, which is the 12-month tail. So you are correct in that, but it was six months and 12 months sale. I don’t want to preempt or cause any speculation on that. There’s obviously a lot of M&A potentially on the cards this year in the industry, and Mawson wants to be part of that and we will obviously make sure that if anything occurs in that space, we are out there talking to everyone to create value for shareholders. It’s all about focusing on return on capital. So we are focused on identifying anything we can to create extra value. I have got a mail. I have got one from Aaron. What’s the current debt and liability situation? I might pass that one to Ariel to take off.

Ariel Sivikofsky, CFO

Hi, it's Ariel, the CFO of Mawson. Welcome everyone. The current debt off the balance sheet is $35.5 million, which consists of trade payables and borrowings. The borrowings amount to about $23 million at year-end, and trade payables are approximately $10.5 million.

James Manning, CEO

Thank you, Aaron, for that question. I have one last inquiry. Regarding the low cost of energy in Pennsylvania, could you provide details on the power source and the duration of this arrangement? From my analysis, this is one of the best in the industry; if I recall correctly, it’s green nuclear power. Thank you, Andrew. The Pennsylvania power consists of a mix of PG and market power along with a hedge. Our hedges are secured at 3.68, and the PJM market operates on spot market power. Currently, PJM power is priced in the high teens to mid-$20s per megawatt hour, about $0.01 to $0.02 per megawatt hour. This is very competitive power, which is why I consider it to be competitive with power elsewhere in the USA. We have a hedge that runs for approximately four more years. Additionally, you are correct; it is 100% green power, entirely from nuclear sources and emits zero carbon. This is crucial for us from an ESG perspective, as we are committed to zero carbon power. We believe that it is vital for the entire industry to move in this direction to be recognized as a sustainable business and industry, and we like to think we are at the forefront of this movement. It is important for our investment decisions, particularly from an ESG standpoint, when evaluating new sites. We assess the power generation mix and how it will evolve. While we won’t disregard a site with some negative generation, we will always consider the pathway to achieving carbon neutrality at that site. With that, I would like to conclude today’s presentation. I want to express my gratitude to all our shareholders for their ongoing support. I also appreciate everyone who participated in this call for their insightful questions. I look forward to keeping everyone informed in 2023 as we continue to expand. Thank you.

Operator, Operator

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.