Earnings Call Transcript - HUT Q2 2021

Operator, Operator

Welcome to the Q2 2021 Earnings Release Conference Call. My name is John. I'll be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Operator provided instructions to participants on how to ask questions. Now I’ll turn the call over to Shane Downey.

Shane Downey, CFO

Thanks John. Good morning, everyone. So good morning to the 2021 second quarter earnings call for Hut 8 Mining Corp. I'm joined this morning by Jaime Leverton, CEO of Hut 8. We achieved and refined many reporting initiatives during my first full quarter as CFO. As the digital asset industry is still very much in its infancy, existing accounting standards do not directly address digital asset reporting. As part of ongoing management review and analysis and in consultation with our auditors, we made an accounting estimate change as well as a balance sheet classification change in Q2, both of which I will address below. Along with Jaime, Sue and the rest of our management team, I look forward to additional engagement with our active shareholder base. With that said, I'll start with some short disclaimer language, and then jump into a summary of our Q2 results. I'll then turn things over to Jaime and then we'll open up for some Q&A. In addition to the press release issued earlier today, you can find our financial statements and MD&A on SEDAR and shortly on our website at hut8mining.com. Unless noted otherwise all amounts referred to are denominated in Canadian dollars. I'd like to remind you that comments made during this call may include forward-looking statements within the meaning of applicable securities legislation regarding the future performance of Hut 8 Mining Corp and its subsidiaries. These statements are current expectations and, as such, are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. These risks and uncertainties include but are not limited to the factors discussed in the Company's annual information form for the year ended December 31, 2020. At this time, I will walk through our financial highlights for Q2 2021. Starting with revenue, another record-setting quarter with respect to revenue driven by strong mining activity. Total revenue for Q2 2021 was $33.5 million compared with $9.2 million in the prior year quarter. We earned $31.4 million from mining activities as we mined 553 new Bitcoin at an average of approximately $56,700 per coin. This result is up significantly versus Q2 2020 due to a combination of increased average hashrate, which is up by 65% year-over-year for Hut 8 — from approximately 0.68 exahash in Q2 2020 to approximately 1.12 exahash in the second quarter of 2021 — as well as, of course, Bitcoin price appreciation year-over-year. Our hosting line of business continues to grow as well, generating over $2 million of revenue, as we added a second customer in late May. Moving to operating costs, cost of revenue for Q2 2021 was $16.8 million compared to $15.5 million in the prior year quarter. The modest increase is the net result of an increase in site operating costs, mostly electricity, and a decrease in depreciation expense. The decreased depreciation expense was largely the result of a revised estimated useful life of the company's infrastructure assets from four to ten years. Site operating costs increased due to Hut 8’s continued expansion, specifically the addition of miners to our fleet. Cost of mining each Bitcoin for Q2 2021, excluding depreciation expense, was approximately $24,900 compared with approximately $27,000 in Q1 of this year. I want to bring emphasis to the fact that our cost of mining figures are fully loaded costs, inclusive of electricity associated transmission and distribution fees, as well as personnel, network monitoring, equipment repair and maintenance costs. Moving to general and administrative costs, excluding non-cash share-based compensation expense of $1.8 million, G&A costs were $6.9 million compared with $1.3 million in the prior year period. A large portion of the increase is from the strategic investment into building out a larger and deeper pool of executives and managers. Much of the year-over-year increase is a result of various capital markets initiatives and the new management team's commitment to best corporate practices. Both of these streams resulted in considerable involvement of external legal counsel. Further, as our shareholders are aware, Hut 8 was the first Canadian digital asset miner to successfully up-list to NASDAQ, which also resulted in considerable listing fees, regulatory costs and legal fees. The fact that we are ultimately successful in not only up-listing to NASDAQ, but to NASDAQ’s top tier, the NASDAQ Global Select Market, speaks to the company's commitment to excellence. We expect our G&A cost to normalize over the balance of 2021 though continued short-term volatility is expected as the company continues to experience significant growth. To comment quickly on finance income, the income earned from our Bitcoin lending arrangements is reported in finance income. We signed new lending arrangements with Galaxy Digital LLC during the quarter, and now have two active lending agreements. These lending agreements allow the company to continue to leverage our Bitcoin holdings and generate additional fee and cash flow, all supporting our hodl strategy. We earned $0.8 million of finance income during the quarter and have earned $1.3 million year-to-date from these lending arrangements. We recorded a net loss of $20.4 million for Q2 2021 compared to net income of $2.8 million in Q2 2020. This result was driven by a combination of a $22.9 million unrealized revaluation loss related to the classification change of digital asset lending arrangements, as well as a $6 million deferred tax expense. Just to be clear, both of these amounts are non-cash items and neither are of particular concern to us as a management team, neither being reflective of core operating results. The core reason for the mark-to-market losses in Q2 is simply the downward price action of Bitcoin from March 31 to June 30, which was a considerable move from approximately US$59,000 at March 31 down to approximately US$35,000 at June 30. The $22.9 million unrealized revaluation loss in Q2 serves to effectively unwind the unrealized gain recorded in Q1 2021, specifically related to digital assets subject to lending arrangements. This was driven by an ongoing assessment by management and consultation with our auditors whereby it was determined that classification of the lending arrangements consistent with our other digital assets held in custody is most appropriate, which results in any unrealized gain or loss being recorded through other comprehensive income as part of the equity section on a net-of-tax basis, as opposed to through the P&L. Given the movement of the price of Bitcoin for year-to-date Q2, this was a modest $3.3 million unrealized gain, of which $2.5 million went through OCI, net of $800,000 of deferred tax recovery. So it brings emphasis really to the fact that on a year-to-date basis, we have positive net income of $15.1 million. The $6 million deferred tax expense referred to above effectively reversed the Q1 recovery of $6.8 million net of that $0.8 million deferred tax recovery I mentioned a moment ago. Turning to adjusted EBITDA, Hut 8 achieved adjusted EBITDA of $14.4 million for Q2 2021 compared to just $65,000 in Q2 2020, driven fundamentally by Bitcoin mining profitability in that period, as well as our increased average hashrate as discussed previously. Turning to the balance sheet, fundamentally, our balance sheet remains healthy. We raised $115 million of capital in June 2021, supplementing the $77.5 million raised in January. The proceeds from this latest raise will continue to be invested in the growth of the company through the acquisition of new mining equipment, including the previously announced NVIDIA and MicroBT orders, as well as the build-out of our third mining location in Alberta. Our Bitcoin holdings are marked at fair value and totaled $166.1 million, reflecting 3,824 Bitcoin as of June 30. This balance consists of 1,824 Bitcoin held in custody and 2,000 Bitcoin subject to lending arrangements with Genesis and Galaxy. We continue to emphasize our long-term hodl strategy and did not sell any Bitcoin during the quarter. And with that, I will turn things over to Jaime.

Jaime Leverton, CEO

Thank you, Shane. So right off the top, I want to say I'm very excited about the progress we've been making at Hut 8. We were obviously incredibly busy in Q2 executing on our diversified revenue strategies, finalizing cutting-edge power agreements, leveraging key relationships to procure new hardware, expanding our market reach and continuing to be the leaders in self-mined Bitcoin held on the balance sheet. Our diversified revenue strategy matters. It helps us capture more upside in bull markets while offering some downside protection during bear markets. Hut 8 continues to strategically emphasize its hodl strategy, taking active steps to generate Canadian and U.S. dollars to help fund operating expenses and limit the selling of Bitcoin. As Shane mentioned, during the second quarter, 100% of our self-mined Bitcoin was deposited into custody. I also wanted to mention based on current network dynamics, we anticipate daily settlement once all contracted equipment and phases are installed will equate to 20 to 25 Bitcoin per day. Of course, one of the main highlights for us this quarter was successfully becoming the first Canadian digital asset miner to list the common shares on NASDAQ, a project that the team has been heads down on during my early tenure. This achievement gives the company access to a substantially increased pool of investors, both for purposes of future capital raises and providing improved liquidity to current and future shareholders. Concurrent with this listing, Hut 8 closed a public offering on June 15th, as Shane mentioned, raising proceeds of $115 million to provide flexibility in the face of market uncertainty for the company to continue making strategic investments and executing on meaningful and cutting-edge equipment opportunities. We were able to take advantage of an opportunity to pick up 1.08 exahash of equipment at an incredibly competitive price of approximately $44 per terahash delivering in Q4 of this fiscal year. We finalized our investment in 10,000 high-performance NVIDIA CMPs, which will initially be deployed, as we've discussed, to mine on the Ethereum network while settling in Bitcoin. These are cutting-edge cards that were not available on the open market and will consume only 3.5 megawatts to 4 megawatts of power while operating at approximately 1,600 gigahash. We anticipate settlement in Bitcoin will result in two to three Bitcoins per day using this method. We also ordered new Dell server hardware to be used in conjunction with the cards, all of which is enterprise grade. We look forward to beginning installation of this new equipment later this month. The deal is significant for Hut 8 as it unlocks enterprise-quality hardware, technical support, and a plethora of monitoring and control tools for the company while we pursue additional excellence in the technology capabilities of our onsite staff and crew. We also invested in a power purchase agreement as previously discussed, building out a third facility in Alberta with incredibly compelling power rates. And finally, we launched several ESG-related initiatives, including establishing a robust recycling program to limit waste volumes sent to landfill, the installation of low-emission LED lighting throughout all of our facilities, and the electrification of our fleet of onsite vehicles. Our focus for the second half is all about execution: executing on the purchases that we've made, on the expansion of our facilities, continuing to bring down our average cost of mined Bitcoins and increasing our operational efficiency across the fleet. Our new power deal will be instrumental in reducing the cost associated with our primary operating cost, that being power, and continuing to expand and upgrade our fleet with new ASICs and GPUs. Once fully installed it will also provide additional efficiency and further cost per Bitcoin reduction. So as always, we thank you so much for your support, and we'll now turn it over to John to manage Q&A. Thank you so much.

Operator, Operator

Thank you. And we’ll now begin the question-and-answer session. Operator provided instructions on how to queue for questions. Our first question is from George. Please go ahead.

George, Analyst

Thank you. Congratulations on your uplist. So I'm curious why 2,000 Bitcoin are loaned out given the much larger size that you self-mine. Is there a limiting factor to how much you can actually put into the market?

Jaime Leverton, CEO

Great question, George, and good morning. We only started embarking on this yield strategy earlier this year and it started in January with the opening of our initial yield account with Genesis. We put 1,000 Bitcoin into that account at that time. And then, based on the success and our comfort with the execution of that program, we entered into another arrangement in May with Galaxy with another 1,000 Bitcoin. The remainder of our Bitcoin remained in custody. So this served two purposes: obviously earning a base income for a portion of the Bitcoin we hold on our balance sheet, while we continue to believe we will take advantage of appreciation of the price of Bitcoin over time. It also diversifies the risk of where that Bitcoin is held; historically it was only held with our custodians. So we think this strategy is the right one for an incremental revenue stream as well as risk diversification of our holdings. We will continue to explore other avenues for potentially incremental yield opportunities. But at this point, we’re still early days in this program and very much interested to see where it may evolve over time. I hope that answers the question, George.

George, Analyst

That does. Thank you. So we look at it and it’s nice to see your cost per coin coming down quarter-over-quarter. Can you just give us a sense of directionally where you see that ultimate cost per coin with the new power arrangements, with the new miners, with the new difficulty adjustments — where do we ultimately get to from a cost per coin perspective?

Jaime Leverton, CEO

George, I have not been able to build a spreadsheet big enough to solve for all of the variables that go into answering that question. There’s just so much at play, of course, and it’s really difficult to predict that. Shane did go into some detail about what goes into our cost per coin. It is a fully loaded cost per coin, and I think that’s important for people to recognize: all of the inputs that go into that number for us based on IFRS accounting. Shane, I don’t know if you want to add anything.

Shane Downey, CFO

Yes. No, I don’t think much to add in terms of how we build up the calculation itself, which has to be extremely simple, frankly, and in line with what IFRS requires as Jaime just commented. And yes, I would echo the sentiment that the modeling and building out of specific assumptions as to where they expect price per Bitcoin to land in the future is challenging. So it’s difficult to put a specific number on it. But as Jaime has commented earlier, the combination of getting stood up at a second location in Alberta — excuse me, the third location in Alberta will be compelling from a power price perspective for sure — and then the NVIDIA chips, just generally the more efficient miners coming on board, which is happening and will continue to accelerate throughout the year, will help. Specifically the 3.5 to 4 megawatts of consumption that we expect from the NVIDIA chips is extremely efficient from a power perspective relative to many of our current miners.

George, Analyst

Got you. I certainly appreciate the difficulty. The other thing I’ll add or remind you of, Jaime, is you have a diversified suite, which means a significant portion of your fleet is of a previous generation and therefore less efficient, but it is fully depreciated and profitably mining today. That plays into cost per Bitcoin because depreciation obviously isn’t factored into that equation. One last question if I could: with the Chinese miners leaving the market, the difficulty adjustments didn’t get adjusted right away. How much did that impact you negatively and how much does that benefit you now? Is there a way to quantify that?

Jaime Leverton, CEO

The majority of the difficulty adjustments resulting from that event didn't happen until the beginning of July. So there really isn’t much benefit, if any, shown in our Q2 results and the majority of Q2 was at that much higher global hash rate level. The benefit of that difficulty adjustment and the increased production we saw as a result of it will be seen in our Q3 results, which will be reported in October.

Operator, Operator

Our next question is from Kevin Dede of H.C. Wainwright. Please go ahead.

Kevin Dede, Analyst (H.C. Wainwright)

Good morning, Jaime. Good morning, Shane. Shane, thanks very much for your prepared remarks and the insight on the accounting; the fluidity in this environment is appreciated. Maybe you could just talk a little bit about the negotiations that you had with your auditors in sort of rearranging the P&L and balance sheet?

Shane Downey, CFO

Yes. I'm happy to discuss it a bit further. Happily I can say none of that had anything to do with discussions with attorneys or lawyers. The change that we’ve made is to classify Bitcoin subject to lending arrangements — that is at June 30, 2,000 Bitcoin, that Jaime commented on earlier — such that gains and losses associated with it no longer flow through the P&L, which is what happened in Q1. Any gains or losses associated with Bitcoin lending arrangements will now flow through OCI, through the equity section on a net-of-tax basis, which is the exact same treatment that gets applied to all other digital assets that are held in custody. Underneath that is an IFRS analysis: IFRS 9 applies to financial assets and liabilities, but digital assets fundamentally do not fall into IFRS 9 in the same way. Accordingly we are conceptually aligning with IAS 38 intangible asset accounting. So that explains it: it’s truly an accounting classification change only, with no impact on operations and no impact on cash. When you look at the year-to-date and balance sheet differences, that’s where the Q1 versus Q2 differences come from.

Kevin Dede, Analyst (H.C. Wainwright)

So did I understand you correctly, Shane, that your full Bitcoin holdings are treated that way, not just the 2,000 lent?

Shane Downey, CFO

Correct. That’s exactly right.

Kevin Dede, Analyst (H.C. Wainwright)

Okay. Jaime, congratulations on the Validus deal. I was wondering if you could add a little more color. I'm not as strong on energy matters. Can you help me understand how your third location will source gas — my understanding is it's flare gas — ensure that it's consistent in quality and delivery? Give us some idea on the number of wells you needed to source. Drumheller and Medicine Hat we've seen operate for years; it's just not so clear what might happen with the new location. Any comfort you can give us would be greatly appreciated.

Jaime Leverton, CEO

I'll try to answer in the best way. The site is a new site that is built behind the fence, meaning it is not grid-connected. It will be stood up primarily using natural gas as the energy source and will be directly connected to turbines that produce the power. The power is produced specifically for our use alone. The arrangement has an uptime commitment of 95% uptime. Because we’re directly connected and the rates are contractually fixed at $0.0274 Canadian per kWh plus or minus 10% based on an annual adjustment mechanism, we know the costs. The site is purpose-built for our use. We'll start with phase one being 30 to 35 megawatts, which we expect to be stood up and operational by the end of Q4 of this year. The reliability and performance of the site are contractually obligated. They have a long history of working in these environments. The amount of flare gas included in the natural gas used has not yet been disclosed publicly as we are working through it, but the site will predominantly use produced natural gas because it is a behind-the-fence generated power site using natural gas as the source. I hope that answers your question.

Kevin Dede, Analyst (H.C. Wainwright)

Yes, that helps tremendously. The 30 to 35 megawatts you’ll have by year-end, how much of that additional 1.08 exahash that you plan on adding to your network will it support, and then how much more power will you need to get to the full 2.7 exahash?

Jaime Leverton, CEO

The 1.08 incremental exahash we mentioned from MicroBT — the 80 petahash that is already onsite now — will be delivered between October and December. That incremental exahash will use the full 30 to 35 megawatts. It’s about 35 megawatts for an exahash of compute for MicroBT using the equipment we’ve ordered. So with what we have actively in production today, and then coming online with that 1 exahash ordered from MicroBT as well as the NVIDIA cards that are coming online, just that contracted equipment alone gets us to the 2.7 exahash target.

Kevin Dede, Analyst (H.C. Wainwright)

Okay. So to sum up, with that new 35 megawatts you’ll be able to support your full 2.7 exahash target?

Jaime Leverton, CEO

That’s right.

Kevin Dede, Analyst (H.C. Wainwright)

Okay. It seems you’ll have the 35 up by the end of the year. Would it be fair to assume the full 2.7 could be fully deployed by the end of the March quarter? Is that a fair assumption?

Jaime Leverton, CEO

That is a fair assumption. Certainly, supply chain permitting and by the grace of timely deliveries, that is our target.

Kevin Dede, Analyst (H.C. Wainwright)

I think more by the grace of an Alberta winter, Jaime.

Jaime Leverton, CEO

We love Alberta winter, Kevin. That’s how we take advantage of our free air cooling. The miners absolutely benefit during Alberta winters. We love the Alberta winter.

Kevin Dede, Analyst (H.C. Wainwright)

Okay. For full deployment at that site, you’ll need to supply the infrastructure down to the transformer or is all of that part of the Validus arrangement? Is that on you?

Jaime Leverton, CEO

We are working with Validus as a partner in building out the site and all of that infrastructure has already been ordered. All the long lead items are already ordered and we’ve got a full work-back schedule in progress.

Kevin Dede, Analyst (H.C. Wainwright)

Okay. Sounds great. Thank you for indulging me. I’ll jump back in the queue.

Operator, Operator

Our next question is from an analyst. Please go ahead.

Analyst, Analyst

Hi. Good to hear your voices, Jaime, Shane, and the other team members. I was focusing on the previous colleague's question around Validus and have a couple of follow-ups. First, the $25 million you mentioned: is that tied to the rate side or is it a setup cost? Would the $25 million be an incremental cost beyond the ongoing operating rate? For how long is the site going to be operating under Hut 8's arrangement? Is there a lease agreement or will the site be owned by Hut 8 eventually?

Jaime Leverton, CEO

So the $25 million you’re referring to relates to the rate side that helped us secure the rate we did; that is part of the overall commercial arrangement and is an ongoing operating cost. The agreement is an initial five-year term and then it has two five-year renewal options after that. We do not own the land that the site will be on, nor do we own the land that any of our sites are on — the land is leased — but the infrastructure downstream, the transformers, the data center containers, that infrastructure is owned by Hut 8.

Analyst, Analyst

So a renewal would not necessarily trigger another $25 million. Will more detail be disclosed about what that $25 million covers and what it does not? Also, will the setup of the site be covered by that amount? If you were to continue the site, what would be the cost of continuing Validus later on versus other Alberta sites like Drumheller or Medicine Hat?

Jaime Leverton, CEO

We can provide more disclosure where appropriate. The $25 million is related to the commercial arrangements and securing the rate; it's not the same as buying land or owning the site. As for comparisons with other Alberta sites, we are always having conversations about potential opportunities for future growth. Market dynamics will drive decisions, but we believe the Validus site provides compelling economics and a scalable path forward.

Analyst, Analyst

Understood. On the NVIDIA timeline: earlier the timeline was July, then August, and now it’s being split into two tranches in August and September. Is the delay due to logistics on your site or on NVIDIA's side?

Jaime Leverton, CEO

The delay is related to supply chain logistics for the downstream power infrastructure required to support the equipment. We used a strategic partner, Amulet Hotkey, and are working with Dell to have everything assembled at an offsite location so that when they arrive at our site they're fully assembled and just need to be plugged in. The cards arrived essentially on schedule and have spent the last weeks going through assembly. Deliveries to site will be phased over the next few weeks. The delays have been on some of the downstream infrastructure items related to power that will support the equipment when plugged in onsite.

Analyst, Analyst

That’s clear. Next, regarding the hosting business, thank you for the strong performance this year. Do you have a target for this business line as a percent of overall power capacity or revenue? I recall a comment of about 30% but nothing formal — is there a target you’re working toward?

Jaime Leverton, CEO

There is not a fixed target. The mix is fluid and driven by market conditions. Right now, we’re comfortable with our current mix of self-mining and hosting, and we are at maximum available power capacity across our sites. Power is the limiting factor; without future incremental power supply it’s difficult to set a long-term fixed percentage target. Our diversified strategy, with fee-based hosting revenue to support self-mining and allow us to hodl more Bitcoin, is critical and will continue to be important.

Analyst, Analyst

With regard to target capacity for H1 2022, and the current cash position including available warrants and potential loans — do you see a need for more cash for the remainder of the year given the deals you have in place? I know there was mention of an additional $20 million potential loan at a high interest rate. Do you anticipate needing incremental financing?

Jaime Leverton, CEO

It’s an interesting balance. We haven't sold Bitcoins since early January and, based on market conditions and our belief about where Bitcoin is in its cycle, we’ve been holding. We have an incredibly healthy balance sheet between Bitcoin and cash. During the bear market earlier we were selling mined Bitcoin to fund operations and growth. The cyclicality and volatility associated with this market means we always prioritize the balance sheet, and we'll continue to do so. We believe the capital we raised provides flexibility, but we always evaluate capital needs as opportunities and conditions evolve.

Analyst, Analyst

One final question: the remaining Bitcoin on the balance sheet beyond the 2,000 lent — when are they going to be utilized for yield? Are you planning to expand the yield program?

Jaime Leverton, CEO

When we first discussed opening the initial yield account in January, we weren't sure how the market would react. We thought it was the right move for the business and made that change. Fast forward several months and sentiment has evolved; there’s more interest in yield now. We will continue to look at yield opportunities aggressively with Shane now in his role and with a full quarter completed. We plan to spend more time on this part of the business and evaluate expanding yield programs as appropriate. We appreciate the interest and feedback.

Analyst, Analyst

Again, thank you Jaime and Shane for clarifying many items and for being responsive. I also thank the IR team for being responsive during the volatility. The performance of the company has been evident and has performed well under your leadership. Thank you.

Jaime Leverton, CEO

Thank you so much. We really appreciate it. It was certainly a nail-biter of a quarter with that volatility for sure.

Operator, Operator

Our next question is from Brad. Please go ahead.

Brad, Analyst

Hello. Thank you guys for your time today, I really appreciate the work that you guys have done this last quarter. One of my questions: the new customer that came on in May — is that Celsius Network, or if you can't say, are you targeting more customers like that for hosting or for yield?

Jaime Leverton, CEO

Expanding into potentially new relationships around yield and hosting is part of our strategy. From a hosting perspective, we currently have two hosting clients. Our yield relationships are with strategic partners; technically we are the customer in those arrangements for the lending of Bitcoin. We continue to evaluate both hosting clients and yield relationships as separate but complementary elements of our business.

Brad, Analyst

Got you. Have you considered taking yield farming to the next level, for example paying some expenses or employees in crypto or through yield-derived revenue streams?

Jaime Leverton, CEO

Regarding mining Ethereum and settling in Bitcoin, our intention is to mine Ethereum and settle in Bitcoin as we stated. As for paying employees in crypto, there isn't currently a practical mechanism under Canadian income tax and payroll rules to pay employees in crypto. While I would personally love to be paid in Bitcoin someday, at this time it is not feasible under current guidelines.

Brad, Analyst

Have you talked to Alex Minsky or any other networks about hosting or yield farming opportunities?

Jaime Leverton, CEO

No, we haven’t had any conversations with Alex Minsky or that network recently.

Brad, Analyst

Okay. Well, those are the end of my questions. Thank you very much.

Jaime Leverton, CEO

Anytime. Thanks so much.

Operator, Operator

We have another question from Kevin. Please go ahead.

Kevin Dede, Analyst (H.C. Wainwright)

Sorry Jaime, I’m back. I especially miss you in Miami for the record. One more on the third location: can you take that agreement beyond 35 megawatts and expand under the same terms?

Jaime Leverton, CEO

The initial agreement is up to 100 megawatts and we do have the ability to go beyond the initial phase. There is room to scale beyond the 30 to 35 megawatt initial phase under the broader commercial framework.

Kevin Dede, Analyst (H.C. Wainwright)

What about Medicine Hat and Drumheller — is there a chance to increase capacity there? It’s all about power now and I know the agreements differ across sites.

Jaime Leverton, CEO

We are at maximum currently available capacity at both Medicine Hat and Drumheller. Alberta is incredibly energy-rich and there is a lot of innovation happening in the power market, particularly around reducing carbon intensity and adding renewables. We are having exploratory conversations about hydrogen, future gas innovations, and other opportunities. The Alberta grid is about 20% renewables today and has aggressive targets to increase that by 2030. We are happy to be in this community and to participate as a stable off-taker for grid and behind-the-fence opportunities. There is a lot of potential in working with power producers on load balancing and other innovative solutions.

Kevin Dede, Analyst (H.C. Wainwright)

That’s the comment I was going to add — the load balancing potential is interesting. One more question: can you walk us through the mechanics of mining Ethereum and the conversion to Bitcoin? What ratios do you use? How should we think about Ethereum price and difficulty changes relative to Bitcoin price?

Jaime Leverton, CEO

We have published the details of how those calculations are made in the FAQ on our website related to the NVIDIA project. The frequently asked questions include the detail on the calculation methodology so anyone can review how we are making those assumptions. I would point you to that FAQ for the specifics.

Kevin Dede, Analyst (H.C. Wainwright)

Thank you. I apologize for the oversight and appreciate the guidance and the color on power in Alberta. Appreciate it.

Jaime Leverton, CEO

No problem. Anytime. Thanks Kevin.

Operator, Operator

I have no further questions at this time.

Jaime Leverton, CEO

Okay. Well, once again, we want to thank everyone so much for their time, attention and support. It’s always a pleasure to be able to connect directly with our shareholders. So again, thank you so much. We look forward to talking again soon.

Operator, Operator

Thank you, ladies and gentlemen. That concludes today’s call. Thank you for participating. You may now disconnect.