Bitfarms Ltd. (NASDAQ:BITF) Q2 2022 Results Conference Call August 15, 2022 11:00 AM ET
Company Participants
David Barnard – LHA Investor Relations
Geoff Morphy – President
Jeff Lucas – Chief Financial Officer
Conference Call Participants
Kevin Dede – H.C. Wainwright
Chris Brendler – D.A Davidson
Dillon Heslin – ROTH Capital Partners
Operator
Good morning. My name is MJ and I will be your conference operator today. At this time, I would like to welcome everyone to the Bitfarms Second Quarter 2022 Financial Results Conference Call. [Operator Instructions] As a reminder this conference is being recorded, August 15, 2022.
I will now turn the call over to David Barnard from LHA Investor Relations. David, you may begin your conference.
David Barnard
Thank you, MJ. Good morning everyone, and welcome to Bitfarms’ conference call for the second quarter of 2022. With me on the call today are Geoff Morphy, President and Chief Operating Officer; and Jeff Lucas, Chief Financial Officer.
Before we begin, please note, this call is being webcast live with an accompanying presentation. To watch along with the slides, you can log onto our website at www.bitfarms.com under Investors Presentations. If you prefer to listen to the call on your smartphone, you can download the presentation from there as well. I would like to remind you that this morning Bitfarms issued a press release announcing its second quarter 2022 financial results.
Turning to Slide 2. I’ll remind you that certain statements that we make during this call may constitute forward-looking information and safety. Bitfarms cautions listeners that forward-looking information and statements are based on certain assumptions and risk factors that cause actual results to differ materially from the expectations of the company.
Listeners should not place undue reliance on forward-looking information or statements. Please see today’s press release — those risks set out in Bitfarms’ public documents filed on SEDAR, as well as sec.gov. The company undertakes no obligation to revise or update any forward-looking information or statements other than as required by applicable securities law.
During this call, the company will refer to certain measures not recognized under IFRS and they do not have a standardized meaning prescribed by IFRS, and therefore maybe not be comparable to similar measures presented by other companies.
The Company uses the following non-IFRS measures: gross mining profit; gross mining margin; EBITDA, EBITDA margin; adjusted EBITDA and adjusted EBITDA margin as additional information to complement IFRS measures to provide a further understanding of the Company’s results of operations from management’s perspective.
Gross mining profit is defined as gross profit, excluding depreciation and amortization and other minor items included in cost of sales for the mining segment of the company. Gross mining margin is defined as a percentage obtained when dividing gross mining profit by revenues for the mining segment of the company.
Direct cost of production represents the direct cost of Bitcoin based on the total electricity costs and hosting costs related to the mining of Bitcoin, divided by the total number of Bitcoin mined.
EBITDA is Earnings before Interest, Taxes, Depreciation and Amortization. Adjusted EBITDA is EBITDA less changes in the value of our Bitcoin Holdings and non-cash G&A charges including equity compensation expense. These alternative IFRS measures have limitations as analytical tools and you should not consider such measures either in isolation or as substitutes for analyzing the company’s results as reported under IFRS.
We invite listeners to refer to today’s earnings release in the company’s second quarter 2022 management discussion and analysis for definitions of the aforementioned non-IFR measures and the reconciliations to IFR measures. Please note that all financial references are denominated in U.S. dollars unless otherwise noted.
During today’s call President and CEO, Geoff Morphy will review operations for the quarter, CFO, Jeff Lucas will follow the detailed financial review and Geoff Morphy will return for some closing remarks after the Q&A. We requested investors to send questions in advance, which I will read to management after we — actually, before we open the call to analysts interested in live Q&A.
And now turning to Slide 3, it’s my pleasure to turn the call over to Geoff Morphy.
Geoff Morphy
Thank you, David. I would like to welcome everyone to today’s call. In Q2 2022 Bitfarms mined 1,257 Bitcoin, up 31% sequentially from Q1 2020. Building on our momentum and production, we mined 500 Bitcoin in July, the strong Q2 2022 Production completely offset weaker Bitcoin prices, such that we also grew revenue sequentially to $42 million and still generated cash from mining operations as defined by adjusted EBITDA of $19 million
As evidenced by the results of our publicly traded Bitcoin mining peers, these are not just solid but superior operating results. 2022 has been one of the most challenging periods in the history of the Bitcoin mining industry, due to the sharp decline in the price of Bitcoin since November 2021 and the more severe depression prices starting in early May 2022. Yes, even in this environment, we continued our growth trajectory and expanded operations.
In March, we commenced production at the Bunker Phase 1 and then Leger in April. We also increased our corporate hash rate 33% from the end of Q1 to 3.6 exahash per second at the end of the second quarter. Now, our corporate hash rate is just shy of 4 exahash per second, which means we continue to gain market share. We estimate we now represent approximately 2% of the network hash rate, which is a company record.
In June and July, we took decisive actions to maintain our financial flexibility and increase our liquidity. In doing so, we reduced the balance of our Bitcoin backed loan facility from $100 million to $23 million as at the end of July, and secured new equipment financing of $37 million. Jeff Lucas will detail the financials in a moment.
Regarding operations, some key achievements include. In Q2, we brought online the bunker Phase 2 in the city of Sherbrooke, Quebec, representing 18 megawatts of new capacity, installed 10,300 miners and mined 1,257 Bitcoin, validating our superior operating performance. Since quarter end, we increased total electrical capacity across all locations by 29 megawatts to 166 megawatts. Today, we are approaching 18 Bitcoin per day in daily production and at 135 Bitcoin for average exahash per second in July, which is top quartile efficiency and performance.
Slide 4 summarizes the status of our farms. We ended the quarter with nine locations and 137 megawatts in capacity, up from 8 locations and 121 megawatts in capacity at March 31, 2022. Leger started production in April, initially adding 16 megawatts of capacity, which has since expanded to its full capacity of 30 megawatts, and in conjunction with the Bunker Phase 2, increased our total corporate capacity to 166 megawatts as of August 15, 2022. Construction continues on two facilities in Canada and the first of two warehouses in Argentina.
Now I’ll take a moment to detail the operations, plans and recent progress at some of these locations. Turning to Slide 5. As you recall, we have contracted power with Hydro-Sherbrooke within the City of Sherbrooke, Quebec, for a total of 96 megawatts. With the creation of the Bunker, Leger and Garlock, we expect to be fully operational at these farms by the end of December, a full two months ahead of schedule. These three facilities are located in close proximity which affords numerous efficiency advantages.
We are shifting to new state of the art farms from an older site De la Pointe, our first location in Sherbrooke. De la Pointe is presently operating at 18 megawatts and is planned to go offline by the end of 2022. Again, two months ahead of schedule. With its earlier than expected termination we can begin the sale process for this property and we expect to convert this unencumbered real estate into cash in early 2023.
The Bunker, first activated in March 2022 is currently drawing 36 megawatts and running 9,000 miners from its first two phases. Phase 3, which is targeted for completion in the fourth quarter of this year will add another 12 megawatts. Upon full build out, the Bunker is slated to be a 48 megawatt farm housing 13,000 miners anticipated to contribute a total of 1.3 exahash per second. As noted, Leger contributes 30 megawatts and is operating 7400 Miners delivering over 740 exahash per second. As you may recall, in mid March 2022 we acquired our newest site, Garlock in Sherbrooke We own this asset outright.
We have completed the warehouse cleanup and building improvements with electrical infrastructure, louvers, fans, racks, and miners to follow in September. We expect Garlock to be fully operational by year end. Each of these locations on our Sherbrooke campus benefit from our advanced design and sound reduction monitoring systems. With 18 megawatts at Garlock, 48 megawatts at the Bunker and 30 megawatts at Leger, we will fully utilize our 96 megawatt power contract in the city of Sherbrooke.
Please turn to Slide 6. In Rio Cuarto, Argentina, we have contracted plans for up to 210 megawatts consisting of four warehouse style buildings inside the gates of a private power company, which will utilize available capacity and otherwise stranded power. We are building out warehouses number one and two, and warehouses number three and four remain under consideration for future expansion.
During the quarter, we made significant progress on construction of our first two 50 megawatt warehouses and associated infrastructure. The initial electrical supply line is nearing completion with a connection expected to take place within the next 30 days. So far, we’ve imported over 4800 miners. The installation of racking, miners, servers and data cabling in the first warehouse is underway with miners expected to be installed starting in mid-September.
Significantly, we continue to expect to begin production at the first 50 megawatt warehouse in the fourth quarter of 2022. And expect to complete construction at the second 50 megawatt warehouse in the first quarter of 2023. Last week, to better align our capital plan with our production schedule, we successfully renegotiated the timing of some minor deliveries for our second 50 megawatt warehouse. The net effect shifted 39 million in scheduled CapEx from Q4 2022 to the first nine months of 2023.
Please move on to Slide 7. The LATAM team also is responsible for our current operations in Paraguay. And this slide shows our 10 megawatt farm in Villarrica. Like our farms in Canada and the United States, this farm is run on low cost and abundant hydropower. The economics here are quite positive, and we are able to productively utilize some of the older miners in our fleet in this location to optimize asset, performance and capital deployment.
In Paraguay, we are building on our experience from constructing 8 farms in North America. As stated in our last earnings call, we continue to believe Paraguay is ripe with opportunities for expansion. We started building the core LATAM team to support our growth and development in this critical and opportunity rich region in early 2021. And now I have 15 people on board in both Argentina and Paraguay. We started the process to hire technicians for the first Rio Cuarto warehouse.
Turning to Slide 8. In summary at the end of the quarter, we have nine farms in production in three countries, and are drawing power from five hydroelectric providers. Today we have capacity of 166 megawatts, and an additional 63 megawatts under development that are expected to come online this year, for total plant capacity of 229 megawatts by the end of the year, representing 89% growth in nine months.
Moving to Slide 9. One of our tools for continuous improvement is our recently revamped proprietary miner management system called MGMT2, which enabled us to manage at the individual miner level hundreds of thousands of miners across our global decentralized farms with a focus on maximizing uptime. MGMT2 features improved controls, tracking, sensors, alarms, visualizations, and performance metrics, enabling increased efficiency in operations. As noted earlier, we are at 135 Bitcoin per average exahash per second in July, which is top quartile efficiency and performance.
Another measure of efficiency, joules per terahash, is realizing steady improvement. At the end of July 2022, we were at 40.6, improving 17% compared to 49.1 at June 30, 2021. Looking ahead, we plan to further optimize the performance of our fleet by prioritizing the most economic repairs first, making sure that we are focusing on cash flow. Additional features such as variable load, hash rate control and underclocking are under development. In addition to integrating Bitcoin mining economics, we also will be incorporating external data to better optimize our operation such as grid load balancing and market pricing, taking our operation control to the next level.
Regarding fleet activity. During the quarter, we installed 10,300 latest generation miners. Additionally, the first 4800 were imported into Argentina and are being held by our first — being held for our first 50 megawatt warehouse and was made operational in the coming months. Year-to-date, we have installed over 25,000 miners bringing our total installed base to over 44,000 active miners. With another 4000 miners currently in transit, in addition to what we already have received, accounts for approximately 80% of our expected minor deliveries for 2022.
Please turn to Slide 10. The discussion of our updated quarterly hash rate goals, based on our current infrastructure construction and minor delivery schedules, we are targeting 4.2 exahash per second as of September 30, 2022 and 6 exahash per second as of December 31, 2022. In addition with the contracted miner delivery scheduled, we expect to add 1.2 exahash per second when fully operational in the first half of 2023.
Please turn to Slide 11.
With that I will now hand over the call over to Jeff Lucas.
Jeff Lucas
Thank you, Geoff. I’m very pleased to report we continue with our operating — operationally your profitable growth during the second quarter. Let’s discuss some of the highlights. I wish to reiterate that we’ve mined 1,257 Bitcoin in the quarter. This performance improved our top and bottom lines as well as shaped our financing activities as we continue the actions to maintain our financial liquidity and flexibility to execute our growth plan.
Our quarterly revenue was $42 million up 3% from the prior quarter, had 31% higher Bitcoin productions more than offset the 20% decline in Bitcoin prices. In comparison to the prior year quarter, our revenues were up 16% reflecting almost 500 more BTC mined in the prior year period, offset by an average BTC price 30% lower than the prior year period.
As illustrated in Slide 12. Bitfarms average direct costs of production per Bitcoin in second quarter 2022 was $9,900 among the lowest reported in the industry, this is a 14% increase in production costs from the $8,700 in the first quarter of 2022. The increase can be broken down as follows. 12 percentage points from the increase in quarter-over-quarter average network difficulty, which is partially offset by an equivalent of a 3 percentage point decrease from incremental operating efficiency achieved during the quarter, and with 5 percentage points of the increase attributable through the accrual for potential Canadian tax legislation affecting VAT tax rates or VAT rates in our electricity costs. Without this accrual, our production costs for the second quarter would have been $8,700. Similarly, the average direct costs of production per Bitcoin in the first quarter without this tax accrual would have been about $8,000.
Turning to Slide 13, gross mining margin impacted by the decline in the price of Bitcoin was 66% in the second quarter as compared to 76% in the previous quarter, and 79% in the year ago quarter. Gross mining profit was $27 million, compared to $28 million in the second quarter of 2021. For the quarter, we recorded an operating loss of $173 million, which included a $78 million realized loss in the disposition of digital assets, a $70 million unrealized loss in the revaluation of digital assets and $80 million impairment charge in goodwill. This compares to an operating loss of $2 million in the second quarter of 2021, which included at the time an unrealized loss of $15 million on the revaluation of digital assets.
Net loss for the quarter was $142 million or a $0.70 loss per basic and diluted share. This includes $8 million of noncash compensation expense and $5 million of interest expense offset by $20 million of foreign exchange gain associated with funding our Argentinian expansion, and an income tax recovery of $19 million. This compares to a second quarter 2021 net loss of $4 million and inclusive of a $5 million loss in digital assets and comprehensive net loss of $9 million or $0.02 per basic and diluted share.
Most importantly, we continue to generate cash from mining operations. We achieved adjusted EBITDA of $19 million or 45% of revenue for the quarter compared to $24 million at 65% of revenue in the second quarter 2021 and $21 million at 53% of revenue in the first quarter of 2022.
Turning to Slide 14. Our financial strategy continues to focus on maintaining the strength and flexibility of our balance sheet and protecting shareholders’ investments while supporting our key financial goal of funding our planned growth at a relatively low cost of capital. As part of this, we adjusted our Bitcoin management strategy to sell a portion of our Bitcoin production in treasury holdings to partially fund our operating needs and ongoing growth investments.
During the quarter, we executed the following. We sold 3357 Bitcoin, generating proceeds of $69 million in reducing leverage and interest expense. We paid down $62 million of our revolving Bitcoin backed credit facility, reducing borrowing under this facility to $38 million and freeing up $27 million of Bitcoin that was otherwise collateralizing the loan. We secured a new $37 million nonrecourse equipment financing during the quarter. This is on top of the $32 million nonrecourse facility we put in place in February. And we raised $9.6 million net proceeds from the judicious application of our ATM program that we launched about a year ago.
In all, we ended the second quarter with cash at $46 million and 3144 Bitcoin valued as of June 30th at $62 million for total liquidity of $108 million. In addition, subsequent to quarter end, we paid down a further $15 million in our Bitcoin backed facility, and we raised another $4.1 million net of expenses under our ATM.
Before turning the call back over to Geoff, I mentioned that we have a number of industry events coming up, including the Needham Second Annual Virtual Crypto Conference on September 8th, the H.C. Wainwright 24th Annual Global Investment Conference from September 12th to the 14th, and the B. Riley Second Annual Crypto Conference on September 29th, all these events being held in New York City.
Turning now to Slide 16, I’ll turn the call back over to Geoff.
Geoff Morphy
Thank you, Jeff. Before we take your questions, I’ll summarize our strong market position and our growth strategy. As of today, we are operating at 166 megawatts and 3.9 exahash per second, which powers about 2% of the entire Bitcoin network, which is a company record. We have mining production in three countries, Canada, the United States and Paraguay. And we fully expect to begin operations in Argentina before the end of the year. While other Bitcoin mining companies struggled to keep a lid on cost of electricity fueled by commodities, we have long-term hydroelectric contracts that sustain cost of production amongst the lowest in the industry.
This is evidenced by our average direct cost to mine Bitcoin of $9,900 in the second quarter. Even at recent pricing levels, we continue to generate positive cash from mining operations. We have a flexible balance sheet and financing resources. We’ve built an international management team that brings operational expertise and capabilities to drive the most efficient and profitable operations in the industry today and for the future.
We’re following a path of growth with discipline. And as evidenced by our track record of operating excellence, we are well positioned to take advantage of emerging opportunities and be a consolidator in the industry.
David, could you please start the questions that you received in advance and then maybe go to the operator after that?
Question-and-Answer Session
A – David Barnard
Great. Thank you, guys. Geoff, a couple questions we had in advance. I’ll start with this first one. Aside from Warehouse number two in Argentina, what is your growth plan for 2023?
Geoff Morphy
For 2023, we have a lot of exciting opportunities. As mentioned, Argentina, we’re bringing on the first warehouse, 50 megawatts in the first half of the year. Its construction is underway. And we’re excited about it because some of the things that we learned from building the first warehouse in terms of being able to do things quicker and with less cost we’ll be able to apply to the second warehouse. So that’s exciting.
And we also see numerous opportunities in Argentina. But we also, as we’ve commented on previous earnings calls, we’re very excited with Paraguay. There’s a lot of opportunities there and large scale opportunities because of their abundant hydro situation. Also mentioned on previous calls, Washington represents an area of abundant hydroelectricity where there’s opportunities.
And then right in our home backyard, our original home backyard in Quebec, we have multiple facilities and some which we’re still building out. But they’ve released information on the RFP process that will be something in the order of about 267 megawatts across the industry that they’re going to award.
The information on Hydro-Quebec’s website indicates that there should be more information and I think the — while the formal submission process is underway, the qualified applicants will be able to actually submit their offers with locations and all the other criteria that was listed in the RFP, approximately mid-September.
And well, we don’t know when those megawatts will be awarded, we would anticipate given past performance it’ll probably be later this year, November, December type of timeframe. But being the largest Bitcoin mining company in the province with what we believe is one of the strongest social responsibility records in the province and having spent considerable time and effort lining up new locations, we think we’re well positioned to do very well with that RFP process.
So those are the things that are in our geographies right now. But we also believe that where the industry is right now that there’s going to be opportunities both to merge and consolidate. There’s going to be opportunities with some of the other miners that may not be as efficient that they need the type of operational prowess that we have to actually — inorganic expansion as well. And from what we understand from investment bankers, we’re getting closer to seeing more of those type of opportunities this year, and we’re ready. We’ve got the management team to embrace those opportunities and a strong and flexible balance sheet.
So we’re very excited about what’s going to come this year and what’s going to come next year. And while we’re not providing a lot of guidance for next year, much of it will be on the economics in the industry, and the opportunities presented to ourselves because we will remain disciplined and we’re ready for it.
David Barnard
One other question we received in advance. You adjusted your huddle strategy, what might make you change back to huddling BTC?
Jeff Lucas
So we have modified our huddle strategy and really — we did it as we’re looking at our overall financial position, how best to fund our operating investment activities as we continue our growth trends. And really, we do that very simply with a very keen eye towards minimizing shareholder dilution and maximizing financial flexibility. We anticipate selling a portion of our production to fund our operating and debt service requirements.
And as a matter of fact, at current production levels and BTC prices, our production exceeds our ongoing operating expenses, even a debt service of principal and interest, so we feel very effectively at this point in time that using the Bitcoin that we’re producing is one of the lowest means of cost of capital for us to certainly fund our operating and our debt service requirement.
But in addition to that, what’s critically important to us is that we do the positions for the financial flexibility to really fund our growth requirements going forward. And to do that in this fashion, it’s going to be as low a cost of capital for us as practical. And that’s really been one of the key elements that has driven our decision to begin tapping into our Bitcoin holdings and to continue to do so at least at a minimum of what we produce on a daily basis, again to fund your operating needs going forward and as a relatively inexpensive means of funding our growth targets going forward as well.
Geoff Morphy
David, is there any more questions or do we want to turn it over to MJ to poll the listeners?
David Barnard
Those were the couple of questions we got in advance. So turning it back to MJ for the poll.
Operator
[Operator Instructions] The first question today comes from Kevin Dede of H.C. Wainwright.
Kevin Dede
Can we start sort of with where you are? Jeff — Mr. Lucas, that is? Could you please just make sure I understand your equipment funding was at about 32, I think you said you added 35 for 67. Does that account for the full 1.2 exahash machines that you’d add to Phase 2 in Argentina?
Jeff Lucas
Well, first of all, that doesn’t reflect actually the machines that we’re putting in place in Argentina, given the fact that they’re located in Latin America, and you can probably appreciate some of the collateral considerations that a lender would have. What I will point out to you though, Kevin, is that we do have additional unencumbered miners currently in Canada and North America, and we’re having new ones coming on as well, that we have not yet used as collateral for borrowing facilities, and that we can certainly do so to further fund our capital requirements relatively inexpensively going forward.
Kevin Dede
Okay. So it’s fair to assume that machines that go to Latin America has to go unencumbered. And that 67 million has to do with or is behind the machines that you’re installing in Quebec and Washington?
Jeff Lucas
Yes, it does. But bear in mind, that a number of those machines that are actually collateralizing those loans were machines that were previously paid for. So much of the funding that we generated through those two loan facilities actually, is being used and inexpensively for us to fund our other growth opportunities, including example Argentina as well and Paraguay.
Kevin Dede
Maybe let’s look at it from an infrastructure CapEx requirement perspective. And maybe you can help me understand for the Phase 3 at Bunker, are you all set for your requirements there? And do you have the financing you need or the capital you need to continue to Phase 2 in Argentina, just on playing infrastructure?
Jeff Lucas
Yes, we’re in good shape actually from financing or infrastructure activities. As I’m sure you’re pretty well aware, Kevin, the infrastructure costs are really a small percentage of the total costs, compared to for example, the miners in particular. But overall for our capital expenditure, there’s going to — for our infrastructure growth both in Canada and Argentina, we’re in good shape.
Kevin Dede
So if you look at Phase 1 and Phase 2, about 100 megawatts you’re talking about, but it looks to me that the draw for the miners there would be around 85 megawatts. Does that give you a little more wiggle room to add to those facilities? You’re pretty much set at what you’ve offered?
Geoff Morphy
Kevin, we need about thousand more miners to fill out the second warehouse. In the scheme of things, not a big challenge at this point tight now to buy miners, there’s lots available and a very good price.
Kevin Dede
Yes, absolutely.
Geoff Morphy
And I guess we bring this warehouse on sort of in the first quarter, mostly in the first quarter of next year, we’re happy that we have that flexibility. We’ve got — we know we’ve got the miners coming, but we’re going to get this right. We’re going, it’s important when capital is so precious, that you deploy it on time and on a reasonable basis. So we want to make sure that we build the infrastructure and then bring the miners in. As Jeff Lucas mentioned, like the lion’s share of your cost is in the miners.
So we want to make sure that we get the infrastructure and the warehouses built then bring the miners in to coincide. And we have the flexibility to do that with the miners that were deferred, that are in contract, and with spot buys, which could be quite lucrative right now for us. So it’s nice to have that flexibility.
And, like in terms of the warehouses, because transformers continue to be going to be the big lead time situation, all these things are ordered for all the construction that we’re undertaking right now. So, we’re in good shape that way and the miners unlike a year and a half ago, are the liquids — are much more liquid and we can pull them in.
Kevin Dede
Can we talk about power prices a little bit, please, Geoff? Did Hydro-Quebec reflect any — or some of the fluctuations that we saw through the second quarter? And how have the people you’ve negotiated with for the Rio Cuarto deployment reacted to pricing? As I understand it, you sort of scaled back given that there might be some changes there, you wanted to sort of reassess, now that things seem to have become a little bit more rational, maybe that offered an opportunity to step up expansion?
Geoff Morphy
The first question was regard to power pricing in Quebec, and the tariff that we enjoy in Quebec continues on. We have not had any changes in the price from Hydro-Quebec. Now, as Jeff has mentioned, the Canadian Government has put in plans to change some of the VAT pricing, which increases our cost of electricity. And that’s more of a political tax based situation as opposed to Hydro-Quebec changing rates. So I think if you want to go into that then we can talk about that in a separate question and answer.
In terms of Argentina, yes, you’re right. We were very concerned about natural gas prices increasing, only a portion of the electricity contract is fixed, we’ve got four — for the first four years $0.022, the rest is market based pricing. And we were very concerned and rightfully so, the prices of electricity have gone up, we’ve seen that around the world, we’ve seen it impacted with some of our competitors who use electricity generated with natural gas. And we didn’t want to put ourselves into a position where we were bringing online facilities with marginal profitability.
Favorably, the prices have gotten better, and favorably the exchange rate to move U.S. dollars in Argentina has also moved to our benefit. So we’re quite liking the cost dynamics of our first and second warehouses in Argentina. But we also anticipate that this winter or at least in the northern hemisphere, as Europe seeks natural gas to warm their houses and we expect prices to go back up. And we’re cautious about that.
Fortunately, Argentina is in the southern hemisphere, and is a little bit more immune to that. But still, they are affected by global prices. And we expect prices to go up. But between the portion that is fixed and the portion that is market driven, we’re very happy with where rates seem to be right now. And that has allowed us to go ahead with the second warehouse. And if rates get better, because the world pricing of commodities — energy commodities comes back down, then we’re all set to move on warehouses three and four, as well as perhaps other opportunities in Argentina.
Kevin Dede
Okay. Last question for me, Geoff. Can you talk a little bit about some of the immersion testing you’re running in Washington? How far you’ve sort of pushed the limits there? I noticed that your slides said you have an opportunity to expand that one more megawatt to 21 in Washington? And I think, if I remember correctly, that’s two separate facility, which you’ve also alluded to having expansion opportunity there. So maybe you can kind of sum up the situation like some space we’re making?
Geoff Morphy
Sure. We continue to play with the immersion cooling. We think it’s quite potentially a dynamic that’s – that will at some point change the industry. But it’s still very expensive to — from a capital cost standpoint to enter into immersion, but we need to familiarize ourselves with the technology and the ins and outs of it. So we have our first container in Washington, that is an immersion. It’s still in the test mode right now. We are seeing some good production come out of it. But we have not fully utilized that. We’re still tweaking it, we’re still getting things going. That container was only delivered weeks ago.
So we continue to move through that, get familiar with the container itself and more. And I think we are still very much fortunate that our air cooled facilities have a lower capital cost, we are in environments where it’s working very, very well. It’s tough to compete against, like the air cooled versus immersion cooling at this point because of the high capital costs and the thinner operating costs right now. So we’re still working through that, Kevin.
Now, I said there’s opportunities in Washington, it’s more than just immersion cooling in what we’re playing with there. We’re having favorable discussions with the local electricity providers. There are smaller scale operations in the area, whether we buy or whether we expand, we’re working on all those opportunities. But Washington was — has a lot of electrical hydropower that was developed in many ways for the Alcoa and big dams were built decades ago on the Columbia. And the aluminum operations have all moved away, which means that there’s good clean electricity at attractive prices available.
I think we’ve mentioned on earlier calls, and it’s still the case, our Washington facility is our lowest cost operating facility amongst our fleet. And the other part of it is that we’ve now had that facility now for close to a year, approaching a year. And we now have staff and a team down there that that we’re confident in. It’s capable of doing more. So we’ve got that nice foundation that we can grow from now. So that’s making me and us a lot more comfortable with looking at new opportunities in the state.
Operator
The next question today comes from Chris Brendler with D.A Davidson.
Chris Brendler
First, a follow-up on Kevin’s prior question. Seeing a lot of miners with behind the meter or the sort of grid connected facilities where power costs have been even higher than expected this summer a lot that has been in Texas with the heat issues. But I just would love that as a reminder, your impressive results here with the cost per coin below 10,000 even with these power prices, is it more a function of the hydro, more a function of your of your PPAs and your power contracts that have locked in low pricing or something else?
Geoff Morphy
Well, let me start and then Jeff Lucas can add to it because this is a calculation with a lot of math involved with it from a variety of factors. But we’re very fortunate to have hydroelectricity that has not flexed as a result of the commodity prices. So the prices that we’ve had historically are the same prices we have now. So we have not been susceptible to commidity price increases like many others have. And as a result, we continue to enjoy good solid, consistent hydro electricity rates in all our locations.
Argentina will change that once we get it onboard. But a substantial part of that contract is fixed at a pretty low price $0.022 per kilowatt. So that’s looking like it could be amongst our lower cost facilities as well.
Jeff why don’t you add a little more in terms of that calculation on the cost of mining of Bitcoin, because there’s other influences as well.
Jeff Lucas
Sure, glad to. But I do want to just emphasize, by the way, Chris, Geoff’s comment there. One of the two virtues for us of hydropower is the stability of our costs. As you see, the cost of mining Bitcoin, direct mining costs which is comprised of electricity and in the past, not currently, hosting expenses, when we incurred those, were the elements that made up the direct mining or the incremental mining cost.
But overall, if you take a look for us, in terms of the quarter that just ended, how much it costs, the cash cost to mine Bitcoin. And the direct mining cost is about $9,900. And on top of that you have but $1,100 of other costs that comprise COGS. So overall, you find that we’ve got roughly about $11,000 all-in cost here on a cash basis for the mining of Bitcoin, so that puts — I think it’s a pretty good position.
And even to expand upon this, if we were to factor in G&A which is a fair question to ask, the cash G&A. Nonetheless, it still brings us to an overall cash cost of around $16,500. So we feel overall, we’ve got the structure in place, including the benefits of hydro here, of having — continuing to have a very attractive price structure — cost structure, excuse me.
Chris Brendler
Just to follow-up on that question. I saw in the deck on I guess it was page 12, it has this five percentage points attributed to the VAT tax issue. So that’s on top of this — is some of these numbers are being inflated by this VAT tax?
Jeff Lucas
That’s correct. To be more specific here actually, it’s — the impact was 5 percentage points to that 14% increase over time. So to go into more detail here, in Canada the Canadian Financing Authority is considering legislation, actually that would remove the opportunity to recover your VAT or your input taxes, which is about 15% right now of our energy costs. So in essence, our costs in Canada go from $0.04 to $0.046. That’s reflected, by the way, I want to underscore this, that’s reflected in the $9900 that we quoted there in front of you.
Now, this may not come to pass. The legislation hasn’t been fully approved yet. But in consistency — being consistent in accordance with IFRS accounting, we did have to recognize that accrue enough financials. So therefore, appropriately, we also included in our various operational measures, including the direct mining cost of Bitcoin. So again, that has an impact on the Canadian portion. And by the way, of all of our electricity costs, Canada represents about 88% of our total cost of electricity each quarter.
So yes, we had a 15% increase in the Canadian portion, obviously, no increase can play in Paraguay or Washington, which as Geoff pointed out, is sub $0.03, Paraguay is now $0.036, and now we have Canada at about $0.046. If that legislation does not pass, we will revert back to the $0.04 and of course have a massive catch up from the previous two quarters when we have indeed been accruing this amount. But all in all, even if that legislation has passed, we feel that we’re going to be in a very strong and very competitive position with the cost to mine Bitcoin.
Geoff Morphy
The Canadian Government announced that in February, and as Jeff mentioned, we’re accruing for it because we think that’s the prudent thing to do and what IFRS requires us to do. But we actually took a leadership position, because we’re one of the largest riders in Canada.
In terms of developing a coalition to bring in the experts that are required to advise us on this to review the proposed legislation, and to really work with the Canadian government to figure out whether this is the right thing for them to do. Obviously, we don’t think it’s the right thing to do. And what we’ve learned is that it’s inconsistent with the way they treat some of the other industries.
So we’re hopeful but we certainly aren’t — can’t plan on it, that the Canadian Government will pull this back and we’ll be able to bring our Canadian energy mining costs back down again. But until that happens, we’re just making sure that we make sure we put away the money and make sure that we don’t have a surprise cash shipped later this year, or next year, or whenever this might or might not happen.
Jeff Lucas
And by the way, Chris, we’re getting a lot of support here because there are over a dozen companies working with us as part of this coalition.
Chris Brendler
So the second question I had was on the fleet, really appreciate the disclosure here. You guys break out your fleet better than the most and yesterday, that’s a little over 40 joules per terahash number that hopefully can come down over time as you mentioned. But I’d love to hear like, are we at the point where some of the older fleet is being retired? And do you think that’s one of the main reasons we haven’t seen the overall network hash rate increase more, just given all the folks that are coming online which means the hash rates are moderate here. I think it’s because inefficient machines from the past are being turned off.
Geoff Morphy
Certainly, we’ve seen or heard anyway, through others that a lot of S9s have been turned off because of profitability. We have taken a number of the MicroBT miners that are new and moved them into Quebec, and are — just part of our update program, replacing M20S with M30S and that’s helping our efficiencies as well as increasing the peer size with new M30S that are incrementally adding to the fleet as we bring more infrastructure and megawatts on.
But yes, we are continuing to upgrade our fleet. Washington is absolutely modern with entirely new equipment. Argentina has got the new equipment scheduled for there. As we’ve mentioned with Paraguay, we sent down some of our used miners, three different series of used miners there. So it was a very low cost installation. And in Quebec, we’re — we’ve got our legacy operations there, by no means old dinosaurs. They continue to be upgraded. We’ve completely retrofitted like Collinsville last year entirely new facility, de la Pointe’s being phased out and replaced with three new facilities in Sherbrooke. All of those are, by and large, enjoying next generation, latest generation miners, and we’re getting the performance. Go ahead.
Jeff Lucas
Just to add to that, Chris. Just to give you a bit of perspective here. So a lot of the miners that we now have up for sale, like our old S9s, they were 90 watts per terahash, the S19 pros that we put in place in Washington are about 31 watts per terahash, and the M30S are also in the mid-30 or M30S that we’re putting in place in Leger and at the Bunker are in the mid-30s in terms of wattage per terahash. So you can see the huge difference that’s making in terms of our efficiency.
Chris Brendler
Just one more question on that as prices have come down, there’s certainly some opportunities to pick up some additional machines cheaper. Do you lean towards the latest model? Or is it all just a question of the XP? Or is it all just a question of the price and what you’re paying for terahash?
Geoff Morphy
A mixed bag, we’ve been a big supporter of MicroBT. Historically, we have Bitmain S19 series in Washington, but we’ve been a big supporter of MicroBT, that’s where the 48,000 minor order has been. They’ve been a great supporter of Bitfarms. And what we’re looking at M30S and 50S, S19, we will use our relationships as we look for miners to get the best possible terms. And right now there’s a lot of machines around, so I think if we had a preference, it would be for some of the best MicroBT units because we have more experience with our repair center with those units.We know from history that they perform longer and stronger without breakdowns, so.
But we will at this point at least have two primary manufacturers that we’re relying on and our familiarity with their equipment is great. But yes, it’s important as we look in these times where profitability is squeezed. We’ve got to have in — coming up that we make sure that we continue to use some of the best quality and performing miners available.
Operator
The next question comes from Dillon Heslin with ROTH Capital Partners.
Dillon Heslin
I think in your July operational update, you talked a little about in Canada, having some curtailment on power due to just temperatures. I was wondering if you could talk a little bit more about that. How big of an impact is that having on sort of your uptime and how you think about power costs in relation to Bitcoin prices and what you can maybe do at some of the new sites that are coming down the pipe in the future?
Geoff Morphy
Thank you for your question. It’s good to connect. Dillon in July, we didn’t have any miners that were down for curtailment. Curtailment in Quebec is a factor that we deal with but only during the winter months. We do not have curtailment as part of our contracts in Washington or in Paraguay, and we won’t in Argentina either. So I’m not sure where you’re picking up that July factor.
Dillon Heslin
I might have been misspoken about curtailment, but more so just like higher temperature or higher, like seasonal temperatures?
Geoff Morphy
Okay. That’s different. And yes, higher temperatures get to be a challenge on our miners and really tax our facilities and our infrastructure in being able to move air through the — our facilities to keep the miners lower enough temperature that they’re optimized. This year in Washington and Quebec, we were faced with higher temperatures and that meant that sometime miners go offline because of hardware, they get hot, they protect themselves, and they need to be rebooted. And we generally reboot them when things are a little cooler in the evenings and overnight.
So yes, we lost some efficiency there. It’s actually led us in some of our facilities in Quebec, which are the newer ones to better optimize some of the airflow in some of those facilities. Well, we think we’re onto our 6th iteration of design for our facility. So we think we’ve got it right, but there’s always room for improvement. And with the squeeze on profit margins in the industry right now, because of Bitcoin prices, we are trying to get as much uptime as possible and mint as many Bitcoins as possible.
So we are absolutely looking at the airflow in those facilities and how to optimize it, get more air through them. And we’re succeeding, like every percentage point you can get an uptime is money in your pocket, is value for investors. And we continue to press that really hard at all of our facilities and in our operations people have really been able to take it to the next level in that regard. So you will continue to see improvements that way as we go ahead.
Operator
That concludes our question-and-answer session. I’ll now turn the call back over to Geoff Morphy, President and COO of Bitfarms. Please go ahead, sir.
Geoff Morphy
Thank you all for attending today’s conference call. We look forward to updating you with our monthly production reports as well as other developments at our Q3 conference call in November.
One final remark. We will be launching our new website later this week. In addition to an improved look and feel and easier navigation, it includes many metrics from our operations and monthly production reports that we are sure you will find useful in tracking our results and progress. Additional functionality is envisioned and we will be adding that to the website in the future. Please be sure to visit bitfarms.com in the next several days. Thank you very much for everybody attending today’s call, and have a good day.
Operator
The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.
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