425: Bitfarms to Acquire Stronghold Digital Mining in All-Stock Transaction, Expanding U.S. Presence and Diversifying Energy Portfolio

Bitfarms is set to acquire Stronghold Digital Mining in an all-stock deal valued at $125 million, aiming to expand its U.S. presence, diversify its energy portfolio, and leverage environmental remediation technologies.

Summary

• Bitfarms has announced a definitive agreement to acquire Stronghold Digital Mining in an all-stock transaction.
• The deal is valued at $125 million in equity, with each Stronghold share receiving 2.52 shares of Bitfarms Ltd.
• The acquisition includes the refinancing of Stronghold's outstanding debt of $54.6 million as of June 30, 2024.
• Bitfarms expects to gain an immediate increase of up to 4.0 EH/s in hashrate and 165 MW in power capacity.
• Fleet upgrades at Stronghold's existing sites could potentially expand capacity to approximately 10 EH/s.
• Stronghold has the capacity to import 142 MW of PJM power and a potential path to import up to 790 MW.
• The company anticipates annual run-rate cost synergies of around $10 million.
• The transaction is expected to close in Q1 2025, pending shareholder and regulatory approvals.
• The combined entity aims to increase Bitfarms' energy portfolio to 955 MW by year-end 2025, with multi-year expansion capacity up to 1.6 GW.
• Bitfarms intends to leverage its expertise to enhance energy efficiency and hashrate at Stronghold's facilities.
• The acquisition will increase Bitfarms' U.S. power capacity to approximately 47% of its total portfolio by year-end 2025.
• The company plans to integrate HPC/AI with Bitcoin mining operations, potentially disrupting the HPC business model.
• Bitfarms aims to utilize Stronghold's environmental remediation technologies to clean up toxic waste sites and reduce emissions.
• The company expects to reduce NOx emissions by approximately 90% and particulate emissions by approximately 99.9% through Stronghold's technologies.

Sentiment

Score: 8

Explanation: The document presents a positive outlook on the acquisition, highlighting the potential benefits for both companies and the environment. The all-stock transaction and potential synergies are viewed favorably.

Positives

• The all-stock transaction preserves Bitfarms' balance sheet strength for future growth.
• The acquisition provides immediate U.S. platform expansion with 165 MW of power generation capacity and 142 MW of PJM import capacity.
• There is a potential path to up to 790 MW of import capacity in the PJM market.
• The deal allows for the incorporation of reclamation capabilities for additional low-cost green energy.
• The acquisition provides an opportunity to merge HPC/AI initiatives on-site with mining operations.
• Bitfarms can leverage its operating expertise to perform a transformative data center upgrade.
• The acquisition expands Bitfarms' Bitcoin mining operations at an attractive value.
• The deal secures robust expansion and growth opportunities for years to come.

Negatives

• The transaction is subject to shareholder and regulatory approvals, which may delay or prevent the closing.
• The success of the HPC/AI integration depends on regulatory approvals from PJM and FERC, which are not guaranteed.
• The potential benefits of the acquisition are based on forward-looking statements and are subject to various risks and uncertainties.
• The fleet of miners on site are still productive, at 32 w/TH the fleet is significantly below the efficiency and productivity of the industry and new miner models.

Risks

• The transaction may not close within the anticipated timeframe or at all due to various factors, including failure to satisfy closing conditions.
• Bitfarms may not be able to operate the plants as anticipated following the acquisition.
• Equipment upgrades may not be installed and operated as planned.
• The availability of additional power may not occur as currently planned.
• Expansion may not materialize as currently anticipated.
• Power purchase agreements and economics may not be as advantageous as expected.
• Potential environmental costs and regulatory penalties may arise due to the operation of Stronghold's plants.
• Changes in tax credits related to coal refuse power generation could have a material adverse effect on the business.
• Competition in power markets may have a material adverse effect on the results of operations.
• The business is subject to substantial energy regulation and may be adversely affected by legislative or regulatory changes.
• Operations are subject to risks arising out of the threat of climate change and environmental laws.
• Operation of power generation facilities involves significant risks and hazards customary to the power industry.
• There may not be adequate insurance to cover these risks and hazards.
• Employees, contractors, customers, and the general public may be exposed to a risk of injury due to the nature of the operations.
• There is limited experience with carbon capture programs and initiatives.
• Dependence on third-parties for carbon capture programs and initiatives could have a material adverse effect on the business.
• The digital currency market is volatile and subject to various risks.
• The ability to successfully mine digital currency is subject to various factors.
• Revenue may not increase as currently anticipated.
• It may not be possible to profitably liquidate the current digital currency inventory.
• A decline in digital currency prices may have a significant negative impact on operations.
• An increase in network difficulty may have a significant negative impact on operations.
• The anticipated growth and sustainability of hydroelectricity for cryptocurrency mining is uncertain.
• The inability to maintain reliable and economical sources of power to operate cryptocurrency mining assets is a risk.
• The risks of an increase in electricity costs, cost of natural gas, changes in currency exchange rates, energy curtailment, or regulatory changes in the energy regimes in which Bitfarms and Stronghold operate could adversely impact profitability.
• Future capital needs and the ability to complete current and future financings are uncertain.
• Share dilution may result from an ATM Program and from other equity issuances.
• Volatile securities markets may impact security pricing unrelated to operating performance.
• The risk of a material weakness in internal control over financial reporting could result in a misstatement of financial position.
• Historical prices of digital currencies and the ability to mine digital currencies may not be consistent with historical prices.
• The adoption or expansion of any regulation or law may prevent Bitfarms, Stronghold, or the combined company from operating its business, or make it more costly to do so.

Future Outlook

Bitfarms aims to expand its energy portfolio to 955 MW by year-end 2025 and potentially up to 1.6 GW, with a focus on increasing its U.S. presence and integrating HPC/AI with Bitcoin mining operations.

Management Comments

• Ben Gagnon (Bitfarms CEO): 'I am committed to diversifying the company beyond Bitcoin mining in order to make us better Bitcoin miners and create long-term value for shareholders.'
• Greg Beard (Stronghold Chairman & CEO): 'There is not a stock I would rather take. I believe that Stronghold is getting good, fair value for our assets, and I am highly confident that, with Bitfarms financial fortitude, demonstrated ability to execute, and vision, they will be able to expand Strongholds sites and unlock their value in a way that we would not have been able to in the near term as a standalone company.'

Industry Context

The acquisition reflects a trend in the Bitcoin mining industry towards consolidation and vertical integration, with companies seeking to control their energy sources and diversify their revenue streams. The focus on environmental remediation also aligns with growing concerns about the sustainability of Bitcoin mining.

Comparison to Industry Standards

• Bitfarms' acquisition of Stronghold is similar to other deals in the Bitcoin mining industry where companies are seeking to increase their power capacity and hashrate.
• Riot Platforms acquisition of Bitmain's mining facility in Texas is a comparable example of a company expanding its U.S. presence.
• Marathon Digital Holdings' focus on renewable energy sources is similar to Bitfarms' emphasis on environmental remediation.
• The integration of HPC/AI with Bitcoin mining is a novel approach that could give Bitfarms a competitive advantage over traditional data centers.

Stakeholder Impact

• Shareholders of both Bitfarms and Stronghold are expected to benefit from the synergies and growth opportunities created by the acquisition.
• Employees of both companies may experience changes in their roles and responsibilities as a result of the integration.
• Customers of Bitfarms and Stronghold may benefit from improved services and technologies.
• The acquisition is expected to have a positive impact on the environment through the remediation of toxic waste sites.
• Local communities in Pennsylvania are expected to benefit from the environmental remediation efforts and the creation of jobs.

Next Steps

• Obtain approval from Stronghold's shareholders.
• Obtain applicable regulatory approvals.
• Obtain certain third-party consents.
• Satisfy other customary closing conditions.
• Close the transaction in Q1 2025.
• Initiate fleet upgrade program at Stronghold's sites.
• Pursue regulatory approvals for HPC/AI integration.
• Continue environmental remediation efforts.

Key Dates