MGT Capital Investments Inc. OTCMKTS: MGTI ranks as one of the largest U.S. based Bitcoin miners. MGT oversees the operation of approximately 6,250 Bitmain S9 miners, and 50 GPU-based Ethereum mining rigs. Further, the Company continues to execute on an expansion model to secure low cost power and grow its crypto assets materially.
On January 9th, 2019 the company issued the following yearend letter to shareholders from H. Robert Holmes, Chairman of the Board and Interim Chief Executive Officer, Stephen Schaeffer, Chief Operating Officer, and Robert Lowrey, Chief Financial Officer:
“We are pleased to report that we have completed the move of our Bitcoin miners from Sweden to the United States. As we have previously communicated, we entered into a hosting agreement in Colorado Springs that would provide lower costs and more control over expenses, while also providing ample opportunity to expand our operations. In order to further increase the Company’s flexibility and geographic diversity of sites, we decided to split the miners formerly in Sweden to include a site in east-central Ohio, to complement Colorado Springs. In addition, this Ohio site will provide a testing ground for the containerized solution being developed by MGT and Bit5ive.
As a recap, MGT has approximately 500 Bitmain S9 miners operating in central Washington state, 3,000 S9’s currently being set up in Colorado, and 2,750 S’9s (including roughly 1,900 miners owned by third party investors) in Ohio being set up as well. We should note that the Company has suffered modest burnouts and other ordinary damage to 500 miners during the past several months. Compared to Sweden, we consider this installation process routine, and expect to be ready to mine within days. We would caution investors that ‘ready to mine’ needs to be qualified with the statement “economic to mine.” Our new hosting relationships provide the company with the ability to pay for electricity (and mine) only when Bitcoin mining economics dictate.
As we write this letter, mining Bitcoin is roughly breakeven when considering the marginal costs of production. As we suspected (and frankly, hoped!) the Difficulty Rate has eased as participants exited the mining business over the past months, either by choice or otherwise. Presently, the network requires the computing power of 60 Bitmain S9 miners to mine one Bitcoin per month. On a per unit basis, the Company spends about $65 per miner per month, which is about equal to the current price of $4,000 per BTC. Management remains optimistic that interplay of Difficulty and Price will continue to move in our favor in the next several months. Furthermore, we believe as one of the ‘last men standing,’ MGT is positioned to be a consolidator in the mining industry.
Even though MGT has clearly suffered from execution issues, we did not lose opportunity cost by not mining in Sweden during the last months; we would have been mining at a significant loss. That being said, the transition was costly, and we are very aware of current industry economics. We have reached extension agreements with our lenders, who have been accommodative, and have been able to utilize our equity line of credit as needed.
We remain confident that Bitcoin mining will improve, and that we are positioned to capitalize. The Company is also exploring other parts of the Bitcoin ecosystem where it might add value. In conclusion, we are happy that 2018 is over.”
MGT Capital Investments is making right news as on March 20th, 2019 provided the following operating update to investors.
As reported several weeks ago, MGT completed the move of its Swedish operations to locations in Colorado and Ohio. At that time, we stated that when Bitcoin mining economics allow for profitable operation, we would re-commence mining. All but 600 miners are currently racked and plugged in, and ready to start operation. Over this period, we have negotiated with our counterparties in both locations, and are pleased to announce that we have entered into a letter of intent with Standard Power of Ohio that is expected to vastly improve Bitcoin mining economics for MGT.
The LOI, non-binding and subject to definitive agreement, is expected to result in profitable Bitcoin mining even at a sub-$2,000 price of Bitcoin, assuming a stable Difficulty Rate. The proposed arrangement envisions a management agreement whereby MGT provides up to 2,400 miners and Standard Power provides the hosting facility and infrastructure. After paying net electricity costs and onsite labor, the two companies will split the operating profit.
The key to maximizing profitability will be the utilization of an algorithmic hedging strategy executed by Standard Power working hand in hand with MGT. This strategy will utilize futures markets to hedge specific peaks on the power demand curve, thereby leading to a lower average net cost of power utilized from the energy provider. The models which drive the strategy estimate hedging approximately 10% of the power used by mining operations; netting against the corresponding downtime in production (inclusive of rebooting), unit costs of mining should be reduced considerably.