Top Science Stocks: A Solid Bitcoin Mining Game (NASDAQ: CORZ)

KanawatTH

Although Core Scientific (NASDAQ: CORZ) decided to sell many of his Bitcoin holdings in the past few months, he is still well positioned for when the Bitcoin price returns to its upward growth trajectory.

Much of that is attributed to its reluctance to take on more debt, cost-cutting measures, access to capital, and its highly successful production performance, which is projected to reach approximately 2,000 Bitcoins per day by the end of 2022, according to management.

With CORZ stock price collapsing throughout 2022, the risk/reward dynamic is very favorable for investors taking a position now or averaging lower to reduce their cost base.

In this article, we will look at the various factors that make CORZ a good speculative game for long-term investors.

Recent production performance

In its latest post, CORZ reported that it mined 1,213 Bitcoin in September, a 9 percent decrease from the previous month.

CEO Mike Levitt said the drop in the number of Bitcoin mined was related to some defects in manufacturers’ electrical equipment, coupled with severe weather in some of their mining jurisdictions, causing some of their operations to temporarily shut down. mining.

Even under these difficult circumstances, the company was able to increase its EH/s from 12.69 EH/s in August to approximately 13 EH/s in September. That was the result of the company expanding the number of auto-mining servers from 127,716 to about 130,000 during that period.

As for sales, CORZ sold 1,576 BTC in September at an average price of $20,460 per Bitcoin, for a total revenue of $32.2 million. In contrast, the company sold 1,125 BTC in August for an average of $23,014 per Bitcoin for a total of $25.9 million in revenue. As a result of the sales, CORZ had 1,051 BTC and $29.5 million in cash at the end of September, compared to 1,406 BTC and $47.2 million in cash at the end of August.

When CORZ first sold his BTC in earnest, I was concerned because I liked the strength it added to his balance sheet and the potential future value of the Bitcoins he had prior to implementing his strategy.

But with the company capable of producing so much BTC on a monthly basis, it won’t take long for it to build up its BTC reserves once the price of Bitcoin starts rising again.

And as your production levels continue to increase significantly over the next 3 months, you will be able to increase your holdings and sell if the price of Bitcoin justifies those actions.

At the end of September, CORZ was operating around 232,000 ASIC servers for auto-mining and placement, generating 22.5 EH/s. By the end of 2022, CORZ has plans to add 38,000 more self-mining ASIC servers.

Regarding its colocation services, the company added about 8,400 new servers to further serve its 102,000 customer-owned ASIC servers. The placement represents approximately 9.5 EH/s, or 42 percent of the total EH/s, something not all investors are aware of; that’s what brings the total to 22.5 EH/s.

Balance sheet and access to capital

At the end of the second quarter, CORZ had total debt of about $960 million, not including accounting reserve adjustments which were just under $200 million. Of the total debt, just over $500 million was privately placed convertible notes, which mature in April 2025. They won’t have much of a cash impact on the company because they earn cash interest at a 4 percent rate. They include a 6 percent non-cash payment with no principal payments due when due. Management said it was “very comfortable” with the expiration date. Assuming the Bitcoin price recovers and the stock price rises, the company should be able to convert debt into equity.

CORZ also has a $57 million debt obligation to B. Riley that will be paid over the next eleven months. He has already paid off $18 million of the original $75 million loan. Management stated that they are also comfortable with their ability to pay what they owe B. Riley.

Regarding its equipment funding, CORZ plans to have 170,000 auto-mining servers operational by the end of 2022, with just over half (86,000) “currently in debt or lease”, which is around $330 million at the end of the second quarter. . Management, once again, said it also sees no problem with continuing to service equipment debt.

Regarding financing, the company has a $100 million equity line of credit that it can tap into whenever it wants over the next two years. Presumably, unless absolutely necessary in the short term, management said “we don’t think it’s sensible to increase our debt.”

In an effort to cut expenses, the company has cut 10 percent of its staff and is pulling out of non-core businesses.

Something investors should consider regarding the company’s balance sheet and overall debt service is the projected increase in the number of Bitcoins produced monthly.

If it is indeed close to 2,000 Bitcoins mined monthly, that is a huge increase from where current production is. On average, roughly 700-800 more Bitcoin would be mined per month by the end of 2022. Even at a modest average price of $19,000, that would generate $38 million in revenue per month. It is easy to see the impact this would have on the company’s performance if the price of Bitcoin resumes its upward trajectory. That, in turn, would significantly improve CORZ’s balance sheet due to its ability to pay down debt and use proceeds from Bitcoin sales to fund its needs. I also believe that the company will eventually start building up its Bitcoin reserves again, further solidifying the balance sheet. That won’t happen any time soon, but when inflation starts to decline sustainably, the price of Bitcoin will provide far more options for the company than it currently has.

What to look for with the Federal Reserve

My thesis is that once inflation starts to show signs of slowing down, the price of Bitcoin will rise initially, which is the first time the IPC has had a significant drop. I don’t think the first month it falls, the rise in Bitcoin price will stay at high levels, rather it is likely to spike and then retrace to higher lows, with investors looking to add to their positions if inflation falls during two months. in a row

At that point I think the Fed will come under pressure to stop rate hikes, depending on the level of the decline in inflation. If it’s modest, it’s likely to reduce the size of the hikes, but it’s likely to increase them by 25 basis points. Under that scenario, the price of Bitcoin should find support but be limited to the upside until the market is convinced that inflation is under control.

When I say under control, I don’t mean that it will be anywhere near the Fed’s stated goal of bringing it down to two percent. I mean it will fall enough to convince investors that the worst is over, and eventually it will continue to fall, albeit two steps forward and one step back.

My belief is that by the end of the year we will have much more clarity on this and the market will respond accordingly. Barring a Black Swan event, the most likely scenario is that by the end of 2022 inflation will start to change direction as momentum slows, paving the way for a more positive sentiment to start the year.

I know that some in the financial world are starting to use the word recession, but by the metric used for the last seventy years (two consecutive quarters of GDP decline), we are already in a recession. I think the reason the definition is being toyed with is because of the upcoming mid-term elections in the US.

The reason it’s important is because if we really are already in a recession, it could cause investors to sell off decent assets based on the financial media suddenly declaring a recession, like it’s just started.

As far as CORZ is concerned, it will participate in any negative catalyst that triggers another sell-off in riskier assets if a recession is announced at some point in the near future as official.

That works though, I think in the coming months we’re more likely to see inflation start to come down in response to interest rate hikes by the Fed, and that should result in a big move higher in the price of Bitcoin if it occurs more than one month in a row.

conclusion

With its growing monthly Bitcoin production, coupled with an equity credit line, I believe CORZ has the ability to fund its operations through at least the end of 2023.

Since it has invested heavily in mining equipment to rapidly increase the number of Bitcoins it produces daily and monthly, it could surprise on the upside if the price of Bitcoin increases sustainably through 2023.

On the other hand, if for some reason inflation continues to be more stubborn than I think it will be, it would result in the company needing to find more ways to finance operations until that changes. I don’t think it’s likely, but it’s a possibility.

The bottom line is that by the end of the year, CORZ will increase the number of Bitcoins mined quite a bit, and that will generate much more revenue. How that affects the bottom line and helps you throughout 2023 will be determined by how the price of Bitcoin moves in response to inflation. CORZ’s ability to produce the amount of Bitcoin it produces separates it from most of its competitors. That’s one of the reasons why I’m not worried about their heavy debt load, because it has resulted in a rapid increase in their production numbers.

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