Argo Blockchain : 2023 Annual Report & Financial Statements

ARGO BLOCKCHAIN PLC

Company Registration No. 11097258 (England and Wales)

ARGO BLOCKCHAIN PLC

ANNUAL REPORT AND FINANCIAL

STATEMENTS FOR THE YEAR ENDED 31

DECEMBER 2023

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ARGO BLOCKCHAIN PLC

COMPANY INFORMATION

Directors	M I Shaw
	T Chippas
	R Chopra
	M Perrella
	P G Wall (resigned 9 February 2023)
	A Appleton (resigned 1 February
	2023)
	S Gow (resigned 8 February 2023)
Company secretary	MSP Corporate Services Limited
Company number	11097258
Registered office	Argo Blockchain PLC
	Eastcastle House
	27/28 Eastcastle Street
	London
	W1W 8DH
	United Kingdom
Auditor	PKF Littlejohn LLP
	15 Westferry Circus
	Canary Wharf
	London
	E14 4HD
	United Kingdom
Broker	Tennyson Securities
	65 Petty France
	London, United Kingdom
	SW1 9EU
Bankers	Bank of Montreal
	129 St-Jacques
	Montreal
	Quebec
	H2Y 1L6
	Canada
Registrar	Computershare Investor Services PLC
	The Pavilions
	Bridgwater Road
	Bristol
	BS13 8AE
	United Kingdom
Solicitors	Fladgate LLP
	16 Great Queen Street
	London
	WC2B 5DG
	United Kingdom

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ARGO BLOCKCHAIN PLC

CONTENTS
COMPANY INFORMATION	2
CONTENTS	3
CHAIRMAN'S STATEMENT	5
BOARD OF DIRECTORS	7
STRATEGIC REPORT	8
DIRECTORS' REPORT	14
DIRECTORS' REMUNERATION REPORT	19
NOMINATION COMMITTEE REPORT	25
AUDIT COMMITTEE REPORT	28
TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURE (TCFD) REPORT	33
DIRECTORS' RESPONSIBILITIES STATEMENT	44
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF ARGO BLOCKCHAIN PLC	45
GROUP STATEMENT OF COMPREHENSIVE INCOME	51
GROUP STATEMENT OF FINANCIAL POSITION	52
GROUP STATEMENT OF CHANGES IN EQUITY	54
GROUP STATEMENT OF CASHFLOWS	56
NOTES TO THE FINANCIAL STATEMENTS	58
1.	COMPANY INFORMATION	58
2.	BASIS OF PREPARATION	58
3.	ACCOUNTING POLICIES	59
4.	FINANCIAL RISK FACTORS	66
5.	ADOPTION OF NEW AND REVISED STANDARDS AND INTERPRETATIONS	68
6.	KEY JUDGEMENTS AND ESTIMATES	69
7.	REVENUES	69
8.	EXPENSES BY NATURE	69
9.	AUDITOR'S REMUNERATION	70
10.	EMPLOYEES	70
11.	DIRECTOR'S REMUNERATION	70
12.	EARNINGS PER SHARE	71
13.	TAXATION	72
14.	ASSETS AND LIABLITIES HELD FOR SALE	73
15.	INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS	73
16.	INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD	73
17.	INTANGIBLE FIXED ASSETS	75
18.	TANGIBLE FIXED ASSETS	76
19.	TRADE AND OTHER RECEIVABLES	78
20.	DIGITAL ASSETS	78
21.	SHARE OPTIONS, RESTRICED STOCK UNITS AND WARRANTS	79
22.	ORDINARY SHARES	81
23.	RESERVES	81

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ARGO BLOCKCHAIN PLC
24.	TRADE AND OTHER PAYABLES	82
25.	LOANS AND BORROWINGS	82
26.	FINANCIAL INSTRUMENTS	83
27.	COMMITMENTS AND CONTINGENCIES	85
28.	RELATED PARTY TRANSACTIONS	85
29.	CONTROLLING PARTY	85
30.	POST BALANCE SHEET EVENTS	85
COMPANY STATEMENT OF FINANCIAL POSITION	86
COMPANY STATEMENT OF CHANGES IN EQUITY	88
COMPANY STATEMENT OF CASH FLOWS	90
NOTES TO THE FINANCIAL STATEMENTS	91
1.	TRADE AND OTHER RECEIVABLES / INTERCOMPANY	91
2.	TRADE AND OTHER PAYABLES	91
3.	FINANCIAL INSTRUMENTS	92
4.	INVESTMENT IN SUBSIDIARIES AND LOSS ON SALE OF SUBSIDIARY	93
5.	KEY JUDGEMENTS AND ESTIMATES	94
6.	EMPLOYEES	94

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ARGO BLOCKCHAIN PLC

CHAIRMAN'S STATEMENT

We began 2023 on the heels of a transformational and strategic pivot in our operations. In December 2022 we sold the Helios facility, which we designed, constructed, and energized over the course of 2021 and 2022. The transaction strengthened our balance sheet through $41 million of debt reduction and through a refinance of our remaining machine-backed loans with a new asset-backed loan from Galaxy Digital Holdings Ltd. ("Galaxy").

Argo maintained ownership of its entire fleet of mining machines, including roughly 23,600 Bitmain S19J Pro machines that were operating at Helios prior to the sale. Those miners remained in situ and continued to operate pursuant to a hosting agreement with Galaxy. Currently, approximately 2.4 EH/s of total hashrate capacity is deployed at Helios, and the machines continue to perform very well in the custom-designedimmersion-cooled facility.

The hosting agreement with Galaxy allows Argo to share in the proceeds from economic curtailment, which occurs when Helios monetizes its fixed-price PPA during periods of high power prices. During the year, Argo generated approximately $7.2 million in power credits, with $3.8 million generated in the month of August during a state-wide heat wave. Not only does the ability to curtail operations benefit Argo economically, but it greatly enhances the stability of the Texas grid.

Throughout the year, the Company focused on three key pillars: financial discipline, operational excellence, and strategic partnerships for growth.

Financial discipline

After the sale of the Helios facility, the Company was able to significantly reduce its operating expenses. During the first quarter alone, Argo reduced its non-mining operating expenses by 68% compared to the run rate in the second half of 2022. The Company has been able to sustain these cost reductions, achieving a 58% reduction in non-mining operating expenses for the full year 2023 compared to the prior year.

The Company has also made progress in strengthening its balance sheet by reducing debt. For the full year 2023, the company reduced its debt by $13 million to $66 million. Most of the debt reduction was focused on the asset- backed loans with Galaxy through monthly amortization, supplemented by additional prepayments throughout the year. The prepayments were funded with proceeds of non-core asset sales and a portion of the proceeds from an equity raise completed in July 2023.

In addition, subsequent to year end, the Company paid down an additional $12 million using a portion of proceeds raised through an equity raise in January 2024, the proceeds of the sale of non-core assets, including the Mirabel facility, and $3 million through monthly amortization payments. As of March 31, 2024, the debt balance owed to Galaxy was $13 million, and total debt was $54 million.

Operational excellence

After selling the Mirabel facility in March 2024, Argo continues to own and operate its data center in Baie Comeau, Quebec. The Baie Comeau site is over 40,000 square feet and has 15 MW of 99% renewable power capacity sourced from the nearby Baie Comeau hydroelectric dam.

During the third quarter of 2023, the Company deployed approximately 2,750 BlockMiner machines from ePIC Blockchain Technologies, representing approximately 300 PH/s, at its Quebec facilities. This deployment increased the Company's total hashrate capacity by approximately 300 PH/s. As of 31 March 2024, taking into account the sale of certain prior generation machines that occurred in conjunction with the sale of the Mirabel facility, the Company's total hashrate capacity is 2.7 EH/s.

Additionally, the Company has the ability to expand its capacity at Baie Comeau from 15 MW to 23 MW. The local municipality has approved the expansion, and the Company is in the evaluation phase of this project.

Growth and strategic partnerships

The Company continues to explore opportunities where mining can be paired with stranded or wasted energy. There is tremendous potential for energy generators to utilize mining as a balancing and optimization tool, particularly in the energy transition where limitations currently exist in the ability to store renewable energy. Argo is evaluating several projects with companies across the energy value chain.

Financial results

Revenue in 2023 was $50.6 million, compared to $58.6 million in 2022. Non-mining operating expenses were $18.8 million, a significant decrease from $34.1 million in 2022. Adjusted EBITDA was $8.3 million, compared to $(46.7) million in 2022. Loss attributable to shareholders totaled $35.0 million. In 2023, total capital expenditures were $5.2 million. Our cash balance at December 31, 2023 was $7.4 million.

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ARGO BLOCKCHAIN PLC

Operating results

With the deployment of the BlockMiners at its Quebec facilities, the Group's total hashrate capacity increased by 12% from 2.5 EH/s in June 2023 to 2.8 EH/s by September 2023. Argo's mining margin averaged 44% for the full year 2023, which is lower than the 54% mining margin achieved in 2022. The decrease in mining margin from 2022 was driven primarily by the 71% increase in average network difficulty in 2023.

Bitcoin macro environment

While 2022 was a challenging year for Bitcoin with several macroeconomic headwinds, 2023 provided a bit of a reprieve for miners. After starting the year at $16,616, the Bitcoin price experienced a rapid increase in March 2023 amidst a period of distress in the regional banking sector, climbing 21% during the month. Additionally, the price saw a steady increase during the second half of the year as speculation intensified about the impending January 2024 deadline for the approval of Bitcoin Spot ETFs by the US Securities and Exchange Commission (post the period end, the ETFs were approved by the SEC on 10 January 2024). By the end of 2023, the price of Bitcoin had increased to $42,208, a 154% increase for the year.

Another tailwind for Bitcoin miners was the growth of transaction fees from the introduction of ordinals and inscriptions. Transaction fees on the Bitcoin network more than quadrupled in 2023 compared to the prior year. There was a large but temporary spike in transaction fees in May, along with longer periods of elevated fees in November and December from increased ordinal and inscription activity.

The increase in Bitcoin price, combined with growth in transaction fees, enabled hashprice to climb from $60 per petahash per day at the end of 2022 to $98 per petahash per day at the end of 2023, which is a 64% increase during the year. The growth in hashprice was not as dramatic as the increase in Bitcoin price or transaction fees because it takes into account the network difficulty, which increased by 104% during the year to account for significant growth in the global hashrate.

Commitment to sustainability

Since inception, Argo has always maintained a strong focus on environmental sustainability. This is why we located our mining operations in Quebec, where they are powered by hydroelectricity, and the Texas Panhandle, where more than 85% of the installed generation capacity comes from renewable sources.

To our knowledge, we are the first publicly traded cryptocurrency mining company to publish a report in accordance with the Task Force on Climate-related Financial Disclosures ("TCFD") Recommendations and Recommended Disclosures (see page 32).

Leadership changes

On 30 January 2023, Chief Financial Officer and Executive Director Alex Appleton resigned from his positions at Argo to pursue other opportunities. After a formal recruitment process led by an executive search firm, the Board appointed Jim MacCallum as Chief Financial Officer effective 5 April 2023.

On 9 February 2023, Chief Executive Officer and Interim Chairman Peter Wall resigned from his positions at Argo to pursue other opportunities. Matthew Shaw became Chairman of the Board, and the Board appointed Chief Operating Officer Seif El-Bakly to serve as Interim CEO.

On 27 November 2023, after a formal recruitment process led by an executive search firm, the Board of Directors appointed Thomas Chippas as Chief Executive Officer and Executive Director. Seif El-Bakly returned to his role as Chief Operating Officer.

On 5 January 2024, Seif El-Bakly resigned from his position to pursue other opportunities.

Strategic focus in 2024

With the Bitcoin halving occurring in April 2024, the Company's priorities in the first quarter of 2024 continued to involve a strong focus on financial discipline, operational excellence, and modest growth in operations. We believe that our efficient fleet, stable and competitive power prices, and strengthened balance sheet make us well-positioned for a post-halving environment.

On behalf of the Board, I would like to thank all of our shareholders and stakeholders. I am excited for Argo to continue in its mission of powering the world's most innovative and sustainable blockchain infrastructure.

Matthew Shaw

Chairman of the Board

24 April 2024

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ARGO BLOCKCHAIN PLC

BOARD OF DIRECTORS

Matthew Shaw (Chairman of the Board)

Matthew Shaw has served on our board of directors since July 2019, and he became Chairman of the Board in February 2023. He brings over 25 years of experience as an international banker, corporate adviser, and serial entrepreneur. He has been specializing in the blockchain and cryptocurrency sector since 2017. He is currently Chief Executive Officer of Webslinger Advisors, a specialist web3 advisory and administration firm which provides services to Cayman Foundations/DAOs. He previously co-founded Protos Asset Management, a Swiss company that manages a cryptocurrency fund, and co-founded DeFi Yield Technologies, a DeFi firm acquired by Dispersion Holdings (now AQRU). He is also currently Chief Executive Officer of Blimp Technologies and is also president of a proprietary family investment company. Mr. Shaw holds a B.A. in English Language and Literature from Manchester University and an M.B.A. from Bradford University.

Thomas Chippas (Chief Executive Officer and Executive Director)

Thomas Chippas has served as our Chief Executive Officer since November 2023. Mr. Chippas is a seasoned executive with significant experience in digital assets, technology, and financial services. Most recently he served as the Chief Executive Officer of CBOE Digital where he was also a former member of its Board of Directors. He has previously held the positions of Chief Executive Officer of Citadel Technology LLC, Chief Operating Officer of Axoni and Managing Director of Citigroup, Barclays and Deutsche Bank. He currently serves as a director of TS Imagine. Mr. Chippas graduated from the University of Illinois with a BSc, Accounting.

Raghav Chopra (Non-Executive Director)

Raghav Chopra is an investor with over 16 years of experience and is currently Managing Partner of Tephra Digital, a privately held digital assets investment firm. He was previously a Portfolio Manager for AllianceBernstein LP and has managed a significant and wide range of technology investments at leading hedge funds. Prior to that, Mr. Chopra was an Associate in private equity at The Carlyle Group and an Analyst in investment banking at Goldman, Sachs & Co. Mr. Chopra serves on the Board of the Harvard Club of New York City Foundation and is a member of the Economic Club of New York. Mr. Chopra holds a B.S. in Electrical Engineering and Economics with Distinction from Yale University, and an M.B.A. with High Distinction from the Harvard Business School, where he was named a George F. Baker Scholar.

Maria Perrella (Non-Executive Director)

Maria Perrella has served on our board of directors since July 2021. Over the last 25 years, Ms. Perrella has held several senior leadership positions and currently Maria Perrella serves as Chief Financial Officer of Samuel, Son & Co., a leading metals distributor and industrial products manufacturer. Previously, she served as the Chief Financial Officer of MDA, a Canadian-based international space mission partner, and she spent the previous 12 years at Automation Tooling Systems Inc. (ATS)(ATA.TSX), when it was a TSX-listed automation company with over 4,500 employees across six countries. Her various roles have allowed her to develop skills in financial planning and corporate governance and compliance, and her many years as a Chief Financial Officer have provided her with extensive experience in mergers and acquisitions, capital markets, and strategic corporate finance. Maria graduated from the Schulich School of Business (BBA) and is a Chartered Public Accountant in Ontario, Canada.

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ARGO BLOCKCHAIN PLC

STRATEGIC REPORT

The directors present their strategic report on the Group for the year ended 31 December 2023.

Principal activity

The Group's principal activity is that of cryptocurrency mining.

Review of the business and future developments

Argo Blockchain plc (the "Company") was incorporated on 5 December 2017. Argo Blockchain plc is the parent holding company of the Argo group of companies including Argo Innovation Labs Inc., a British Columbia, Canada Corporation, and Argo Operating US LLC, a Delaware, United States Limited Liability Corporation (collectively "Argo" or "the Group").

On 3 August 2018 the Company's Ordinary Shares were admitted to the standard segment of the Official List maintained by the Financial Conduct Authority and to trading on the London Stock Exchange's Main Market. The Company's Ordinary Shares traded on the OTCQB® Venture Market under the ticker symbol "ARBKF" from 13 January 2021 until 23 February 2021, and traded on the OTCQX from 24 February 2021 to 31 December 2022. The Company's American Depositary Shares (ADSs) have traded on the Nasdaq Stock Market ("Nasdaq") since 24 September 2021.

The Chairman's statement provides an in-depth review of 2023, so this strategic report is instead looking forward to the plans and intentions of the Group.

2024 began with an exciting catalyst for Bitcoin with the SEC's approval of the Bitcoin Spot ETF product on 10 January 2024. This event was widely anticipated across the industry and was preceded by a 39% increase in the price of Bitcoin in the second half of 2023.

The other key catalyst for Bitcoin is the halving, which occurred on 19 April 2024. The halving is a feature of the Bitcoin network whereby the block reward is reduced by 50% every 210,000 blocks, or roughly every four years. In prior halving cycles, the price of Bitcoin has experienced significant appreciation in the months following the halving. However, there is no guarantee that Bitcoin will follow the same pattern during this halving cycle.

As we approached the halving, the Company's balance sheet had improved significantly following a $10 million equity raise completed in January 2024, the sale of the Mirabel facility, and the focus on paying down debt, particularly with Galaxy.

Group strategy and business model

We are targeting a balance between owning and operating our own mining facilities and utilizing third party facilities with access to reliable, low-cost and renewable energy. Throughout the Company's history, we have invested in purchasing, building and operating mining facilities. We will continue to explore the acquisition and development of future mining facilities that provide opportunities to utilize wasted or stranded energy. This could include using mobile and/or modular mining infrastructure. We will continue to evaluate opportunities from hosting providers that offer reliable, low-cost, and clean power in order to balance the gap between our available capacity and the power needed to run our mining operations.

We believe the combination of increased mining difficulty, driven by greater network hashrate, and the periodic adjustment of reward rates, such as the recent halving of Bitcoin rewards, will increase the importance of power efficiency in cryptocurrency mining over the long term. As a result, we are focused on deploying our mining machines at locations with access to reliable clean power sources, as successfully doing so should enable us to reduce our power costs.

Performance of the business during the period and the position at the end of the year

The financial results for 2023 reflect a year of rising Bitcoin prices, partially offset by significant growth in the global hashrate, which resulted in a 71% higher average network difficulty for the year. During the year, Argo grew its mining fleet by 12%, from a total hashrate capacity of 2.5 EH/s to 2.8 EH/s.

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ARGO BLOCKCHAIN PLC

Mining revenue ($m)

$18.0

$16.0

$14.0

$12.0

$10.0

$8.0

$6.0

$4.0

$2.0

$-

		$16.2
$11.4	$12.6
	$10.4
$5.6	$6.1	$5.5
	$4.5

Q1 2023	Q2 2023	Q3 2023	Q4 2023
		Revenue			Mining Profit	Mining Margin

70%
60%
50%	Margin
40%
Mining
30%

20%

10%

0%

Key performance indicators

The Board monitors the activities and performance of the Group on a continuing basis. The main performance indicators applicable for the Group is mining revenue and mining profit.

KPI	2023	2022	% Change
Mining revenue ($000s)	$50,558	$58,464	(14%)
Mining profit1 ($000s)	$21,756	$31,705	(31%)
Mining margin	43%	54%	(10%)
Bitcoin mined (number)	1,760	2,156	(18%)
Total hashrate capacity (EH/s)	2.8	2.5	12%
Average network difficulty (T)	40.4	30.4	33%

1. Mining profit defined as mining revenue minus direct costs (excluding depreciation and amortization of mining equipment).

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ARGO BLOCKCHAIN PLC

Non-IFRS Reconciliation

The following table shows a reconciliation of Bitcoin Mining Margin to gross margin, the most directly comparable IFRS measure, for the years ended December 31, 2023 and December 31, 2022.

	Year ended	Year ended
	31 December	31 December
	2023	2022
	$'000	$'000
Gross profit/(loss)	3,839	(42,623)
Depreciation of mining equipment	18,656	20,469
Change in fair value of digital currencies	(738)	53,978
Other revenue	-	(119)
Mining profit	21,757	31,705
Bitcoin Mining Margin	43%	54%

The following table shows a reconciliation of Adjusted EBITDA to net income/(loss), the most directly comparable IFRS measure, for the years ended December 31, 2023 and December 31, 2022.

	Year ended	Year ended
	31 December	31 December
	2023	2022
	$'000	$'000
Net income/(loss)	(35,033)	(228,961)
Interest expense	11,556	22,661
Depreciation / amortisation	20,129	29,003
Income tax (credit) / expense	-	(11,731)
EBITDA	(3,348)	(189,028)
Impairment of assets	855	55,838
Impairment of intangible assets	1,082	5,155
Loss/(gain) on disposal of intangible fixed assets	(428)	-
Loss/(gain) on sale of subsidiary and investments	(36)	55,418
Loss on sale of fixed assets	-	23,228
Foreign exchange	(1,597)	(21,337)
Restructuring and transaction-related fees	4,969	11,862
Share based payment charge	3,892	6,096
Equity accounted loss from associate	716	6,027

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