Analysis: A Comparison Between Bitfarms’ & Hut 8’s Bitcoin Production

Beginning in July, two of the largest and most prominent Canadian Bitcoin miners, Bitfarms Ltd. (TSXV: BITF) and Hut 8 Mining Corp. (TSX: HUT), began detailing the number of Bitcoin each has mined monthly. 

A comparison of the data sets released by each company, as well as the stock market valuation and the net cash and digital asset positions of each company, implies that Bitfarms may be much more cheaply valued than Hut 8. Such a wide differential in relative valuation is quite unusual for commodity producers of any sort.

Bitfarms mined more Bitcoin than Hut 8 in both August and July — 354 versus 326 in August, and 391 versus 300 in July.

The computer processing power, termed the hash rate, of the two companies is currently about the same, 1.4 Exahash per second (EH/s) for Bitfarms and 1.37 EH/s for Hut 8. Hash rate is a measure of how many times a firm’s computing network can attempt to complete a difficult math problem each second. The hash rate of the entire Bitcoin network is now around 131 EH/s.

Both Bitfarms and Hut 8 plan to add substantial capacity over the next 9-15 months. Bitfarms expects to have 8.0 EH/s of capacity by year-end 2022, while Hut 8 plans to run 6.0 EH/s of computing power by mid-2022.

Bitfarms’ average production cost is around US$9,000 per Bitcoin mined. This figure primarily represents electricity costs. We calculate that Hut 8’s unit breakeven cost is somewhat higher, around US$11,500.

The table below summarizes key Bitcoin mining results and financial characteristics of the two companies:

Number of Bitcoin Mined: 
                      August 2021354326
                      July 2021391300
                      2Q 2021553
                      1Q 2021539
                      June 2021265 
                      May 2021262 
                      April 2021232 
                      March 2021221 
                      February 2021178 
                      January 2021199 
Total Bitcoin Mined January 1, 2021 – August 31, 20212,1021,718
Number of Bitcoin Owned as of August 31, 20212,0284,450
Hash Rate (EH/s):1.41.37
Installed Electric Power Capacity, in Megawatts:
     December 31, 202069109
     December 31, 2021 E168144
     December 31, 2022 E358209
Estimated Production Cost Per Bitcoin Mined (US$)$9,000$11,500
Bitcoin Price (US$)$45,800$45,800
Cash – June 30, 2021 (US$ millions)$36$74
Debt  – June 30, 2021 (US$ millions)$21$5
Stock Market Value (US$ millions)$952$1,433
Enterprise Value (US$ millions)$845$1,160
Annual EBITDA Based on August Production Rate (US$ millions)$156$134
Enterprise Value/EBITDA Run Rate5.48.6

Importantly, at the current Bitcoin price of US$45,800, and reflecting each company’s August Bitcoin mining rate and the cost of production, Bitfarms’ and Hut 8’s annualized EBITDA run rates are approximately US$156 million and US$134 million, respectively.

Giving effect to the market values of the two company’s August 31, 2021 Bitcoin holdings — 2,028 and 4,450 for Bitfarms and Hut 8, respectively — Bitfarms’ enterprise value (EV) is about US$845 million and Hut 8’s is approximately US$1.16 billion.

Consequently, Bitfarms trades at an EV-to-run rate EBITDA ratio of 5.4x, more than three multiple points cheaper than Hut 8’s 8.6x ratio, a remarkable difference for two similarly positioned and sized producers of the same commodity. If Bitfarms were to trade at the same EV/EBITDA multiple as Hut 8, its share price would be around $10.90, about 50% more than its current stock price of $7.17. (Note that an EV/EBITDA methodology is not the only way to value Bitcoin miners.)

Bitfarms Ltd. last traded at $7.17 on the TSX Venture Exchange, and Hut 8 Mining Corp. last traded at $12.42 on the TSX Exchange.

Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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