On November 1, Bitfarms Ltd. (TSXV: BITF) reported that it mined 343 Bitcoin in October, up markedly from 305 in September. Beginning January 1, the company began to retain nearly 100% of the digital currency it mines (as opposed to prior rapid dollar monetization), and as October 31, it held 2,646 Bitcoin. This holding is worth US$162 million at current Bitcoin prices.
The company also disclosed that its total computer processing power is 1.8 Exahash per second (EH/s), or about 1.1% of the current total Bitcoin network capacity of 156.57 EH/s. Bitfarms’ capacity affirms its status as one of the largest Bitcoin miners in the world.
The perplexing aspect of Bitfarms’ stock market capitalization is that investors continue to value the company at a sharp discount to the largest Bitcoin miners, Riot Blockchain, Inc. (NASDAQ: RIOT) and Marathon Digital Holdings, Inc. (NASDAQ: MARA), on a variety of measures — despite Bitfarms’ having grown to nearly match their size in computing power and therefore potential cash flow generation ability. The table below lays out key operational parameters for the three companies.
| BITFARMS | RIOT | MARATHON | |
| Number of Bitcoin Mined September 2021 | 305 | 406 | 340.6 |
| Total Bitcoin Mined January 1, 2021 – September 30, 2021 | 2,407 | 2,457 | 2,098 |
| Number of Bitcoin Owned As Of Last Update | 2,646 | 3,534 | 7,035 |
| Current Hash Rate (EH/s): | 1.8 | 2.6 | 2.7 |
| Company Percentage of Bitcoin Network Hash Rate | 1.1% | 1.7% | 1.7% |
| Goal – December 2021 | 4.6 | ||
| Goal – March 2022 | 3.0 | 8.0 | |
| Goal – Mid-year 2022 | 13.3 | ||
| Goal – Year End 2022 | 8.0 | 7.7 | |
| Installed Electric Power Capacity, in Megawatts: | |||
| December 31, 2020 | 69 | ||
| December 31, 2021 E | 168 | 90 | |
| December 31, 2022 E | 370 | 457 | |
| Estimated Production Cost Per Bitcoin Mined (US$) | $9,000 | $13,814 | $5,612 |
| Bitcoin Price (US$) | $61,400 | $61,400 | $61,400 |
| Cash – June 30, 2021 (US$ millions) | $36 | $147 | $171 |
| Debt – June 30, 2021 (US$ millions) | $21 | $8 | $0 |
| Stock Market Value (US$ millions) | $922 | $2,697 | $5,531 |
| Enterprise Value (US$ millions) | $745 | $2,341 | $4,928 |
| Annualized EBITDA Based on Most Recent Monthly Production Rate (US$ millions) | $216 | $232 | $228 |
| Enterprise Value/EBITDA Run Rate | 3.5 | 10.1 | 21.6 |
Bitfarms’ monthly Bitcoin production rate is about the same as Riot’s and Marathons’ — 343 in October versus 406 for Riot and 340.6 for Marathon in September (the most recent totals announced by the companies).
Measured by computer processing power, Bitfarms is about 70% the size of the highly valued miners. Bitfarms has 1.8 EH/s of current capacity versus 2.6 EH/s and 2.7 EH/s for Riot and Marathon, respectively.
Each company has ordered substantial new mining equipment. Both Bitfarms and Riot expect to have around 8 EH/s of capacity in operation by year-end 2022. Marathon has more ambitious goals, 13.3 EH/s by mid-2022.
Bitfarms’ average production cost is around US$9,000 per Bitcoin mined. This figure primarily represents electricity costs. Riot’s and Marathon’s unit breakeven costs are US$13,814 and US$5,612, respectively.
At the current Bitcoin price of US$61,400, and reflecting each company’s most recent monthly Bitcoin mining rate and the cost of production, the annualized EBITDA run rates of Bitfarms, Riot and Marathon are about the same — US$216 million, US$232 million, and US$228 million, respectively.
Giving effect to the market values of the three companies most recently disclosed Bitcoin holdings (2,646, 3,534 and 7,035 for Bitfarms, Riot and Marathon, respectively), the enterprise values (EV) of the companies differ wildly: only US$745 million for Bitfarms, and US$2.3 billion for Riot and US$4.9 billion for Marathon.
Consequently, Bitfarms trades at an EV-to-run rate EBITDA ratio of 3.5x versus 10.1x and 21.6x for Riot and Marathon, respectively. Such a huge difference in valuation multiples is very unusual for similarly positioned and sized miners using comparable mining equipment (state-of-the-art computers) that produce the same commodity. If Bitfarms were to approach even Riot’s EV/EBITDA ratio (much less Marathon’s), its share price would at least double from its current $6.87 level. (Note that an EV/EBITDA methodology is not the only way to value Bitcoin miners.)
Bitfarms Ltd. closed yesterdays session at $6.87 on the TSX Venture Exchange.
Information for this briefing was found via Edgar 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.
