in us previous coveragewe are Soluna Holdings (NASDAQ:SLNH) The reduced energy business model is not sustainable due to efforts to reduce reduced energy (SLNH’s main source of income). In addition, SLNH’s predictable capacity (Q3: 1.02 EH/s) lags far behind the industry (Table 1). At the very least, these mean upside potential is limited. At the time of this writing, Soluna is trading (market cap = ~$63.5m), suggesting excessive downside risk. The combination of limited upside potential and excessive downside risk suggests that Soluna failed to provide a sufficient margin of safety. So far, Soluna’s share price has reflected this pessimistic outlook, with the company well below the industry (Figure 1).
Our paper compares the previously announced public offering price to $1.44 per share, about 20% cheaper than the market price before the announcement. To make matters worse, SLNH’s share price fell further, trading at $1.20.
In light of SLNH’s second-quarter performance, this article expands on its initial analysis to reveal further downside risks, suggesting that SLNH provided an ample margin of safety after a 70% decline from the previous article. The purpose is to find out whether
Table 1. Short-term expected capacity comparison
|miner||Near future projected capacity (EH/s)|
|Solna Holdings||2.62 (end of 2022)|
|Marathon Digital (Mara)||twenty three (Mid 2023)|
|bitfarm (bitf)||6 (End of 2022)|
|Hut 8 Mining (hut)||3.5 (End of 2022)|
|Riot Blockchain (Riot)||12.8 (2023Q1)|
|clean spark (CLSK)||5 EH/s (end of 2022) 22.4 EH/s (end of 2023)|
Another Potential Victim of Texas’ Overcentralization
we explained Texas offers opportunities in a shrinking energy market due to low-cost energy, good regulations for cryptocurrency mining, and local transmission constraints. As a result, many major Bitcoin mining companies have decided to locate the majority of their Bitcoin mining operations in Texas. The decision could also be problematic for these bitcoin mining companies, as the Texas power grid suffers from overheating and potential blackouts in the summer and winter.
- Between Summer 2022Bitcoin miners in Texas had to halt mining operations to prevent power outages caused by the summer heat.
- Between Winter 2021Bitcoin miners also had to stop mining operations to prevent power outages caused by winter storms. came out.
While these events have fueled scrutiny of cryptocurrency mining activity in Texas, the Texas Electrical Reliability Council (ERCOT) recently Delay in application approval. These events can have a significant impact on SLNH’s expansion plans in the state. not yet approved To activate Project Dorothy from ERCOT, September 2022.
Currently, SLNH’s operations are primarily in Kentucky (50MW: project sophie, project mary). in the short term, dorothy plan (50MW) plans to deliver 50MW capacity by Q4 2024. This is about 60% (=1.4 EH/s / 2.4EH/s) of total mining capacity of SLNH
In the long term, Project Dorothy is expected to provide: 150MW This represents over 75% of SLNH’s total bitcoin mining business. When to Consider SLNH Two other projects in Texas (Project Kati: 150MW; Project Cynthia: 130MW) Longer term (no timeline yet), more than 90% of Soluna’s operations are located in Texas.
So there is evidence of excessive centralization risk, which further adds to the downside.we Indicated These events could undermine MARA’s capacity expansion efforts of 23 EH/s, and now the same can be applied to SLNH.
SLNH mining efficiency is average at best
another Claim According to Soluna, the company has one of the lowest Bitcoin mining costs in the industry.
Soluna is still one of the lowest cost Bitcoin miners. We believe the terms of this new contract provide strong protection for Soluna against recent fluctuations in fuel prices.
I don’t know the basis for the claim, but I found inconsistencies compared to the findings. When compared to other Bitcoin miners (both large and small; Table 2), we find SLNH’s Bitcoin mining cost efficiency to be average at best. Including other business costs, SLNH is well behind the industry (Table 3).
That being said, credit should be given to SLNH as the mining costs of HUT and RIOT match, despite being 69% smaller than HUT (= 0.87EH/s SLNH/ 2.78EH/s hut; Q2 criteria), and 80% smaller than RIOT (= 0.87 EH/s SLNH / 4.44 EH/s Riot; Q2 base).
Another positive view is that Project Dorothy is expected to increase Bitcoin production rather than increase non-operational costs, ultimately reducing total operating costs per BTC. More than double Bitcoin production (from 3.6 BTC per day to 8 BTC per day) by Q4 2022.
However, this positive observation is quickly offset by the risks posed by ERCOT approval. Bearish Bitcoin OutlookMoreover, it will take another 2-3 quarters to confirm any positive observations.
Table 2. Revenue cost (excluding depreciation) comparison
|miner||Cost of Revenue (CoR, excluding depreciation)|
|SLNH||Q2 2022: $13,500 = $3.6 million CoR/ 267 Mined BTC 2022Q1: $14,000 = $2.67 million CoR/ 226 BTC mining|
|Mara||Q2 2022: Voided due to temporary suspension in Montana Q1 2022: $6,240 = $7.86 million CoR/ 1,259 BTC mined in Q4 2021: $6,500 = $7.1 million CoR/ 1,098 BTC mining|
|hut||Q2: $20,200 = $19.1 million CoR/ 946 BTC Mining Q1: $13,800 = $13 million CoR/ 942 BTC mining|
|Riot||Q2: $12,900 = $18 million CoR/ 1,395 BTC Mining Q1: $13,500 = $19 million CoR / 1,405 BTC Mining|
|CLSK||Q2: $9,600 = $10.3 million CoR/ 964 BTC mining|
Table 3. All-in business costs per BTC Comps
|miner||Total business cost per BTC|
|SLNH||2022Q2: $74,000 = $19.74 all-in cost / 267 BTC mining|
|Mara||2022Q2: void 2022Q1: $31,700 = $40 million all-in cost / 1,259 BTC mined 2021Q4: $32,240 = $28.57 miri all-in cost / 1,098 BTC mined|
|bitf||2022Q2: $36,700 = $34.3mil (excluding monetary gain) / 1,257 2022Q1: $34,340 = $33mil / 961 BTC mining|
|hut||2022Q2: $49,500 = $46.8 million total cost / 946 BTC mined 2022Q1: $40,750 = $38.4 million total cost / 942 BTC mined 2021Q4: $40,200 = $31.7 million total cost / 789 BTC mined|
|Riot||2022Q2: $35,300 = $49.3 million total cost / 1,395 BTC mined 2022Q1: $30,800 = $43.25 million total cost / 1,405 BTC mined|
|CLSK||2022Q2: $37,800 = $36.4mil total cost / 964 BTC mined|
previous the studyWe have explained how various Bitcoin mining companies are funding their expansion and operations. MARA is highly leveraged compared to peers with total liabilities ($760 million) representing 53% of total adjusted assets ($1.445 billion), which negatively impacts equity-based valuations.By comparison, SLNH’s total debt ($41.4mil) is 40% Adjusted total assets ($102.33 million = $4.63 million cash + $8.7 million PP&E + $10.7 million prepaid).
Unlike MARA ( No preferred shares outstanding), SLNH bears the burden of the preferred shares.Current Q2, SLNH holds 3 million preferred stock 3 million outstanding 9.0% $25 Liquidation Preferred Series A Cumulative Perpetual Preferred Stock. In other words, SLNH received less than $75 million in “perpetual loan” funding (because preferred stock was issued). Low price) but has to pay interest on a $75 million loan. If SLNH were to buy back all of his 3 million preferred shares currently on issue, it would theoretically cost SLNH about $12 million (=4 million x 3 million). Depending on how investors want to look at it, SLNH’s total debt + preferred stock ($53.4mil) would be at least 52% of adjusted total assets, similar to MARA’s.
SLNH’s adjusted book value is therefore at most $49 million (=$102.33 million – $53.4 million). Based on this, SLNH (market cap = $29 million) is currently trading below book value. But what prevents SLNH from being an attractive investment is the lack of bitcoin holdings.
The main attraction of trading bitcoin miners below book value is the upside potential from a rebound in the bitcoin price.For example, the HUT Current Bitcoin reserves alone are already worth $587 million (= 8,388 BTC * $70,000) once Bitcoin hits an all-time high above its current market cap of $438 million. SLNH does not have such upside potential due to its lack of Bitcoin reserves, nor does it have the mining capacity (only 1 EH/s) to extract such value. .
Extending the initial analysis on SLNH to reveal additional risks from over-centralization, SLNH lacks Bitcoin reserves and mining capacity to benefit from Bitcoin’s recovery. indicated that it is not suitable. In addition, SLNH has a significant financial burden from preferred shares issued during this difficult time.
Unfortunately, we have to maintain our judgment that SLNH still does not offer a good investment value proposition, even after a 70% decline from previous coverage. Additionally, investors should be concerned that Soluna has yet to deliver on his October monthly preferred stock dividend promise.