Since a low on 20 June, the Argo Blockchain (LSE: ARB) share price has gained 40%. Bitcoin has risen 20% over the same period. So Argo Blockchain shares have pulled ahead, relatively.
What’s happening, and does this mean the tide has finally turned? And are Argo shares worth buying now?
These movements are against a background of longer-term falling prices. Over the past 12 months, Bitcoin has fallen 56% while Argo Blockchain shares are down 59%.
Argo shares track Bitcoin closely, but there has been one marked change. Investors are paying a smaller premium for Argo shares these days over the Bitcoin price itself. But if that’s starting to reverse again, I wonder if we could see another bull run.
Interim results
The company mined a total of 939 Bitcoin and Bitcoin Equivalent (BTC) during the first half of 2022. That’s 6% more BTC than the the same period a year ago.
I see that as a disappointing increase. Bitcoin miners face a problem in the shape of halving events. After one of those happens, they then receive half the coin reward for the same amount of blockchain processing.
The last halving was in May 2020, and the next is due in May 2024. So Argo would need to double its mining capacity to create the same number of Bitcoin. And a 6% growth doesn’t look too inspiring.
Hashrate
Saying that, Phase 1 of the firm’s new Texas facility only began operating in May. And that means Argo’s hashrate (a measure of mining capacity) has risen 38% since the end of 2021.
But Argo has reduced its projected year-end hashrate, and is now predicting significantly lower capacity than previously expected. So Argo needs to keep running to stand still, and that costs money. It reported up to $97.3m in new financing secured during the period.
Margins
We’re looking at a combination of rising mining volumes with falling profits. First-half revenues fell 14%, with underlying EBITDA down 28%. It’s all down to the Bitcoin price, which is somewhat unpredictable.
There’s a parallel with gold miners here. And though I doubt I’d ever own gold, I could certainly buy gold mining shares if I thought the valuation was right. It’s all about margins, and how mining costs relate to the going price of the stuff.
Argo achieved a mining margin of 71% in the first six months of 2022. That’s down from 81% in the same period last year. But it’s still healthy, and it does provide some buffer against further falls.
Same as gold?
Well, it would if, like gold miners, Argo Blockchain sold everything it mined. But while gold miners don’t hoard much of the metal, Argo is building up its BTC holdings. The stash grew 54% by 30 June, to 1,953 BTC.
It’s is worth approximately $42.4m, or £35.8m. Argo’s market-cap of £197m is about 5.5 times that value. That’s still a big premium.
I could buy crypto mining shares in the right circumstances, just as I might buy gold miners. I just don’t find Argo Blockchain shares attractively valued today.