The Argo Blockchain (LSE: ARB) share price is up by 14% as I write, after the company said it had engaged a crypto specialist Navier to design its new mining facility in Texas.
Argo’s share price has tripled so far in 2021, but the stock has seemed weaker recently. However, the company’s latest trading update revealed record income during the first quarter. The Texas facility — when complete — should provide a step up in mining power. Should I consider buying shares in Argo today for long-term growth?
Best-in-class facility
Argo Blockchain says that its planned facility in Texas will be able to support 200MW of mining. According to US government data, that’s equivalent to the amount of electricity required to power around 165,000 homes.
Navier specialises in building crypto mining facilities and Argo says that the firm will be retained on a consulting agreement to help design the facility. This will apparently include “next-generation immersion technology” designed to boost productivity and increase the lifespan of its mining rigs.
Interestingly, Navier will be paid partly in cash, and partly with stock warrants. These will give Navier the right to buy up to 223,821 Argo shares at a price of 135p. If the Texas project helps to boost Argo Blockchain’s profits and its share price, Navier should benefit.
Green Bitcoin?
There’s growing concern about the environmental impact of cryptocurrency mining, which requires vast amounts of electricity. Much of this is said to come from coal-fired power stations in China.
Argo Blockchain is taking steps to address this problem. It’s recently agreed plans with technology firm DMG Blockchain Solutions to launch Terra Pool, a Bitcoin mining pool that will be powered exclusively by clean energy.
As cryptocurrency becomes more mainstream, I expect the industry to face more scrutiny and regulation. This could potentially include environmental restrictions, such as carbon permits.
By acting now, Argo has the opportunity to take a lead on this issue. I reckon that producing ‘green Bitcoin’Â could be good for Argo Blockchain’s reputation.
Argo Blockchain share price: what next?
The Bitcoin price has continued to rise this year. Argo’s mining activities are scaling up too. The company mined 165 Bitcoin in March, compared to 129 BTC in February. As a result, monthly revenue rose by 51% to £6.57m last month.
This is good news, but I do have a couple of concerns. Higher Bitcoin prices will have generated some of this growth. If Bitcoin weakens for any period of time, then I’d expect Argo’s revenue to flatten out or even fall.
My other concern is that Argo’s costs are quite high. The mining margin of 84% reported by the company for March is impressive, but my understanding is that this doesn’t include the depreciation costs of mining rigs. During the first half of 2020, depreciation — which represents future replacement costs — accounted for 26% of Argo’s revenue.
Broker forecasts suggest Argo will report revenue of £25m in 2021 and generate maiden earnings of 0.7p per share. That values the stock on 200 times forecast earnings.
I think these forecasts are probably too low. Even so, I think a lot of growth is already priced-in to this stock. I don’t expect to see Argo Blockchain’s share price triple again this year, but I wouldn’t rule out more modest gains. As for me, I won’t be buying.