Earlier this week, Boatman Capital published a report on Argo Blockchain (LSE: ARB). It lists a number of concerns the short seller has in relation to Argo and accuses the crypto miner of misleading investors.
Here, I’m going to summarise Boatman Capital’s report. I’ll also provide my view on Argo Blockchain shares now.
Boatman Capital’s report on Argo Blockchain
The main focus of Boatman’s report is Argo Blockchain’s purchase of land in Texas earlier this year. The short seller believes Argo massively overpaid for this land.
In February, Argo said that it had reached an agreement with DPN LLC to buy 320 acres of land for $5m in shares initially, rising to $17.5m. However, according to Boatman, who spoke to a Lubbock-based real estate broker, the block purchased is worth less than $170,000.
“We believe that Argo Blockchain purchased land in Texas seemingly for up to 100 times more than the acreage is worth, raising serious governance questions about why this deal was done and who benefited,” Boatman writes.
It’s worth noting Boatman also believes the Texas land deal may have benefitted a number of Argo insiders.
Did Argo mislead investors?
Boatman also believes Argo misled investors. When it purchased the land, the crypto miner repeatedly told investors that the asset acquired was 320 acres. However, in June, Argo admitted it was actually 160 acres with an option to buy a further 160 acres.
“It seems that for three months, Argo investors may have been misled over the scale of the Texas acquisition,” the short seller writes.
Legal dispute
In its report, Boatman also touches on an unreported legal dispute between Argo and Celsius Network, a large player in the crypto sector. Recently, Celsius has alleged ‘neglect’ and ‘breach of good faith and fair dealing’ by Argo, while Argo is seeking ‘millions of dollars’ in damages for breach of contract.
The issue here is that Argo leases about 40% of its mining fleet from Celsius. With such a large portion of Argo’s revenue tied to this relationship, the dispute could be a threat to Argo’s future revenues.
Valuation
Finally, there’s Argo Blockchain’s valuation. Boatman believes the valuation of around £500m is an “exceptionally high” for a company that’s consistently made operating losses. It’s also generated revenue of less than £40m so far this year.
My view on Argo Blockchain shares now
I’ve been bearish on Argo Blockchain shares for a while now and this report from Boatman Capital just reinforces my view.
Sure, there are some things to like about Argo. Its growth, for example, has been impressive. Yesterday’s half-year report showed revenue growth of 180% and EBITDA growth of 332%.
Yet to my mind, the risks here outweigh the potential rewards. The valuation is very high and the company doesn’t appear to have a genuine competitive advantage.
With Boatman Capital now suggesting there could be some corporate governance issues here, I’ll definitely be avoiding ARB shares.