Bitcoin miner Iris Energy craters, flags debt default

Co-chief executive Daniel Roberts said creditor NYDIG had no recourse over assets of the parent company, as Iris now faced a dispute over the $US107.8 million financing of the bitcoin mining machines manufactured by China-headquartered Bitmain Technologies.

“The companies [structured as SPVs] that owe them [NYDIG] the money, don’t have the ability to pay them back,” said Mr Roberts.

“The value of those machines is now substantially below the value of the debt outstanding and the cashflow generated by those machines is insufficient to service their debt financing obligations.

“So, as a consequence, the group made the decision to not provide financial support and effectively the lender is now entitled to come and collect those machines for themselves.”

Mr Roberts said Iris’ electricity cost per bitcoin mined was equivalent to $US9300 in October, which meant it made a gross profit – or profit before energy bills – of a little over $US6000 per bitcoin mined at the latest market price around $US15,700 per bitcoin.

The founder declined to provide details on the current bottom line after operating and investments costs, as Iris aims to grow its business of investment in the physical construction of bitcoin mining facilities.

“At a gross profit level, it’s clearly still profitable. We just need to work out what level of overheads the business can support,” said Mr Roberts.

The group had cash on hand of $US53 million as at October 31 and Mr Roberts said it had a financing arrangement with B Riley Financial, which gave it the right, but not the obligation, to raise up to $US100 million in exchange for equity issued to the US financier at a price “close to the market price” over the next two years.

Multi-year low

Iris also has $US75 million in prepayments outstanding to Chinese bitcoin hardware giant Bitmain under a previous contract to acquire mining equipment.

It said in a footnote to its November 2 update that it had not made all recent payments under the contract with Bitmain and did not expect to make upcoming payments over any such additional future deliveries under that contract.

“In some instances, we’ve kept those computers [bought from Bitmain] for ourselves,” said Mr Roberts. “In other instances, we’ve on-sold those computers to third parties, effectively monetising that deposit and converting it into cash.”

On Tuesday morning the bitcoin price sank to a new multi-year low of $US15,504 as tumbling prices across the cryptocurrency sector fuel a wave of collapses including Voyager, Celsius, 3 Arrows Capital, Luna and Sam Bankman-Fried’s FTX Exchange.

“It’s undoubtedly been tough,” said Mr Roberts. “In hindsight, we IPO’d near the bitcoin peak at $US60,000. We then had the war in Ukraine, inflation, the Fed Reserve, the broader crypto market imploding, so it has been a bit of a perfect storm.

“We’re dealt the cards we are and all we can do is pre-empt future issues, which we did around the [SPV] debt facilities by ringfencing them. We’re still super excited about the business and the industry.”

Elsewhere, on Monday shares in the US’s largest crypto exchange, Coinbase, hit a record low of $US40.61. It has sunk 90 per cent from a high of $US429 in April 2021.

Shares in the world’s largest bitcoin mining trust, The Grayscale Bitcoin Trust, closed down at $US8.28 to print an 81.2 per cent loss over the past year.

The trust has more than 600,000 bitcoins under management worth close to $US10 billion, but its $US5.7 billion market cap means it trades at an approximate 43 per cent discount to net tangible assets on rattled investor confidence in the future of bitcoin.

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