Cipher Mining Remains An Attractive Bitcoin Miner

Summary Cipher Mining has competitive energy costs, strong balance sheet, and strategic hardware purchases. Cipher Mining has a balanced Bitcoin HODL strategy with 60% production/liquidation rate. Cipher’s low power costs translate to low electricity cost per BTC, making it a miner that would maintain profitability post-halving. Cipher Mining ( CIFR ) has been one of the Bitcoin ( BTC-USD ) miners that has appealed to me in terms of its competitive energy cost, its strong balance sheet, much less dilution of shares (dilution is typically the par for the course among Bitcoin miners), good cost control, and its well-timed, accretive purchases of hardware. I last covered CIFR in December, following its purchase of 7.1 exahashes of BITMAIN T21 rigs. In addition to the T21 rigs ordered in December, CIFR also ordered 16,700 units of Canaan’s ( CAN ) A1566 miners in January, in a bid to expand its hashrate after the Bitcoin halving event. theminermag.com Another factor that has made CIFR attractive to me is its Bitcoin HODL strategy. Among public mining companies, the company’s HODL portfolio is mid-tier; this is because the company liquidates some of its produced BTC to fund ongoing operations. While total liquidation of produced BTC is an unattractive strategy as this could lead to missing out on future unrealized gains; in my view, keeping every produced Bitcoin in the HODL portfolio while periodically taking on debt could also turn out to be unfavorable for a miner because BTC remains a highly volatile and speculative asset. There are some miners that still opt for 100% liquidation of their produced BTC. Bitdeer ( BTDR ), TeraWulf ( WULF ), and Iris Energy ( IREN ), for example, currently have a 100% BTC production/liquidation rate – meaning they sell all their produced BTC to fund operations or to hold cash instead. Cipher currently has around 60% BTC production/liquidation rate. Cipher is one of the very few miners that has created that delicate balance between its BTC HODL and liquidation. Post Bitcoin halving capacity growth and operations ramp-up has been going as planned for CIFR. Work is progressing well at the Black Pearl data center, according to company reports, and the facility is expected to go online in 2025. All the other data centers – the Odessa Facility, the Alborz Facility, the Bear data center, and the Chief Facility – planned as part of the initial phase or strategy of the company have been fully operational since Q4 last year. I gave CIFR a “buy” rating in December at $3.38. The current stock price $4.37 is about 30% up from that buy rating. This seems to be partly influenced by the generally good performance that tech-related equities have shown in this period. The S&P 500, for instance, is up about 17% since then, and Bitcoin has seen some price gain since December last year (about 39% YTD); although Bitcoin’s rally seems to have stalled momentarily due to the FUD created by the sell-offs by German authorities and the upcoming Mt. Gox claims. When I revisit miner stocks in my portfolio, I re-examine the factors that made the stock attractive in the first instance and see if these factors are still in play. I also perform analyses of forward-looking statements to determine their feasibility in the near or long term, as well as the miner’s financial standing. In this article, I’d look at Cipher Mining’s current attractiveness based on factors I mentioned in the opening of this article. Revisiting Cipher Mining’s Operation Metrics I mentioned that Cipher’s energy cost is attractive compared to most of its peers. Energy cost is a very vital factor for the operational success of any BTC miner, considering that energy cost makes up the bulk of miners’ OpEx. CIFR WULF RIOT BITF CLSK Last reported all-in power cost (kWh) $0.027 kWh (June 2024) $0.042 kWh (June 2024) $0.026 (June 2024) $0.041 (Q1 2024) $0.044 (Q1 2024) The data in the table above was culled from the June production updates of the respective miners. For miners that didn’t mention their kWh all-in power cost in their June update, I used data presented in their Q1 CY24 report. Based on my observations, it is not unprecedented for miners to leave out certain metrics, like their all-in power costs, in some monthly updates, as a form of cherry-picking. As we see in the data provided in the table above, CIFR has one of the best all-in power costs and is almost head-to-head with RIOT (a miner that currently leverages ERCOT-backed power privileges ) in this regard. For RIOT, its $0.026 kWh all-in power cost was an average of the cost at the Rockdale and the Corsicana facilities. For Rockdale, it was $0.024 and Corsicana was $0.039. Another competitive advantage for Cipher Mining is that 96% of its all-in power cost power comes at the ~$0.027 industry-low price. This means Cipher currently sees low power costs across its facilities, which translates to an across-the-board reduction in recurring expenses. Cipher’s low all-in power cost also directly translates to low electricity cost per BTC. As of the end of Q1, Cipher’s electricity cost per BTC stood at $23,691, much lower than Riot Platforms’ ( RIOT ’) at $31,848, Marathon Digital ( MARA ) $48,183, CLSK’s $29,989, and WULF’s $29,028. Power cost is the largest recurring expense in BTC mining operations, and Cipher’s low power cost further reduced its direct cost to mine per BTC. Cipher’s direct cost to mine BTC as of March (just before the halving) was $27,535, much lower than MARA’s $55,196, RIOT’s $40,704, CLSK’s $36,210, and WULF’s $32,078. Cipher’s energy expertise prompted analysts at Cantor Fitzgerald to assume an “overweight” rating for CIFR last month. I agree with their bullish stance. Post-halving cost to mine (Cantor Fitzgerald) Assuming Cipher’s operational capacity remains constant, the post-halving cost to mine for the miner will be around $44,700. At current BTC price of ~$58,000 that puts Cipher among profitable miners post-halving. Cipher’s orders for more efficient hardware and the timing of these orders means that post-halving total cost to mine will see more decline. In my December coverage, I talked about Cipher’s preorder of BITMAIN’s T21 miners and the prospect it held for the company. Cipher management has, however, amended the T21 purchase agreement to expedite the delivery of rigs, replacing the order of T21s with S21 pros. The S21 pro rigs will be delivered in Q4 this year – this is two quarters earlier than the previously planned delivery of the T21s scheduled for Q2 next year. With this switch to S21 pro, Cipher now expects a self-mining hashrate of 13.5 Eh/s and a fleet efficiency of 18.6 J/Th by year-end – a 35% improvement in efficiency. This opportunistic amendment from T21 to S21 Pro shows Cipher management’s business agility; and in my view, the type of business agility required in a volatile and unpredictable space like Bitcoin mining. The “strategic planning” qualitative factor that initially attracted me to this stock is still in play. With 2,209 BTC in HODL presently, Cipher’s balance sheet remains liquid. Cipher Mining is not overleveraged; Cash and cash equivalent cover total debt. Cipher Mining holds about $96 million in cash and cash equivalents (per Q1 results) and about $130 million in BTC holding at the current BTC price. Cipher’s capital structure remains safe. Risks At current cost to mine per BTC and fleet efficiency, Cipher will remain afloat if BTC trades above ~$45,000. There is inherent risk in this, as macro factors and unforeseen market dynamics could plunge the price of BTC at any given moment. BTC remains highly speculative and volatile. Bottom Line CIFR remains an attractive Bitcoin miner. CIFR is down about 70% from its September 2021 all-time high. The miner’s low power cost and feasible capacity expansion present a post-halving competitive advantage. CIFR remains a solid addition to a Bitcoin stock portfolio post-halving.

Source: Seeking Alpha