Shares of HIVE Digital Technologies (HIVE Digital Technologies Stock Quote, Chart, News, Analysts, Financials TSXV:HIVE) are up today after the company announced its December output figures.
HIVE said it produced 282.8 bitcoin in December 2023. But in a press released issued December 4, the company talked about the headwinds facing its New Brunswick facilty.
“Network difficulty factors continue to be a significant variable contributing to the company’s gross profit margins. The bitcoin network difficulty was 68 T as of Dec. 1 and increased to an all-time high of 72 T as of Dec. 31. Accordingly, bitcoin mining difficulty ended the month of December about 6 per cent higher than the beginning of the month,” the company’s executive chairman Frank Holmes reported. The bitcoin network difficulty is a publicly available statistic, which reflects the total number of bitcoin miners on-line. This is an important metric in analyzing a company’s gross profit margins, along with the number of bitcoin produced. These data are publicly available on many websites, including the Blockchain website. As more bitcoin is mined (difficulty increases), the daily bitcoin block reward (which currently is fixed at 900 bitcoin per day) gets split amongst more miners; thus, each miner receives a smaller portion of the block reward. Conversely, as bitcoin prices fall, many miners may lose money and power down, thus taking their hash rate off the network, causing network difficulty to decrease. Those miners with the lowest costs of production, by virtue of having more efficient machines and/or lower energy costs, are able to continue production during these volatile cycles. Not all miners will continuously mine during the month. As a result, some miners will produce less bitcoin than expected, relative to their advertised hash rate. For the foregoing reasons, Hive will self-curtail part of its operations if the unhedged spot energy prices are uneconomical, thereby leaving part of its total gross hash rate unutilized. All bitcoin miners are striving to use the most efficient bitcoin ASIC chips, and Hive is happy that it has been able to upgrade its global fleet during this crypto market downturn.
In November, H.C. Wainwright analyst Mike Colonnese downgraded HIVE stock from “Buy” to “Neutral” and cut his price target from (US) $7.00 to $3.50. Colonnese explained the reasoning behind the move.
“Management postponed its calendar year-end 2023 hash rate guidance of 6 EH/s [exahashes per seconds] out one year to 2024 in its presentation,” he wrote. The delay in incremental hash rate deployment (beyond the 4.3 EH/s currently operating) could result in HIVE losing share leading up to the April 2024 halving event, as we see it, given the network hash rate continues to rise at a rapid pace. Meanwhile, HIVE’s direct production costs have risen considerably over the past three quarters and came in at $22,639 per BTC [bitcoin] mined in F2Q24, which represented a 21-per-cent quarter-over-quarter jump, largely driven by the abolishment of a reduced energy tax for data center operations in Sweden by the Swedish Parliament, which took effect in July. We estimate HIVE’s all-in cash cost to mine a coin in F2Q24 was over $27,000/BTC vs. an average BTC price of $28,000. HIVE’s high production costs and relatively low fleet efficiency (over 30 joules per terahash), could leave the company in a precarious position when the block reward miners receive is halved next April. As such, we believe it is prudent to move to the sidelines until we see greater revenue contribution from the high-performance computing (HPC) business, abating production costs, or higher BTC price levels.
At press time, shares of HIVE on the TSXV were up five per cent to $6.04.
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