The rapid spread and adoption of cryptocurrency as a viable alternative investment option in financial markets is driving up demand for bitcoin. According to recent JP Morgan (JPM) estimates, the world's largest cryptocurrency could reach $146,000 in the long run and is on a multi-year structural ascent that will benefit from the current inflationary environment.
The world is rapidly changing, and so are the processing requirements. Given this context, bitcoin mining companies with advanced infrastructure in place to capitalize on this bull run have the highest chance to benefit. Today, we will look at one such major bitcoin mining player that is combining energy generation and mobile data center solutions to manage mining costs and maximize profitability: Mawson Infrastructure Group Inc. (MIGI, Financial).
Company overview
Mawson Infrastructure Group is a digital infrastructure provider in the United States and Australia, specializing in cryptocurrency mining and digital asset infrastructure activities. It is headquartered in North Sydney, Australia.
The company owns and operates several modular data centers. It combines energy infrastructure with mobile data center solutions, enabling blockchain technology to spread globally. Its vertically integrated model, which focuses on bitcoin mining and high-performance computing (HPC), is based on a long-term strategy to support the global transition to a decarbonized society.
The management is committed to building a long-term business that benefits both its shareholders and the environment. Furthermore, their approach to energy infrastructure benefits communities by lowering energy costs and increasing local job opportunities.
Capacity expansion
Mawson Infrastructure Group has a strong low-cost mining infrastructure in place, with a shallow break-even point regarding bitcoin prices. The company recently purchased 17,352 Canaan A1166 and A1246 mining machines, increasing its network capacity by more than 1.5 EH/s (exahash per second) while complementing the formerly announced, acquired and partially installed 1.5 EH/s.
Moreover, the management announced in a press release that it had increased its mining task force by acquiring 4,000 next-generation ASIC (Application-Specific Integrated Circuit) bitcoin miners and ordered 2,000 Canaan Avalon A1166/1246 and 2,000 MicroBT M30S bitcoin miners, which will be delivered and operational in the fourth quarter of 2021. As a result of these deliveries, the company expects to have 3.35EH (exahash) online by the second quarter of 2022, up from 3EH, representing an 11.7% increase in an operational capacity. This is expected to increase to 3.5EH in the coming months, as management expects to have the entire fleet operational in its Georgia facility in the United States by the end of the June quarter of 2022, as stated in a recent press release.
Mawson's current infrastructure generated approximately $25.8 million in revenue over the trailing 12-month period, of which around 20% had been from its old self-bitcoin mining infra and hosted mining, with the company's self-mining hash rate hovering around 400 PH/s. Now, the company has access to 400 MW on a PPA in Georgia for $0.035 per kWh and expects full redundancy in a dual power line feed once its 11-acre site is completed. According to James Manning, the CEO and Founder of Mawson, with the expansion of their existing facility in Georgia and the establishment of the company's new provision in Pennsylvania well underway this year, the team has focused on acquiring additional bitcoin mining hardware for deployment. This reflects Mawson's 'infrastructure first' deployment strategy, with the team securing long-term, well-adjusted energy facilities.
Future growth plans
The management's vision extends far beyond its current facility, with plans for additional sites and the ability to support other compute-intensive operations, such as high-power computing associated with artificial intelligence and graphics processing, in each of its locations, resulting in the dual power line feed and eventual on-site emergency generation. With the new augmented hash rate of 3.5 EH/s and a power cost of around $0.035 per KWh, the company should be able to mine more than 6900 bitcoins per year. Assuming an average bitcoin price of $60,000, we get $420 million in revenue and an excellent gross margin. As a result of the ASIC hardware migration, there is a high demand for institutional hosting, with several offers for more than 100MW. Additionally, due to the economics of the mining operation, the company breaks even if bitcoin prices fall as low as $10,000, providing investors with a significant margin of safety. The company's latest round of fundraising, as well as uplisting to the Nasdaq, should help inspire investor confidence.
Final thoughts
We see Mawson’s share price having an upward trajectory this year given the recent bull run of bitcoin prices. Most bitcoin mining players like Marathon Digital (MARA, Financial) are also trading at phenomenally high valuations. However, when we look at Mawson Infrastructure's expected future revenues for the coming year based on its new hash rate of 3.5 EH/s, the company’s current valuation appears to be less than twice its expected revenues for 2022 (assuming an average bitcoin price of $60,000). This implies a significant upside potential for prospective investors. Also, the company's low-cost mining infrastructure ensures a high profit margin even with heavy fluctuations in the bitcoin prices given the strong margin of safety. Overall, I believe that the company could prove to be a compelling investment proposition for small-cap investors looking to take a dive into the space of listed crypto miners.
