Although Core Scientific (Nasdaq: Coors) sold a lot of her bitcoin holdings over the past several months, but she is still in a good position when the bitcoin price returns to an upward growth path.
Many of This is attributed to its reluctance to take on more debt, cost-cutting measures, access to capital, and a very successful production performance that is expected to reach nearly 2,000 bitcoins per day by the end of 2022, according to the administration.
With the CORZ stock price crashing throughout 2022, the risk/reward dynamic is very favorable for investors who take a position at this time or fall on average to lower their cost basis.
In this article, we will look at the various factors that make CORZ a good speculative game for long-term investors.
Modern production performance
In its latest release, CORZ reported that it mined 1,213 bitcoins in September, down 9% from the previous month.
CEO Mike Levitt said the drop in the number of Bitcoin mined was related to some faults in electrical equipment from the manufacturers, along with severe weather in some mining jurisdictions, causing some mining operations to be temporarily closed.
Even under these challenging conditions, the company was able to increase EH/s from 12.69 EH/s in August to nearly 13 EH/s in September. This was the result of the company expanding its number of self-mining servers from 127,716 to nearly 130,000 during that time.
In terms of sales, CORZ sold 1,576 BTC in September at an average price of $20,460 per Bitcoin, for a total revenue of $32.2 million. In contrast, the company sold 1,125 BTC in August at an average of $23,014 per bitcoin for a total revenue of $25.9 million. As a result of the sales, CORZ held 1,051 BTC and $29.5 million in cash at the end of September, compared to 1,406 BTC and $47.2 million in cash at the end of August.
When CORZ first seriously sold BTC, I was concerned because I loved the strength it added to its balance sheet, and the future potential of the value of Bitcoins it held before it implemented its strategy.
But since the company is able to produce a lot of bitcoins on a monthly basis, it won’t take long for the company to build up its BTC reserves once the price of bitcoin starts rising again.
And with its production levels continuing to rise significantly over the next three months or so, it will be able to grow its holdings while selling if the price of bitcoin justifies these actions.
At the end of September, CORZ was operating approximately 232,000 self-mining and co-location ASIC servers, generating 22.5 EH/s. By the end of 2022, CORZ plans to add an additional 38,000 ASIC servers for autonomous mining.
In terms of its shared services, the company has added about 8,400 new servers to serve more than 102,000 customer-owned ASIC servers. Colocation accounts for about 9.5 EH/s, or 42 percent of the total EH/s, which not all investors know about; This makes the total 22.5 EH/s.
Balance Sheet and Capital Access
At the end of the second quarter of the year, Kors had total debt of approximately $960 million, not including accounting reserve adjustments that were just under $200 million. Of the total debt, just over $500 million has been floated in convertible bonds in a special mode, which mature in April 2025. It won’t have a significant cash impact on the company as it carries a 4 percent cash interest. It includes a 6 percent non-cash pay with no principal payments due until due. Management stated that she was “very satisfied” with the due date. Assuming the price of bitcoin goes up and the stock price goes up, the company should be able to convert the debt into equity.
CORZ also has a debt obligation with B. Riley for $57 million which will be paid over the next eleven months. It has already paid off $18 million of the original $75 million loan. Management stated that they are also satisfied with being able to pay what they owe B. Riley.
In terms of financing its equipment, CORZ plans to operate 170,000 self-mining servers by the end of 2022, with just over half (86,000) “currently stranded with debt or leases,” which represented about $330 million at the end of the second quarter. Management, once again, said it sees no problem in continuing to service equipment debt either.
In terms of financing, the company has a $100 million line of credit that it can draw on whenever it wants for the next two years. Presumably, unless there is an urgent need for it in the near term, the administration said “we don’t think it’s reasonable to increase our debt.”
In an effort to cut expenses, the company has laid off 10 percent of its employees and gone out of non-core businesses.
The thing that investors should consider regarding the company’s balance sheet and overall debt service is the expected increase in the number of bitcoins being produced on a monthly basis.
If it’s actually close to 2,000 bitcoins per month being mined, that’s a huge increase from where production stands today. On average, there will be approximately 700 to 800 bitcoins mined per month by the end of 2022. Even at a modest average price of $19,000, that would generate $38 million in revenue per month. It is easy to see the impact on the company’s performance if the price of Bitcoin resumes its upward trajectory. This, in turn, will significantly improve CORZ’s balance sheet due to its ability to pay off debts and use the revenue from Bitcoin sales to fund its needs. I also think the company will eventually start building up its bitcoin reserves again, further solidifying the balance sheet. This will not happen in the near term, but when inflation begins to contract on a sustainable basis, the price of Bitcoin will provide the company with much more options than it currently has.
What to look for with the Federal Reserve
My thesis is that once inflation starts to show signs of slowing, the price of Bitcoin will initially go up, which is to say the first time the CPI sees any significant decline. I don’t think that in the first month, the Bitcoin price increase will fall at high levels, instead, it is likely to rise and then fall to higher lows, as investors look to increase their positions if inflation falls for two months in a row.
At that time, I think the Fed will put pressure on it to stop interest rate increases, depending on the level of reduction in inflation. If it were modest, it would probably reduce the size of the rallies, but potentially increase them by 25 basis points. Under this scenario, the bitcoin price should find support but be limited to the upside until the market is convinced that inflation is under control.
When I say under control, I don’t mean it will be close to the Fed’s stated goal of bringing it down to 2%. I mean, it will go down enough to convince investors that the worst is over, and over time it will continue to go down, even if it’s two steps forward and one step back.
I think by the end of the year we will have more clarity on this, and the market will respond accordingly. Barring a black swan event, the most likely scenario is that by the end of 2022 inflation will start to reverse while momentum slows, setting the stage for more positive sentiment to start the year.
I know some in the financial world are starting to use the word recession, but based on the metric used over the past 70 years (two consecutive quarters of decline in GDP), we’re already in a recession. I think the reason for tampering with the definition is the upcoming US midterm elections
The important reason is that if we are indeed in a recession, it could lead to investors selling decent assets based on the financial media suddenly declaring a recession, as if it was just beginning.
Regarding CORZ, it will participate in any negative catalyst that leads to another sell-off of riskier assets if a recession sometime in the near future is announced as official.
However, I do believe that over the next several months we are likely to see inflation begin to decline in response to an interest rate increase by the Federal Reserve, and this should lead to a significant upward move in the bitcoin price if it occurs more than a month in a row.
With its monthly Bitcoin production increasing, along with an equity line of credit, I believe CORZ has the potential to fund its operations at least through the end of 2023.
Since it has invested heavily in mining hardware to rapidly increase the number of bitcoins it produces on a daily and monthly basis, it may come as a surprise that bitcoin prices will rise sustainably until 2023.
On the other hand, if for some reason inflation remains more stubborn than I think, it will result in the company needing to find more ways to fund operations for that to turn around. I don’t think this is a possibility, but it is a possibility.
The bottom line is that by the end of the year, CORZ will increase the number of bitcoins being mined quite a bit, and that will generate more revenue. How this will affect and assist the bottom line throughout 2023 will be determined by how the Bitcoin price moves in response to inflation. CORZ’s ability to produce the amount of bitcoin that separates it from most of its competitors. This is one of the reasons why I am not interested in their huge debt burden, because it has led to a rapid increase in their production numbers.
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