Summary CleanSpark has purchased 65k Bitmain miners in recent months. These machines will help CLSK achieve end of the year EH/s guidance. The company appears to have navigated the ASIC market very well. Buying S19J Pros before prices increased and S19 XPs after prices decreased. CleanSpark is the most efficient top 5 miner by return on exahash. If you believe BTC continues to rally, CLSK is a ticker to consider. When I last covered CleanSpark (CLSK) in December it was on the heels of a fairly large reduction in the company's Bitcoin ( BTC-USD ) holdings. Selling down BTC in 2022 was not an uncommon action for the public bitcoin miners and we saw that when miners with large debt loads sold BTC, it was generally a sign of problems ahead. For CleanSpark, this was not necessarily the case as the company has one of the lowest debt to equity ratios in the industry: Data by YCharts This lower-debt approach has been more conservative from a balance sheet liabilities standpoint but it has come at the expense of long term shareholders through dilution: Data by YCharts Here we can see CleanSpark has been one of the bigger dilution offenders after having gone from 41.5 million common shares outstanding at the end of December 2021 to 71.7 million common shares outstanding at the end of December 2022. While stock-based compensation more than tripling from $8.5 million in 2021 to $31.5 million last year is definitely a concern long term investors should consider, until CleanSpark management misses on exahash guidance, I think CLSK is a ticker that will reward more medium term stock buyers well in a rising BTC price environment. Exahash Growth CleanSpark has been guiding for 16 EH/s by the end of 2023 and recent mining machine acquisitions put that figure well on track: CleanSpark On Tuesday, the company announced the purchase of 45,000 additional S19 XP machines that will boost CleanSpark's total production rate by over 6.3 EH/s once the rigs are deployed. This latest round of rigs purchase will see 25k machines delivered in August and with the remaining 20k delivered by the end of September. The company is projecting the full order to be online and operational by the end of the year. CLSK's CEO Zach Bradford noted the XP prices had been expensive relative to the S19j Pro machines for quite some time: We have chosen other units such as the S19j Pro+ over the S19 XP in the past because we believed the gap would close on the delta between the ROI of other units and the XP. Our patience has paid off. Back in February, CleanSpark purchased 20,000 S19j Pro machines at a 25% discount. The S19js from the February order will add over 2.4 EH/s to CleanSpark's 6.6 EH/s that is currently online. Judging by Hashrate Index's ASIC price tracking, it looks like the CleanSpark team navigated the ASIC market quite well: HashrateIndex According to Hashrate Index, the prices of the higher efficiency, sub 25 joules/TH rigs have come down dramatically in the last 3 months. The S19 XPs have a quoted efficiency of 21.5 joules/TH. So those prices have come down in recent weeks. Additionally, the S19j Pros have an advertised joules/TH closer to 30. Meaning the prices of the S19j Pros that CleanSpark purchased in February have likely gone up since those buys. This is pretty impressive work by CleanSpark and indicates the company was able to get advantageous pricing on all of these machines. Machine Efficiency Together these recent machine orders are projected to bring CleanSpark's operating exahash to 15.9 EH/s. Assuming these rigs are all delivered and energized without issue, these additions to the fleet will make CleanSpark one of the largest public miners by far. This scale is particularly noteworthy given CleanSpark's history of efficiency. Relative to other industry leading producers, CleanSpark has generally been the most efficient of the top mining producers: BTC per EH/s RIOT MARA CORZ CLSK CIFR August 2022 77.9 57.5 61.9 116.2 September 2022 63.4 63.2 53.9 107.7 October 2022 73.8 87.9 89.9 104.3 November 2022 67.7 67.4 88.1 97.3 December 2022 67.9 67.9 91.4 74.8 80.4 January 2023 79.6 94.1 89.8 105.6 79.8 February 2023 68.9 71.9 81.6 87.3 76.5 March 2023 66.2 71.7 87.6 89.3 72.5 Source: Company disclosures Going back the last eight months, CleanSpark has consistently been the most efficient of the top 5 public bitcoin producers measured by BTC return on exahash. Core Scientific (CORZQ) took that title briefly in December but it has been all CleanSpark for the majority of the last year. With the addition of 45k new S19 XPs, the company should be able to maintain its efficiency leader status among industry peers. Bitcoin is Moving Bitcoin is back above $30,000. As the price of BTC continues to move up, these public miners see their profit potential increase. And right now, the BTC chart is making moves: TradingView We're just a couple months removed from a golden cross of the 50 day moving average over the 200 day moving average. There's still plenty of room for Bitcoin to run both from an RSI standpoint and from a resistance standpoint. We could see some chop in this $30k area, but I wouldn't be surprised if BTC tests $35k before the market figures out where to take it from there. That would be music to the ears of bitcoin miners like CleanSpark. In my view, the longer term question is pretty simple; is this finally the relief rally BTC bulls have been waiting for or is it the beginning of a new bull cycle? I would caution the super bulls that BTC rallied from $3,500 in late 2018 up to nearly $14k in mid-2019. It wasn't until after another trip back below $4k that BTC took out its previous cycle high in late 2020. History doesn't repeat, but it rhymes. As long as CleanSpark can navigate the BTC market as well as it has navigated the ASIC market, I think we'll see good revenue growth this quarter. Risks There is no guarantee the money CleanSpark spent on these new machines will return a profit. At today's bitcoin prices the S19j Pros will take about a year to return the investment. But, there are positive signs from this company. While I'd be concerned about things like dilution, I'm less concerned if that dilution is to help scale a very efficient fleet at a great price. It stings shareholders even less if BTC is rallying. Summary I maintain that most of these public miners are probably bad long term investments. Bitcoin's halving is expected to be 12 months from now. That means shortly after CleanSpark has reached its 16 EH/s goal, the block reward will be cut in half. With that comes a drastic revenue decline if the price of BTC stays constant. It also means it might take longer to return the investment on the rigs. Of course, the cure for some of these fundamental problems is higher BTC prices. I am of the opinion that Bitcoin will eventually make a new high. I would like to see CleanSpark produce as much BTC as it possibly can before the halving and with 16 EH/s, it should be able to scale a BTC position quite nicely if it shifts its balance sheet management to a HODL approach at the right time. I don't like all of the miners. But I do like this one.
