Summary TeraWulf is the latest public Bitcoin miner to achieve 5.5 EH/s capacity. The company operates a fully integrated model and benefits from low-cost nuclear and hydropower. TeraWulf has been restructuring debt in recent months and appears to have a favorable setup as Bitcoin is turning bullish. As US regulators continue the assault on the broader cryptocurrency industry, one of the clear standouts in the coin market has been old reliable Bitcoin ( BTC-USD ). In Still King of the Coins , I highlighted how BTC dominance has been surging in recent weeks. With the SEC hammer coming down on altcoins and the exchanges that provide them, Bitcoin looks marvelous by comparison. One area where market sentiment appears to be shifting is in the Bitcoin public miner equities. Data by YCharts After what was a brutal decline from cycle tops that saw many of the miner equities down between 80-90%, the bid has come back on many of the players in this market as several stocks have more than tripled from recent lows. One of the miners that has lagged the year to date performance of larger peers like Marathon Digital ( MARA ), Riot Platforms ( RIOT ), and Bitfarms ( BITF ) is TeraWulf ( WULF ). But there are positive signs for WULF shareholders. TeraWulf Model TeraWulf runs a fully integrated mining operation that has been quickly scaling exahash capacity in recent months. What sets WULF apart from many of the larger industry peers is the company's incredibly cheap BTC production cost. In May, TeraWulf achieved a per-coin electricity cost of $6.2k due to the company's average energy price of $0.028/kWh. Lake Mariner Nautilus Ownership 100% 25% Site control Long-term lease Long-term lease Total fleet capacity 34k miners 16k miners Power source Nuclear >91% hydro Source: TeraWulf TeraWulf operates two different sites; Lake Mariner is located in Barker, NY and Nautilus is in Berwick, PA. Nautilus is particularly interesting because the power source is 100% nuclear. Lake Mariner's power source is largely carbon-free hydro. Even though it's a shared site, at Nautilus, TeraWulf has a 5-year fixed power price of $0.02 per kilowatt-hour. Nautilus is home to 9,000 S19j Pros and 7,000 S19 XPs. At Lake Mariner, TeraWulf is running 18,000 S19j Pros and 6,000 S19 XPs. Projected EH/s Capacity Growth (TeraWulf) TeraWulf had been guiding for 5.5 EH/s online by the end of Q2-23, and announced on June 22nd that the company hit that goal. Going forward, TeraWulf has the ability to scale up to 10.5 EH/s at current sites if the company opts to do so, though that would require more capital. Financials In recent quarters, TeraWulf has been focused on cost reduction. Despite having a highly competitive gross profit of 57% last quarter, WULF has had a bit more SG&A expense as a percentage of total revenue compared to peers with large EH/s figures: Q1-23 RIOT CIFR MARA WULF Total Revenue 73.2 21.9 51.1 11.5 Cost of Revenue 63.1 8.1 33.4 5 Gross Profit 13.8% 63.0% 34.6% 56.5% SG&A 12.7 17.4 15.3 10.3 SG&A % of Rev 17.3% 79.5% 29.9% 89.6% Source: Seeking Alpha, non-percentage figures in millions of USD On the 2022 year-end conference call , the company guided for just $22.5 million in SG&A for 2023, which would be a dramatic reduction from the $36 million spent last year and an indication that SG&A will decrease in upcoming quarters. Q1-23 Assets (TeraWulf) From a balance sheet standpoint, WULF has $17 million in cash, $117k in digital assets, and $159.4 million in property, plant and equipment. Q1-23 Liabilities (TeraWulf) The liabilities are a bit high at $170.5 million, but the company has been working to restructure its debt in recent months . $113 million of that debt is long term, but does require quarterly payment between now and December 2024. The question for WULF shareholders is what BTC price is needed for TeraWulf to pay that debt down without restructuring again? Can They Pull This Off? In April and May, TeraWulf was able to mine 281 BTC at an average BTC to EH/s ratio of 77.6. If we use 75 BTC per EH/s as a baseline estimate for revenue going forward and $7k for a power cost per BTC produced, we can start to see the vision a little bit better for TeraWulf: Quarterly $30,000 $35,000 $40,000 $45,000 Revenue $38,400,000 $44,800,000 $51,200,000 $57,600,000 Electricity $26,880,000 $26,880,000 $26,880,000 $26,880,000 SG&A $5,000,000 $5,000,000 $5,000,000 $5,000,000 Depreciation $9,000,000 $9,000,000 $9,000,000 $9,000,000 Loan Payments $16,000,000 $16,000,000 $16,000,000 $16,000,000 Earnings -$18,480,000 -$12,080,000 -$5,680,000 $720,000 Source: Author's calculations and assumptions It's important to remember this does not take into consideration any upward adjustments to global network hash rate or any changes to the company's current mining capacity. Production per exahash has generally varied month to month, and 75 BTC per EH/s could be an optimistic expectation if the price of BTC continues higher. The quarterly depreciation estimate is based off 5-year life use of the property, plant, and equipment from the company's Q1 report. Like every public Bitcoin miner, TeraWulf's destiny will ultimately come down to how the underlying commodity performs. By my calculations, TeraWulf's breakeven price is roughly $45,000 between now and the end of 2024. However, after the company's long-term debt is paid off next year, TeraWulf is generating positive earnings at $35k BTC as currently constructed. But of course, these are my estimations and may differ from the company's actual outlook. Summary I do think there is quite a bit to like about this name. It's not one that I am currently holding in my personal portfolio, but it's definitely one that I'll be keeping an eye on. There is a large level of insider ownership and the company has been able to reduce debt over the last couple quarters. At this stage in the cycle, public miners probably want to think about scaling BTC holdings into the halving, and WULF simply isn't in a position to do that yet. It's a watchlist stock for now for me.
