Hut 8 proceeding with full mining operations plan to provide managed services to Ionic Digital in connection with Celsius Network LLC bankruptcy proceedings

Rhea-AI Summary

Hut 8 Corp. has signed a four-year agreement with Ionic Digital to provide managed services for all of its Bitcoin mining operations, including the design and development, engineering, financial modeling, budgeting, construction management, and more. The agreement also includes hosting 8,500 Ionic Digital miners at Hut 8’s Alpha site and taking an equity stake in Ionic Digital. The agreement is expected to generate $81,504,800 in cash payments for Hut 8, with a potential extension to a five-year agreement earning an additional $101,881,000. Hut 8 has also acquired shares of Ionic Digital common stock in exchange for a cash payment of $6,378,000, with plans for further acquisition. Ionic Digital will be a well-capitalized industrial mining company valued at approximately $740 million on a net asset basis under the Celsius chapter 11 plan.

Insights

Financial Analyst

The four-year service agreement between Hut 8 and Ionic Digital represents a significant commitment that will likely influence Hut 8's revenue streams and financial stability. The expected cash payments totaling approximately $81.5 million, with a potential increase to $101.9 million if extended, provide a clear revenue forecast for Hut 8 over the next four to five years. The equity stake in Ionic Digital, consisting of both restricted common stock and warrants, is a strategic move that aligns the interests of both companies and gives Hut 8 potential upside in Ionic Digital's growth. This deal not only diversifies Hut 8's income through managed services but also strengthens its position in the digital asset mining industry by expanding its operational capacity to oversee 127,000 miners and more than 300 MW of energy infrastructure.

Investors should note the milestone-based structure of the agreement, which includes performance targets that could extend the contract and increase earnings. The upfront investment of $6.378 million for a share acquisition, with a commitment for an identical future payment, indicates Hut 8's confidence in the venture's profitability. The investor rights granted to Hut 8, including board representation, enhance its influence over Ionic Digital's strategic direction, potentially adding value to the investment. The financial implications of this deal are substantial and the market will likely monitor the progress of the Cedarvale site's construction and the operational efficiency of the managed services for future valuation adjustments.

Market Research Analyst

From a market perspective, Hut 8's service agreement with Ionic Digital is a notable development in the digital asset mining sector, which has been experiencing significant volatility. The end-to-end managed services offering is a competitive differentiator that could set a new industry standard for operational management. By securing a large-scale, multi-year contract, Hut 8 is positioning itself as a leader in providing comprehensive infrastructure solutions. The market will likely view this as a positive signal of Hut 8's operational capabilities and its potential to secure similar deals in the future.

Furthermore, the agreement reflects a growing trend of consolidation and partnership within the industry, as companies seek to leverage economies of scale and shared expertise. Hut 8's proactive approach to acquiring equity in Ionic Digital indicates a strategic move towards vertical integration, which could lead to improved margins and a stronger competitive position. The market will closely watch the deployment of 12 EH/s of mining capacity and the impact on Hut 8's market share and the broader digital asset mining landscape.

Legal Expert

Legally, the transaction between Hut 8 and Ionic Digital includes several components that warrant close examination. The structure of equity compensation, with restricted stock vesting annually and warrants contingent upon the extension of the agreement, reflects a nuanced approach to aligning long-term interests. The legal mechanisms in place, such as the right to appoint two directors to Ionic Digital's board, strengthen Hut 8's governance influence and provide a layer of oversight that could be beneficial for both companies.

The contribution agreement, with specific terms for additional share acquisition, is indicative of a well-structured deal with clear legal obligations and timelines. The registration statement's effectiveness as a condition for further share purchase is a regulatory compliance detail that investors should be aware of, as it could affect the timing and certainty of the investment. The absence of debt in Ionic Digital's financial structure post-Celsius chapter 11 proceedings presents a reduced legal and financial risk profile for Hut 8, which is an attractive aspect of the deal from a legal standpoint.

Company providing end-to-end managed services for all of Ionic Digital’s mining operations, including four existing sites in Texas and Ionic’s Cedarvale site, where construction is underway

Hut 8 to continue hosting 8,500 Ionic Digital miners at the Company’s Alpha site
Hut 8 taking an equity stake in Ionic Digital

MIAMI, Feb. 01, 2024 (GLOBE NEWSWIRE) -- Hut 8 Corp. (Nasdaq | TSX: HUT), ("Hut 8” or the “Company”) one of North America’s largest, most innovative digital asset mining pioneers and high performance computing infrastructure providers, today announced that it has signed a four-year agreement with Ionic Digital to provide end-to-end managed services across all of its Bitcoin mining operations. The agreement includes Ionic’s four existing sites in Midland, Texas and the development and operation of its Cedarvale site located in Ward County, Texas, which is designed to reach approximately 240 MW. Hut 8 will also continue to host approximately 8,500 Ionic Digital miners at Hut 8’s Alpha site in Niagara Falls, New York.

“Our managed services offering is distinct within the industry and ultimately differentiated Hut 8 as the best partner to manage Celsius’ mining operations through Ionic Digital,” said Jaime Leverton, CEO of Hut 8. “We have been designing Ionic’s Cedarvale site since signing the interim management agreement in December and are thrilled to have construction underway and be actively managing the company’s mining operations.”

Hut 8 is providing end-to-end managed services for Ionic Digital’s operations, including the design and development, engineering, financial modeling, budgeting, accounting, construction management, procurement, logistics, and RFP coordination at its Cedarvale site. It is expected that when construction is complete, Hut 8 will oversee approximately 127,000 miners with nameplate hashrate of approximately 12 EH/s and more than 300 MW of energy infrastructure in year one of the managed services agreement.

Under the agreement, Hut 8 is expected to earn an aggregate of $81,504,800 in cash payments in addition to reimbursement for direct passthrough operating expenses. The four year agreement includes a milestone to extend to a five year agreement if key targets are met. If the term extension is triggered, Hut 8 is expected to earn $101,881,000 in addition to reimbursement for direct passthrough operating expenses. In addition to the fees payable pursuant to the mining services agreement, Hut 8 expects to receive the following equity interests as compensation under the agreement: (i) up to 1.59405% in restricted Ionic Digital common stock, with 0.31881% of Ionic Digital stock vesting annually; provided that the last tranche of 0.31881% of stock will not vest if the agreement is not extended for the fifth year; and (ii) warrants to purchase up to 1.59405% of Ionic Digital common stock, with each tranche of 0.31881% Ionic Digital stock granted at the end of each year of the agreement; provided that the last tranche of 0.31881% of Ionic Digital stock will not be granted if the agreement is not extended for the fifth year.

Hut 8 has also entered into a contribution agreement with Ionic Digital pursuant to which Hut 8 has acquired 374,261 shares of Ionic Digital common stock in exchange for a cash payment of $6,378,000. Pursuant to the contribution agreement, Hut 8 will be required to acquire a further 374,261 shares of Ionic Digital common stock for a cash payment of $6,378,000 on the earlier of: (i) May 31, 2024, and (ii) the date on which Ionic Digital’s Registration Statement of Form 10 is declared effective by the U.S. Securities and Exchange Commission.

Hut 8 has also been provided with certain customary investor rights, including, for so long as the agreement is in effect, the right to appoint two directors to the board of Ionic Digital, one of which will be assumed by Asher Genoot, President of Hut 8.

Ionic Digital will be a well-capitalized industrial mining company. Under the Celsius chapter 11 plan, Ionic Digital was valued at approximately $740 million on a net asset basis and will be vested with substantially all of the Celsius mining assets. Additionally, under the Celsius plan, Ionic will receive $225 million in cash (subject to certain adjustments) and have no debt.

About Hut 8
Through innovation, imagination, and passion, Hut 8 Corp.’s seasoned executive team is bullish on creating value at the intersection of infrastructure and energy through Bitcoin mining and hosting, groundbreaking managed services, energy arbitrage, operating traditional data centers, and capitalizing on emerging technologies like AI and machine learning. Headquartered in Miami, Florida, Hut 8 Corp.’s infrastructure portfolio includes eleven sites: five high performance computing data centers across British Columbia and Ontario that offer cloud, co-location, AI, machine learning, and VFX rendering computing solutions, and six Bitcoin mining, hosting, and managed services sites located in Alberta, New York, Nebraska, and Texas. Long-distinguished for its unique treasury strategy, Hut 8 Corp. has one of the highest inventories of self-mined Bitcoin of any publicly-traded company globally. For more information, visit www.hut8.com and follow us on X (formerly known as Twitter) at @Hut8Corp.

Cautionary Note Regarding Forward–Looking Information
This press release includes "forward-looking information" and "forward-looking statements" within the meaning of Canadian securities laws and United States securities laws, respectively (collectively, "forward-looking information"). All information, other than statements of historical facts, included in this press release that address activities, events or developments that Hut 8 expects or anticipates will or may occur in the future, including such things as future business strategy, competitive strengths, goals, expansion and growth of the business, operations, plans and other such matters is forward-looking information. Forward-looking information is often identified by the words "may", "would", "could", "should", "will", "intend", "plan", "anticipate", "allow", "believe", "estimate", "expect", "predict", "can", "might", "potential", "predict", "is designed to", "likely" or similar expressions. Specifically, such forward-looking information included in this press release includes, but is not limited to, statements relating to the Cedarvale site, the mining management agreement with Ionic and the contribution agreement with Ionic, including expected revenue generation and equity interest.

Statements containing forward-looking information are not historical facts, but instead represent management's expectations, estimates and projections regarding future events based on certain material factors and assumptions at the time the statement was made. While considered reasonable by Hut 8 as of the date of this press release, such statements are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information, including but not limited to, security and cybersecurity threats and hacks, malicious actors or botnet obtaining control of processing power on the Bitcoin network, further development and acceptance of the Bitcoin network, changes to Bitcoin mining difficulty, loss or destruction of private keys, increases in fees for recording transactions in the Blockchain, erroneous transactions, reliance on a limited number of key employees, reliance on third party mining pool service providers, regulatory changes, classification and tax changes, momentum pricing risk, fraud and failure related to digital asset exchanges, difficulty in obtaining banking services and financing, difficulty in obtaining insurance, permits and licenses, internet and power disruptions, geopolitical events, uncertainty in the development of cryptographic and algorithmic protocols, uncertainty about the acceptance or widespread use of digital assets, failure to anticipate technology innovations, the COVID19 pandemic, climate change, currency risk, lending risk and recovery of potential losses, litigation risk, business integration risk, changes in market demand, changes in network and infrastructure, system interruption, changes in leasing arrangements, failure to achieve intended benefits of power purchase agreements, potential for interrupted delivery, or suspension of the delivery, of energy to the Company's mining sites, and other risks related to the digital asset and data centre business. For a complete list of the factors that could affect the Company, please see the "Risk Factors" section of the Company's Registration Statement on Form S-4 dated November 7, 2023, available under the Company's EDGAR profile at www.sec.gov, in addition to Hut 8's other continuous disclosure documents which are available under the Company's SEDAR+ profile at www.sedarplus.ca and under the Company's EDGAR profile at www.sec.gov.

Hut 8 Corp. Investor Relations
Sue Ennis
sue@hut8.io

Hut 8 Corp. Media Relations
Erin Dermer
erin.dermer@hut8.io

Photos accompanying this announcement are available at
https://www.globenewswire.com/NewsRoom/AttachmentNg/9d4415b9-bf86-45ef-8e2a-b5f3013f7ad8

https://www.globenewswire.com/NewsRoom/AttachmentNg/9204ff91-fd1b-40e7-b0d3-2bf5952e054e 

FAQ

What is the agreement between Hut 8 and Ionic Digital about?

The agreement involves Hut 8 providing end-to-end managed services for all of Ionic Digital’s Bitcoin mining operations, including hosting 8,500 Ionic Digital miners at Hut 8’s Alpha site and taking an equity stake in Ionic Digital.

How much cash payment is Hut 8 expected to earn from the agreement?

Hut 8 is expected to earn an aggregate of $81,504,800 in cash payments under the four-year agreement, with a potential extension to a five-year agreement earning an additional $101,881,000.

What is the value of Ionic Digital under the Celsius chapter 11 plan?

Under the Celsius chapter 11 plan, Ionic Digital was valued at approximately $740 million on a net asset basis and will be a well-capitalized industrial mining company.

What did Hut 8 acquire from Ionic Digital?

Hut 8 has acquired 374,261 shares of Ionic Digital common stock in exchange for a cash payment of $6,378,000 and plans to acquire a further 374,261 shares in the future.

What is the potential extension of the agreement between Hut 8 and Ionic Digital?

The agreement includes a milestone to extend to a five-year agreement if key targets are met, with potential earnings of $101,881,000 in addition to reimbursement for direct passthrough operating expenses.