Bitcoin miner Argo Blockchain (OTCPK:ARBKF) has been losing money and recently got a new chief executive. Despite that, I remain downbeat about its prospects.

Mea culpa. I last wrote about Argo in my May 2022 “buy” piece Argo Blockchain: Crypto Mining Growth Story Getting Stronger, since when the shares have lost 68%. At that point I owned a small stake, which I subsequently sold at a heavy loss.

Given the company’s smaller footprint after unloading mining capability, ongoing cash burn and unproven business model, I move to a “strong sell” rating.

Company Business Model has not Proven Itself

I no longer see viable potential for Argo’s business model, in the absence of dramatic price appreciation for crypto.

In the first nine months of its current financial year, for example, the business made an operating loss of $19m and a total comprehensive loss of $27m.

Weak Balance Sheet

The company had $8.0 million of cash and 32 bitcoin on its balance sheet at the end of September. At current bitcoin prices, that pile would be worth around $2.2m. It also had $70m of outstanding debt.

Since then it has raised some cash, with a £7.8m (gross) share placing in January. It also announced this month an agreed sale of a Canadian data centre for total consideration of US$6.1m.

But the balance sheet remains a concern. Argo is heavily lossmaking. The first nine months of its current financial year saw net free cash outflow of $10.6m. Even at the operating level, free cash outflow was $1.9m. If things continue anything like they have been – which I think is likely in the absence of a reshaped business model or dramatic price increase for crypto – Argo’s cash burn raises liquidity issues even before considering the debt position.

The most likely solution short of a buyout or bankruptcy would be further share issue, raising the risk of yet more dilution of shareholders. At the end of January, the company had 577.1m ordinary shares in issue. That is roughly double the 293.7m that were in issue in September 2018.

Future Prospects Look Weak

A new chief exec was appointed with immediate effect in November. The chief operating office left in January.

Argo has had an awful couple of years, so a change in the guard is not surprising.

But will it make any difference? The company has sold assets that were previously expected to help its growth, the mining rate last year was inconsistent but the trend is broadly downhill in terms of number of bitcoin mined.

In 2024 the value of each bitcoin mined is expected to halve again, as it has done at points in the past. I see that as a strong negative for Argo as it basically means it will earn half as much from mining as it currently does on average, yet even at the current bitcoin price its model is not consistently profitable. The company’s current hashrate capacity of 2.8 EH/s is decent but well below some competitors (Riot Platforms (RIOT) reports a capacity of 15.1 EH/s, for example).

Set against my pessimism, one could point to the recent fundraising. Clearly, some investors continue to see potential value in Argo. But even if one accepts that there can be value in crypto miners, I think the question as an investor would be: is Argo the best of the bunch and does it merit its current valuation?

Valuation Could End up Hitting Zero

Looking at the balance sheet and business model, I can see a scenario where the valuation here ends up going to zero. After all, the company is struggling under a sizeable debt load, it has less mining capacity than it used to due to its U.S. centre not working out as planned (covered in previous pieces), its current business model is lossmaking and the value of bitcoin is set to halve.

What might happen for that not to be the case?

Surging crypto prices could help, but that lies totally outside the company’s control. Cutting costs and improving the business model on that basis might help but in the absence of other drivers I doubt it is enough on its own to turn the ship around. A different strategy from new management? In theory that may help but in practice what could it look like? Argo’s a crypto miner pure and simple so the options for strategic shifts strike me as limited.

In the long term, I now struggle to ascribe any value to Argo and think the shares could end up at zero in coming years. Accordingly I rate it as a strong sell.

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